S-1/A

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TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

As filed with the Securities and Exchange Commission on July 25, 2011

Registration No. 333-174765

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 1
to

Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Bonanza Creek Energy, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 1311
(Primary Standard Industrial
Classification Code Number) 61-1630631
(I.R.S. Employer
Identification No.)

410 17th Street, Suite 1500
Denver, Colorado 80202
(720) 440-6100
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

Michael R. Starzer
President and Chief Executive Officer
Bonanza Creek Energy, Inc.
410 17th Street, Suite 1500
Denver, Colorado 80202
(720) 440-6100
Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:
Dallas Parker William S. Moss III Mayer Brown LLP 700 Louisiana Street, Suite 3400 Houston, Texas 77002 (713) 238-3000	J. Michael Chambers Keith Benson Latham & Watkins LLP 717 Texas Avenue, 16th Floor Houston, Texas 77002 (713) 546-5400

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:    o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer ý
(Do not check if a smaller reporting company) Smaller reporting company o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee(2)(3)
Common Stock, par value $0.001 per share	$200,000,000	$23,220

(1)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

(2)

Calculated pursuant to Rule 457(o) under the Securities Act of 1933.

(3)

A registration free of $23,220 was paid previously based on an estimate of the aggregate offering price.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.

PROSPECTUS (Subject to Completion)
Issued July 25, 2011

The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we and the selling stockholders are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

              Shares

Bonanza Creek Energy, Inc.

COMMON STOCK

Bonanza Creek Energy, Inc. is offering               shares of its common stock and the selling stockholders are offering               shares of common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price of our common stock will be between $               and $               per share.

We intend to apply to list our common stock on the New York Stock Exchange under the symbol "BCEI."

Investing in our common stock involves risks. See "Risk Factors" beginning on page 16.

PRICE $              PER SHARE

	Price to Public	Underwriting Discounts and Commissions	Proceeds to Company	Proceeds to Selling Stockholders
Per Share	$	$	$	$
Total	$	$	$	$

The selling stockholders have granted the underwriters the right to purchase up to an additional              shares to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on              , 2011.

MORGAN STANLEY

                           , 2011

TABLE OF CONTENTS

PROSPECTUS SUMMARY	1
RISK FACTORS	16
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	34
USE OF PROCEEDS	36
DIVIDEND POLICY	36
CAPITALIZATION	37
DILUTION	38
SELECTED HISTORICAL CONSOLIDATED AND UNAUDITED PRO FORMA FINANCIAL DATA	39
UNAUDITED PRO FORMA FINANCIAL INFORMATION	42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	45
BUSINESS	67
MANAGEMENT	94
EXECUTIVE COMPENSATION AND OTHER INFORMATION	99
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS	114
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	115
PRINCIPAL AND SELLING STOCKHOLDERS	120
DESCRIPTION OF CAPITAL STOCK	122
SHARES ELIGIBLE FOR FUTURE SALE	124
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS TO NON-U.S. HOLDERS	126
UNDERWRITERS	129
LEGAL MATTERS	132
EXPERTS	132
WHERE YOU CAN FIND MORE INFORMATION	132
GLOSSARY OF CERTAIN INDUSTRY TERMS	133

        You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we nor the selling stockholders have authorized anyone to provide you with information different from that contained in this prospectus and any free writing prospectus. We and the selling stockholders are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the common stock.

        Until            , 2011 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Industry and Market Data

        The market data and certain other statistical information used throughout this prospectus are based on independent industry publications, government publications or other published independent sources. Some data is also based on our good faith estimates. Although we believe these third-party sources are reliable and that the information is accurate and complete, we have not independently verified the information.

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PROSPECTUS SUMMARY

This summary provides a brief overview of information contained elsewhere in this prospectus. Because it is abbreviated, this summary does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully before making an investment decision, including the information presented under the headings "Risk Factors," "Cautionary Note Regarding Forward-Looking Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements and unaudited pro forma financial information and related notes thereto included elsewhere in this prospectus. Unless otherwise indicated, information presented in this prospectus assumes that the underwriters' option to purchase additional common shares is not exercised. We have provided definitions for certain oil and natural gas terms used in this prospectus in the "Glossary of Certain Industry Terms" beginning on page 125 of this prospectus.

In this prospectus, unless the context otherwise requires, the terms "we," "us," "our" and the "company" refer to Bonanza Creek Energy, Inc. and its subsidiaries and Bonanza Creek Energy Company, LLC, its predecessor.

BONANZA CREEK ENERGY, INC.

Overview

        Bonanza Creek Energy, Inc. is an independent oil and natural gas company engaged in the acquisition, exploration, development and production of onshore oil and associated liquids-rich natural gas in the United States. Our assets and operations are concentrated primarily in southern Arkansas (Mid-Continent region) and the Denver Julesburg ("DJ") and North Park Basins in Colorado (Rocky Mountain region). In addition, we own and operate oil producing assets in the San Joaquin Basin (California region). Our management team has extensive experience in acquiring and operating oil and gas properties, which we believe will contribute to the development of our sizable inventory of projects including those targeting the oily Cotton Valley sands in our Mid-Continent region and the Niobrara oil shale formation in our Rocky Mountain region. We operate approximately 99.4% and hold an average working interest of approximately 85.8% of our proved reserves, providing us with significant control over the rate of development of our long-lived, low-cost asset base.

        Cawley, Gillespie & Associates, Inc., our independent reserve engineers, estimated our net proved reserves to be 32,860 MBoe as of December 31, 2010, 68.1% of which were classified as oil and natural gas liquids, and 35.1% of which were classified as proved developed. Our average net daily production rate during April 2011 was 3,691 Boe/d, which consisted of 71.9% oil and natural gas liquids.

														Estimated Production for the Month Ended April 30, 2011
	Estimated Proved Reserves at December 31, 2010(1)																				Net Proved Undeveloped Drilling Locations as of December 31, 2010
																			Projected 2011 Capital Expenditures (millions)(3)
														Average Net Daily Production (Boe/d)
	Total Proved (MBoe)		% of Total			% Proved Developed			% Oil and Liquids			PV-10 ($ in MM)(2)				% of Total
Mid-Continent		22,876		69.6	%		26.2	%		67.3	%	$	313.3		2,236		60.6	%	$	72.6		151.3
Rocky Mountain		9,098		27.7			57.2			67.1			135.3		1,237		33.5			70.2		75.8
California		886		2.7			38.3			98.8			13.0		218		5.9			8.7		13.6
Total		32,860		100.0	%		35.1	%		68.1	%	$	461.6		3,691		100	%	$	151.5		240.7

(1)

Proved reserves were calculated using prices equal to the twelve month unweighted arithmetic average of the first-day-of-the-month price for each of the preceding twelve months, which were $79.43 per Bbl of crude oil and $4.38 per MMBtu of natural gas. Adjustments were made for location and the

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grade of the underlying resource, which resulted in an average decrease of $4.50 per Bbl of crude oil and an increase of $0.43 per MMBtu of natural gas.

(2)

PV-10 is a non-GAAP financial measure and represents the present value of estimated future cash inflows from proved crude oil and natural gas reserves, less future development and production costs, discounted at 10% per annum to reflect timing of future cash inflows and using the twelve month unweighted arithmetic average of the first-day-of-the-month price for each of the preceding twelve months. PV-10 differs from Standardized Measure of Discounted Future Net Cash Flows ("Standardized Measure") because it does not include the effect of future income taxes. For a reconciliation of our Standardized Measure to PV-10, see "Summary Reserve and Operations Data—Non-GAAP Financial Measures and Reconciliation—PV-10."

(3)

Projected capital expenditures for our Mid-Continent region include an estimated $16.2 million allocated for a new Dorcheat gas processing facility scheduled to be completed in August 2011.

Development Projects by Region

        Mid-Continent:    In southern Arkansas, we are primarily targeting the oil-bearing Cotton Valley sands in the Dorcheat Macedonia and McKamie Patton fields. As of December 31, 2010, our estimated proved reserves in this region were 22,876 MBoe, 67.3% of which were oil and natural gas liquids and 26.2% of which were proved developed. We currently operate 111 gross (96.7 net) producing wells and have an identified drilling inventory of approximately 188 gross (151.3 net) PUD drilling locations on our acreage. In 2011 we expect to drill and complete 40 gross (31.4 net) wells in the Dorcheat Macedonia field at a cost of approximately $1.7 million per well, and 2 gross (2.0 net) wells in the McKamie Patton field at a cost of approximately $1.2 million per well.

        We also own and operate the McKamie gas processing facility and approximately 150 miles of associated gathering pipelines that serve our acreage position in southern Arkansas. This facility has a maximum processing capacity of 15 MMcf/d of natural gas and 30,000 gallons per day of natural gas liquids, and we are in the process of building a new 12.5 MMcf/d gas processing facility in the Dorcheat field to allow for continued field development and production growth. Our McKamie facility currently processes all of the natural gas that we produce from the Dorcheat and McKamie fields.

        Rocky Mountain:    In the DJ and North Park Basins in Colorado, we hold 89,701 gross (68,772 net) acres that currently produce oil, natural gas and CO₂ from the Pierre B, Niobrara, Codell, J-Sand, D-Sand and Dakota formations. As of December 31, 2010, our estimated proved reserves in this region were 9,098 MBoe, of which 67.1% were oil and 57.2% were proved developed. In the DJ Basin we control 29,742 net acres and have identified approximately 91 gross (75.8 net) vertical PUD drilling locations targeting the Codell sand and Niobrara oil shale formations. In 2011, we expect to drill and complete 66 gross (62.3 net) vertical wells targeting the Codell sand and Niobrara oil shale formations, at a cost of approximately $0.8 million per well. In addition, we believe that horizontal drilling and multi-stage fracture completion techniques are an attractive alternative to vertical well completions for the Niobrara oil shale. In June 2011, we initiated horizontal development of the Niobrara oil shale by commencing drilling the first in a series of 4 gross (3.8 net) horizontal wells at a cost of approximately $3.7 million per well on our DJ Basin properties. In the North Park Basin we control 39,030 net acres and have identified highly fractured and dual porosity areas which we believe will support vertical and horizontal drilling techniques for the Niobrara. The development of the North Park Basin will begin in 2011 with the drilling of 7 gross (7.0 net) vertical wells at a cost of approximately $1.9 million per well.

        California:    In California, we employ thermal techniques to recover heavy oil in the Kern River and Midway Sunset fields, and we produce medium gravity oil from the Greeley and Sargent fields. As of December 31, 2010, our estimated proved reserves in this region were 886 MBoe, of which 98.8% were oil and 38.3% were proved developed. We have identified approximately 18 gross (13.6 net) PUD drilling

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opportunities in these fields. In 2011, we expect to drill 10 gross (8.0 net) wells with individual well costs ranging from approximately $0.3 to $1.0 million.

Our Business Strategies

        Our goal is to increase stockholder value by investing capital to increase our production, cash flow and proved reserves. We intend to accomplish this goal by focusing on the following key strategies:

•

Increase Production from Existing Low-Cost Proved Inventory.  In the near term, we intend to accelerate the drilling of our lower-risk vertical PUD drilling locations in southern Arkansas and in the oily Codell and Niobrara formations of the DJ Basin. Substantially all of these infill locations are characterized by multiple productive horizons.

•

Test and Evaluate Our Niobrara Oil Shale Acreage.  We hold approximately 89,701 gross (68,772 net) acres prospective for the development of the Niobrara oil shale in Weld and Jackson Counties, Colorado, and own approximately 17,400 acres of proprietary 3-D seismic data covering our acreage position in Weld County, which aids in identifying our horizontal drilling locations. Although full-scale vertical drilling of the Niobrara oil shale commenced in the early 1990s, operators in the region, including EOG Resources (DJ Basin and North Park Basin), Noble Energy (DJ Basin), and PDC Energy (DJ Basin) have recently applied horizontal drilling and multi-stage fracture stimulation techniques to enhance recoveries and economic returns. We expect to drill four Niobrara horizontal wells in the DJ Basin (Weld County, Colorado) in 2011.

•

Exploit Additional Development Opportunities.  We are evaluating additional resource potential opportunities that could result in future development projects on several of our assets. For example, we have evaluated and believe we may achieve attractive returns by exploiting the Lower Smackover trend in our southern Arkansas acreage and we believe there are additional thermal recovery opportunities in California.

•

Pursue Accretive Acquisitions.  We intend to pursue bolt-on acquisitions in regions where we operate and where we believe we possess a strategic or technical advantage, such as southern Arkansas where we own a gas processing facility and the associated infrastructure. In addition, we intend to focus on other oil and liquids-rich opportunities where we believe our operational experience will enhance the value and performance of acquired properties.

•

Maintain High Degree of Operatorship.  We currently have and intend to maintain a high working interest in our assets, thereby allowing us to leverage our technical, operating and management skills and control the timing of our capital expenditures.

Our Competitive Strengths

        We believe the following combination of strengths will enable us to implement our strategies:

•

Significant Drilling Inventory.  We have identified 297 gross (240.7 net) PUD drilling locations, providing us with multiple years of drilling inventory.

•

Niobrara Resource Potential.  Since 2005, we have accumulated 68,772 net acres in Weld and Jackson Counties, Colorado, targeting the Niobrara formation. Our acreage is proximate to horizontal drilling operations which have been successfully completed by other operators. Significant increases in permitting, spud notices and reported oil and gas production involving the Niobrara formation in these counties have made this area one of the most active oil shale plays in the United States. In Weld County, the average initial 30-day production rate is 311 Boe/d from 32 wells with oil and gas production and no dry holes reported to the state regulatory commission. In the North Park Basin, EOG Resources has completed 5 wells horizontally in an area of the Niobrara that we believe to be

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geologically similar to our acreage position based on electric and porosity log response. The average initial 30-day production rate from these wells has been 323 Boe/d.

We believe our significant acreage position in the Niobrara represents production, reserve and value growth potential and that the continued development of this play by other operators validates our investment in this play and will result in the continued development of infrastructure in the area. Geological risks associated with our Weld County acreage position have been mitigated by the high volume of data provided through the drilling, completion and production of thousands of vertical wells in the Niobrara in close proximity to our acreage. We own proprietary 3-D seismic surveys on 17,400 acres of our properties in Weld County and 22 proprietary 2-D seismic lines in Jackson County. Additionally, adequate gathering systems are in place in this region, enabling a short time period from well completion to first product sales.

•

High Degree of Operational Control.  We hold an average working interest in our properties of approximately 85.8% and operate approximately 99.4% of our estimated proved reserves, which allows us to employ the drilling and completion techniques we believe to be most effective, manage costs and control the timing and allocation of our capital expenditures.

•

Gas Processing Capability in Southern Arkansas.  The processing of our natural gas at our McKamie facility improves our well development economics in southern Arkansas. We are in the process of expanding our infrastructure by adding an additional gas processing facility in our Dorcheat field to accommodate future drilling on our acreage in this region.

•

Experienced Management.  Our senior management team averages more than 28 years of industry experience, and certain members of our executive management have worked together for over 24 years. Our management team has significant acquisition experience, having negotiated and closed more than 12 acquisition transactions since 2006.

•

Financial Flexibility.  Our capital structure is intended to provide a high degree of financial flexibility to grow our asset base, both through organic projects and opportunistic acquisitions. Immediately following the completion of this offering, we expect to have no indebtedness and $             million of liquidity, comprised of $130 million of availability under our credit facility and approximately $             million of cash on hand.

Corporate Restructuring

        On December 23, 2010, our predecessor, Bonanza Creek Energy Company, LLC ("BCEC") was recapitalized through the following series of transactions (collectively referred to as the "Corporate Restructuring"):

•

we issued shares of our common stock to Project Black Bear LP ("Black Bear"), an entity advised by West Face Capital Inc. ("West Face Capital"), and to certain clients of Alberta Investment Management Corporation ("AIMCo") in exchange for $265 million in cash;

•

BCEC contributed to us all of its ownership interest in Bonanza Creek Energy Operating Company, LLC ("BCEOC") in exchange for shares of our common stock;

•

members of Holmes Eastern Company, LLC ("HEC") contributed all of their outstanding membership interests in HEC to us in exchange for cash and shares of our common stock;

•

we repaid certain of BCEC's indebtedness and assumed the remaining balance outstanding under BCEC's credit facility.

        Following completion of these transactions, BCEC was dissolved and the shares of our common stock held by BCEC were distributed for the benefit of its members.

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Credit Facility

        On March 29, 2011, we entered into a four-year $300 million credit agreement with a syndicate of banks providing for a senior secured revolving credit facility with an initial borrowing base of $130 million and with a $5 million subfacility for standby letters of credit. For a description of the material terms of our credit facility, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit facility."

Class B Common Stock Conversion

        Upon consummation of this offering, 10,000 shares of our Class B common stock, par value $0.001 per share ("Class B Common Stock"), issued in the form of shares of restricted stock to certain of our employees pursuant to our Management Incentive Plan, will automatically be converted into a number of shares of our common stock pursuant to a formula set forth in our certificate of incorporation. See "Certain Relationships and Related Party Transactions—Class B Common Stock Conversion." We expect to issue            shares of our common stock upon conversion of the Class B Common Stock based on an assumed initial public offering price of $            per share (the midpoint of the price range set forth on the cover page of this prospectus).

Risk Factors

        Investing in our common stock involves risks that include the speculative nature of oil and natural gas exploration, competition, volatile oil and natural gas prices and other material factors. In particular, the following considerations may offset our competitive strengths or have a negative effect on our ability to execute our business strategies as well as on activities on our properties, which could cause a decrease in the price of our common stock and result in a loss of all or a portion of your investment:

•

Our future revenues are dependent on our ability to successfully replace our proved producing reserves.

•

A decline in oil and natural gas prices may adversely affect our business, financial condition or results of operations and our ability to meet our capital expenditure obligations and financial commitments.

•

Our identified drilling locations are scheduled over several years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling.

•

Unless we replace our oil and gas reserves, our reserves and production will decline.

•

Our estimated reserves are based on many assumptions that may turn out to be inaccurate. Any significant inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves.

•

The present value of future net revenues from our proved reserves will not necessarily be the same as the current market value of our estimated oil and natural gas reserves.

•

We have incurred losses from operations during certain periods since our inception and may continue to do so in the future.

•

We expect to be a "controlled company" within the meaning of NYSE rules and, as a result, would qualify for and may rely on exemptions from certain corporate governance requirements.

        For a discussion of these risks and other considerations that could negatively affect us, including risks related to this offering and our common stock, see "Risk Factors" beginning on page 15 and "Cautionary Note Regarding Forward-Looking Statements."

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Principal Stockholders

        Our principal stockholder, Black Bear, is an affiliate of West Face Capital, a Toronto-based investment management firm with over $2.0 billion of assets under management. West Face Capital specializes in event-oriented investments where its ability to navigate complex investment processes is the most significant determinant of returns and invests across the capital structure with specializations in natural resource industries, distressed debt, high yield debt and common equity. West Face Capital indirectly holds its interest in our common stock through Black Bear, a Delaware limited partnership formed by West Face Capital as a special purpose vehicle to invest in our securities on behalf of its limited partner investors. Pursuant to an advisory agreement, West Face Capital has authority to direct the trading and investing activities of Black Bear, including the power to vote and control the disposition of the shares of our Class A Common Stock held by Black Bear (approximately 42.62% of our issued and outstanding shares prior to this offering). West Face Capital and AIMCo, on behalf of certain of its clients, have entered into an investment management agreement pursuant to which West Face Capital has the right to vote the shares of our common stock held by certain clients of AIMCo. West Face Capital, via the investment management agreement with AIMCo and an advisory agreement with Black Bear, has the power to vote 72.66% of our issued and outstanding common stock prior to this offering and, therefore, prior to this offering may control the outcome of any matter submitted to a vote of the stockholders, including the election of our board of directors.

Corporate Information

        Our principal executive offices are located at 410 17th Street, Suite 1500, Denver, Colorado 80202, and our telephone number at that address is (720) 440-6100. Our website is www.bonanzacrk.com. Information on our website or any other website is not incorporated by reference herein and does not constitute a part of this prospectus.

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THE OFFERING

Common stock offered by us.	shares
Common stock offered by selling stockholders	shares
Common stock to be outstanding after this offering	shares
Common stock owned by the selling stockholders after this offering	shares
Over-allotment option	shares
Use of proceeds	We estimate that our net proceeds from the sale of common stock in this offering will be approximately $       million, assuming an initial public offering price of $           per share (the midpoint of the price range set forth on the cover page of this prospectus) and after deducting estimated expenses and underwriting discounts and commissions of approximately $       million. Each $1.00 increase (decrease) in the public offering price will increase (decrease) our expected net proceeds by approximately $           million. We intend to use a portion of the net proceeds from this offering to (i) repay all outstanding indebtedness under our credit facility, which as of April 30, 2011, was approximately $68.4 million; (ii) fund our drilling and development program; and (iii) fund the expansion of our gas processing facilities. We will not receive any proceeds from the sale of shares by the selling stockholders.
Dividend policy	We do not intend to pay any cash dividends on our common stock. We intend to retain any earnings for use in the operation of our business and to fund future growth. In addition, our credit facility prohibits us from paying cash dividends. See "Dividend Policy."
Proposed New York Stock Exchange listing	We intend to apply to list shares of our common stock on the NYSE under the symbol "BCEI" soon after the NYSE completes its clearance review at the end of July.
Risk factors	You should carefully read and consider the information beginning on page 15 of this prospectus set forth under the heading "Risk Factors" and all other information set forth in this prospectus before deciding to invest in our common stock.

        Unless specifically stated otherwise, all information in this prospectus:

•

gives effect to the conversion of all shares of Class B Common Stock into             shares of common stock, assuming pricing of this offering at the midpoint of the price range set forth on the cover page of this prospectus; and

•

assumes no exercise of the over-allotment option.

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SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

        The following tables set forth summary historical and pro forma financial data of us and our predecessor, BCEC and pro forma financial data to give effect to the acquisition of HEC as of and for the periods indicated. The consolidated statement of operations data for the years ended December 31, 2008 and 2009 and the period ended December 23, 2010 are derived from the audited consolidated financial statements of BCEC included elsewhere in this prospectus. The consolidated balance sheet data as of December 31, 2010 is derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated balance sheet data as of December 31, 2008 is derived from the audited consolidated financial statements of BCEC which are not included in this prospectus. The consolidated statement of operations data for the three months ended March 31, 2010 are derived from the unaudited financial statements of BCEC appearing elsewhere in this prospectus, and the consolidated statement of operations data for the period from inception (December 23, 2010) to December 31, 2010 and the three months ended March 31, 2011 and the consolidated balance sheet data as of March 31, 2011 are derived from our financial statements appearing elsewhere in this prospectus. In management's opinion, these financial statements include all adjustments necessary for the fair presentation of our financial condition as of such dates and our results of operations for such periods.

        The summary unaudited pro forma statement of operations of Bonanza Creek Energy, Inc. for the year ended December 31, 2010 gives effect to our Corporate Restructuring as if it had occurred on January 1, 2010. The summary unaudited balance sheet of Bonanza Creek Energy, Inc. as of March 31, 2011 gives effect to this offering and the repayment of indebtedness as if they had occurred on March 31, 2011.

        The summary historical and pro forma consolidated financial data should be read in conjunction with "Selected Historical Consolidated and Unaudited Pro Forma Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and both our and our predecessor's financial statements and the notes to those financial statements included elsewhere in this document. The financial information included in this prospectus may not be indicative of our future results of operations, financial position and cash flows.

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			Bonanza Creek Energy Company, LLC (Predecessor)												Bonanza Creek Energy, Inc.						Bonanza Creek Energy, Inc. Pro Forma(2)
															Period from Inception (December 23, 2010) to December 31, 2010
			Year Ended December 31,									Three Months Ended March 31, 2010
									Period Ended December 23, 2010(1)									Three Months Ended March 31, 2011
																					Year Ended December 31, 2010
			2008			2009
												(unaudited)						(unaudited)			(unaudited)
			(in thousands, except per share data)
Statement of Operations Data:
Revenues:
	Oil sales		$	39,967		$	27,601		$	34,431		$	7,514		$	1,325		$	16,576		$	45,413
	Natural gas sales			5,165			3,671			6,226			1,663			207			2,926			10,253
	Natural gas liquids and CO2 sales			2,782			3,169			7,672			1,544			213			2,711			8,365
Total revenues				47,914			34,441			48,329			10,721			1,745			22,213			64,031
Operating expenses:
	Lease operating			20,434			13,449			14,792			3,434			483			4,614			17,285
	Severance and ad valorem taxes			1,847			2,148			1,621			333			70			1,053			2,524
	Depreciation, depletion and amortization			25,463			14,108			14,225			3,261			506			6,387			20,917
	General and administrative			7,477			7,610			8,375			2,087			323			2,239			9,338
	Employee stock compensation(3)			—			—			—			—			—			—			—
	Exploration			25			131			361			114			—			525			380
	Impairment of oil and gas properties(4)			26,437			579			—			—			—			—			—
	Cancelled private placement(5)			—			—			2,378			—			—			—			2,378
Total operating expenses				81,683			38,025			41,752			9,229			1,382			14,818			52,822
Income (loss) from operations				(33,769	)		(3,584	)		6,577			1,492			363			7,395			11,209
Other income (expense):
	Interest expense			(12,870	)		(16,582	)		(18,001	)		(3,959	)		(58	)		(713	)		(1,263	)
	Amortization of debt discount			(5,987	)		(7,963	)		(8,862	)		(2,127	)		—			—			—
	Write off of deferred financing costs			—			—			(1,663	)		—			—			—			(1,663	)
	Gain on sale of oil and gas properties			8			303			4,055			4,092			—			—			4,055
	Unrealized gain (loss) in fair value of warrant put option(6)			70,972			(80,640	)		34,345			(24,204	)		—			—			—
	Unrealized gain (loss) in fair value of commodity derivatives			48,716			(34,589	)		(7,605	)		(1,142	)		(514	)		(5,455	)		(8,119	)
	Realized gain on settled commodity derivatives			1,913			13,451			5,919			1,585			(47	)		(776	)		5,872
	Other income (loss)			(229	)		(179	)		19			(60	)		—			68			(47	)
		Total other income (expense)		102,523			(126,199	)		8,207			(25,815	)		(619	)		(6,876	)		(1,165	)
Income (loss) before income taxes				68,754			(129,783	)		14,784			(24,323	)		(256	)		519			10,044
		Income tax benefit (expense)(7)		—			—			—			—			94			(192	)		(3,696	)
Net income (loss)			$	68,754		$	(129,783	)	$	14,784		$	(24,323	)	$	(162	)	$	327		$	6,348
Net income per common share(8)
		Basic													$	(0.01	)	$	0.01
		Diluted													$	(0.01	)	$	0.01
Weighted average shares outstanding
		Basic														29,123			29,123
		Diluted														29,123			29,123

(1)

We completed our Corporate Restructuring on December 23, 2010. The operating results of BCEC for the period ended December 23, 2010 are included in the statement of operations presented above.

(2)

The pro forma information above gives effect to our Corporate Restructuring as if it had occurred on January 1, 2010.

(3)

We will recognize employee stock-based compensation expense immediately prior to the consummation of this offering. We also expect to have stock-based compensation expense for future awards. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Selected Factors and Trends Affecting Our Results of Operations—Stock-based Employee Compensation Expenses."

(4)

The impairment for the year ended 2008 resulted from a write-down of the carrying value of our oil and natural gas reserves due to depressed year-end oil and natural gas prices.

9

(5)

Expenditures in connection with a cancelled private placement of our preferred stock.

(6)

In connection with its purchase of our senior subordinated notes, D. E. Shaw Synoptic Portfolios 5, L.L.C. received warrants to purchase equity interests in our predecessor. These warrants contained a put right exercisable beginning on May 17, 2014. The periods presented for our predecessor reflect the changes in the fair market value of that put option. The warrants and the aggregate warrant exercise price were exchanged for shares of our common stock in connection with our Corporate Restructuring.

(7)

Our predecessor, BCEC, was a partnership for federal income tax purposes and, therefore, was not subject to entity-level taxation. Our pro forma results reflect our taxation as a corporation at an estimated combined state and federal income tax rate of 36.8%.

(8)

As a limited liability company, ownership interests in our predecessor were held as units rather than shares.

		Bonanza Creek Energy Company, LLC (Predecessor)
							Bonanza Creek Energy, Inc.
		As of December 31,
							As of December 31, 2010		As of March 31, 2011		As of March 31, 2011 As Adjusted(1)
		2008		2009
									(unaudited)		(unaudited)
							(in thousands)
Balance Sheet Data:
Cash and cash equivalents		$	4,088	$	2,522		$	—	$	768
Property and equipment, net			195,280		188,367			496,582		508,653
Total assets			241,625		211,552			516,104		528,482
Long term debt, including current portion:
	Credit facility		107,000		99,000			55,400		63,500
	Senior subordinated notes, net of discount		75,499		92,442			—		—
	Second lien term loan(2)		—		—			—		—
	Subordinated unsecured note		10,000		10,799			—		—
	Warrant put options(3)		828		81,468			—		—
Total members'/stockholders' equity (deficit)			35,988		(93,795	)		356,380		356,707

	Bonanza Creek Energy Company, LLC (Predecessor)												Bonanza Creek Energy, Inc.
													Period from Inception (December 23, 2010) to December 31, 2010
	Year Ended December 31,									Three Months Ended March 31, 2010						Three Months Ended March 31, 2011
							Period Ended December 23, 2010(4)
	2008			2009
										(unaudited)			(unaudited)
	(in thousands)
Other Financial Data:
Net cash provided by operating activities	$	11,128		$	11,134		$	22,759		$	4,225		$	(1,633	)	$	8,535
Net cash provided by (used in) investing activities		(79,581	)		(7,185	)		(32,127	)		5,697			(817	)		(14,880	)
Net cash provided by (used in) financing activities		72,541			(5,515	)		9,297			(9,153	)		—			7,113
Adjusted EBITDAX(5)		14,435			19,067			25,071			5,165			822			13,599

(1)

As adjusted for this offering and the application of proceeds as described in "Use of Proceeds."

10

(2)

Our $30 million second lien term loan was fully funded on May 7, 2010 and repaid in full in connection with our Corporate Restructuring on December 23, 2010.

(3)

Warrants and the aggregate warrant exercise price were exchanged for our common shares in connection with our Corporate Restructuring on December 23, 2010.

(4)

We completed our Corporate Restructuring on December 23, 2010. The cash flows from BCEC's operations for the unaudited period from inception (December 23, 2010) to December 24, 2010 through December 31, 2010 are included in the results presented above.

(5)

Adjusted EBITDAX is a non-GAAP financial measure. For a definition of Adjusted EBITDAX and a reconciliation of Adjusted EBITDAX to our net income (loss) and to net cash provided by (used in) operating activities, see "Summary Reserve and Operations Data—Non-GAAP Financial Measures and Reconciliation—Adjusted EBITDAX," below.

11

SUMMARY RESERVE AND OPERATIONS DATA

        The following tables present summary information regarding the estimated net proved oil and natural gas reserves and the historical operating data of us, our predecessor BCEC, and HEC, as of the dates indicated. The estimates of our net proved reserves at December 31, 2010 and of BCEC at December 31, 2009 are based on the December 31, 2010 and 2009 reserve reports prepared by Cawley, Gillespie & Associates, Inc., our independent reserve engineers. The December 31, 2008 estimates of net proved reserves of BCEC are based on a reserve report prepared by MHA Petroleum Consultants LLC, independent reserve engineers.

        For additional information regarding our reserves, please see "Business—Development Projects by Region" and Note 14 to our audited consolidated financial statements included elsewhere in this prospectus.

			Bonanza Creek Energy Company, LLC (Predecessor)				Bonanza Creek Energy, Inc.
			As of December 31,
			2008		2009(1)		2010(2)
Estimated Proved Reserves:
	Crude oil (MBbls)			11,294		12,913		18,601
	Natural gas (MMcf)			19,906		27,610		62,884
	Natural gas liquids (MBbls)			1,162		2,357		3,778
		Total proved (MBoe)(3)		15,774		19,872		32,860
	Proved developed producing (MBoe)			4,550		4,540		7,478
	Proved developed non-producing (MBoe)			1,549		1,340		4,048
		Total proved developed (MBoe)		6,099		5,880		11,526
	Proved undeveloped (MBoe)			9,675		13,992		21,335
	PV-10 ($ in millions)(4)		$	84.7	$	208.2	$	461.6

(1)

The 2009 reserve report excludes proved reserves attributable to our ownership in the Jasmin property in California, which we sold on March 31, 2010. At December 31, 2009, the Jasmin property had proved developed and total proved reserves of 401 MBoe and 568 MBoe, respectively, and a PV-10 value of $7.9 million.

(2)

The 2010 reserve report includes proved reserves attributable to our ownership in HEC properties in Colorado and Arkansas, which we acquired on December 23, 2010. At December 31, 2010, HEC properties had proved developed and total proved reserves of 2,798 MBoe and 9,333 MBoe, respectively, and a PV-10 value of $115.0 million.

(3)

Determined using the ratio of 6 Mcf of natural gas being equivalent to one Bbl of crude oil.

(4)

PV-10 is a non-GAAP financial measure and represents the present value of estimated future cash inflows from proved crude oil and natural gas reserves, less future development and production costs, discounted at 10% per annum to reflect timing of future cash flows and using the twelve month unweighted arithmetic average of the first-day-of-the-month price for each of the preceding twelve months. PV-10 differs from Standardized Measure because it does not include the effect of future income taxes. A reconciliation of our Standardized Measure of Discounted Net Cash Flows to PV-10 is provided under "—Non-GAAP Financial Measures and Reconciliation—PV-10," below.

12

		Bonanza Creek Energy Company, LLC (Predecessor)								Bonanza Creek Energy, Inc.				Holmes Eastern Company, LLC		Bonanza Creek Energy, Inc. Pro Forma(2)
										Period from Inception (December 23, 2010) to December 23, 2010
		Year Ended December 31,						Three Months Ended March 31, 2010				Three Months Ended March 31, 2011
						Period Ended December 23, 2010(1)								Period Ended December 23, 2010(1)
																Year Ended December 31, 2010
		2008		2009
Net Sales Data:
	Crude oil (MBbls)		453.7		507.4		469.0		104.6		15.9		187.1		129.1		614.1
	Natural gas (MMcf)		668.9		939.0		1,308.5		282.1		43.0		578.5		780.6		2,132.2
	Natural gas liquids (MBbls)		35.5		69.1		126.5		23.1		3.3		46.3		8.7		138.4
	CO2 (MMcf)		663.0		217.1		533.1		186.3		18.3		18.3		—		537.6
	Crude oil equivalent (MBoe)(3)		600.7		733.0		813.6		174.7		26.4		329.8		267.9		1,107.9
	Average daily volumes (Boe/day)(3)		1,641		2,008		2,279		1,941		3,297		3,664		750		3,035
Average Sales Price (Before Hedging)(4):
	Crude oil (per Bbl)	$	88.09	$	54.40	$	73.41	$	71.87	$	83.24	$	88.61	$	74.78	$	73.95
	Natural gas (per Mcf)		7.72		3.91		4.76		5.90		4.80		5.06		4.89		4.81
	Natural gas liquids (per Bbl)		57.45		41.77		56.04		57.73		63.42		58.15		55.46		56.18
	CO2 (per Mcf)		1.12		1.30		1.09		1.13		1.12		1.13		—		1.09
	Average equivalent price (per Boe)(3)		78.53		46.60		58.69		60.18		65.98		67.30		52.10		57.27
Average Sales Price (After Hedging)(4):
	Crude oil (per Bbl)	$	79.59	$	67.40	$	75.07	$	73.19	$	81.18	$	83.57	$	74.78	$	74.47
	Natural gas (per Mcf)		7.93		5.05		5.01		6.37		4.48		5.35		4.89		5.16
	Natural gas liquids (per Bbl)		57.45		41.77		56.04		57.73		63.42		58.15		55.46		56.18
	CO2 (per Mcf)		1.12		1.30		1.09		1.13		1.12		1.13		—		1.09
	Average equivalent price (per Boe)(3)		72.35		57.07		60.05		61.74		64.21		64.95		52.10		58.22
Expenses (per Boe)(3):
	Lease operating expenses	$	34.02	$	18.35	$	18.18	$	19.67	$	18.31	$	13.99	$	7.50	$	15.60
	Severance and ad valorem taxes		3.07		2.93		1.99		1.91		2.65		3.19		3.11		2.28
	General and administrative		12.45		10.38		13.22		11.95		12.27		6.79		2.37		10.58
	Depreciation, depletion and amortization		42.39		19.25		17.48		18.67		19.20		19.37		11.22		15.85

(1)

We completed our Corporate Restructuring on December 23, 2010. The operating results of BCEC for the period ended December 23, 2010 are included in the results presented above.

(2)

Pro forma for our Corporate Restructuring as if it had occurred as of January 1, 2010.

(3)

Does not include data relating to sales of CO₂.

(4)

Although we do not designate our derivatives as cash flow hedges for financial statement purposes, the derivatives do economically hedge the price we receive for crude oil and natural gas.

Non-GAAP Financial Measures and Reconciliation

Adjusted EBITDAX

        Adjusted EBITDAX is a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies and is not a measure of net income or cash flows as determined by United States generally accepted accounting principles, or GAAP.

13

        We define Adjusted EBITDAX as earnings before interest expense, income taxes, depreciation, depletion and amortization, property impairments, exploration expenses, unrealized derivative gains and losses, non-cash stock-based compensation expense and the other items listed below.

        Management believes Adjusted EBITDAX is useful because it allows them to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at Adjusted EBITDAX because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net income or cash flows from operating activities as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDAX. Our computations of Adjusted EBITDAX may not be comparable to other similarly titled measures of other companies. We believe that Adjusted EBITDAX is a widely followed measure of operating performance and may also be used by investors to measure our ability to meet debt service requirements.

        The following tables present a reconciliation of the non-GAAP financial measure of Adjusted EBITDAX to the GAAP financial measures of net income (loss) and net cash provided by (used in) operating activities, respectively.

	Bonanza Creek Energy Company, LLC (Predecessor)												Bonanza Creek Energy, Inc.
													Period from Inception (December 23, 2010) to December 31, 2010
	Year Ended December 31,															Three Months Ended March 31, 2011
							Period Ended December 23, 2010(1)			Three Months Ended March 31, 2010
	2008			2009
	(in thousands)
Adjusted EBITDAX Reconciliation to Net Income (Loss):
Net income (loss)	$	68,754		$	(129,783	)	$	14,784		$	(24,323	)	$	(162	)	$	327
Changes in unrealized (gain) loss on derivative instruments		(119,689	)		115,229			(26,740	)		25,346			514			5,455
Change in unrealized loss on derivative liability assumed		(5,403	)		(5,439	)		(4,407	)		(1,227	)		—			—
Income taxes		—			—			—			—			(94	)		192
Cancelled private placement		—			—			2,378			—			—			—
(Gain) on sale of properties		(8	)		(303	)		(4,055	)		(4,092	)		—			—
Accretion of debt discount		5,986			7,963			8,862			2,127			—			—
Write off of deferred financing costs		—			—			1,663			—			—			—
Interest expense		12,870			16,582			18,001			3,959			58			713
Depreciation, depletion and amortization		25,463			14,108			14,225			3,261			506			6,387
Impairment of oil and gas properties		26,437			579			—			—			—			—
Exploration expenses		25			131			360			114			—			525
Adjusted EBITDAX	$	14,435		$	19,067		$	25,071		$	5,165		$	822		$	13,599

14

	Bonanza Creek Energy Company, LLC (Predecessor)												Bonanza Creek Energy, Inc.
													Period from Inception (December 23, 2010) to December 31, 2010
	Year Ended December 31,															Three Months Ended March 31, 2011
							Period Ended December 23, 2010(1)			Three Months Ended March 31, 2010
	2008			2009
	(in thousands)
Adjusted EBITDAX Reconciliation to Net Cash Provided By (Used In) Operating Activities:
Net cash provided by (used in) operating activities	$	11,128		$	11,134		$	22,759		$	4,225		$	(1,633	)	$	8535
Cancelled private placement		—			—			2,378			—			—			—
Cash interest expense		5,374			5,159			5,368			994			42			511
Cash exploration expenses		25			131			318			114			—			484
Other		—			(138	)		—			—			—			—
Provision for losses on accounts receivable		(343	)		—			—			—			—			—
Changes in working capital		(1,749	)		2,781			(5,752	)		(168	)		2,413			4,069
Adjusted EBITDAX	$	14,435		$	19,067		$	25,071		$	5,165		$	822		$	13,599

(1)

We completed our Corporate Restructuring on December 23, 2010. The operating results of BCEC for the period ended December 23, 2010 are included in the results presented above.

PV-10

        PV-10 is a non-GAAP financial measure and represents the present value of estimated future cash inflows from proved oil and natural gas reserves, less future development and production costs, discounted at 10% per annum to reflect timing of future cash flows and using the twelve month unweighted arithmetic average of the first-day-of-the-month price for each of the preceding twelve months. PV-10 differs from Standardized Measure because it does not include the effects of income taxes. Neither PV-10 nor Standardized Measure represents an estimate of fair market value of our natural gas and crude oil properties. PV-10 is used by the industry and by our management as an arbitrary reserve asset value measure to compare against past reserve bases and the reserve bases of other business entities that are not dependent on the taxpaying status of the entity.

        The following table provides a reconciliation of our PV-10 to Standardized Measure:

	Bonanza Creek Energy Company, LLC (Predecessor)
										Holmes Eastern Company, LLC			Bonanza Creek Energy, Inc. Pro Forma
	As of December 31,
										As of December 31, 2010			As of December 31, 2010
(in millions)	2008(1)			2009			2010
PV-10	$	84.7		$	208.2		$	346.6		$	115.0		$	461.6
Estimated taxes(2)		(0.8	)		(22.5	)		(61.5	)		(25.3	)		(86.9	)
Standardized measure	$	83.9		$	185.7		$	285.1		$	89.7		$	374.7

(1)

As of December 31, 2008 the PV-10, estimated taxes, and Standardized Measure were significantly lower than these metrics as of December 31, 2009 due to SEC reserve pricing of $44.60 per Bbl as of December 31, 2008 as compared to $61.18 per Bbl as of December 31, 2009. Income taxes were further reduced as of December 31, 2008 due to a significant acquisition that took place during 2008 that added significant future income tax deductions for cost depletion and tangible well head equipment depreciation.

(2)

Our predecessor, BCEC, was a partnership for federal income tax purposes and, therefore, was not subject to entity-level taxation. Historically, federal or state corporate income taxes have been passed through to BCEC's members. However, as a corporation, we are subject to U.S. federal and state income taxes. The estimated taxes shown above illustrate the effect of income taxes on net revenues as of December 31, 2008, 2009 and 2010, assuming we had been subject to entity-level tax and further assuming an estimated combined 37.5% federal and state income tax rate.

15

RISK FACTORS

An investment in our common stock involves risks. You should carefully consider the risks described below before investing in our common stock. The risks and uncertainties described below are not the only ones we may face. The following risks, together with additional risks and uncertainties not currently known to us or that we may currently deem immaterial, could impair our financial position and results of operations.

Risks Related to the Oil and Natural Gas Industry and Our Business

Our future revenues are dependent on our ability to successfully replace our proved producing reserves.

        In general, production from oil and gas properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Our current proved reserves will decline as reserves are produced and, therefore, our level of production and cash flows will be affected adversely unless we conduct successful exploration and development activities or acquire properties containing proved reserves. Thus, our future oil and natural gas production and, therefore, our cash flow and income are highly dependent upon our level of success in finding or acquiring additional reserves. However, we cannot assure you that our future acquisition, development and exploration activities will result in any specific amount of additional proved reserves or that we will be able to drill productive wells at acceptable costs.

        Exploration and development activities involve numerous risks, including the risk that no commercially productive oil or gas reservoirs will be discovered. In addition, the future cost and timing of drilling, completing and producing wells is often uncertain. Furthermore, drilling operations may be curtailed, delayed or canceled as a result of a variety of factors, including:

•

lack of acceptable prospective acreage;

•

inadequate capital resources;

•

reductions in oil and natural gas prices;

•

unexpected drilling conditions, including pressure or irregularities in formations and equipment failures or accidents;

•

adverse weather conditions, such as blizzards and ice storms;

•

unavailability or high cost of drilling rigs, equipment or labor;

•

title problems;

•

compliance with governmental regulations;

•

delays imposed by or resulting from compliance with regulatory requirements; and

•

mechanical difficulties.

        According to estimates included in our December 31, 2010 proved reserve report, if on January 1, 2011 we had ceased all drilling and development, including recompletions, refracs and workovers, then our proved developed producing reserves base would decline at an annual effective rate of 7.7% over 10 years, including 31.7% during the first year. If we fail to replace reserves through drilling, our level of production and cash flows will be affected adversely. Our total proved reserves will decline as reserves are produced unless we conduct other successful exploration and development activities or acquire properties containing proved reserves, or both.

A decline in oil and natural gas prices may adversely affect our business, financial condition or results of operations and our ability to meet our capital expenditure obligations and financial commitments.

        The price we receive for our oil and natural gas heavily influences our revenue, profitability, access to capital and future rate of growth. Oil and natural gas are commodities and, therefore, their prices are

16

subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for oil and natural gas have been volatile. These markets will likely continue to be volatile in the future. The prices we receive for our production, and the levels of our production, depend on numerous factors beyond our control. These factors include the following:

•

worldwide and regional economic and political conditions impacting the global supply and demand for oil and natural gas;

•

the price and quantity of imports of foreign oil and natural gas;

•

the level of global oil and natural gas exploration and production;

•

the level of global oil and natural gas inventories;

•

localized supply and demand fundamentals and transportation availability;

•

weather conditions and natural disasters;

•

domestic and foreign governmental regulations;

•

speculation as to the future price of oil and the speculative trading of oil and natural gas futures contracts;

•

price and availability of competitors' supplies of oil and natural gas;

•

the actions of the Organization of Petroleum Exporting Countries, or OPEC;

•

technological advances affecting energy consumption; and

•

the price and availability of alternative fuels.

        Further, oil prices and natural gas prices do not necessarily fluctuate in direct relationship to each other. Because approximately 68.1% of our estimated proved reserves as of December 31, 2010 were oil and natural gas liquids reserves, our financial results are more sensitive to movements in oil prices. The price of oil has been extremely volatile, and we expect this volatility to continue. During the year ended December 31, 2010, the daily NYMEX WTI oil spot price ranged from a high of $89.28 per Bbl to a low of $74.52 per Bbl, and the NYMEX natural gas Henry Hub spot price ranged from $5.60 to $3.62 per MMBtu.

        Substantially all of our oil production is sold to purchasers under short-term (less than twelve months) contracts at market based prices. Lower oil and natural gas prices will reduce our cash flows, borrowing ability and the present value of our reserves. Lower prices may also reduce the amount of oil and natural gas that we can produce economically and may affect our proved reserves.

        Additionally, we currently have commodity price hedging agreements on approximately 48% of our Boe production. To the extent we are unhedged, we have significant exposure to adverse changes in the prices of oil and natural gas that could materially and adversely affect our results of operations.

Our identified drilling locations are scheduled to be developed over several years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling.

        Our management team has identified and scheduled drilling locations on our acreage over a multi-year period. Our ability to drill and develop these locations depends on a number of factors, including the availability of capital, seasonal conditions, regulatory approvals, oil and natural gas prices, costs and drilling results. The final determination on whether to drill any of these drilling locations will be dependent upon the factors described elsewhere in this prospectus as well as, to some degree, the results of our drilling activities with respect to our proved drilling locations. Because of these uncertainties, we do not know if the drilling locations we have identified will be drilled within our expected time-frame or will

17

ever be drilled. As such, our actual drilling activities may be materially different from those presently identified, which could adversely affect our business, results of operations or financial condition.

Certain of our undeveloped leasehold acreage is subject to leases that will expire over the next several years unless production is established on units containing the acreage.

        The terms of certain of our oil and gas leases stipulate that the lease will terminate if not held by production. As of December 31, 2010, 38,904 net acres of our properties in the Rocky Mountain region, specifically 8,480 acres in the DJ Basin and 30,424 acres in the North Park Basin, were not held by production. For these properties, if production in paying quantities is not established on units containing these leases during the next three years, then 7,284 net acres will expire in 2011, 3,076 net acres will expire in 2012 and 11,120 net acres will expire in 2013. If our leases expire, we will lose our right to develop the related properties.

        Our drilling plans for these areas are subject to change based upon various factors, many of which are beyond our control, including drilling results, oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, gathering system and pipeline transportation constraints, and regulatory approvals. Further, some of our acreage is located in governmental sections where we do not hold the majority of the acreage and therefore it is likely that we will not be named operator of these sections. As a non-operating leaseholder we have less control over the timing of drilling and there is therefore additional risk of expirations occurring in sections where we are not the operator. For certain properties in which we are a non-operating leaseholder, we have the right to propose the drilling of wells pursuant to a joint operating agreement. Those properties that are not subject to a joint operating agreement are located in states where state law grants us the right to force pooling, except for our properties located in California, where state law does not grant the right to force pooling.

Our estimated proved reserves are based on many assumptions that may turn out to be inaccurate. Any significant inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves.

        Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact manner. It requires interpretations of available technical data and many assumptions, including assumptions relating to current and future economic conditions and commodity prices. Any significant inaccuracies in these interpretations or assumptions could materially affect the estimated quantities and present value of reserves shown in this prospectus.

        In order to prepare our estimates, we must project production rates and the timing of development expenditures. We must also analyze available geological, geophysical, production and engineering data; the quality and reliability of this data can vary. The process also requires economic assumptions about matters such as oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production.

        Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves will vary from our estimates. Any significant variance could materially affect the estimated quantities and present value of reserves shown in this prospectus. In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development, prevailing oil and natural gas prices and other factors, many of which are beyond our control.

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The present value of future net revenues from our proved reserves will not necessarily be the same as the current market value of our estimated oil and natural gas reserves.

        You should not assume that the present value of future net revenues from our proved reserves is the current market value of our estimated oil and natural gas reserves. For the year ended December 31, 2008, we based the estimated discounted future net revenues from our proved reserves on prices and costs in effect at year end in accordance with previous SEC requirements. In accordance with SEC requirements for the years ended December 31, 2009 and 2010, we have based the estimated discounted future net revenues from our proved reserves on the twelve month unweighted arithmetic average of the first-day-of-the-month price for each of the preceding twelve months without giving effect to derivative transactions. Actual future net revenues from our oil and natural gas properties will be affected by factors such as:

•

the actual prices we receive for oil and natural gas;

•

our actual development and production expenditures;

•

the amount and timing of actual production; and

•

changes in governmental regulations or taxation.

        The timing of both our production and our incurrence of expenses in connection with the development and production of oil and natural gas properties will affect the timing and amount of actual future net revenues from proved reserves, and thus their actual present value. In addition, the 10% discount factor we use when calculating discounted future net revenues may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the oil and natural gas industry in general.

        Actual future prices and costs may differ materially from those used in the present value estimates included in this prospectus. If oil prices decline by $10.00 per Bbl, then our PV-10 as of December 31, 2010 would decrease by approximately $100.4 million. If natural gas prices decline by $1.00 per Mcf, then our PV-10 as of December 31, 2010 would decrease by approximately $32.9 million.

We have incurred losses from operations during certain periods since our inception and may continue to do so in the future.

        We incurred net operating losses of $33.8 million and $3.6 million in the years ended December 31, 2008 and 2009, respectively. Our development of, and participation in, a large number of prospects in the future will require substantial capital expenditures. The uncertainty and factors described throughout this section may impede our ability to economically find, develop, exploit, and acquire oil and natural gas reserves. As a result, we may not be able to achieve or sustain profitability or positive cash flows from operating activities in the future.

Part of our strategy involves drilling in existing or emerging shale plays using the latest available horizontal drilling and completion techniques; therefore, the results of our planned exploratory drilling in these plays are subject to drilling and completion technique risks and drilling results may not meet our expectations for reserves or production.

        Our operations involve utilizing the latest drilling and completion techniques as developed by us and our service providers in order to maximize cumulative recoveries and therefore generate the highest possible returns. Risks that we face while drilling include, but are not limited to, landing our well bore in the desired drilling zone, staying in the desired drilling zone while drilling horizontally through the formation, running our casing the entire length of the well bore and being able to run tools and other equipment consistently through the horizontal well bore. Risks that we face while completing our wells include, but are not limited to, being able to fracture stimulate the planned number of stages, being able to

19

run tools the entire length of the well bore during completion operations and successfully cleaning out the well bore after completion of the final fracture stimulation stage.

        The results of our drilling in new or emerging formations, such as the Niobrara oil shale, are more uncertain initially than drilling results in areas that are more developed and have a longer history of established production. Newer or emerging formations and areas have limited or no production history and consequently we are less able to predict future drilling results in these areas.

        Ultimately, the success of these drilling and completion techniques can only be evaluated over time as more wells are drilled and production profiles are established over a sufficiently long time period. If our drilling results are less than anticipated or we are unable to execute our drilling program because of capital constraints, lease expirations, access to gathering systems and limited takeaway capacity or otherwise, and/or natural gas and oil prices decline, the return on our investment in these areas may not be as attractive as we anticipate. Further, as a result of any of these developments we could incur material write-downs of our oil and gas properties and the value of our undeveloped acreage could decline in the future.

Our exploration, development and exploitation projects require substantial capital expenditures. We may be unable to obtain needed capital or financing on satisfactory terms, which could lead to a decline in our crude oil and natural gas reserves.

        The crude oil and natural gas industry is capital intensive. We make and expect to continue to make substantial capital expenditures in our business for the development, exploitation, production and acquisition of crude oil and natural gas reserves. In 2010, we had $35.5 million of capital and exploration expenditures. Our capital expenditures for 2011 are budgeted to be approximately $151.5 million with $135.3 million allocated for the development and operation of our oil and gas properties. The actual amount and timing of our future capital expenditures may differ materially from our estimates as a result of, among other things, commodity prices, actual drilling results, the availability of drilling rigs and other services and equipment, and regulatory, technological and competitive developments. In response to continued improvement in commodity prices we may increase our actual capital expenditures. We intend to finance our future capital expenditures primarily through our cash flows from operations, borrowings under our credit facility and the proceeds from this offering; however, our financing needs may require us to alter or increase our capitalization substantially through the issuance of debt or equity securities or the sale of assets.

        Our cash flows from operations and access to capital are subject to a number of variables, including:

•

our proved reserves;

•

the volume of crude oil and natural gas we are able to produce and sell from existing wells;

•

the prices at which our crude oil and natural gas are sold;

•

our ability to acquire, locate and produce new reserves; and

•

the ability of our banks to lend.

        If our revenues or the borrowing base under our credit facility decrease as a result of lower crude oil or natural gas prices, operating difficulties, declines in reserves or for any other reason, we may have limited ability to obtain the capital necessary to sustain our operations at current levels. If additional capital is needed, we may not be able to obtain debt or equity financing. If cash generated by operations or cash available under our credit facility is not sufficient to meet our capital requirements, the failure to obtain additional financing could result in a curtailment of our operations relating to development of our prospects, which in turn could lead to a decline in our crude oil and natural gas reserves, and could adversely affect our business, financial condition and results of operations.

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Borrowings under our credit facility are limited by our borrowing base, which is subject to periodic redetermination.

        The borrowing base under our credit facility is redetermined semi-annually. Redeterminations are based upon a number of factors, including commodity prices and reserve levels. In addition, our lenders have substantial flexibility to reduce our borrowing base due to subjective factors. Upon a redetermination, we could be required to repay a portion of our bank debt to the extent our outstanding borrowings at such time exceed the redetermined borrowing base. We may not have sufficient funds to make such repayments, which could result in a default under the terms of the facility and an acceleration of the loans thereunder.

Our level of indebtedness may increase, reducing our financial flexibility.

        We intend to fund our capital expenditures through our cash flow from operations, borrowings under our credit facility and the proceeds from this offering. Our ability to make the necessary capital investment to maintain or expand our asset base of oil and natural gas reserves will be impaired if cash flow from operations is reduced and external sources of capital become limited or unavailable. If we incur additional debt for these or other purposes, the related risks that we now face could intensify. Our level of debt could affect our operations in several important ways, including the following:

•

a portion of our cash flow from operations would be used to pay interest on borrowings;

•

the covenants contained in our credit facility limit our ability to borrow additional funds, pay dividends, dispose of assets or issue shares of preferred stock and otherwise may affect our flexibility in planning for, and reacting to, changes in business conditions;

•

a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes;

•

a leveraged financial position would make us more vulnerable to economic downturns and decreases in commodity prices, and could limit our ability to withstand competitive pressures; and

•

any debt that we incur under our credit facility would be at variable rates which could make us vulnerable to increases in interest rates.

The development and exploitation of certain of our resources is dependent on the funding and construction of additional gas processing capacity.

        Our pipeline system that transports the natural gas produced from our properties in the Dorcheat Macedonia field to our McKamie gas processing facility does not have sufficient capacity to deliver anticipated increased volumes of natural gas from further development of the field. As a result, in order to fully develop and exploit our opportunities within the Dorcheat Macedonia field we must construct additional gas processing capacity. Our inability to fund, or timely construct, additional gas processing capacity to service production from the Dorcheat Macedonia field will limit our growth and could materially and adversely affect our results of operations.

Our ability to sell our production and/or receive market prices for our production may be adversely affected by lack of transportation, capacity constraints and interruptions.

        The marketability of our production from the Mid-Continent, Rocky Mountain and California regions depends in part upon the availability, proximity and capacity of third-party refineries, natural gas gathering systems and processing facilities. We deliver crude oil and natural gas produced from these areas through trucking services and pipelines that we do not own. The lack of availability or capacity on these systems and facilities could reduce the price offered for our production or result in the shut-in of producing wells or the delay or discontinuance of development plans for properties.

        A portion of our production may also be interrupted, or shut in, from time to time for numerous other reasons, including as a result of accidents, field labor issues or strikes, or we might voluntarily curtail

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production in response to market conditions. If a substantial amount of our production is interrupted at the same time, it could adversely affect our cash flow.

        Currently there are no natural gas pipeline systems that service wells in the North Park Basin, which is prospective for the Niobrara oil shale. In addition, we are not aware of any plans to construct a facility necessary to process natural gas produced from this basin. If no third party constructs the required pipeline system and processing facility, we may not be able to fully develop our resources in the North Park Basin.

Increased costs of capital could adversely affect our business.

        Our business and operating results can be harmed by factors such as the availability, terms and cost of capital and increases in interest rates. Changes in any one or more of these factors could cause our cost of doing business to increase, limit our access to capital, limit our ability to pursue acquisition opportunities, reduce our cash flows available for drilling and place us at a competitive disadvantage. Continuing disruptions and volatility in the global financial markets may lead to an increase in interest rates or a contraction in credit availability impacting our ability to finance our operations. We require continued access to capital. A significant reduction in the availability of credit could materially and adversely affect our ability to achieve our planned growth and operating results.

If oil and natural gas prices decrease, we may be required to take write-downs of the carrying values of our oil and natural gas properties.

        We review our proved oil and natural gas properties for impairment whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred. Based on specific market factors and circumstances at the time of prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, we may be required to write down the carrying value of our oil and natural gas properties, which may result in a decrease in the amount available under our credit facility. A write-down constitutes a non-cash charge to earnings. We may incur impairment charges in the future which could have a material adverse effect on our ability to borrow under our credit facility and our results of operations for the periods in which such charges are taken.

Operating hazards, natural disasters or other interruptions of our operations could result in potential liabilities, which may not be fully covered by our insurance.

        The oil and gas business generally, and our operations, are subject to certain operating hazards such as:

•

well blowouts;

•

cratering (catastrophic failure);

•

explosions;

•

uncontrollable flows of oil, gas or well fluids;

•

fires;

•

oil spills;

•

pollution;

•

releases of toxic gas (including releases at our processing plant facility) such as petroleum liquids or drilling fluids, into the environment; and

•

hazards resulting from the presence of hydrogen sulfide (H₂S) or other contaminants in gas we produce.

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        At one of our Arkansas properties, we produce a small amount of gas from eight operated (gross) wells where we have identified the presence of H₂S at levels which would be hazardous in the event of an uncontrolled gas release or unprotected exposure. In addition, our operations in Arkansas are susceptible to damage from natural disasters such as flooding or tornados, which involve increased risks of personal injury, property damage and marketing interruptions. The occurrence of one of these operating hazards may result in injury, loss of life, suspension of operations, environmental damage and remediation and/or governmental investigations and penalties. The payment of any of these liabilities could reduce, or even eliminate, the funds available for exploration and development, or could result in a loss of our properties.

        Our insurance might be inadequate to cover our liabilities. Insurance costs are expected to continue to increase over the next few years, and we may decrease coverage and retain more risk to mitigate future cost increases. If we incur substantial liability, and the damages are not covered by insurance or are in excess of policy limits, then our business, results of operations and financial condition may be materially adversely affected.

        We carry insurance to reduce our exposure to sudden and accidental environmental contamination but do not have coverage for gradual, long-term contamination. Our policies include operator's extra expense ("OEE") coverage with a $1.0 million limit per occurrence; commercial general liability ("CGL") coverage with a time element pollution limit of $1.0 million per occurrence and in the aggregate; and excess liability coverage with a $10.0 million limit per occurrence and in the aggregate. Our OEE policy provides primary coverage for the cleanup of polluting or contaminating substances caused by a sudden and accidental loss of control of a well at the surface. The CGL and Excess Liability policies also provide sudden and accidental pollution liability coverage, including coverage in excess of the OEE policy limit for pollution caused by a well out of control at the surface. In order to obtain coverage, we must report the event to the insurance company within 90 days after its commencement. The CGL policy also contains a $1.0 million aggregate limit for damage to oil, gas, water or other mineral substances that have not been reduced to physical possession above the surface.

        Since our hydraulic fracturing activities are part of our operations, they are covered by our insurance against claims made for bodily injury, property damage and clean up costs stemming from a sudden and accidental pollution event, provided that we report the event within 90 days after its commencement. We may not have coverage if the operator is unaware of the pollution event and unable to report the "occurrence" to the insurance company within the required time frame. Nor do we have coverage for gradual, long-term pollution events.

        Under certain circumstances, we have agreed to indemnify third parties against losses resulting from our operations. Pursuant to our surface leases, we typically indemnify the surface owner for clean up and remediation of the site. As owner and operator of oil and gas wells and associated gathering systems and pipelines, we typically indemnify the drilling contractor for pollution emanating from the well, while the contractor indemnifies us against pollution emanating from its equipment.

Competition in the oil and natural gas industry is intense, and many of our competitors have resources that are greater than ours.

        We operate in a highly competitive environment for acquiring prospects and productive properties, marketing oil and gas and securing equipment and trained personnel. As a relatively small oil and gas company, many of our competitors, major and large independent oil and gas companies, possess and employ financial, technical and personnel resources substantially greater than ours. Those companies may be able to develop and acquire more prospects and productive properties than our financial or personnel resources permit. Our ability to acquire additional prospects and discover reserves in the future will depend on our ability to evaluate and select suitable properties and consummate transactions in a highly competitive environment. Also, there is substantial competition for capital available for investment in the oil and gas industry. Larger competitors may be better able to withstand sustained periods of unsuccessful

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drilling and absorb the burden of changes in laws and regulations more easily than we can, which would adversely affect our competitive position. We may not be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital.

We may incur losses as a result of title deficiencies.

        We purchase working and revenue interests in oil and natural gas leasehold interests from third parties or directly from the mineral fee owners. The existence of a material title deficiency can render a lease worthless and can adversely affect our results of operations and financial condition. Title insurance covering mineral leaseholds is not generally available and, in all instances, we forego the expense of retaining lawyers to examine the title to the mineral interest to be placed under lease or already placed under lease until the drilling block is assembled and ready to be drilled, except in Arkansas where we have commenced drilling without complete legal examination of title. As is customary in our industry, we rely upon the judgment of oil and natural gas lease brokers, in-house landmen or independent landmen who perform the field work in examining records in the appropriate governmental offices and abstract facilities before attempting to acquire or place under lease a specific mineral interest. We do not always perform curative work to correct deficiencies in the marketability of the title to us. Except for our properties in Arkansas, we obtain title opinions for specific drilling locations prior to the commencement of drilling. In Arkansas, we have commenced drilling but are in the process of obtaining title opinions. In cases involving more serious title problems, the amount paid for affected oil and natural gas leases can be lost, and the target area can become undrillable. We may be subject to litigation from time to time as a result of title issues.

Seasonal weather conditions and lease stipulations adversely affect our ability to conduct drilling activities in some of the regions where we operate.

        Oil and natural gas operations in the Rocky Mountains are adversely affected by seasonal weather conditions and lease stipulations designed to protect various wildlife. In certain areas on federal lands, drilling and other oil and natural gas activities can only be conducted during limited times of the year. These restrictions limit our ability to operate in those areas and can potentially intensify competition for drilling rigs, oil field equipment, services, supplies and qualified personnel, which may lead to periodic shortages. These constraints and the resulting shortages or high costs could delay our operations and materially increase our operating and capital costs.

We depend on our senior management team and other key personnel.    Accordingly, the loss of any of these individuals could adversely affect our business, financial condition, the results of operations and future growth.

        Our success is largely dependent on the skills, experience and efforts of our people. The loss of the services of one or more members of our senior management team or of our other employees with critical skills needed to operate our business could have a negative effect on our business, financial condition and results of operations and future growth. We currently have employment agreements with our executive officers and other key employees. Our ability to manage our growth, if any, will require us to continue to train, motivate and manage our employees and to attract, motivate and retain additional qualified personnel. Competition for these types of personnel is intense and we may not be successful in attracting, assimilating and retaining the personnel required to grow and operate our business profitably.

Our derivative activities could result in financial losses or could reduce our income.

        To achieve more predictable cash flows and to reduce our exposure to adverse fluctuations in the prices of oil and natural gas, we currently, and may in the future, enter into derivative arrangements, subject to certain limitations pursuant to our credit facility, for a portion of our oil and natural gas production, including collars and fixed-price swaps. We have not designated any of our derivative

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instruments as hedges for accounting purposes and record all derivative instruments on our balance sheet at fair value. Changes in the fair value of our derivative instruments are recognized in earnings. Accordingly, our earnings may fluctuate significantly as a result of changes in the fair value of our derivative instruments.

        Derivative arrangements also expose us to the risk of financial loss in some circumstances, including when:

•

production is less than the volume covered by the derivative instruments;

•

the counter-party to the derivative instrument defaults on its contractual obligations; or

•

there is an increase in the differential between the underlying price in the derivative instrument and actual prices received.

        In addition, these types of derivative arrangements limit the benefit we would receive from increases in the prices for oil and natural gas.

The recent adoption of derivatives legislation by the United States Congress could have an adverse effect on our ability to use derivative instruments to reduce the effect of commodity price, interest rate and other risks associated with our business.

        The United States Congress recently adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act, which includes comprehensive financial reform legislation that establishes federal oversight and regulation of the over-the-counter derivatives market and entities, such as us, that participate in that market. The new legislation was signed into law by the President on July 21, 2010 and requires the Commodities Futures Trading Commission (the "CFTC") and the Securities and Exchange Commission (the "SEC") to promulgate rules and regulations implementing the new legislation within 360 days from the date of enactment. The CFTC has also proposed regulations to set position limits for certain futures and option contracts in the major energy markets, although it is not possible at this time to predict whether or when the CFTC will adopt those rules or include comparable provisions in its rulemaking under the new legislation. The financial reform legislation may also require us to comply with margin requirements and with certain clearing and trade-execution requirements in connection with its derivative activities. However, the application of those provisions to us is uncertain at this time. The financial reform legislation may also require the counterparties to our derivative instruments to spin off some of their derivatives activities to a separate entity, which may not be as creditworthy as the current counterparty. The new legislation and any new regulations could significantly increase the cost of derivative contracts (including through requirements to post collateral which could adversely affect our available liquidity), materially alter the terms of derivative contracts, reduce the availability of derivatives to protect against risks we encounter, reduce our ability to monetize or restructure existing derivative contracts, and increase our exposure to less creditworthy counterparties. If we reduce our use of derivatives as a result of the legislation and regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures. Finally, the legislation was intended, in part, to reduce the volatility of oil and natural gas prices, which some legislators attributed to speculative trading in derivatives and commodity instruments related to oil and natural gas. Our revenues could therefore be adversely affected if commodity prices decline as a consequence of the legislation and regulations. Any of these consequences could have a material adverse effect on us, our financial condition, and our results of operations.

The credit default of one of our customers could have a temporary adverse effect on us.

        Our revenues are generated under contracts with a limited number of customers. Our results of operations would be adversely affected as a result of non-performance by our two largest customers, which

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represent 47% and 39%, respectively, of our 2010 total revenues. A non-payment default by one of these large customers could have an adverse effect on us, temporarily reducing our cash flow.

Certain federal income tax deductions currently available with respect to oil and gas exploration and development may be eliminated as a result of future legislation.

        Among the changes contained in the President's Fiscal Year 2012 budget proposal, released by the White House on February 14, 2011, is the elimination or deferral of certain key U.S. federal income tax deductions currently available to oil and gas exploration and production companies. Such changes include, but are not limited to, (i) the repeal of the percentage depletion allowance for oil and gas properties; (ii) the elimination of current deductions for intangible drilling and development costs; (iii) the elimination of the deduction for certain U.S. production activities; and (iv) an extension of the amortization period for certain geological and geophysical expenditures. Recently, members of the U.S. Congress have considered similar changes to the existing federal income tax laws that affect oil and gas exploration and production companies, which, if enacted, would negatively affect our financial condition and results of operations. The passage of any legislation as a result of the budget proposal or any other similar change in U.S. federal income tax law could eliminate or defer certain tax deductions within the industry that are currently available with respect to oil and gas exploration and development, and any such change could negatively affect our financial condition and results of operations.

Our operations are subject to health, safety and environmental laws and regulations which may expose us to significant costs and liabilities.

        Our oil and natural gas exploration, production and processing operations are subject to stringent and complex federal, state and local laws and regulations governing health and safety aspects of our operations, the discharge of materials into the environment and the protection of the environment. These laws and regulations may impose on our operations numerous requirements, including the obligation to obtain a permit before conducting drilling or underground injection activities; restrictions on the types, quantities and concentration of materials that can be released into the environment; limitations or prohibitions of drilling activities on certain lands lying within wilderness, wetlands and other protected areas; specific health and safety criteria to protect workers; and the responsibility for cleaning up any pollution resulting from operations. Numerous governmental authorities such as the U.S. Environmental Protection Agency, or the EPA, and analogous state agencies have the power to enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring difficult and costly actions. Failure to comply with these laws and regulations may result in the assessment of administrative, civil or criminal penalties; the imposition of investigatory or remedial obligations; the issuance of injunctions limiting or preventing some or all of our operations; and delays in granting permits and cancellation of leases.

        There is an inherent risk of incurring significant environmental costs and liabilities in the performance of our operations, some of which may be material, due to our handling of petroleum hydrocarbons and wastes, our emissions to air and water, the underground injection or other disposal of our wastes, the use of hydraulic fracturing fluids and historical industry operations and waste disposal practices. Under certain environmental laws and regulations, we may be liable regardless of whether we were at fault for the full cost of removing or remediating contamination, even when multiple parties contributed to the release and the contaminants were released in compliance with all applicable laws. In addition, accidental spills or releases on our properties may expose us to significant liabilities that could have a material adverse effect on our financial condition or results of operations. Aside from government agencies, the owners of properties where our wells are located, the operators of facilities where our petroleum hydrocarbons or wastes are taken for reclamation or disposal and other private parties may be able to sue us to enforce compliance with environmental laws and regulations, collect penalties for violations or obtain damages for any related personal injury or property damage. Some sites we operate are located near current or former third-party oil and natural gas operations or facilities, and there is a risk that contamination has migrated

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from those sites to ours. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly material handling, emission, waste management or cleanup requirements could require us to make significant expenditures to attain and maintain compliance or may otherwise have a material adverse effect on our own results of operations, competitive position or financial condition. We may not be able to recover some or any of these costs from insurance.

Federal and state legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.

        Our operations utilize hydraulic fracturing, an important and commonly used process in the completion of oil and natural gas wells in low-permeability formations. This process involves the injection of water, proppant and chemicals under pressure into rock formations to stimulate oil and natural gas production. Some activists have attempted to link fracturing to various environmental problems, including adverse effects to drinking water supplies as well as migration of methane and other hydrocarbons. As a result, several federal agencies are studying any environmental risk with respect to hydraulic fracturing or evaluating whether to restrict its use. Legislation has been introduced in the United States Congress called the Fracturing Responsibility and Awareness of Chemicals Act (the "FRAC Act") that would amend the federal Safe Drinking Water Act ("SDWA") to eliminate an existing exemption for hydraulic fracturing activities from the definition of "underground injection," thereby requiring the oil and natural gas industry to obtain permits for fracturing, and to require disclosure of the chemicals used in the process. If adopted, this legislation could establish an additional level of regulation and permitting at the federal level. At this time, it is not clear what action, if any, the United States Congress will take on the FRAC Act. Scrutiny of hydraulic fracturing activities continues in other ways, with the EPA having commenced a multi-year study of the potential environmental impacts of hydraulic fracturing, the initial results of which are anticipated to be available by late 2012. The U.S. Department of the Interior is also considering disclosure requirements or other mandates for hydraulic fracturing on federal land, which, if adopted, would affect our operations on federal lands. In addition to these federal initiatives, several state and local governments have moved to require disclosure of fracturing fluid components or otherwise to regulate their use more closely, including states in which we operate (Colorado, California and Arkansas). In certain areas of the country, new drilling permits for hydraulic fracturing have been put on hold pending development of additional standards. The adoption of any future federal, state or local laws or implementing regulations imposing permitting or reporting obligations on, or otherwise limiting, the hydraulic fracturing process could make it more difficult and more expensive to complete oil and natural gas wells in low-permeability formations and increase our costs of compliance and doing business, as well as delay or prevent the development of unconventional gas resources from shale formations which are not commercial without the use of hydraulic fracturing.

Climate change laws and regulations restricting emissions of "greenhouse gases" could result in increased operating costs and reduced demand for the oil and natural gas that we produce while the physical effects of climate change could disrupt our production and cause us to incur significant costs in preparing for or responding to those effects.

        There is a growing belief that emissions of greenhouse gases ("GHGs") may be linked to climate change. Climate change and the costs that may be associated with its impacts and the regulation of GHGs have the potential to affect our business in many ways, including negatively impacting the costs we incur in providing our products and services and the demand for and consumption of our products and services (due to change in both costs and weather patterns).

        In December 2009, the EPA determined that atmospheric concentrations of carbon dioxide, methane, and certain other GHGs present an endangerment to public health and welfare because such gases are, according to EPA, contributing to the warming of the Earth's atmosphere and other climatic changes. Consistent with its findings, EPA has proposed or adopted various regulations under the Clean Air Act to

27

address GHGs. Among other things, the Agency is limiting emissions of greenhouse gases from new cars and light duty trucks beginning with the 2012 model year. In addition, EPA has published a final rule to address the permitting of greenhouse gas emissions from stationary sources under the Prevention of Significant Deterioration, or "PSD," and Title V permitting programs, pursuant to which these permitting requirements have been "tailored" to apply to certain stationary sources of greenhouse gas emissions in a multi-step process, with the largest sources first subject to permitting. Facilities required to obtain PSD permits for their greenhouse gas emissions will be required to meet emissions limits that are based on the "best available control technology," which will be established by the permitting agencies on a case-by-case basis. EPA has also adopted regulations requiring the reporting of greenhouse gas emissions from specified large greenhouse gas emission sources in the United States, including certain oil and natural gas production facilities, which include certain of our operations, beginning in 2012 for emissions occurring in 2011 and which may form the basis for further regulation. Many of EPA's GHG rules are subject to legal challenges, but have not been stayed pending judicial review. Depending on the outcome of such proceedings, such rules may be modified or rescinded or the EPA could develop new rules. EPA's GHG rules could adversely affect our operations and restrict or delay our ability to obtain air permits for new or modified facilities.

        Moreover, Congress has from time to time considered adopting legislation to reduce emissions of greenhouse gases or promote the use of renewable fuels. As an alternative, some proponents of GHG controls have advocated mandating a national "clean energy" standard. In 2011, President Obama encouraged Congress to adopt a goal of generating 80% of U.S. electricity from "clean energy" by 2035 with credit for renewable and nuclear power and partial credit for clean coal and "efficient natural gas"; the President also proposed ending tax breaks for the oil industry. Because of the lack of any comprehensive federal legislative program expressly addressing GHGs, there currently is a great deal of uncertainty as to how and when additional federal regulation of GHGs might take place and as to whether EPA should continue with its existing regulations in the absence of more specific Congressional direction.

        In the meantime, many states, including California, already have taken such measures, which have included renewable energy standards, development of greenhouse gas emission inventories and/or cap and trade programs. Cap and trade programs typically work by requiring major sources of emissions or major producers of fuels to acquire and surrender emission allowances, with the number of available allowances reduced each year until the overall greenhouse gas emission reduction goal is achieved. These allowances would be expected to escalate significantly in cost over time. The adoption of legislation or regulatory programs to reduce emissions of greenhouse gases could require us to incur increased operating costs, such as costs to purchase and operate emissions control systems, to acquire emissions allowances or comply with new regulatory or reporting requirements. If we are unable to recover or pass through a significant level of our costs related to complying with climate change regulatory requirements imposed on us, it could have a material adverse effect on our results of operations and financial condition. Any such legislation or regulatory programs could also increase the cost of consuming, and thereby reduce demand for, the oil and natural gas we produce. Consequently, legislation and regulatory programs to reduce emissions of greenhouse gases could have an adverse effect on our business, financial condition and results of operations.

        Finally, it should be noted that some scientists have concluded that increasing concentrations of greenhouse gases in the Earth's atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms and floods. If any such effects were to occur, they could have an adverse effect on our exploration and production operations. Significant physical effects of climate change could also have an indirect effect on our financing and operations by disrupting the transportation or process-related services provided by midstream companies, service companies or suppliers with whom we have a business relationship. Our insurance may not cover some or any of the damages, losses, or costs that may result from potential physical effects of climate change.

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We will record substantial compensation expense in the financial quarter in which this offering occurs and we may incur substantial additional compensation expense related to our future grants of stock compensation which may have a material negative impact on our operating results for the foreseeable future.

        As a result of outstanding stock-based compensation awards that vest upon consummation of this offering, we will incur substantial compensation expense at the close of this offering. In addition, our compensation expenses may increase in the future as compared to our historical expenses because of the costs associated with our existing and anticipated employee stock ownership and stock-based incentive plans. These additional expenses will adversely affect our net income. We cannot determine the actual amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices generally require that they be based on the fair market value of the options or shares of common stock at the date of the grant; however, we expect them to be significant. We will recognize expenses for our employee stock ownership plan when shares are committed to be released to participants' accounts and will recognize expenses for restricted stock awards and stock options generally over the vesting period of awards made to recipients.

Risks Related to this Offering and our Common Stock

The initial public offering price of our common stock may not be indicative of the market price of our common stock after this offering. In addition, an active liquid trading market for our common stock may not develop and our stock price may be volatile.

        Prior to this offering, our common stock was not traded on any market. An active and liquid trading market for our common stock may not develop or be maintained after this offering. Liquid and active trading markets usually result in less price volatility and more efficiency in carrying out investors' purchase and sale orders. The market price of our common stock could vary significantly as a result of a number of factors, some of which are beyond our control. In the event of a drop in the market price of our common stock, you could lose a substantial part or all of your investment in our common stock. The initial public offering price will be negotiated between us, the selling stockholders and representatives of the underwriters, based on numerous factors which we discuss in the "Underwriters" section of this prospectus, and may not be indicative of the market price of our common stock after this offering. Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price paid by you in the offering.

        The following factors could affect our stock price:

•

our operating and financial performance and drilling locations, including reserve estimates;

•

quarterly variations in the rate of growth of our financial indicators, such as net income per share, net income and revenues;

•

changes in revenue or earnings estimates or publication of reports by equity research analysts;

•

speculation in the press or investment community;

•

sales of our common stock by us, the selling stockholders or other stockholders, or the perception that such sales may occur;

•

general market conditions, including fluctuations in commodity prices; and

•

domestic and international economic, legal and regulatory factors unrelated to our performance.

        The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.

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Purchasers of common stock in this offering will experience immediate and substantial dilution of $            per share.

        Based on an assumed initial public offering price of $            per share, purchasers of our common stock in this offering will experience an immediate and substantial dilution of $            per share in the pro forma as adjusted net tangible book value per share of common stock from the initial public offering price, and our pro forma as adjusted net tangible book value as of March 31, 2011 after giving effect to this offering would be $            per share. See "Dilution" for a complete description of the calculation of pro forma net tangible book value.

As a result of the reporting and disclosure requirements of a public company under the Exchange Act, the NYSE rules and the requirements of the Sarbanes-Oxley Act of 2002, we will incur significant additional costs and expenses and compliance with these requirements will require a substantial amount of management's time.

        As a public company with listed equity securities, we will need to comply with new laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, related regulations of the SEC and the requirements of the New York Stock Exchange, or the NYSE, with which we are not required to comply as a private company. Complying with these statutes, regulations and requirements will occupy a significant amount of time of our board of directors and management and will significantly increase our costs and expenses. We will need to:

•

institute a more comprehensive compliance function;

•

design, establish, evaluate and maintain a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;

•

comply with rules promulgated by the NYSE;

•

prepare and distribute periodic public reports in compliance with our obligations under the federal securities laws;

•

establish new internal policies, such as those relating to disclosure controls and procedures and insider trading; and

•

involve and retain to a greater degree outside counsel and accountants in the above activities.

        In addition, we also expect that being a public company subject to these rules and regulations will increase our cost to obtain director and officer liability insurance coverage and could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.

We do not intend to pay, and we are currently prohibited from paying, dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our stock appreciates.

        We do not plan to declare dividends on shares of our common stock in the foreseeable future. Additionally, we are currently prohibited from making any cash dividends pursuant to the terms of our credit facility. Consequently, your only opportunity to achieve a return on your investment in us will be if the market price of our common stock appreciates, which may not occur, and you sell your shares at a profit. There is no guarantee that the price of our common stock that will prevail in the market after this offering will ever exceed the price that you pay.

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Future sales of our common stock in the public market could lower our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us.

        We may sell additional shares of common stock in subsequent public offerings. We may also issue additional shares of common stock or convertible securities. After the completion of this offering, we will have                outstanding shares of common stock. This number includes                shares that we and the selling stockholders are selling in this offering, which may be resold immediately in the public market. Following the completion of this offering, the selling stockholders will own                shares, or approximately        % of our total outstanding shares. Each of the selling stockholders is a party to a registration rights agreement with us. Pursuant to this agreement, subject to the terms of the lock-up agreement between the selling stockholders and the underwriters described under the caption "Underwriters," we have agreed to effect the registration of shares held by the selling stockholders if they so request or if we conduct other offerings of our common stock. See "Certain Relationships and Related Party Transactions—Registration Rights Agreement." In addition, as soon as practicable after this offering, we intend to file a registration statement with the SEC on Form S-8 providing for the registration of additional shares of our common stock issued or reserved for issuance under our stock incentive plan. Subject to the satisfaction of vesting conditions and the expiration of lock-up agreements, shares registered under this registration statement on Form S-8 will be available for resale immediately in the public market without restriction.

        We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices of our common stock.

The equity trading markets may be volatile, which could result in losses for our stockholders.

        In recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance. The market price of our common stock could similarly be subject to wide fluctuations in response to a number of factors, most of which we cannot control, including:

•

domestic and worldwide supplies and prices of, and demand for, oil and gas;

•

changes in environmental and other governmental regulations affecting the oil and gas industry;

•

variations in our quarterly results of operations or cash flows; and

•

changes in general conditions in the U.S. economy, financial markets or the oil and gas industry.

        The realization of any of these risks and other factors beyond our control could cause the market price of our common stock to decline significantly.

Our certificate of incorporation and bylaws contain, and Delaware law contains, provisions that may prevent, discourage or frustrate attempts to replace or remove our current management by our stockholders, even if such replacement or removal may be in our stockholders' best interests.

        We expect to amend and restate our certificate of incorporation and bylaws immediately prior to the consummation of this offering. We expect that our amended and restated certificate of incorporation and bylaws will contain, and Delaware law contains, provisions that could enable our management to resist a takeover attempt. We may adopt provisions that would:

•

permit us to issue, without any further vote or action by the stockholders, additional shares of preferred stock in one or more series and, with respect to each such series, to fix the number of

31

shares constituting the series and the designation of the series, the voting powers (if any) of the shares of the series, and the preferences and relative, participating, optional, and other special rights, if any, and any qualification, limitations or restrictions of the shares of such series;

•

require special meetings of the stockholders to be called by the chairman of the board, the chief executive officer, the president, or by resolution of a majority of the board of directors;

•

require business at special meetings to be limited to the stated purpose or purposes of that meeting;

•

require that stockholder action be taken at a meeting rather than by written consent, unless approved by our board of directors;

•

require that stockholders follow certain procedures, including advance notice procedures, to bring certain matters before an annual meeting or to nominate a director for election; and

•

permit directors to fill vacancies in our board of directors.

        These provisions could:

•

discourage, delay or prevent a change in the control of our company or a change in our management, even if the change would be in the best interests of our stockholders;

•

adversely affect the voting power of holders of common stock; and

•

limit the price that investors might be willing to pay in the future for shares of our common stock.

West Face Capital and AIMCo together may be deemed to beneficially own or control a majority of our common stock, giving them a controlling influence over corporate transactions and other matters. Their interests and the interests of the parties on whose behalf they invest may conflict with yours, and the concentration of ownership of our common stock by such stockholders will limit the influence of public stockholders.

        Upon completion of this offering, West Face Capital and AIMCo together may be deemed to beneficially own, control or have substantial influence over approximately        % of our outstanding common stock, and approximately        % if the underwriters exercise their option to purchase additional shares in full. West Face Capital and AIMCo, on behalf of certain of its clients, have entered into an investment management agreement pursuant to which West Face Capital has the right to vote the shares of our common stock held by certain clients of AIMCo. West Face Capital also has the right, pursuant to the advisory agreement with Black Bear, to vote the shares held by Black Bear, and accordingly, West Face Capital may exert significant influence over our board of directors and control or substantially influence the outcome of stockholder votes. Even if the investment management agreement between West Face and AIMCo were to be terminated, West Face Capital and AIMCo, on behalf of its clients, voting together as a group would have the ability to exert significant influence over the company.

        A concentration of ownership in West Face alone or together with AIMCo's clients would allow such stockholders to control, directly or indirectly and subject to applicable law, significant matters affecting us, including the following:

•

establishment of business strategy and policies;

•

amendment of our certificate of incorporation or bylaws;

•

the payment of dividends on our common stock;

•

nomination and election of directors;

•

appointment and removal of officers;

•

our capital structure; and

•

compensation of directors, officers and employees and other employee-related matters.

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        Such a concentration of ownership may have the effect of delaying, deterring or preventing a change in control, a merger, consolidation, takeover or other business combination, and could discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which could in turn have an adverse effect on the market price of our common stock.

We expect to be a "controlled company" within the meaning of the NYSE rules and, if applicable, would qualify for and will rely on exemptions from certain corporate governance requirements.

        West Face Capital and AIMCo, on behalf of certain of its clients, have entered into an investment management agreement pursuant to which West Face Capital has the right to vote the shares of our common stock held by certain clients of AIMCo. West Face Capital, via the investment management agreement with AIMCo and an advisory agreement with Black Bear, has the power to vote 72.66% of our issued and outstanding common stock prior to this offering, which enables West Face Capital to control the election of directors. Thus, we are a "controlled company" as that term is defined in Section 303A of the NYSE Listed Company Manual. Under the NYSE rules, a "controlled company" may elect not to comply with certain NYSE corporate governance requirements, including:

•

the requirement that a majority of our board of directors consist of independent directors;

•

the requirement that our nominating and governance committee be composed entirely of independent directors with a written charter addressing the Committee's purpose and responsibilities; and

•

the requirement that our compensation committee be composed entirely of independent directors with a written charter addressing the Committee's purpose and responsibilities.

        These requirements will not apply to us as long as we remain a "controlled company." The investment management agreement with AIMCo may be terminated upon 90 days prior written notice or immediately in certain circumstances, at which time we would no longer be deemed a "controlled company." Following this offering, we may utilize some or all of the above exemptions. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE. The significant ownership interest of Black Bear and certain clients of AIMCo could adversely affect investors' perceptions of our corporate governance.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        The information discussed in this prospectus include "forward-looking statements." These forward-looking statements are identified by their use of terms and phrases such as "may," "expect," "estimate," "project," "plan," "believe," "intend," "achievable," "anticipate," "will," "continue," "potential," "should," "could," and similar terms and phrases. All statements, other than statements of historical facts, included herein concerning, among other things, planned capital expenditures, potential increases in oil and natural gas production, the number of anticipated wells to be drilled after the date hereof, future cash flows and borrowings, pursuit of potential acquisition opportunities, our financial position, business strategy and other plans and objectives for future operations, are forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, among others:

•

our ability to replace oil and natural gas reserves;

•

declines or volatility in the prices we receive for our oil and natural gas;

•

our financial position;

•

our cash flow and liquidity;

•

general economic conditions, whether internationally, nationally or in the regional and local market areas in which we do business;

•

the recent economic slowdown that has and may continue to adversely affect consumption of oil and natural gas by businesses and consumers;

•

our ability to generate sufficient cash flow from operations, borrowings or other sources to enable us to fully develop our undeveloped acreage positions;

•

the presence or recoverability of estimated oil and natural gas reserves and the actual future production rates and associated costs;

•

uncertainties associated with estimates of proved oil and gas reserves and, in particular, probable and possible resources;

•

the possibility that the industry may be subject to future regulatory or legislative actions (including additional taxes and changes in environmental regulation);

•

environmental risks;

•

drilling and operating risks;

•

exploration and development risks;

•

competition in the oil and natural gas industry;

•

management's ability to execute our plans to meet our goals;

•

our ability to retain key members of our senior management and key technical employees;

•

access to adequate gathering systems and pipeline take-away capacity to execute our drilling program;

•

our ability to secure firm transportation for oil and natural gas we produce and to sell the oil and natural gas at market prices;

•

costs associated with perfecting title for mineral rights in some of our properties;

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•

continued hostilities in the Middle East and other sustained military campaigns or acts of terrorism or sabotage; and

•

other economic, competitive, governmental, legislative, regulatory, geopolitical and technological factors that may negatively impact our businesses, operations or pricing.

        Finally, our future results will depend upon various other risks and uncertainties, including, but not limited to, those detailed in "Risk Factors." All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this prospectus and speak only as of the date of this prospectus. Other than as required under the securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.

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USE OF PROCEEDS

        We estimate that our net proceeds from the sale of common stock in this offering will be approximately $             million, assuming an initial public offering price of $            per share (the midpoint of the price range set forth on the cover page of this prospectus) and after deducting estimated expenses and underwriting discounts and commissions of approximately $             million. If the underwriters' over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $             million.

        We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholders. We will pay all of the selling stockholders' expenses related to this offering, other than underwriting discounts and commissions related to the shares sold by the selling stockholders.

        We intend to use a portion of the net proceeds from this offering to (i) repay all outstanding indebtedness under our credit facility, which as of April 30, 2011, was approximately $68.4 million; (ii) fund our drilling and development program; and (iii) fund the expansion of our gas processing facilities. We intend to use the following amounts for the above uses:

Use of Proceeds	Amount
	(in millions)
Repayment of credit facility	$
Drilling and development program
Expansion of processing facilities
Total	$

        Our credit facility matures in March 2015 and bears interest at a variable rate, which was approximately 2.7% per annum as of April 30, 2010. Our outstanding borrowings under our credit facility were incurred to fund exploration, development and other capital expenditures.

        An increase or decrease in the initial public offering price of $1.00 per share of common stock would cause the net proceeds that we will receive from the offering, after deducting estimated expenses and underwriting discounts and commissions, to increase or decrease, as applicable, by approximately $             million.

DIVIDEND POLICY

        We do not expect to declare or pay any cash dividends in the foreseeable future on our common stock. Our credit facility currently prohibits us from paying cash dividends on our common stock, and we may enter into debt arrangements in the future that also prohibit or restrict our ability to declare or pay cash dividends on our common stock.

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CAPITALIZATION

        The following table sets forth our capitalization, as of March 31, 2011:

•

on an actual historical basis;

•

on an as adjusted basis to give effect to this offering and the application of the net proceeds as described in "Use of Proceeds."

        You should read the following table in conjunction with "Use of Proceeds," "Selected Historical Consolidated and Unaudited Pro Forma Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our historical financial statements and unaudited pro forma financial information and related notes thereto appearing elsewhere in this prospectus.

			As of March 31, 2011
			Actual		As Adjusted
			(in thousands)
Cash and cash equivalents(1)			$	768
Long-term debt:
	Credit facility(2)		$	63,500
		Total long-term debt		63,500
Stockholders' equity:
	Common stock—Class A, $0.001 par value; 99,990,000 shares authorized, 29,122,521 shares issued and outstanding			29		—
	Common stock—Class B, $0.001 par value; 10,000 shares authorized, 7,500 shares issued and outstanding(3)			—		—
	Common stock, $0.001 par value;            shares authorized;            shares issued and outstanding			—
	Additional paid-in capital			356,513
	Retained earnings			165
		Total stockholders' equity		356,707
Total capitalization			$	420,207

(1)

As of April 30, 2011, our cash and cash equivalents were $0.9 million.

(2)

As of April 30, 2011, there was $68.4 million outstanding under our credit facility.

(3)

As of May 20, 2011, following the resignation of Steve Black, 6,000 shares were issued and outstanding. On June 30, 2011, in connection with the commencement of his employment with us, Steven R. Enger, our Chief Financial Officer, was granted 600 shares of our Class B Common Stock.

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DILUTION

        Purchasers of the common stock in this offering will experience immediate and substantial dilution in the net tangible book value per share of the common stock for accounting purposes. Our net tangible book value as of March 31, 2011 was approximately $             million, or $            per share of common stock. Pro forma net tangible book value per share is determined by dividing our pro forma tangible net worth (tangible assets less total liabilities) by the total number of outstanding shares of common stock that will be outstanding immediately prior to the closing of this offering including giving effect to the issuance of restricted stock awards at the closing of this offering. After giving effect to the sale of the shares in this offering and further assuming the receipt of the estimated net proceeds (after deducting underwriting discounts and anticipated expenses of this offering), our adjusted pro forma net tangible book value as of            , 2011 would have been approximately $             million, or $            per share. This represents an immediate increase in the net tangible book value of $            per share to our existing stockholders and an immediate dilution (i.e., the difference between the offering price and the adjusted pro forma net tangible book value after this offering) to new investors purchasing shares in this offering of $            per share. The following table illustrates the per share dilution to new investors purchasing shares in this offering:

Assumed initial public offering price per share	$
Pro forma net tangible book value per share as of March 31, 2011	$
Increase per share attributable to new investors in this offering	$
As adjusted pro forma net tangible book value per share after giving effect to this offering	$
Dilution in pro forma net tangible book value per share to new investors in this offering	$

        The following table summarizes, on an adjusted pro forma basis as of            , 2011, the total number of shares of common stock owned by existing stockholders and to be owned by new investors, the total consideration paid, and the average price per share paid by our existing stockholders and to be paid by new investors in this offering at $            , calculated before deduction of estimated underwriting discounts and commissions:

	Shares Acquired			Total Consideration
							Average Price per Share
	Number	Percent		Amount	Percent
Existing stockholders			%	$		%	$	%
New investors
Total			%	$		%	$	%

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SELECTED HISTORICAL CONSOLIDATED AND UNAUDITED PRO FORMA FINANCIAL DATA

        The following tables set forth selected historical financial data of us and our predecessor, BCEC, as of and for the periods indicated. The consolidated statement of operations data for the years ended December 31, 2008, 2009 and the period ended December 23, 2010 are derived from the audited consolidated financial statements of BCEC included elsewhere in this prospectus. The consolidated statements of operations data for December 31, 2006 and 2007 is derived from audited consolidated financial statements of BCEC not included in this prospectus. The consolidated balance sheet data as of December 31, 2006, 2007 and 2008 are derived from the audited consolidated financial statements of BCEC, which are not included in this prospectus. The consolidated balance sheet data as of December 31, 2010 is derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the period from inception (December 23, 2010) to December 31, 2010 and the three months ended March 31, 2010 are derived from the financial statements of BCEC appearing elsewhere in this prospectus, and the consolidated statement of operations data for the three months ended March 31, 2011 and the consolidated balance sheet data as of March 31, 2011 are derived from our unaudited financial statements appearing elsewhere in this prospectus, which, in management's opinion, include all adjustments necessary for the fair presentation of our financial condition as of such date and our results of operations for such periods.

        The summary unaudited pro forma statement of operations of Bonanza Creek Energy, Inc. for the year ended December 31, 2010 gives effect to our Corporate Restructuring as if it had occurred on January 1, 2010. The summary unaudited balance sheet of Bonanza Creek Energy, Inc. as of March 31, 2011 gives effect to this offering and the repayment of indebtedness as if they had occurred on March 31, 2011.

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        The selected historical financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and both our and our predecessor's financial statements and the notes to those financial statements included elsewhere in this prospectus.

			Bonanza Creek Energy Company, LLC (Predecessor)																		Bonanza Creek Energy, Inc.						Bonanza Creek Energy, Inc. Pro Forma(3)
			Inception to December 31, 2006(1)			2007			2008			2009			Period Ended December 23, 2010(2)			Three Months Ended March 31, 2011			Period from Inception (December 23, 2010) to December 31, 2010			Three Months Ended March 31, 2011			Year Ended December 31, 2010
																		(unaudited)						(unaudited)			(unaudited)
			(in thousands, except per share data)
Statement of Operations Data:
Revenues:
	Oil sales		$	4,142		$	11,427		$	39,967		$	27,601		$	34,431		$	7,514		$	1,325		$	16,576		$	45,413
	Natural gas sales			1,113			1,736			5,165			3,671			6,226			1,663			207			2,926			10,253
	Natural gas liquids and CO2 sales			391			821			2,782			3,169			7,672			1,544			213			2,711			8,365
Total revenues				5,646			13,984			47,914			34,441			48,329			10,721			1,745			22,213			64,031
Operating expenses:
	Lease operating			1,584			4,037			20,434			13,449			14,792			3,434			483			4,614			17,285
	Severance and ad valorem taxes			325			577			1,847			2,148			1,621			333			70			1,053			2,524
	Depreciation, depletion and amortization			1,796			4,237			25,463			14,108			14,225			3,261			506			6,387			20,917
	General and administrative			2,096			4,752			7,477			7,610			8,375			2,087			323			2,239			9,338
	Employee stock compensation(4)			—			—			—			—			—			—			—			—			—
	Exploration			40			65			25			131			361			114			—			525			380
	Impairment of oil and gas properties(5)			—			—			26,437			579			—			—			—			—			—
	Cancelled private placement(6)			—			—			—			—			2,378			—			—			—			2,378
Total operating expenses				5,841			13,668			81,683			38,025			41,752			9,229			1,382			14,818			52,822
Income (loss) from operations				(195	)		316			(33,769	)		(3,584	)		6,577			1,492			363			7,395			11,209
Other income (expense):
	Interest expense			(2,483	)		(5,748	)		(12,870	)		(16,582	)		(18,001	)		(3,959	)		(58	)		(713	)		(1,263	)
	Amortization of debt discount			—			(1,684	)		(5,987	)		(7,963	)		(8,862	)		(2,127	)		—			—			—
	Write off of deferred financing costs			—			—			—			—			(1,663	)		—			—			—			(1,663	)
	Gain on sale of oil and gas properties			1,000			—			8			303			4,055			4,092			—			—			4,055
	Unrealized gain (loss) in fair value of warrant put option(7)			—			(32,302	)		70,972			(80,640	)		34,345			(24,204	)		—			—			—
	Unrealized gain (loss) in fair value of commodity derivatives			356			(925	)		48,716			(34,589	)		(7,605	)		(1,142	)		(514	)		(5,455	)		(8,119	)
	Realized gain (loss) on settled commodity derivatives			—			26			1,913			13,451			5,919			1,585			(47	)		(776	)		5,872
	Other income (loss)			11			(43	)		(229	)		(179	)		19			(60	)		—			68			(47	)
		Total other income (expense)		(1,116	)		(40,676	)		102,523			(126,199	)		8,207			(25,815	)		(619	)		(6,876	)		(1,165	)
Income (loss) before income taxes				(1,311	)		(40,360	)		68,754			(129,783	)		14,784			(24,323	)		(256	)		519			10,044
		Income tax benefit (expense)(8)		—			—			—			—			—			—			94			192			3,696
Net income (loss)			$	(1,311	)	$	(40,360	)	$	68,754		$	(129,783	)	$	14,784		$	(24,323	)	$	(162	)	$	327		$	6,348
Net income (loss) per common share(9)
		Basic																			$	(0.01	)	$	0.01
		Diluted																			$	(0.01	)	$	0.01
Weighted average shares outstanding
		Basic																				29,123			29,123
		Diluted																				29,123			29,123

(1)

Our predecessor, BCEC, was formed on May 17, 2006.

(2)

We completed our Corporate Restructuring on December 23, 2010.

(3)

The pro forma information above gives effect to our Corporate Restructuring as if it had occurred on January 1, 2010.

(4)

We will recognize employee stock-based compensation expense immediately prior to the consummation of this offering. We also expect to have stock-based compensation expense for future awards. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Selected Factors and Trends Affecting Our Results of Operations—Stock-based Employee Compensation Expenses."

40

(5)

The impairment for the year ended 2008 resulted from a write-down of the carrying value of our oil and natural gas reserves due to depressed year-end oil and natural gas prices.

(6)

Expenditures in connection with a cancelled private placement of our preferred stock.

(7)

In connection with its purchase of our senior subordinated notes D.E. Shaw Synoptic Portfolios 5, L.L.C. received warrants to purchase equity interests in our predecessor. These warrants contained a put right exercisable beginning on May 17, 2014. The periods presented for our predecessor reflect the changes in the fair market value of that put option. The warrants and the aggregate warrant exercise price were exchanged for shares of our common stock in connection with our Corporate Restructuring.

(8)

Our predecessor, BCEC, was a partnership for federal income tax purposes and, therefore, was not subject to entity-level taxation. Our pro forma results reflect our taxation as a subchapter "C" corporation at an estimated combined state and federal income tax rate of 36.8%.

(9)

As a limited liability company, ownership interests in our predecessor were held as units rather than shares.

		Bonanza Creek Energy Company, LLC (Predecessor)
												Bonanza Creek Energy, Inc.
				As of December 31,
		Inception to December 31, 2006(1)										As of December 31, 2010		As of March 31, 2011		As of March 31, 2011 As Adjusted(2)
				2007			2008		2009
														(unaudited)		(unaudited)
		(in thousands)
Balance Sheet Data:
Cash and cash equivalents		$	5,039	$	—		$	4,088	$	2,522		$	—	$	768
Property and equipment, net			52,103		89,646			195,280		188,367			496,582		508,653
Total assets			62,317		97,044			241,625		211,552			516,104		528,482
Long term debt, including current portion:
	Credit facility		—		27,274			107,000		99,000			55,400		63,500
	Senior subordinated notes, net of discount		39,447		51,561			75,499		92,442			—		—
	Second lien term loan(3)		—		—			—		—			—		—
	Subordinated unsecured note		—		—			10,000		10,799			—		—
	Warrant put options(4)		8,839		42,851			828		81,468			—		—
Total members'/stockholders' equity (deficit)			6,794		(33,566	)		35,988		(93,795	)		356,380		356,707

	Bonanza Creek Energy Company, LLC (Predecessor)																		Bonanza Creek Energy, Inc.
																			Period from Inception (December 23, 2010) to December 31, 2010
				Year Ended December 31,
	Inception to December 31, 2006(1)												Period Ended December 23, 2010(5)			Three Months Ended March 31, 2011						Three Months Ended March 31, 2011
				2007			2008			2009
																(unaudited)						(unaudited)
	(in thousands)
Other Financial Data:
Net cash provided by (used in) operating activities	$	3,764		$	(561	)	$	11,128		$	11,134		$	22,759		$	4,225		$	(1,633	)	$	8,535
Net cash provided by (used in) investing activities		(21,739	)		(43,265	)		(79,581	)		(7,185	)		(32,127	)		5,697			(817	)		(14,880	)
Net cash provided by (used in) financing activities		23,014			38,787			72,541			(5,515	)		9,297			(9,153	)		—			7,113
Adjusted EBITDAX(6)		1,653			4,537			14,435			19,067			25,071			5,165			822			13,599

(1)

Our predecessor, BCEC, was formed on May 17, 2006.

(2)

As adjusted for this offering and the application of proceeds as described in "Use of Proceeds."

(3)

Our $30 million second lien term loan was fully funded on May 7, 2010 and repaid in full in connection with our Corporate Restructuring.

(4)

Warrants and the aggregate warrant exercise price were exchanged for shares of our common shares in connection with our Corporate Restructuring.

(5)

We completed our Corporate Restructuring on December 23, 2010.

(6)

Adjusted EBITDAX is a non-GAAP financial measure. For a definition of Adjusted EBITDAX and a reconciliation of Adjusted EBITDAX to our net income (loss) and net cash provided by (used in) operating activities, see "Summary Reserve and Operations Data—Non-GAAP Financial Measures and Reconciliation—Adjusted EBITDAX" above.

41

UNAUDITED PRO FORMA FINANCIAL INFORMATION

        We were formed on December 23, 2010, in connection with our Corporate Restructuring. The following unaudited pro forma financial information shows the pro forma effect of our Corporate Restructuring. We have not included a pro forma balance sheet since the effects of our Corporate Restructuring are reflected in the December 31, 2010 balance sheet included elsewhere in this prospectus. The unaudited pro forma statement of operations for the year ended December 31, 2010 was prepared as if the Corporate Restructuring had occurred at January 1, 2010.

        The accompanying financial information was from the historical accounting records. We made no additional pro forma adjustment to general and administrative expense since we were the operator of these properties prior to the acquisitions.

        The following unaudited forma financial statements do not purport to represent what our actual results of operations would have been if this acquisition had occurred on January 1, 2010. The unaudited pro forma financial statements should be read in conjunction with our historical financial statements and related notes for the periods presented included elsewhere in this prospectus.

42

			Bonanza Creek Energy Company, LLC Period Ended December 23, 2010			Holmes Eastern Company, LLC Period Ended December 23, 2010			Bonanza Creek Energy, Inc. Period from Inception (December 23, 2010) to December 31, 2010			Pro Forma Adjustments			Bonanza Creek Energy, Inc. Year Ended December 31, 2010
												(unaudited)			(unaudited)
			(in thousands, except per share data)
Revenues:
	Oil, natural gas, natural gas liquids and CO2 sales		$	48,328		$	13,958		$	1,745		$	—		$	64,031
Operating expenses:
	Lease operating			14,792			2,010			483			—			17,285
	Severance and ad valorem taxes			1,620			834			71			—			2,525
	Exploration			361			19			—			—			380
	Depreciation, depletion and amortization(1)			14,225			3,006			506			3,180			20,917
	General and administrative			8,375			640			323			—			9,338
	Cancelled private placement			2,378			—			—			—			2,378
		Total operating expenses		41,751			6,509			1,383			3,180			52,822
Income from operations				6,577			7,449			362			3,180			11,209
Other income (expense):
	Gain on sale of oil and gas properties			4,055			—			—			—			4,055
	Other income (loss)			19			(65	)		—			—			(47	)
	Write off of deferred financing costs			(1,663	)		—			—			—			(1,663	)
	Unrealized gain on fair value of warrant put option(2)			34,345			—			—			(34,345	)		—
	Amortization of debt discount(3)			(8,862	)		—			—			8,862			—
	Realized gain on settled commodity derivatives			5,919			—			(47	)		—			5,872
	Unrealized, loss in fair value of commodity derivatives			(7,605	)		—			(514	)		—			(8,119	)
	Interest expense(4)			(18,001	)		(439	)		(57	)		17,234			(1,263	)
		Total other income (expense)		8,207			(504	)		(618	)		(8,249	)		(1,165	)
Income (loss) before income taxes			$	14,784		$	6,945		$	(256	)	$	(11,429	)	$	10,044
	Pro forma income tax expense(5)															3,696
Net Income															$	6,348
Earnings per shares—basic and diluted															$	0.22

(1)

Pro forma depletion expense gives effect to our Corporate Restructuring which required the application of purchase accounting. The expense was calculated using estimated proved reserves as of the beginning of the period, production for the applicable period, and the fair value of the purchase price allocated to proved oil and gas properties.

(2)

BCEC issued an aggregate of 33,089 warrants to purchase Class A units during 2006, 2007, and 2008 in connection with the sale of senior subordinated notes. These warrants included a one time right and option to put the warrants back to BCEC at fair market value less the exercise price. This pro forma adjustment reverses the mark-to-market income for the warrant put right that was recorded during 2010. This

43

presentation assumes that the warrants were exercised on January 1, 2010 in connection with a recapitalization.

(3)

During 2010, BCEC recorded accretion expense for the subordinated debt discount. This pro forma adjustment reverses the accretion expense recorded during 2010. This presentation assumes that the subordinated debt was paid off on January 1, 2010 in connection with a recapitalization.

(4)

This pro forma adjustment reduces interest expense by $10.9 million for BCEC interest expense that was paid in kind during 2010, a further reduction to interest expense for the amortization of debt issuance costs related to BCEC's second lien term loan that was entered into during 2010, and a further reduction for cash interest expense paid on the revolving credit facilities of BCEC and HEC and BCEC's related party note payable during 2010. This presentation assumes that BCEC's subordinated debt, the second lien term loan and BCEC's related party note payable were paid off and the balance outstanding on our revolving credit facility was reduced on January 1, 2010 in connection with a recapitalization.

(5)

Pro forma income taxes related to our pre-tax income for the year ended December 31, 2010 and is based on our expected tax rate of 36.8%.

44

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the selected historical financial data and the accompanying financial statements and the notes to those financial statements included elsewhere in this prospectus. The following discussion includes forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this prospectus, particularly in "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements."

Overview

        We are an independent energy company engaged in the acquisition, exploration, development and production of onshore oil and associated liquids-rich natural gas, primarily in southern Arkansas and in the DJ and North Park Basins in the Rocky Mountains. We were incorporated as a Delaware corporation in December 2010 to acquire all of the outstanding membership interests of the members of BCEC pursuant to our Corporate Restructuring. For more information regarding our Corporate Restructuring, see "—Recent Developments." Our primary business objective is to increase stockholder value by investing capital in projects that we expect will increase our production, reserves and cash flow through the exploitation and development of our existing properties while maintaining a low cost structure. In addition, we intend to pursue acquisitions of properties that are complementary to our target areas of operation.

        Formed in May 2006, BCEC initially focused on exploiting and developing properties located in the DJ and North Park Basins in the Rocky Mountains and certain fields located in the San Joaquin Valley of central California. In 2008, BCEC expanded its operations by acquiring significant acreage and other properties in southern Arkansas. Following our Corporate Restructuring, we have been able to increase our reserves and production through the exploitation and development of our existing property base, together with pursuing opportunistic acquisitions in areas where we have specific operating expertise. We estimate we will spend $135.3 million in 2011 to drill 129 gross (114.6 net) wells, to perform workovers on 43 gross (33.8 net) wells and to make other improvements to our infrastructure.

Recent Developments

Corporate Restructuring

        On December 23, 2010, our predecessor, BCEC was recapitalized as part of our Corporate Restructuring, as a result of which we became the owner of all of the equity in BCEOC and HEC. Our Corporate Restructuring consisted of the following transactions:

•

BCEC contributed all of its ownership interest in its wholly owned subsidiary BCEOC to us in exchange for 6,272,851 shares of our Class A common stock.

•

In exchange for $265 million in cash, we sold shares of our Class A common stock ("Class A Common Stock") to Black Bear, an entity advised by West Face Capital, and to certain clients of AIMCo.

•

The members of HEC contributed all of their outstanding membership interests in HEC to us in exchange for approximately $59 million in cash (including approximately $7.2 million in assumed debt repaid at closing) and 1,683,536 shares of our Class A Common Stock with a value equal to approximately $21 million, for a total purchase price of approximately $80 million, subject to certain adjustments.

45

•

Cash proceeds of approximately $182 million were used to retire BCEC's second lien term loan, senior subordinated notes, a related-party note payable and to reduce the outstanding principal balance under BCEC's credit facility by $29 million.

        On April 1, 2011, BCEC was dissolved and the exchange of BCEC's equity for ownership of shares of our common stock held by BCEC was completed. As part of the liquidation of BCEC, (i) shares of our common stock were contributed by certain members of BCEC to Bonanza Creek Employee Holdings, LLC ("BCEH") and (ii) other shares of our common stock were redeemed into an investment trust for the benefit of Bonanza Creek Oil Company, LLC and certain of its members. We assumed the remaining balance outstanding of approximately $55.4 million under the credit facility, which was repaid on March 29, 2011, from the proceeds of our credit facility.

        The acquisition of HEC provided us with additional acreage and working interests in the DJ Basin in the Rocky Mountains and the Dorcheat Macedonia field in southern Arkansas. We believe the properties we acquired are synergistic to our operations. BCEC has operated the interests acquired since May 2009, which consist of acreage adjacent to our producing property base in southern Arkansas and the Rocky Mountains and additional working interests in our existing property base. The properties have associated net proved reserves of approximately 9,333 MBoe at December 31, 2010, of which 30% was developed.

New Senior Credit Agreement

        On March 29, 2011, we entered into a four-year $300 million credit agreement with a syndicate of banks providing for a senior secured revolving credit facility with an initial borrowing base of $130 million and with a $5 million subfacility for standby letters of credit. For a description of the material terms of our credit facility see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit facility."

Capital Expenditures

        We intend to accelerate our production growth by further exploiting our existing proved reserve base in the Mid-Continent and proved and unproved reserves in the Rocky Mountains, including the properties we acquired as a result of the HEC acquisition. In addition, we expect to begin testing our extensive inventory of horizontal Niobrara oil shale potential located in Colorado.

        Our total 2011 capital expenditure budget is approximately $151.5 million, exclusive of acquisitions, which consists of:

•

$135.3 million for development of our oil and gas properties; and

•

$16.2 million for the construction of an additional gas processing facility.

        We expect to drill 129 gross (114.6 net) wells in 2011, including 42 gross (33.4 net) infill PUD locations in southern Arkansas, 66 gross (62.3 net) wells in the DJ Basin, 7 gross (7.0 net) Niobrara oil shale wells in the North Park Basin, 4 gross (3.8 net) Niobrara oil shale wells in the DJ Basin and 10 gross (8.0 net) wells in California. At April 30, 2011, we had drilled 33 gross (29.7 net) of these wells, including 13 gross (10.2 net) wells in southern Arkansas, 19 gross (19 net) wells in the DJ and North Park Basins and 1 gross (0.5 net) wells in California. While we estimate we will spend $135.3 million for the development of our oil and gas properties, the ultimate amount of capital we will spend during the remainder of 2011 depends on the success of our drilling results as the year progresses. To date, our 2011 capital budget has been funded from the proceeds of our Corporate Restructuring, borrowings under our credit facility and cash flow from operations.

        To continue uninterrupted development of our oil and natural gas reserves in the Dorcheat Macedonia field, we estimate we will spend approximately $16.2 million to build a 12.5 MMcf/d processing facility in our Dorcheat Macedonia field. Construction is under way, and we expect to have the site

46

completed during August of this year. The construction of this new facility is in conjunction with our continued development of the field and is on track with our development timing. Our McKamie facility currently processes all of the natural gas that we produce from the Dorcheat and McKamie fields.

        We believe the net proceeds from this offering together with cash flows from operations and additional borrowings under our credit facility will be sufficient to fund the remainder of our 2011 budgeted capital expenditures. When we deem appropriate, we enter into certain derivative arrangements with respect to portions of our oil and natural gas production to allow us to achieve a more predictable cash flow and to reduce some of our exposure to commodity price fluctuations.

Selected Factors and Trends Affecting Our Results of Operations

        Revenues.    Our revenues depend substantially upon oil and natural gas prices and demand for oil and natural gas. From January 1, 2008 through March 31, 2011, the WTI spot prices for crude oil ranged from a low of $39.40 per barrel to a high of $134.60 per barrel. Oil prices have increased significantly since the first quarter of 2010. Our average unhedged sales price for crude oil for the first quarter of 2011 was $88.61 per barrel, compared to $71.87 per barrel for the first quarter of 2010, which price increase, along with a 79% increase in crude oil sales volumes, contributed to the 121% increase in our oil revenues in those periods.

        Production Trends.    Our production levels are heavily influenced by our acquisitions and development drilling, as well as the price of oil. In April 2008, we acquired significant producing properties in southern Arkansas. The full-year effect of production from these properties was the primary reason our sales volumes increased by 23% in 2009 compared with 2008. Our sales volumes increased another 14% in 2010 due primarily to development activities in the southern Arkansas and the Rocky Mountains. Our production levels during the three months ended March 31, 2011 have increased by 89% compared to the three months ended March 31, 2010 as a result of the HEC acquisition. To further increase our production, we expect to spend approximately $135.3 million in 2011 to drill 129 gross (114.6 net) wells, to perform workovers on 43 gross (33.8 net) wells and to make other improvements to our infrastructure. Although the amount, timing and allocation of capital expenditures is largely discretionary and within our control, if oil and natural gas prices decline or costs increase significantly, we could defer a significant portion of our budget or expected capital expenditures until later periods to prioritize capital projects that we believe have the highest expected returns and potential to generate near-term cash flows. We routinely monitor and adjust our capital expenditures in response to changes in prices, availability of financing, drilling and acquisition costs, industry conditions, the timing of regulatory approvals, the availability of rigs, success or lack of success in drilling activities, contractual obligations, internally generated cash flows and other factors both within and outside our control.

        Production Expenses.    Our production expenses consist primarily of lease operating costs and severance and ad valorem taxes and are correlated to our level of production and oil prices. Our lease operating costs decreased by 35% from 2008 to 2009, primarily as a result of the reduction of steam injection in our California thermal properties as the price of oil dropped, which made production at these properties less economic. In response to increased oil prices beginning in July 2009, we resumed steam injection, which has resulted in higher production expenses. Our lease operating costs increased by 13% from 2009 to 2010, primarily as a result of a 14% increase in our sales volume, higher compression rental costs in our Dorcheat Macedonia field, higher expenditures for well workovers and increased steam injection expense related to our California thermal properties. Generally, as commodity prices and/or our production levels rise, our severance and ad valorem taxes increase.

        General and Administrative Expenses.    Our general and administrative expenses increased by $1.1 million, or 14%, from 2009 to 2010, a significant portion of which was attributable to aggregate bonus of $0.5 million received by employees in connection with our Corporate Restructuring. Our general and administrative expenses during the three months ended March 31, 2011 have increased by 7% compared to

47

the three months ended March 31, 2010 as a result of the HEC acquisition in December 2010. We estimate the additional compliance and disclosure obligations as a public company will require us to implement additional financial and management controls, reporting systems and procedures and hire additional accounting, finance and legal staff, which will result in an estimated annual cost of $3.5 million. Additionally, we believe our general and administrative expenses will increase as a result of stock-based compensation obligations relating to future awards.

        Stock-based Employee Compensation Expenses.    We expect 207,083 shares of Class A Common Stock will be distributed to our employees by BCEH prior to or shortly following the consummation of this offering. Assuming a Class A Common Stock fair value of $            per share (the midpoint of the price range set forth on the cover page of this offering), we expect to recognize an employee stock-based compensation expense of approximately $             million as of the date of the grant of those shares. In addition, we have awarded 6,600 shares of Class B Common Stock and intend to distribute the remaining 3,400 shares of Class B Common Stock prior to the consummation of this offering. Assuming a Class A Common Stock fair value of $            per share (the midpoint of the price range set forth on the cover page of this offering), we expect to recognize employee stock compensation expense relating to these grants during the years ended December 31, 2011, 2012, 2013 and 2014 of approximately $             million, $             million, $             million and $             million, respectively, assuming no forfeitures.

        Debt Service Obligations.    We intend to use the net proceeds from this offering to repay all outstanding indebtedness under our credit facility, resulting in no debt service obligations other than a commitment fee. As of April 30, 2011, we had approximately $68.4 million outstanding under our credit facility. To the extent we borrow additional amounts under our credit facility to fund our capital expenditures or make acquisitions, our debt service obligations will increase, which may require a substantial portion of our operating cash flow depending on our outstanding borrowings, oil and natural gas prices and results of operations.

Results of Operations

        The following discussion is of our consolidated results of operations, financial condition and capital resources. You should read this discussion in conjunction with our Consolidated Financial Statements and the Notes thereto contained elsewhere in this prospectus. Comparative results of operations for the period indicated are discussed below.

Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010

Revenues

	Three Months Ended March 31,
	2010		2011		Change			Percent Change
	(In thousands, except percentages)
Revenues:
Crude oil sales	$	7,514	$	16,576	$	9,062			121	%
Natural gas sales		1,663		2,926		1,263			76	%
Natural gas liquids sales		1,333		2,690		1,357			102	%
CO2 sales		211		21		(190	)		(90	)%
Product revenues	$	10,721	$	22,213	$	11,492			107	%

48

	Three Months Ended March 31,
	2010		2011		Change		Percent Change
Sales volumes:
Crude oil (MBbls)		104.6		187.1		82.5		79	%
Natural gas (MMcf)		282.1		578.5		296.4		105	%
Natural gas liquids (MBbls)		23.1		46.3		23.2		100	%
Crude oil equivalent (MBoe)(1)		174.7		329.8		155.1		89	%

(1)

Determined using the ratio of 6 Mcf of natural gas to 1 Bbl of crude oil. Excludes CO₂ sales.

	Three Months Ended March 31,
	2010		2011		Change			Percent Change
Average Sales Prices (before hedging)(1):
Crude oil (per Bbl)	$	71.87	$	88.61	$	16.74			23	%
Natural gas (per Mcf)		5.90		5.06		(0.84	)		(14	)%
Natural gas liquids (per Bbl)		57.73		58.15		0.42			1	%
Crude oil equivalent (per Boe)(2)		60.18		67.30		7.12			12	%

	Three Months Ended March 31,
	2010		2011		Change			Percent Change
Average Sales Prices (after hedging)(1):
Crude oil (per Bbl)	$	73.19	$	83.57	$	10.38			14	%
Natural gas (per Mcf)		6.37		5.35		(1.02	)		(16	)%
Natural gas liquids (per Bbl)		57.73		58.15		0.42			1	%
Crude oil equivalent (per Boe)(2)		61.74		64.95		3.21			5	%

(1)

Although we do not designate our derivatives as cash flow hedges for financial statement purposes, the derivatives do economically hedge the price we receive for crude oil and natural gas.

(2)

Determined using the ratio of 6 Mcf of natural gas to 1 Bbl of crude oil. Excludes CO₂ sales.

        Revenues increased by 107%, to $22.2 million for the three months ended March 31, 2011 compared to $10.7 million for the three months ended March 31, 2010. Oil production increased 79% and natural gas production increased 105% during the three months ended March 31, 2011 as compared to the three months ended March 31, 2010. The most significant component of the increased production was related to the acquisition of HEC, which occurred on December 23, 2010. Our product revenues for the three months ended March 31, 2010 exclude product revenues for HEC of $3.5 million. The increase in net revenues was the result of a 23% increase in oil prices offset by a 14% decrease in natural gas prices, respectively, for an overall increase of 12% per Boe. Also contributing to the increased revenue was the increased production attributable to our drilling program.

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Operating Expenses

	Three Months Ended March 31,
	2010		2011		Change		Percent Change
	(In thousands, except percentages)
Expenses:
Lease operating	$	3,434	$	4,614	$	1,180		34	%
Severance and ad valorem taxes		333		1,053		720		216	%
General and administrative		2,087		2,239		152		7	%
Depreciation, depletion and amortization		3,261		6,387		3,126		96	%
Exploration		114		525		411		361	%
Operating expenses	$	9,229	$	14,818	$	5,589		61	%

	Three Months Ended March 31,
	2010		2011		Change			Percent Change
Selected Costs ($ per Boe):
Lease operating	$	19.67	$	13.99	$	(5.68	)		(29	)%
Severance and ad valorem taxes		1.91		3.19		1.28			67	%
General and administrative		11.95		6.79		(5.16	)		(43	)%
Depreciation, depletion and amortization		18.67		19.37		0.70			4	%
Exploration		0.65		1.59		0.94			145	%
Operating expenses	$	52.85	$	44.93	$	(7.92	)		(15	)%

        Lease operating expenses.    Our lease operating expenses increased $1.2 million, or 34%, to $4.6 million in the first three months of 2011 from $3.4 million in the first three months of 2010 and decreased on an equivalent basis from $19.67 per Boe to $13.99 per Boe. The increase in lease operating expense was related to increased production volumes due to the acquisition of HEC on December 23, 2010. The three months ended March 31, 2010 does not include HEC lease operating expenses, which were $0.5 million. During the three months ended March 31, 2011, workover activity and steam gas costs were $0.6 million and $0.1 million, higher, respectively, than the three months ended March 31, 2010. The decrease in lease operating expenses on an equivalent basis was primarily related to the lower operating costs of the wells acquired from HEC. On an equivalent basis, the lease operating expense for the wells acquired from HEC was $8.73 per Boe during the three months ended March 31, 2010 as compared to the lease operating expense for our wells which was $19.67 per Boe during the three months ended March 31, 2010.

        Severance and ad valorem taxes.    Our severance and ad valorem taxes increased $0.7 million, or 216%, to $1.1 million in the first three months of 2011 from $0.3 million in the first three months of 2010 and increased on a Boe basis from $1.91 to $3.19. The increase was primarily related to an 89% increase in production volumes and a 10% increase in realized prices per Boe during the three months ended March 31, 2011 as compared to the three months ended March 31, 2010, and an increase in ad valorem tax of $0.3 million due to higher assessment values. The three months ended March 31, 2010 does not include HEC severance and ad valorem tax, which were $0.2 million. The increase in severance and ad valorem taxes on a Boe basis for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010 was primarily related to higher ad valorem tax of $0.3 million.

        General and administrative.    Our general and administrative expense increased $0.1 million, or 7%, to $2.2 million in the first three months of 2011 from $2.1 million in the first three months of 2010. The three months ended March 31, 2010 does not include HEC general and administrative expenses, which were

50

$0.2 million. The increase in general and administrative expenses on an equivalent basis was primarily related to the acquisition of HEC, which added significant production with lower related general and administrative expenses.

        Depreciation, depletion and amortization.    Our depreciation, depletion and amortization expense increased $3.1 million, or 96%, to $6.4 million in the first three months of 2011 from $3.3 million in the three months ended March 31, 2010. This increase was the result of an 89% increase in production. Our depreciation, depletion and amortization expense per Boe produced increased by $0.70, or 4%, to $19.37 for the three months ended March 31, 2011 as compared to $18.67 for the three months ended March 31, 2010. Another component of the increase was the step up in basis that was recorded in oil and gas properties as a result of the Corporate Restructuring. In connection with the Corporate Restructuring, all of our oil and gas fields were adjusted to fair value based on each field's discounted future net cash flows, which resulted in basis increases to the Mid Continent and Rocky Mountain fields with corresponding decreases to the California region fields.

        Exploration.    Our exploration expense increased $0.4 million, or 361%, to $0.5 million in the three months ended March 31, 2011 from $0.1 million in the first three months of 2010. The increase in exploration expense was primarily related to the acquisition of 7,700 acres of 3-D seismic data on the eastern edge of the Wattenberg field in Weld County, Colorado to help evaluate our Niobrara oil shale acreage.

Other Income and Expense

        Interest expense.    Our interest expense decreased $3.3 million, or 82%, to $0.7 million in the three months ended March 31, 2011 from $4.0 million in the first three months of 2010. The decrease resulted from the application of $182 million of cash proceeds from the Corporate Restructuring to repay the second lien term loan, the senior subordinated notes and a related party note payable, and to repay $29 million of principal under our credit facility on December 23, 2010. Average debt outstanding for the three months ended March 31, 2011 was $59.5 million as compared to $202.8 million for the three months ended March 31, 2010.

        Gain on sale of oil and gas properties.    Our gain on sale of oil and gas properties decreased $4.1 million to no gain in the three months ended March 31, 2011 from $4.1 million in the first three months of 2010. In March 2010, we sold our non-operated working interest in the Jasmin, California property resulting in a gain on sale of $ 4.1 million.

        Realized gain (loss) on settled commodity derivatives.    Realized gains on oil and gas hedging activities decreased by $2.4 million from a gain of $1.6 million for the three months ended March 31, 2010 to a loss of $0.8 million for the three months ended March 31, 2011. Because we assumed a derivative in a liability position in 2008, our realized gain was higher by $1.3 million upon the settlement of this portion of the assumed derivative in the three months ended March 31, 2010. The decrease in realized cash hedge gains period over period was primarily related to commodity prices that were 10% higher during the three months ended March 31, 2011 as compared to the three months ended March 31, 2010.

        Income Tax Expense.    Our predecessor, BCEC, was not subject to federal and state income taxes. As a result of the Corporate Restructuring, we were organized as a Delaware corporation subject to federal and state income taxes. Accordingly, we incurred $0.2 million in federal and state income taxes for the three months ended March 31, 2011. Income taxes are recorded at the combined federal and state effective rate of 36.87% for the period ended March 31, 2011. We are allowed to deduct various items for tax reporting purposes that are capitalized for purposes of financial statement presentation. All income taxes for the period ended March 31, 2011 were deferred.

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        Change in fair value of warrant put option.    The unrealized loss from the change in the fair value of the warrant put option decreased $24.2 million, or 100%, to $0 for the three months ended March 31, 2011 from $24.2 million for the three months ended March 31, 2010. The decrease resulted from the exercise of the warrants on December 23, 2010 in connection with our Corporate Restructuring.

        Accretion of debt discount.    Our expense for accretion of debt discount decreased $2.1 million, or 100%, to $0 for the three months ended March 31, 2011 from $2.1 million for the three months ended March 31, 2010. The decrease resulted from the retirement of BCEC's senior subordinated notes on December 23, 2010 in connection with our Corporate Restructuring.

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

        We completed our Corporate Restructuring on December 23, 2010. Our 2010 results are based on combining the operating results of BCEI for the audited period from inception (December 23, 2010) to December 24, 2010 through December 31, 2010 and the operating results of our predecessor, BCEC, for the audited period from January 1, 2010 through December 23, 2010.

			Bonanza Creek Energy Company, LLC Period Ended December 23, 2010			Bonanza Creek Energy, Inc. Period from Inception (December 23, 2010) to December 31, 2010			Total Year Ended December 31, 2010
									(unaudited)
Revenues:
	Oil sales		$	34,431		$	1,325		$	35,756
	Natural gas sales			6,226			207			6,433
	Natural gas liquids and CO2 sales			7,672			213			7,885
Total revenues			$	48,329		$	1,745		$	50,074
Operating expenses:
	Lease operating			14,792			483			15,275
	Severance and ad valorem taxes			1,621			70			1,691
	Exploration			361			—			361
	Depreciation, depletion and amortization(1)			14,225			506			14,731
	General and administrative			8,375			323			8,698
	Cancelled private placement			2,378			—			2,378
		Total operating expenses		41,752			1,382			43,134
Income from operations				6,577			363			6,940
Other income (expense):
	Gain on sale of oil and gas properties			4,055			—			4,055
	Other income (loss)			19			—			19
	Write off of deferred financing costs			(1,663	)		—			(1,663	)
	Unrealized gain on fair value of warrant put option(2)			34,345			—			34,345
	Amortization of debt discount(3)			(8,862	)		—			(8,862	)
	Realized gain on settled commodity derivatives			5,919			(47	)		5,872
	Unrealized loss in fair value of commodity derivatives			(7,605	)		(514	)		(8,119	)
	Interest expense(4)			(18,001	)		(58	)		(18,059	)
		Total other income (expense)		8,207			(619	)		7,588
Income before income taxes			$	14,784		$	(256	)	$	14,528

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Revenues

	Year Ended December 31,
	2009		2010		Change		Percent Change
	(In thousands, except percentages)
Revenues:
Crude oil sales	$	27,601	$	35,756	$	8,155		30	%
Natural gas sales		3,671		6,433		2,762		75	%
Natural gas liquids sales		2,886		7,297		4,411		153	%
CO2 sales		283		588		305		108	%
Product revenues	$	34,441	$	50,074	$	15,633		45	%

	Year Ended December 31,
	2009		2010		Change			Percent Change
Sales Volumes:
Crude oil (MBbls)		507.4		484.9		(22.5	)		(4	)%
Natural gas (MMcf)		939.0		1,351.5		412.5			44	%
Natural gas liquids (MBbls)		69.1		129.8		60.7			88	%
Crude oil equivalent (MBoe)(1)		733.0		840.0		107.0			15	%

(1)

Determined using the ratio of 6 Mcf of natural gas to 1 Bbl of crude oil. Excludes CO₂ sales.

	Year Ended December 31,
	2009		2010		Change		Percent Change
Average Sales Prices (before hedging)(1):
Crude oil (per Bbl)	$	54.40	$	73.73	$	19.33		36	%
Natural gas (per Mcf)		3.91		4.76		0.85		22	%
Natural gas liquids (per Bbl)		41.77		56.23		14.46		35	%
Crude oil equivalent (per Boe)(2)		46.60		58.91		12.31		26	%

	Year Ended December 31,
	2009		2010		Change			Percent Change
Average Sales Prices (after hedging)(1):
Crude oil (per Bbl)	$	67.40	$	75.27	$	7.87			12	%
Natural gas (per Mcf)		5.05		4.99		(0.06	)		(1	)%
Natural gas liquids (per Bbl)		41.77		56.23		14.46			35	%
Crude oil equivalent (per Boe)(2)		57.07		60.18		3.11			5	%

(1)

Although we do not designate our derivatives as cash flow hedges for financial statement purposes, the derivatives do economically hedge the price we receive for crude oil and natural gas.

(2)

Determined using the ratio of 6 Mcf of natural gas to 1 Bbl of crude oil. Excludes CO₂ sales.

        Product revenues increased by 45%, to $50 million in 2010 compared to $34 million in 2009. The increase in product revenues was primarily due to higher average prices for oil, natural gas and natural gas liquids in 2010 as compared to 2009 of 36%, 22% and 35%, respectively, and higher natural gas and natural gas liquids production in 2010 as compared to 2009 of 44% and 88%, respectively. Production

53

increases for natural gas and natural gas liquids were due primarily to 2010 development activities on our properties in southern Arkansas and Colorado. During 2010, we drilled 51 net wells as compared to 2.5 net wells drilled in 2009. Furthermore, our Dorcheat gas plant in Arkansas processed natural gas for HEC in 2009 and 2010 and we recognized natural gas and natural gas liquids volumes and revenues earned under a processing agreement. Natural gas and natural gas liquid volumes and revenues increased as HEC drilled 12 wells in 2010 as compared to 4 wells in 2009. Oil production decreased by 4% in 2010 as compared to 2009 primarily due to low drilling in 2009 and early 2010 resulting in a continued rate of decline for oil production from existing wells, partially offset by increased drilling activity in the later part of 2010.

Operating Expenses

	Year Ended December 31,
	2009		2010		Change			Percent Change
	(In thousands, except percentages)
Expenses:
Lease operating	$	13,449	$	15,275	$	1,826			14	%
Severance and ad valorem taxes		2,148		1,691		(457	)		(21	)%
General and administrative		7,610		8,698		1,088			14	%
Depreciation, depletion and amortization		14,108		14,731		623			4	%
Exploration		131		361		230			176	%
Impairment of oil and gas properties		579		—		(579	)		(100	)%
Cancelled private placement		—		2,378		2,378			100	%
Operating expenses	$	38,025	$	43,134	$	5,109			13	%

	Year Ended December 31,
	2009		2010		Change			Percent Change
Selected Costs ($ per Boe):
Lease operating	$	18.35	$	18.19	$	(.16	)		(1	)%
Severance and ad valorem taxes		2.93		2.01		(.92	)		(31	)%
General and administrative		10.38		10.36		(0.2	)		—	%
Depreciation, depletion and amortization		19.25		17.54		(1.71	)		(9	)%
Exploration		0.18		0.43		0.25			139	%
Impairment of oil and gas properties		0.79		—		(.79	)		(100	)%
Cancelled private placement		—		2.83		2.83			100	%
Operating expenses	$	51.88	$	51.36	$	(0.52	)		(1	)%

        Lease operating expenses.    Our lease operating expenses increased $1.8 million, or 14%, to $15.3 million in 2010 from $13.4 million in 2009. The increase in lease operating expenses was primarily related to higher compression rental costs in our Dorcheat Macedonia field, increased workover activity and higher steam injection expense related to our California thermal properties.

        Severance and ad valorem taxes.    Severance and ad valorem taxes per Boe decreased by $0.92, or 31%, to $2.01 for 2010 from $2.93 for 2009. The decrease in production taxes was due primarily to refunds received from Colorado for overpayment of severance taxes in 2008 and 2009.

54

        General and administrative.    Our general and administrative expenses increased $1.1 million, or 14%, to $8.7 million for 2010 from $7.6 million for 2009. The increase in general and administrative expenses was due primarily to an aggregate bonus of $0.5 million awarded to employees in connection with our Corporate Restructuring in December 2010.

        Depreciation, depletion and amortization.    Our depreciation, depletion and amortization expense increased $0.6 million, or 4%, to $14.7 million in 2010 from $14.1 million in 2009. Our depreciation, depletion and amortization expense per Boe produced decreased by $1.71, or 9%, to $17.54 for 2010 as compared to $19.25 for 2009 due primarily to additional reserves resulting from higher commodity prices in 2010 and reserves adds from workover and behind-pipe activities.

Other Income and Expense

        Interest expense.    Our interest expense increased $1.5 million, or 9%, to $18.1 million in 2010 from $16.6 million in 2009. As a result of $30 million in borrowings on a second lien note at a 14% rate, we paid down our first lien revolver at an annual rate of approximately 4%.

        Gain on sale of oil and gas properties.    Our gain on sale of oil and gas properties increased $3.8 million to $4.1 million in 2010 from $0.3 million in 2009. In March 2010, we sold our non-operated working interest in the Jasmin, California property resulting in a gain on sale of $ 4.1 million.

        Realized gain on settled commodity derivatives.    Our realized gain on settled commodity derivatives decreased $7.6 million, or 56%, to $5.9 million in 2010 from $13.5 million in 2009. The change was primarily related to higher commodity prices during 2010 that lowered our realized gain.

        Cancelled private placement.    During 2010, we incurred expenditures of $2.4 million in connection with our efforts to sell preferred stock through a private placement offering. Cost incurred is comprised primarily of legal fees, printing cost, travel and audit fees. The offering was cancelled in August 2010.

        Change in fair value of warrant put option.    The unrealized gain from the change in the fair value of the warrant put option increased $115 million to a gain of $34.3 million for 2010, as compared to a $80.6 million loss for the period ended December 31. 2009. This gain of $34.3 million resulted from a decrease in the value of the warrant put option from $81.5 million as of December 31, 2009 to $47.1 million as of December 23, 2010. The warrant was exchanged for shares of our common stock in connection with our Corporate Restructuring and, therefore, no exercise occurred after December 23, 2010.

        Accretion of debt discount.    Our expense for accretion of debt discount increased $0.9 million, or 11%, to $8.9 million for the year ended December 31, 2010. The accretion expense is related to the amortization of our debt discount for the Series A, Series B and Series C Senior Subordinated Unsecured Notes.

55

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

Revenues

	Year Ended December 31,
	2008		2009		Change			Percent Change
	(In thousands, except percentages)
Revenues:
Crude oil sales	$	39,967	$	27,601	$	(12,366	)		(31	)%
Natural gas sales		5,165		3,671		(1,494	)		(29	)%
Natural gas liquids sales		2,038		2,886		848			42	%
CO2 sales		744		283		(461	)		(62	)%
Product revenues	$	47,914	$	34,441	$	(13,473	)		(28	)%

	Year Ended December 31,
	2008		2009		Change		Percent Change
Sales Volumes:
Crude oil (MBbls)		453.7		507.4		53.7		12	%
Natural gas (MMcf)		668.9		939.0		270.1		40	%
Natural gas liquids (MBbls)		35.5		69.1		33.6		95	%
Crude oil equivalent (MBoe)(1)		600.7		733.0		132.3		22	%

(1)

Determined using the ratio of 6 Mcf of natural gas to 1 Bbl of crude oil. Excludes CO₂ sales.

	Year Ended December 31,
	2008		2009		Change			Percent Change
Average Sales Prices (before hedging)(1):
Crude oil (per Bbl)	$	88.09	$	54.40	$	(33.69	)		(38	)%
Natural gas (per Mcf)		7.72		3.91		(3.81	)		(49	)%
Natural gas liquids (per Bbl)		57.45		41.77		(15.68	)		(27	)%
Crude oil equivalent (per Boe)(2)		78.53		46.60		(31.93	)		(41	)%

	Year Ended December 31,
	2008		2009		Change			Percent Change
Average Sales Prices (after hedging)(1):
Crude oil (per Bbl)	$	79.59	$	67.40	$	(12.19	)		(15	)%
Natural gas (per Mcf)		7.93		5.05		(2.88	)		(36	)%
Natural gas liquids (per Bbl)		57.45		41.77		(15.68	)		(27	)%
Crude oil equivalent (per Boe)(2)		72.35		57.07		(15.28	)		(21	)%

(1)

Although we do not designate our derivatives as cash flow hedges for financial statement purposes, the derivatives do economically hedge the price we receive for crude oil and natural gas.

(2)

Determined using the ratio of 6 Mcf of natural gas to 1 Bbl of crude oil. Excludes CO₂ sales.

        Revenues decreased by 28%, to $3.4 million, in 2009 compared to $48 million in 2008. The decrease in net revenues was primarily due to significantly lower average oil and natural gas prices in 2009. The 42% increase in natural gas liquids revenues was the result of increased volumes of natural gas liquids as a result

56

of our acquisition of producing properties in southern Arkansas in April 2008. For 2009, sales volumes increased approximately 23% compared to 2008. The increase in sales volumes was primarily due to our acquisition of producing properties in southern Arkansas in April 2008 and the increase in drilling activity subsequent to the acquisition.

Operating Expenses

	Year Ended December 31,
	2008		2009		Change			Percent Change
	(In thousands, except percentages)
Expenses:
Lease operating	$	20,435	$	13,449	$	(6,986	)		(34	)%
Severance and ad valorem taxes		1,847		2,148		301			16	%
General and administrative		7,477		7,610		133			2	%
Depreciation, depletion and amortization		25,463		14,108		(11,355	)		(45	)%
Exploration		25		131		106			424	%
Impairment of oil and gas properties		26,437		579		(25,858	)		(98	)%
Operating expenses	$	81,684	$	38,025	$	(43,659	)		(53	)%

	Year Ended December 31,
	2008		2009		Change			Percent Change
Selected Costs ($ per Boe):
Lease operating	$	34.02	$	18.35	$	(15.67	)		(46	)%
Severance and ad valorem taxes		3.07		2.93		(.14	)		(5	)%
General and administrative		12.45		10.38		(2.07	)		(17	)%
Depreciation, depletion and amortization		42.39		19.25		(23.14	)		(55	)%
Exploration		0.04		0.18		0.14			350	%
Impairment of oil and gas properties		44.01		0.79		(43.22	)		(98	)%
Operating expenses	$	135.98	$	51.88	$	(84.10	)		(62	)%

        Lease operating expense.    Our lease operating expenses decreased $7.0 million, or 34%, to $13.4 million in 2009 from $20.4 million in 2008. The decrease in lease operating expenses was primarily related to the reduction of steam injection in our California thermal properties.

        Severance and ad valorem taxes.    Our severance and ad valorem taxes increased $0.3 million, or 16%, to $2.1 million in 2009 from $1.8 million in 2008. Severance and ad valorem taxes per Boe decreased $0.14, or 5%, to $2.93 for 2009 from $3.07 for 2008.

        General and administrative.    Our general and administrative expenses increased $0.1 million, or 2%, to $7.6 million for 2010 from $7.5 million for 2009.

        Depreciation, depletion and amortization.    Our depreciation, depletion and amortization expense decreased $11.4 million, or 45%, to $14.1 million in 2009 from $25.5 million in 2008. Our depreciation, depletion and amortization expense per Boe produced decreased by $23.14, or 55%, to $19.25 for 2009 as compared to $42.39 for 2008. The decrease was primarily due to a $26.4 million impairment we took on certain of our properties and accompanying reserve write-down, as a result of depressed oil and gas prices as of December 31, 2008.

57

Other Income and Expense

        Interest expense.    Our interest expense increased $3.7 million, or 29%, to $16.6 million in 2009 from $12.9 million in 2008. The increase was due to increased borrowings resulting primarily from the acquisition of producing properties in southern Arkansas.

        Change in fair value of warrant put option.    The unrealized loss from the change in the fair value of the warrant put option increased $151.6 million to a loss of $80.6 million for the year ended December 31, 2009. The unrealized loss resulted from an increase in value of the warrant put option from $0.8 million as of December 31, 2008 to $81.5 million as of December 31, 2009.

        Accretion of debt discount.    Our expenses for accretion of debt discount increased $2.0 million, or 33%, to $8.0 million for the year ended December 31, 2009. The accretion expense is related to the amortization of our debt discount for the Series A, Series B and Series C Senior Subordinated Unsecured Notes.

        Realized gain (loss) on settled commodity derivatives.    Our realized gain on settled commodity derivatives increased $11.5 million to $13.5 million for the year ended December 31, 2009. The change was primarily related to lower commodity prices during 2009 that increased our realized gain.

Liquidity and Capital Resources

        Our primary sources of liquidity to date have been proceeds from our Corporate Restructuring, capital contributions from investors, borrowings under our credit facility and cash flows from operations. Our primary use of capital has been for the acquisition and development of oil and natural gas properties.

        On March 29, 2011, we entered into $300 million senior secured revolving credit facility to provide us with additional liquidity and flexibility for capital expenditures. As of March 31, 2011, we had $63.5 million of indebtedness outstanding and $66.5 million of borrowing capacity available under our credit facility. We intend to use a portion of the proceeds from this offering to pay down all of the debt outstanding under our credit facility. Upon completion of this offering, we expect to have the full $130 million of borrowing base capacity available under our credit facility. The size of our borrowing base is at the discretion of the lenders under our credit facility and is dependent upon a number of factors, including commodity prices and reserve levels. For a summary of the material provisions of our credit facility, see "—Credit facility."

        We expect that in the future our commodity derivative positions will help us stabilize a portion of our expected cash flows from operations despite potential declines in the price of oil and natural gas. Please see "—Quantitative and Qualitative Disclosures on Market Risks."

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        We actively review acquisition opportunities on an ongoing basis. Our ability to make significant additional acquisitions for cash is dependent on our obtaining additional equity or debt financing, which we may not be able to obtain on terms acceptable to us or at all.

		Year Ended December 31,									Three Months Ended March 31,
		2008			2009			2010			2010			2011
		(in thousands)
Financial Measures:
	Net cash provided by operating activities	$	11,128		$	11,134		$	21,726		$	4,225		$	8,535
	Net cash provided by (used in) investing activities		(79,581	)		(7,185	)		(32,944	)		5,697			(14,880	)
	Net cash provided by (used in) financing activities		72,541			(5,515	)		9,297			(9,153	)		7,113
	Cash and cash equivalents		4,088			2,522			—			3,290			768
	Acquisitions of oil and gas properties		40,846			650			1,066			—			—
	Exploration and development of oil and gas properties and gas processing facility		38,384			6,612			35,545			1,818			15,756

Cash flows provided by operating activities

        Net cash provided by operating activities was $8.5 million for the three months ended March 31, 2011, compared to $4.2 million provided by operating activities for the three months ended March 31, 2010. The increase in operating activities resulted primarily from an increase in revenues, increased production, and increased commodity prices offset by cash utilized in connection with changes in working capital when comparing the periods. Cash utilized by changes in working capital for the three months ended March 31, 2011 was $4.0 million as compared to $0.2 million that was provided by changes in working capital for the comparable period during 2010. Increases in working capital of $4.0 million for the three months ended March 31, 2011 is comprised primarily of increases in oil and gas equipment inventory and prepaid expenses of $1.7 million and $0.3 million, respectively, related to increased activities, and a decrease in trade payables and accrued expenses (exclusive of capital accruals) of $1.1 million due primarily to timing of A/P check distributions.

        Net cash provided by operating activities was $21.7 million, $11.1 million and $11.1 million for each of the years ended December 31, 2010, 2009 and 2008, respectively. Cash provided by changes in working capital for the year ended December 31, 2010 was $4.2 million as compared to cash that was utilized by changes in working capital in the amount of $2.8 million for the year ended December 31, 2009. Cash provided by changes in working capital for the year ended December 31, 2008 was $1.8 million. Increases in working capital of $4.2 million during 2010 is due primarily to an increase in trade payables and accrued expenses (exclusive of capital accruals) of $6.6 million, partially offset by an increase in trade receivables of $2.4 million, which changes are related to higher levels of activity in 2010.

Cash flows provided by (used in) investing activities

        Expenditures for development of oil and natural gas properties are the primary use of our capital resources. Net cash used in investing activities for the three months ended March 31, 2011 was $14.9 million, compared to $5.7 million cash provided by investing activities for the three months ended March 31, 2010. Net cash provided by investing activities for the three months ended March 31, 2010 was primarily the results of the sale of our interest in the Jasmin field in California. Our primary use of net cash was approximately $1.8 million spent for development activity. For the year ended December 31, 2010, excluding the Corporate Restructuring, net cash used in investing activities was $32.9 million, of which we spent approximately $1.1 million on acquisitions, $35.5 million for the exploration and development of oil

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and gas properties, advanced $3.7 million to fund HEC's exploration and development program, offset by the receipt of proceeds in the amount of $7.5 million for the sale of the Jasmin field. In connection with the Corporate Restructuring, $59 million in cash along with common stock valued at $21.1 million was used to acquire HEC. For the year ended December 31, 2009, net cash used in investing activities was $7.2 million, of which we spent approximately $0.7 million for the acquisition of oil and gas properties and $6.6 million for the exploration and development of oil and gas properties. For the year ended December 31, 2008, net cash used in investing activities was $79.6 million, of which we spent approximately $41 million in cash on the acquisition of properties in southern Arkansas and the remainder on developing our proved reserves.

Cash flows provided by (used in) financing activities

        Net cash flow provided by financing activities for the three months ended March 31, 2011 was $7.1 million primarily related to net borrowings on our line of credit in the amount of $8.1 million offset by deferred financing costs of approximately $1.0 million. Net cash used in financing activities for the three months ended March 31, 2010 was $9.2 million and was primarily related to debt payments on our credit facility. Net cash provided by financing, excluding Corporate Restructuring, was $9.3 million for the year ended December 31, 2010, primarily related to net borrowings in the amount of $12.7 million offset by deferred financing charges in the amount of $3.4 million. Net cash used in financing activities was $5.5 million for the year ended December 31, 2009, primarily the result of making debt payments on our credit facility. Net cash provided by financing activities was $72.5 million for the year ended December 31, 2008 was primarily the result of increases in borrowings under our credit facility to fund development activities and issuing subordinated debt to acquire our properties in southern Arkansas.

        In connection with our Corporate Restructuring, we received net proceeds of approximately $265 million from the sale of shares of our common stock to Black Bear, an entity advised by West Face Capital, and to certain clients of AIMCo. Proceeds from this transaction in the amount of $59 million along with common stock valued at $21.1 million was used to acquire HEC, $17.3 million of the proceeds were used for debt extinguishment penalties, and $182 million was used to retire the second lien term loan, the senior subordinated notes and a related party note payable, and to make a $29 million line of credit principal payment.

Credit facility

        On March 29, 2011, we entered into a credit agreement providing for a $300 million senior secured revolving credit facility with an initial borrowing base of $130 million and with a $5 million subfacility for standby letters of credit. This credit facility is guaranteed by all of our subsidiaries.

        Our borrowing base under the credit agreement is redetermined semiannually on each April 1 and October 1 and may be redetermined up to one additional time between such scheduled determinations upon our request or upon the request of the required lenders (defined as lenders holding 66²/3% of the aggregate commitments). The borrowing base is redetermined (i) in the sole discretion of the administrative agent and all of the lenders, (ii) in accordance with their customary internal standards and practices for valuing and redetermining the value of oil and gas properties in connection with reserve based oil and natural gas loan transactions, (iii) in conjunction with the most recent engineering report and other information received by the administrative agent and the lenders relating to our proved reserves and (iv) based upon the estimated value of our proved reserves as determined by the administrative agent and the lenders.

        We intend to use the net proceeds from this offering to repay all outstanding indebtedness under our credit facility, leaving us approximately $130 million available for future borrowings. As of April 30, 2011, we had approximately $68.4 million outstanding under our credit facility. The credit facility matures on March 29, 2015. Amounts borrowed and repaid under the credit facility may be reborrowed. The credit

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facility may be used only to finance development of oil and gas properties, for working capital and for other general corporate purposes.

        Our obligations under the credit facility are secured by first priority liens on all of our property and assets (whether real, personal, or mixed, tangible or intangible), including our proved reserves and our oil and gas properties (which term is defined to include fee mineral interests, term mineral interests, leases, subleases, farm-outs, royalties, overriding royalties, net profit interests, carried interests, production payments, back in interests and reversionary interests). The facility is guaranteed by us and all of our direct and indirect subsidiaries.

        Interest under the credit facility is generally determined by reference to either, at our option:

•

the London interbank offered rate, or LIBOR, for an elected interest period plus an applicable margin between 2.00% to 3.00%; or

•

an alternate base rate (being the highest of the administrative agent's prime rate, the federal funds effective rate plus 0.5% or 3-month LIBOR plus 1.00%) plus an applicable margin between 1.00% and 2.00%.

The applicable margin varies on a daily basis based on the percentage outstanding under the borrowing base. We incur quarterly commitment fees based on the unused amount of the borrowing base of 0.5% per annum. We may prepay loans under the credit facility at any time without premium or penalty (other than customary LIBOR breakage costs).

        The credit facility contains various covenants limiting our ability to:

•

grant or assume liens;

•

incur or assume indebtedness;

•

grant negative pledges or agree to restrict dividends or distributions from subsidiaries;

•

sell, transfer, assign or convey assets, or engage in certain mergers or acquisitions;

•

make certain distributions;

•

make certain loans, advances and investments;

•

engage in transactions with affiliates;

•

enter into sale and leaseback, take-or-pay or hydrocarbon prepayment transactions; or

•

enter into certain swap agreements.

        The credit facility also contains covenants requiring us to maintain:

•

a current ratio of not less than 1.0 to 1.0; and

•

a debt to EBITDAX coverage ratio of not more than: 4.00 to 1.00 as of the quarter ending March 31, 2011 (using EBITDAX for the quarter then ended multiplied by four); 4.00 to 1.00 as of the quarter ending June 30, 2011 (using EBITDAX for the two quarters then ending multiplied by two); 4.00 to 1.00 as of the quarter ending September 30, 2011 (using EBITDAX for the three quarters then ending multiplied by ⁴/3); and 4.00 to 1.00 as of the quarter ending December 31, 2011 and each quarter thereafter (using the trailing four-quarter EBITDAX).

As of the three months ended March 31, 2011, we were in compliance with these ratios.

        The credit agreement contains customary events of default, including:

•

failure to pay any principal, interest, fees, expenses or other amounts when due;

•

the failure of any representation or warranty to be materially true and correct when made;

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•

failure to observe any agreement, obligation or covenant in the credit agreement, subject to cure periods for certain failures;

•

a cross-default for the payment of any other indebtedness of at least $2 million;

•

bankruptcy or insolvency;

•

judgments against us or our subsidiaries, in excess of $2 million, that are not stayed;

•

certain ERISA events involving us or our subsidiaries; and

•

a change in control (as defined in the credit agreement), including the ownership following this offering by a "person" or "group" (as defined under the Securities and Exchange Act of 1934, as amended, but excluding certain permitted stockholders) directly or indirectly, of more than 35% of our common stock.

Future capital requirements

        We believe that the proceeds from this offering and our internally generated cash flow combined with access to our credit facility will be sufficient to meet the liquidity requirements necessary to fund our daily operations, planned capital development and execute on our growth strategy and debt service requirements. Any decision regarding a future financing transaction, and our ability to complete such a transaction, will depend on prevailing market conditions and other factors. Our ability to continue to meet our liquidity requirements and execute on our growth strategy can be impacted by economic conditions outside of our control, such as the recent disruption in the capital and credit markets, as well as commodity price volatility, which could, among other things, lead to a decline in the borrowing base under our credit facility in connection with a borrowing base redetermination. In such case, we may be required to seek other sources of capital earlier than anticipated, although the restrictions in our credit agreements may impair our ability to access other sources of capital, and access to additional capital may not be available on terms acceptable to us or at all.

Contractual Obligations

        We have the following contractual obligations and commitments as of March 31, 2011 (in thousands):

	Total		1 Year or Less		2-3 Years		4-5 Years		More Than 5 Years
Credit facility(1)	$	63,500		—		—	$	63,500	$	—
Operating leases(2)		2,309		410		885		931		83
Asset retirement obligations(3)		6,112		400		400		—		5,312
	$	71,921	$	810	$	1,285	$	64,431	$	5,395

(1)

Amount excludes interest on our credit facility as both the amount borrowed and the applicable interest rate is variable. On March 29, 2011, we entered into a new credit agreement, which matures on March 29, 2015.

(2)

See Note 7 to our consolidated financial statements for a description of operating leases.

(3)

Amount represents our estimate of future retirement obligations on a discounted basis unless otherwise noted. Because these costs typically extend many years into the future, management prepares estimates and makes judgments that are subject to future revisions based upon numerous factors. The $0.4 million included in the one year or less category is not discounted and is included in accounts payable and accrued expenses as of March 31, 2011.

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Summary of Estimated Capital Expenditures

        The following table summarizes our historical 2010 and our estimated 2011 capital expenditures. Our historical 2010 capital expenditures include 2010 expenditures made by HEC, which was acquired in December 2010. We routinely monitor and adjust our estimated capital expenditures in response to changes in oil and natural gas prices, availability of financing, drilling and acquisition costs, industry conditions, the timing of regulatory approvals, the availability of rigs, success or lack of success in drilling activities, contractual obligations, internally generated cash flows and other factors both within and outside our control. See "Risk Factors—Risks Related to the Oil and Natural Gas Industry and Our Business." We do not budget for acquisitions.

		Historical and Projected Capital Expenditures Years Ended December 31,
Operation		2010		2011
		(dollars in thousands)
Oil and gas property development		$	44,576	$	135,363
Gas processing facility and other			4,491		16,150
	Total	$	49,067	$	151,513

Off-Balance Sheet Arrangements

        As of March 31, 2011, we had no material off-balance sheet arrangements. We have no plans to enter into any off-balance sheet arrangements in the foreseeable future.

Critical Accounting Policies

        Our discussion and analysis of financial condition and results of operations are based upon the information reported in our consolidated financial statements, which have been prepared in accordance with GAAP. In many cases, the accounting treatment of particular transactions is specifically required by GAAP. The preparation of our financial statements requires us to make estimates and judgments that can affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities at the date of our financial statements. We analyze our estimates and judgments, including those related to oil and natural gas revenues, oil and gas properties, fair value of derivative instruments, contingencies and litigation, and base our estimates and judgments on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may vary from our estimates. These significant accounting policies are detailed in Note 2 to our consolidated financial statements. We have outlined below certain of these policies as being of particular importance to the portrayal of our financial position and results of operations and which require the application of significant judgment or estimates by our management.

        Consolidation and Reporting.    Our consolidated financial statements include the accounts of us and our wholly owned subsidiaries, after elimination of all significant intercompany accounts, transactions and profits. Our management has evaluated our consolidation of variable interest entities in accordance with ASC 810, and has concluded that we have no variable interest entities.

        Oil and Natural Gas Properties.    We utilize the successful efforts method of accounting for our oil and natural gas properties. Under this method of accounting, costs to acquire the mineral interests in oil and natural gas properties, to drill and complete exploratory wells that find proved reserves, and to drill and complete development wells are capitalized when incurred. Costs to drill exploratory wells that do not find proved reserves, delay rentals and geological and geophysical costs are expensed as incurred, other than the costs used to determine a drill site location.

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        Oil and Natural Gas Reserve Quantities.    Our most significant financial estimates are based on estimates of proved oil and natural gas reserves. Estimates of proved reserves are key components of our rate of recording depreciation, depletion and amortization. Numerous uncertainties are inherent in estimating quantities of proved reserves and in projecting future revenues, rates of production and timing of development expenditures, including many factors beyond our control. The estimation process relies on assumptions and interpretations of available geologic, geophysical, engineering and production data, and the accuracy of reserve estimates is a function of the quality and quantity of available data. Our reserves are estimated on an annual basis by independent petroleum engineers.

        Asset Retirement Obligations.    ASC 410, Asset Retirement and Environmental Obligations, addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. In general, our future asset retirement obligations relate to future costs associated with the plugging and abandonment of our oil and natural gas wells, removal of equipment and facilities from leased acreage and returning such land to its original condition. ASC 410 requires that the fair value of a liability for an asset's retirement obligation be recognized in the period in which it is incurred, discounted to its present value using our credit adjusted risk-free interest rate, and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Revisions to estimated retirement obligations will result in an adjustment to the related capitalized asset and corresponding liability. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.

        Revenue Recognition.    We recognize revenues from the sales of oil and natural gas when the products are sold and delivery to the purchaser has occurred. Any amounts due from purchasers of oil and natural gas are included in accounts receivable in our consolidated balance sheet.

        At times, we may sell more or less than our entitled share of gas production. When this happens, we use the entitlement method of accounting for gas sales, based on our net revenue interest in production. Accordingly, revenue would be deferred for gas deliveries in excess of our net revenue interest, while revenue would be accrued for any undelivered volumes.

        Derivative Instruments and Hedging Activities.    ASC 815, Derivatives and Hedging, requires that all derivative instruments be recorded on the balance sheet as either assets or liabilities at their respective fair values. We utilize swaps and collars to reduce our exposure to unfavorable changes in oil and natural gas prices. We recognize all derivative instruments on a consolidated balance sheet as either an asset or liability based on fair value and recognize subsequent changes in fair value in earnings unless the derivative instrument qualifies as a hedge. The fair value of the derivative instruments is confirmed monthly by the counterparties to the agreement. Management believes that credit and performance risk with our counterparties is minimal.

        We did not designate any of our currently outstanding derivative instruments as hedges for financial statement purposes.

Recently Issued Accounting Pronouncements

        Fair Value.    In January 2010, the FASB issued authoritative guidance to update certain disclosure requirements and added two new disclosure requirements related to fair value measurements. See Note 11 to our consolidated financial statements included in this prospectus for a more detailed discussion of these requirements. We do not expect the adoption of this new guidance to have a significant impact on our financial position, cash flows or results of operations.

        Oil and Gas Reporting Requirements.    In December 2008, the SEC released the final rule, "Modernization of Oil and Gas Reporting," which adopts revisions to the SEC's oil and gas reporting disclosure requirements. The disclosure requirements under this final rule require reporting of oil and gas

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reserves using the unweighted arithmetic average of the first-day-of-the-month price for the preceding twelve months rather than year-end prices, and the use of new technologies to determine proved reserves if those technologies have been demonstrated to result in reliable conclusions about reserves volumes. Companies are required to report the independence and qualifications of their reserves preparer or auditor and file reports when a third party is relied upon to prepare reserves estimates or conduct a reserves audit. In January 2010, the FASB issued authoritative guidance on oil and gas reserve estimation and disclosure, aligning their requirements with the SEC's final rule. We have presented and applied this new guidance for the year ended December 31, 2009 herein.

Inflation

        Inflation in the United States has been relatively low in recent years and did not have a material impact on our results of operations for the last three fiscal years. Although the impact of inflation has been insignificant in recent years, it is still a factor in the United States economy, and we tend to experience inflationary pressure on the cost of oilfield services and equipment as increasing oil and gas prices result in increased drilling activity in our areas of operations.

Quantitative and Qualitative Disclosures on Market Risks

        Oil and Natural Gas Prices.    Our financial condition, results of operations and capital resources are highly dependent upon the prevailing market prices of oil and natural gas. These commodity prices are subject to wide fluctuations and market uncertainties due to a variety of factors that are beyond our control. Factors influencing oil and natural gas prices include the level of global demand for oil, the global supply of oil and natural gas, the establishment of and compliance with production quotas by oil exporting countries, weather conditions which determine the demand for natural gas, the price and availability of alternative fuels and overall economic conditions. It is impossible to predict future oil and natural gas prices with any degree of certainty. Sustained weakness in oil and natural gas prices may adversely affect our financial condition and results of operations, and may also reduce the amount of oil and natural gas reserves that we can produce economically. Any reduction in our oil and natural gas reserves, including reductions due to price fluctuations, can have an adverse affect on our ability to obtain capital for our exploration and development activities. Similarly, any improvements in oil and natural gas prices can have a favorable impact on our financial condition, results of operations and capital resources. If oil prices decline by $10.00 per Bbl, then our PV-10 as of December 31, 2010 would have been lower by approximately $100.4 million. If natural gas prices decline by $1.00 per Mcf, then our PV-10 as of December 31, 2010 would decrease by approximately $32.9 million.

        Our primary commodity risk management objective is to reduce volatility in our cash flows. Management makes recommendations on hedging that are approved by the board of directors before implementation. We enter into hedges for oil and natural gas using NYMEX futures or over-the-counter derivative financial instruments with only certain well-capitalized counterparties which have been approved by our board of directors.

        The use of financial instruments may expose us to the risk of financial loss in certain circumstances, including instances when (1) sales volumes are less than expected requiring market purchases to meet commitments, or (2) our counterparties fail to purchase the contracted quantities of natural gas or otherwise fail to perform. To the extent that we engage in hedging activities, we may be prevented from realizing the benefits of favorable price changes in the physical market. However, we are similarly insulated against decreases in such prices. For a discussion of the hedges that we had in place as of April 30, 2011, see "Business—Hedging Activity."

        Presently, all of our hedging arrangements are concentrated with two counterparties, both of which are lenders under our credit facility. If this counterparty fails to perform its obligations, we may suffer financial loss or be prevented from realizing the benefits of favorable price changes in the physical market.

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        The result of natural gas market prices exceeding our swap prices or collar ceilings requires us to make payment for the settlement of our hedge derivatives, if owed by us, generally up to three business days before we receive market price cash payments from our customers. This could have a material adverse effect on our cash flows for the period between hedge settlement and payment for revenues earned.

        The following table provides a summary of derivative contracts as of March 31, 2011:

Settlement Period	Derivative Instrument	Total Notional Amount (Bbl/Mmbtu)		Average Floor Price		Average Ceiling Price		Fair Market Value of Asset (Liability)
								(In thousands)
Oil
2010	Collar		358,528	$	83.86	$	133.43	$	(276	)
	Swap		94,144		63.36		63.36		(4,094	)
2011	Collar		167,472		90.00		123.00		(52	)
	Swap		116,708		63.03		63.03		(5,017	)
2012	Collar		50,616		90.00		123.00		54
	Swap		75,417		61.50		61.50		(3,090	)
Gas
2010	Swap		163,846		7.10		7.10		414
2011	Swap		202,319		6.75		6.75		342
2012	Swap		154,806		6.40		6.40		159
								$	(11,560	)

        Interest Rates.    We intend to use the net proceeds from this offering to repay all outstanding indebtedness under our credit facility. At April 30, 2011, we had $68.4 million outstanding under our credit facility, which is subject to floating market rates of interest. Borrowings under our credit facility bear interest at a fluctuating rate that is tied to an adjusted base rate or LIBOR, at our option. Any increases in these interest rates can have an adverse impact on our results of operations and cash flow. Based on borrowings outstanding at April 30, 2011, a 100 basis point change in interest rates would change our annualized interest expense by approximately $0.7 million.

        Counterparty and customer credit risk.    In connection with our hedging activity, we have exposure to financial institutions in the form of derivative transactions. The lenders under our credit facility are currently the counterparties on our derivative instruments currently in place and have investment grade credit ratings. We expect that any future derivative transactions we enter into will be with these or other lenders under our credit facility that will carry an investment grade credit rating.

        We are also subject to credit risk due to concentration of our oil and natural gas receivables with certain significant customers. See "Business—Principal Customers" for further detail about our significant customers. The inability or failure of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results. We review the credit rating, payment history and financial resources of our customers, but we do not require our customers to post collateral.

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BUSINESS

Overview

        Bonanza Creek Energy, Inc. is an independent oil and natural gas company engaged in the acquisition, exploration, development and production of onshore oil and associated liquids-rich natural gas in the United States. Our assets and operations are concentrated primarily in southern Arkansas (Mid-Continent region) and the DJ and North Park Basins in Colorado (Rocky Mountain region). In addition, we own and operate oil producing assets in the San Joaquin Basin (California region). Our management team has extensive experience acquiring and operating oil and gas properties, which we believe will contribute to the development of our sizable inventory of projects including those targeting the oily Cotton Valley sands in our Mid-Continent region and the Niobrara oil shale formation in our Rocky Mountain region. We operate approximately 99.4% and hold an average working interest of approximately 85.8% of our proved reserves, providing us with significant control over the rate of development of our long-lived, low-cost asset base.

        Cawley, Gillespie & Associates, Inc., our independent reserve engineers, estimated our net proved reserves as of December 31, 2010, to be as follows:

Estimated Proved Reserves		Crude Oil (MBbls)		Natural Gas (MMcf)		Natural Gas Liquids (MBbls)		Total Proved (MBoe)
Developed
	Mid-Continent		3,725		9,094		745		5,985
	Rocky Mountain		3,373		10,961		—		5,200
	California		337		19		—		340
Undeveloped
	Mid-Continent		7,898		35,754		3,033		16,890
	Rocky Mountain		2,729		7,011		—		3,898
	California		539		45		—		547
Total Proved			18,601		62,884		3,778		32,860

        Our average net daily production rate during April 2011 was 3,691 Boe/d, which consisted of 71.9% oil and natural gas liquids.

														Estimated Production for the Month Ended April 30, 2011
																					Net Proved Undeveloped Drilling Locations as of December 31, 2010
	Estimated Proved Reserves at December 31, 2010(1)
														Average Net Daily Production (Boe/d)					Projected 2011 Capital Expenditures (millions)(3)
	Total Proved (MBoe)		% of Total			% Proved Developed			% Oil and Liquids			PV-10 ($ in MM)(2)				% of Total
Mid-Continent		22,876		69.6	%		26.2	%		67.3	%	$	313.3		2,236		60.6	%	$	72.6		151.3
Rocky Mountain		9,098		27.7			57.2			67.1			135.3		1,237		33.5			70.2		75.8
California		886		2.7			38.3			98.8			13.0		218		5.9			8.7		13.6
Total		32,860		100.0	%		35.1	%		68.1	%	$	461.6		3,691		100	%	$	151.5		240.7

(1)

Proved reserves were calculated using prices equal to the twelve-month unweighted arithmetic average of the first-day-of-the-month prices for each of the preceding twelve months which were $79.43 per Bbl of crude oil and an average price of $4.38 per MMBtu of natural gas. Adjustments were

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made for location and the grade of the underlying resource, which resulted in $4.50 per Bbl of crude oil and an increase of $0.43 per MMBtu of natural gas.

(2)

PV-10 is a non-GAAP financial measure and represents the present value of estimated future cash inflows from proved crude oil and natural gas reserves, less future development and production costs, discounted at 10% per annum to reflect timing of future cash inflows and using the twelve month unweighted arithmetic average of the first-day-of-the-month price for each of the preceding twelve months. PV-10 differs from Standardized Measure because it does not include the effect of future income taxes. For a reconciliation of our Standardized Measure to PV-10, see "Summary Reserve and Operations Data—Non-GAAP Financial Measures and Reconciliation—PV-10."

(3)

Projected capital expenditures for our Mid-Continent region include an estimated $16.2 million allocated for a new Dorcheat gas processing facility scheduled to be completed in August 2011.

Development Projects by Region

        Mid-Continent:    In southern Arkansas we are primarily targeting the oil-bearing Cotton Valley sands in the Dorcheat Macedonia and McKamie Patton fields. As of December 31, 2010, our estimated proved reserves in this region were 22,876 MBoe, 67.3% of which were oil and natural gas liquids and 26.2% of which were proved developed. We currently operate 111 gross (96.7 net) producing wells and have an identified drilling inventory of approximately 188 gross (151.3 net) PUD drilling locations on our acreage. In 2011 we expect to drill and complete 40 gross (31.4 net) wells in the Dorcheat Macedonia field at a cost of approximately $1.7 million per well, and 2 gross (2.0 net) wells in the McKamie Patton field at a cost of $1.2 million per well.

        We also own and operate the McKamie gas processing facility and approximately 150 miles of associated gathering pipelines that serve our acreage position in southern Arkansas. This facility has a maximum processing capacity of 15 MMcf/d of natural gas and 30,000 gallons per day of natural gas liquids, and we are in the process of building a new 12.5 MMcf/d gas processing facility in the Dorcheat field to allow for continued field development and production growth. Our McKamie facility currently processes all of the natural gas that we produce from the Dorcheat and McKamie fields.

        Rocky Mountain:    In the DJ and North Park Basins in Colorado, we hold 89,701 gross (68,772 net) acres that currently produce oil, natural gas and CO₂ from the Pierre B, Niobrara, Codell, J-Sand, D-Sand and Dakota formations. As of December 31, 2010, our estimated proved reserves in this region were 9,098 MBoe, of which 67.1% were oil and 57.2% were proved developed. In the DJ Basin we control 29,742 net acres and have identified approximately 91 gross (75.8 net) vertical PUD drilling locations targeting the Codell sand and Niobrara oil shale formations. In 2011, we expect to drill and complete 66 gross (62.3 net) vertical wells targeting the Codell sand and Niobrara oil shale formations, at a cost of approximately $0.8 million per well. In addition, we believe that horizontal drilling and multi-stage fracture completion techniques are an attractive alternative to vertical well completions for the Niobrara oil shale. In June of 2011, we initiated horizontal development of the Niobrara oil shale by commencing drilling the first in a series of 4 gross (3.8 net) horizontal wells at a cost of approximately $3.7 million per well on our DJ Basin properties. In the North Park Basin we control 39,030 net acres and have identified highly fractured and dual porosity areas which we believe will support vertical and horizontal drilling techniques for the Niobrara. The development of the North Park Basin will begin in 2011 with the drilling of 7 gross (7.0 net) vertical wells at a cost of approximately $1.9 million per well.

        California:    In California we employ thermal techniques to recover heavy oil in the Kern River and Midway Sunset fields, and we produce medium gravity oil from the Greeley and Sargent fields. As of December 31, 2010, our estimated proved reserves in this region were 886 MBoe, of which 98.8% were oil and 38.3% were proved developed. We have identified approximately 18 gross (13.6 net) PUD drilling opportunities in these fields. In 2011, we expect to drill 10 gross (8.0 net) wells with individual well costs ranging from approximately $0.3 to $1.0 million.

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Our Business Strategies

        Our goal is to increase stockholder value by investing capital to increase our production, cash flow and proved reserves. We intend to accomplish this goal by focusing on the following key strategies:

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Increase Production from Existing Low-Cost Proved Inventory.  In the near term, we intend to accelerate the drilling of our lower-risk vertical PUD drilling locations in southern Arkansas and in the oily Codell and Niobrara formation of the DJ Basin. Substantially all of these infill locations are characterized by multiple productive horizons.

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Test and Evaluate Our Niobrara Oil Shale Acreage.  We hold approximately 89,701 gross (68,772 net) acres prospective for the development of the Niobrara oil shale in Weld and Jackson Counties, Colorado, and own approximately 17,400 acres of proprietary 3-D seismic data covering our acreage position in Weld County, which aids in identifying our horizontal drilling locations. Although full-scale vertical drilling of the Niobrara oil shale commenced in the early 1990s, operators in the region, including EOG Resources (DJ Basin and North Park Basin), Noble Energy (DJ Basin) and PDC Energy (DJ Basin), have recently applied horizontal drilling and multi-stage fracture stimulation techniques to enhance recoveries and economic returns. We expect to drill four Niobrara horizontal wells in the DJ Basin (Weld County, Colorado) in 2011 the first of which was commenced in June 2011.

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Exploit Additional Development Opportunities.  We are evaluating additional resource potential opportunities that could result in future development projects on several of our assets. For example, we have evaluated and believe we may achieve attractive returns by exploiting the Lower Smackover trend in our southern Arkansas acreage and we believe there are additional thermal recovery opportunities in California.

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Pursue Accretive Acquisitions.  We intend to pursue bolt-on acquisitions in regions where we operate and where we believe we possess a strategic or technical advantage, such as southern Arkansas where we own a gas processing facility and the associated infrastructure. In addition, we intend to focus on other oil and liquids-rich opportunities where we believe our operational experience will enhance the value and performance of acquired properties.

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Maintain High Degree of Operatorship.  We currently have and intend to maintain a high working interest in our assets, thereby allowing us to leverage our technical, operating and management skills and control the timing of our capital expenditures.

Our Competitive Strengths

        We believe the following combination of strengths will enable us to implement our strategies:

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Significant Drilling Inventory.  We have identified 297 gross (240.7 net) PUD drilling locations, providing us with multiple years of drilling inventory.

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Niobrara Resource Potential.  Since 2005, we have accumulated 68,772 net acres in Weld and Jackson Counties, Colorado, targeting the Niobrara formation. Our acreage is proximate to horizontal drilling operations which have been successfully completed by other operators. Significant increases in permitting, spud notices involving the Niobrara formation in these counties have made this area one of the most active oil shale plays in the United States. While most of our acreage in the area is currently undeveloped, continued successful drilling of horizontal Niobrara wells by us or other operators could lead to development of that acreage over time. Prior to 2009, there were 11 horizontal wells in Weld County. In 2009, spud notices were issued for 6 horizontal wells which increased to 118 horizontal wells in 2010. As of June 2011, there were 72 spud notices received so far for 2011 and 309 permits issued for horizontal wells. In Weld County the average initial 30-day production rate is 311 Boe/d from 32 wells with oil and gas production and no dry holes reported to

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the state regulatory commission. In the North Park Basin, EOG Resources has completed 5 wells horizontally in an area of the Niobrara that we believe to be geologically similar to our acreage position based on electric and porosity log response. The average initial 30-day production rate for these wells is 323 Boe/d.

We believe our significant acreage position in the Niobrara represents production, reserve and value growth potential and that the continued development of this play by other operators validates our investment in this play and will result in the continued development of infrastructure in the area. Geological risks associated with our Weld County acreage position have been mitigated by the high volume of data provided through the drilling, completion and production of thousands of vertical wells in the Niobrara in close proximity to our acreage. Additionally, since oil and gas production has been established, gathering systems are in place in this region, enabling a short time period from well completion to first product sales.

In Weld County, we own approximately 17,400 acres of proprietary 3-D seismic. Because we have exclusive access to this data, we are in a position to preferentially orient horizontal wells targeting the Niobrara on our acreage position and have the ability to identify and avoid drilling hazards, such as faulting.

In Jackson County, we own 22 proprietary 2-D seismic lines. Interpretation of this proprietary seismic data affords us the geologic image necessary to plan our Niobrara development program. In addition, our position of 39,030 net acres provides us with economies of scale to develop the Niobrara, as well as to explore the resource potential in other horizons.

While there is currently no pipeline capacity in Jackson County to move natural gas to market, successful drilling of horizontal Niobrara wells by us or other operators would likely justify installation of gas pipeline infrastructure.

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High Degree of Operational Control.  We hold an average working interest in our properties of approximately 85.8% and operate approximately 99.4% of our estimated proved reserves, which allows us to employ the drilling and completion techniques we believe to be most effective, manage costs and control the timing and allocation of our capital expenditures.

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Gas Processing Capability in Southern Arkansas.  The processing of our natural gas at our McKamie facility improves our well development economics in southern Arkansas. We are in the process of expanding our infrastructure by adding an additional gas processing facility in our Dorcheat field to accommodate future drilling on our acreage in this region.

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Experienced Management.  Our senior management team averages more than 28 years of industry experience, and certain members of our executive management have worked together for over 24 years. Our management team has significant acquisition experience, having negotiated and closed more than 12 acquisition transactions since 2006.

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Financial Flexibility.  Our capital structure is intended to provide a high degree of financial flexibility to grow our asset base, both through organic projects and opportunistic acquisitions. Immediately following the completion of this offering, we expect to have no indebtedness and $             million of liquidity, comprised of $130 million of availability under our credit facility and approximately $             million of cash on hand.

Bonanza Creek Acquisition History

        Acquiring properties that are complementary to our existing positions or that have significant undeveloped resource potential has been an important part of our growth strategy. The following describes

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some of the recent acquisitions we have made to build our current position in the Mid-Continent, the Rocky Mountain and California regions:

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Mid-Continent.  In April 2008, we acquired properties in Union, Lafayette and Columbia counties, Arkansas, that included 93 producing wells (68 operated) with an average working interest of 73% and 14,980 gross (12,147 net) acres. Included in the acquisition was a 15 MMcf/d gas plant with approximately 150 miles of gathering system, which processes production from both the properties and other producers in the area. We acquired 3,469 gross (3,018 net) acres in the Dorcheat Macedonia Field, Columbia County, Arkansas in December 2010. The assets included a non-operated position in our Dorcheat Macedonia field as well as operated wells in which we were a non-operated owner.

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Rocky Mountain.  We completed four DJ Basin acquisitions in 2005 and 2006, consisting of approximately 39,728 gross (27,463 net) acres. In December 2010, we purchased an additional 2,970 gross (2,279 net) acres in the DJ Basin, including 39 operated and 3 non-operated wells primarily completed in the Codell/Niobrara formations. We purchased the McCallum Field, located in the North Park Basin, Jackson County, Colorado in May 2006, along with 2 non-producing wells and undeveloped acreage in November 2007.

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California.  In 2006 and 2007, we acquired 8,940 gross (5,012 net) acres in Kern and Santa Clara Counties, California consisting of a mix of heavy and light oil producing assets.

Our Operations

        Our operations are mainly focused in the Mid-Continent, specifically the Dorcheat Macedonia field located in Columbia County, Arkansas and in the DJ Basin and the North Park Basin in the Rocky Mountain region.

Mid-Continent Region

        Substantially all of our proved reserves and our identified PUD drilling locations in our Mid-Continent acreage are located in the Dorcheat Macedonia field and the McKamie Patton field.

Dorcheat Macedonia

        In the Dorcheat Macedonia field we average a 83.3% working interest and 68.5% net revenue interest, and all of our acreage is held by production. We have approximately 78 gross (65.0 net) producing wells and our average net daily production during April 2011 was approximately 1,249 Boe/d from a proved reserves base of 15,247 MBoe, of which about 64.5% is oil and natural gas liquids. Productive reservoirs range in depth from 4,500 to 9,000 feet in depth. Those reservoirs have included the Smackover, Cotton Valley and the Pettet. Our primary development target is the Cotton Valley.

        The Dorcheat Macedonia field was originally developed for the Smackover in the 1940s on 80-acre units with the initial well drilled in the center of the unit. The Cotton Valley and shallower reservoirs were developed in the 1970s and 1980s. Field rules for the development of the Cotton Valley provided for the drilling of a Cotton Valley well in the center of the two 40-acre tracts that comprised the 80-acre unit, with a location tolerance of no more than 150 feet from a straight line between the two centers of the 40 acres, which resulted in two Cotton Valley wells and a Smackover well confined to an 11-acre oval within the center of the unit, leaving 69 acres within each unit without a wellbore penetration. Subsequent development of the Cotton Valley has reduced the spacing to approximately 20 acres in certain areas of the field, and our continued development will ultimately reduce spacing to ten acres. The oil-bearing Cotton Valley sands directly overlie the Bossier Shale and have relatively low porosity and permeability. Deposited as a series of sand and shale sequences, the resulting reservoir is extremely lenticular in nature. Based on reservoir parameters, fracture stimulation is employed to complete these multiple stacked pay zones. The

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oil in these sands has an American Petroleum Institute (API) gravity of approximately 45° and is primarily lifted by rod pump.

        Historically, the Dorcheat Macedonia reservoirs have responded favorably to fracture stimulation. Beginning in the fourth quarter of 2009 we began to implement pinpoint fracture stimulation utilizing coiled tubing. Post-fracture treatment tracer work has confirmed that pinpoint fracture placement provides much better coverage and penetration of the intended producing intervals. Early results from wells employing this technique have seen initial production rates higher than historic and show stimulation of previously unstimulated zones.

        As of December 31, 2010, we have identified approximately 179 gross (142.6 net) PUD drilling locations on our acreage in this area. Currently, we have budgeted for 2011 capital expenditures of $53.5 million for the development of our Dorcheat Macedonia acreage. Under this budget we expect to drill 40 gross (31.4 net) additional infill PUD locations in the field this year. We expect to drill vertically to an average depth of approximately 8,700 feet for each location with a total expected drill and complete cost per well of approximately $1.7 million, approximately $1.6 million of which will be for initial drilling and completion. Typically, these wells take an average of 12 days to drill and three days to complete. The average initial 30-day production rate for the 24 wells we drilled in the Dorcheat Macedonia field and had on production since October 2009 was 146 Boe/d. Our typical well has a hyperbolic decline rate and an average economic life of 22 years. As of April 30, 2011, we have drilled 13 gross (10.2 net) of the planned 2011 wells.

        Immediately northwest of the Dorcheat Macedonia field, we own and operate the McKamie gas processing facility, which processes all of the gas from the field. Natural gas is sold to the facility under a percent-of-proceeds contract whereby the field receives revenue from both gas and natural gas liquids sales after processing. Oil production is trucked from individual tank batteries.

Other Mid-Continent

        We own additional interests in the Mid-Continent region near the Dorcheat Macedonia field. These include interests in the McKamie-Patton, Atlanta and Beach Creek fields. Our estimated proved reserves in these fields as of December 31, 2010 were approximately 1,947.8 MBoe, and average net daily production during April 2011 was approximately 239 Boe/d. We plan to drill 2 gross (2.0 net) wells in the McKamie-Patton field in 2011 at a cost of $1.2 million per well.

Gas Processing Facilities

        The McKamie processing facility is located in Lafayette County, Arkansas and is strategically located to serve our production in the region. Our facility has a processing capacity of 15 MMcf/d of natural gas and 30,000 gallons per day of natural gas liquids. The facility processes natural gas and natural gas liquids, fractionates liquids into three components for sale, and sells four products at the facility's tailgate: propane, butane, natural gasolines and natural gas. The facility is a Process Safety Management maintained facility, and the main components were placed into service in the mid-1980s. The facility is currently processing approximately 10 MMcf/d of natural gas comprised of 9.2 MMcf/d of Bonanza-operated natural gas and 0.8 MMcf/d of third-party natural gas. We also own approximately 150 miles of natural gas gathering pipeline that serves the facility and surrounding field areas and 32 miles of right-of-way crossing Lafayette County that can be utilized to connect the facility to other gas fields or future sales outlets. Natural gas is sold at the tailgate of the facility into a CenterPoint pipeline connection. Fractionated natural gas liquids are held on site and trucked out by the buyer, Dufour Petroleum. All gas entering the facility is processed in accordance with percent-of-proceeds contracts with upstream counterparties.

        The McKamie processing facility had an average net output of 749 Boe/d based on the facility contracts for the month of April, 2011. Our ownership of this facility and pipeline system provides us with

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the benefit of controlling processing and compression of our natural gas production and timing of connection to our newly completed wells. While we own the majority of the gas entering the facility, we also process some third-party natural gas through the system. Neither the revenue nor volumes of this third-party natural gas is included in our reserve reports.

        In order to accommodate future increased gas volumes, we plan to invest $16.2 million in additional gas processing capability in 2011. We currently are building a 12.5 MMcf/d processing facility in our Dorcheat Macedonia field, which we expect to complete during August of this year. The construction of this new facility is in conjunction with our continued development of the field.

Rocky Mountain Region

        The two main areas in which we operate in the Rocky Mountain region are the DJ Basin in Weld County, Colorado and the North Park Basin in Jackson County, Colorado. The Niobrara oil shale is present across substantially all of our acreage in these two areas.

        While full-scale vertical drilling of the Niobrara oil shale commenced in the early 1990s, operators in the region, including EOG Resources, Noble Energy and PDC Energy, have recently applied horizontal drilling and multi-stage fracture stimulation techniques in an effort to improve economic returns.

        The Niobrara oil shale contains a high proportion of carbonates, including brittle, calcareous chalk benches in addition to oil bearing shales. Permeability and porosity are sufficient in the chalk components of the Niobrara to permit economic oil recovery. Although natural fracturing is present in the Niobrara, hydraulic fracturing is typically required to make the reservoir commercially productive.

        The DJ Basin is believed to occupy the most prospective area of the Niobrara. Within the DJ Basin, the Niobrara oil shale is 200 to 300 feet thick and comprises the Smoky Hill Shale and Fort Hayes Limestone. In addition to the DJ Basin, Niobrara oil shale exploration is ongoing in the North Park, Piceance, Raton and Sand Wash basins in Colorado and the southern Powder River Basin in Wyoming.

        Recently the Niobrara oil shale has been the scene of increasing interest as various companies such as EOG Resources, Noble Energy, PDC Energy and Rex Energy are leasing, permitting and drilling wells targeting the Niobrara oil shale in Weld County, Colorado, the North Park Basin in Jackson County, Colorado, and in Laramie County, Wyoming. These operators have demonstrated that the Niobrara oil shale is prospective for the application of horizontal drilling and multi-stage fracture stimulation completion techniques. These completion techniques have been responsible for the substantial increase in drilling and production from various oil shales such as the Bakken formation in North Dakota and the Eagle Ford in southern Texas.

DJ Basin—Weld County, Colorado

        The DJ Basin is a geologic structural basin centered in eastern Colorado that extends into southeast Wyoming, western Nebraska, and western Kansas. Our operations in the DJ Basin are in the oil window of the Niobrara and as of December 31, 2010 consisted of approximately 42,698 gross (29,742 net) total acres.

        Commercial development activities began in the DJ Basin in the 1970s. It originally produced natural gas from tight sand reservoirs in the Dakota and J Sands. In the 1990s the shallower Codell sands and Niobrara oil shale were developed and produced oil and associated natural gas. These zones range from 6,300 feet to 8,000 feet with average porosity of 6% to 10% and relatively low permeability of 0.3 millidarcies.

        Historically, we have drilled vertical wells through multiple zones. We then complete and fracture stimulate one of the Dakota or J Sand zones or both the Codell sand and the Niobrara shale zones. In the future we plan to augment the development of our Weld County acreage using horizontal drilling techniques in the Niobrara oil shale.

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DJ Basin—Vertical Exploitation

        Our estimated proved reserves in the DJ Basin were 8,402 MBoe at December 31, 2010. As of April 30, 2011, we had a total of 141 gross (133.6 net) producing wells and our net average daily production during April 2011 was approximately 1,124 Boe/d. Our working interest for all producing wells averages is 94.8% and our net revenue interest is approximately 76.5%.

        We drill wells vertically in this area to an average depth of approximately 7,000 feet, targeting both the Niobrara and Codell horizons with the same well bore. We have budgeted drilling and completion costs per well of approximately $640,000 and we expect to incur an additional $195,000 per well for refracture stimulation, to be completed in the fifth year after initial completion. Typically, these wells take an average of five days to drill and one day to complete. The average initial 30-day production rate for the 35 wells drilled and producing in 2010 was 56 Boe/d. Our typical well has a hyperbolic decline rate and an average economic life of 32 years. We have identified approximately 91 gross (75.8 net) PUD vertical drilling locations on our acreage in this area.

        We intend to employ vertical drilling techniques on 25,098 gross (14,670 net) acres in Weld County. Of these acres, 4,760 gross (4,218 net) acres represent potential unproven drilling locations in our proved reserve report and 20,338 gross (10,452 net) acres represent unproven drilling locations.

        The Codell sandstone and Niobrara oil shale are blanket deposits in the DJ Basin. We continue to expand our proved acreage with our vertical program by drilling non-proved locations. Currently, we estimate our capital expenditures for 2011 will be $41.0 million, which includes drilling 66 gross (62.3 net) vertical wells of which 23 are PUD and 43 are non-proved. As of April 30, 2011, we had completed 19 gross (19.0 net) of our 2011 planned wells, 7 proved and 12 non-proved.

DJ Basin—Horizontal Exploitation

        We intend to use horizontal drilling and multi-stage fracture completion techniques to exploit our remaining 17,600 gross (15,072 net) acres in Weld County. We have 3-D seismic data covering 17,400 gross acres in this area.

        Our acreage position in the DJ Basin is offset by EOG Resources, Marathon Oil, Noble Energy and PDC Energy. Noble and PDC have drilled horizontal wells in the area of our acreage and reported initial production rates ranging from 162 Boe/d to 625 Boe/d. Wells on the lower range tend to have shorter horizontal lateral lengths and smaller volumes of proppant used in the fracture stimulation. PDC Energy recently announced the results of the Rickards 41-10H located approximately 6 miles to the north of our acreage. The reported initial production rate was 625 Boe/d with a 30-day average of 310 Boe/d. The well was completed with a 3,900 foot lateral in the Niobrara B interval. A 16-stage fracture stimulation was executed with 3.6 million pounds of proppant. We plan on drilling 4 horizontal Niobrara wells in the DJ Basin in 2011 utilizing similar completion techniques.

North Park Basin—Jackson County, Colorado

        Current Operations.    We control 47,003 gross (39,030 net) acres in the North Park Basin in northern Jackson County, Colorado. The Basin is divided into three principal opportunities: the North and South McCallum units and the non-unit acreage. We operate the North and South McCallum fields, which currently produce CO₂ and light oil from the Dakota/Lakota Group sandstones and oil from a shallow waterflood from the Pierre B sandstone.

        The McCallum field covers 10,277 gross (8,606 net) acres of federal land with the majority of the oil production coming from a waterflood in the Pierre B formation and the CO₂ production coming from naturally flowing Dakota wells. Oil production is trucked to the market while CO₂ production is sent to a Praxair plant for processing and delivery to the market.

        In the North Park Basin, our estimated proved reserves as of December 31, 2010 were approximately 696.1 MBoe, of which 100% were oil. Our average net production during April 2011 was approximately 140 Boe/d. None of our CO₂ production is currently reflected in our reserve reports.

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        Niobrara Oil Shale Potential.    All of our 47,003 gross (39,030 net) acres in the North Park Basin are prospective for the Niobrara oil shale. In 2007, EOG Resources began a testing program in the North Park Basin. Through 2010 EOG Resources has drilled 7 and completed 5 horizontal wells targeting the Niobrara. The first two wells experienced average 30-day initial production rates of 159 Boe/d. The next two horizontal wells were completed using longer horizontal laterals and more fracture stimulation stages and had an average 27-day initial production rate of 456 Boe/d. As of April 30, 2011, EOG Resources has permitted 2 additional horizontal wells for the North Park Basin.

        We currently plan to drill vertical wells to develop the Niobrara across the top of the McCallum anticline due to the presence of natural fracturing and the potential for other productive horizontals including the Pierre B, Dakota/Lakota, Sundance and Jelm reservoirs. We also plan to drill horizontal wells and, to a lesser extent, vertical wells to capture the Niobrara oil shale resource downdip of the crest of the McCallum structure.

        Currently, there is no take away capacity for natural gas from the North Park Basin. Any future commercial development of the Niobrara oil shale in this area will require significant investment to construct the infrastructure necessary to gather and transport associated natural gas produced from the formation. Although we are not aware of any current plans to construct or fund this construction in the immediate future, we believe that mid-stream companies will construct the necessary infrastructure once the level of commercial natural gas development warrants the capital outlay.

California

        In California, we own acreage in four fields: Kern River, Midway Sunset and Greeley, which we operate, and Sargent, which we do not. Our estimated proved reserves in California were 886 MBoe at December 31, 2010. As of April 30, 2011, we had a total of 57 gross (48.7 net) producing wells and our average net daily production was approximately 218 Boe/d. Our working interest for all producing wells averages 85.4% and our net revenue interest is approximately 71.9%. As of December 31, 2010, we have identified approximately 18 gross (13.6 net) PUD locations in California. Currently, we estimate our capital expenditures for 2011 will be $8.7 million, which includes drilling 10 gross (8.0 net) wells, all of which are PUD.

        We believe the opportunity to see additional growth exists on the two thermal properties: Kern River and Midway Sunset. Combined, these two properties have up to 16.5 MMBoe of 11° to 12° API gravity crude oil originally in place with very small amounts of production to date. We believe that reservoir parameters are good for thermal operations in both areas. In Kern River, porosities average 31% and permeabilities average from 1,000 to 5,000 millidarcies. In Midway Sunset, porosities average 32% and permeabilities range from 400 to 600 millidarcies. Proved reserves for these two areas are only 573 MBoe, which we believe demonstrates an opportunity for future growth in reserves once thermal operations take effect.

        Both Greeley and Sargent produce a lighter crude and do not require thermal stimulation. Potential upside exists in the Sargent field by implementing fracture stimulation of the Purisima sands. These sands have permeability of under 500 millidarcies and porosities of 32%. The operator at Sargent drilled one well through April 30, 2011 and fracture stimulated that well in May 2011.

Proved undeveloped reserves

        At December 31, 2010, our proved undeveloped reserves were 21,334.6 Mboe, an increase of 7,343.3 Mboe over our December 31, 2009 proved undeveloped reserves estimate of 13,991.3 Mboe. The reserve change and number of net wells is summarized in the table below for each our regions. The largest changes were realized in the Mid-Continent and Rocky Mountain regions resulting primarily from our acquisition of HEC. This acquisition added 5,691.7 Mboe and accounted for 77.5% of the total increase of 7,343.3 Mboe in 2010. Also contributing to our growth in proved undeveloped reserves were improved

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techniques in stimulating smaller, tighter, higher gas oil ratio sands in the Mid-Continent region that were implemented in 2009 and resulted in a revision of our forecast in 2010. Our total capital expenditure associated with the conversion of proved undeveloped reserves to proved developed reserves in 2010 was $21.6 million.

	2009				2010				Difference
Region/Area	MBoe		Net Wells		MBoe		Net Wells		MBoe			Net Wells
Mid Continent		11,486.5		109.6		16,890.2		163.3		5,403.7			53.7
Rocky Mountain		1,687.6		30.1		3,897.6		79.3		2,210.0			49.2
California		817.2		30.2		546.7		16.8		(270.5	)		(13.4	)
Total		13,991.3		169.8		21,334.6		259.4		7,343.3			89.6

Independent Reserve Engineers

        The proved reserves estimates for the company for the year ended December 31, 2010 and for BCEC for the year ended December 31, 2009 shown herein have been independently prepared by Cawley, Gillespie & Associates, Inc., which was founded in 1961 and performs consulting petroleum engineering services under Texas Board of Professional Engineers Registration No. F-693. Within Cawley, Gillespie & Associates, Inc., the technical person primarily responsible for preparing the estimates shown herein, was Zane Meekins. Mr. Meekins has been practicing consulting petroleum engineering at Cawley, Gillespie & Associates, Inc. since 1989. Mr. Meekins is a Registered Professional Engineer in the State of Texas (License No. 71055) and has over 23 years of practical experience in petroleum engineering, with over 21 years experience in the estimation and evaluation of reserves. He graduated from Texas A&M University in 1987 with a BS in Petroleum Engineering. Mr. Meekins meets or exceeds the education, training, and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers.

Technology Used to Establish Proved Reserves

        As referred to in this prospectus, proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. The term "reasonable certainty" implies a high degree of confidence that the quantities of oil and/or natural gas actually recovered will equal or exceed the estimate. Reasonable certainty can be established using techniques that have been proved effective by actual production from projects in the same reservoir or an analogous reservoir or by other evidence using reliable technology that establishes reasonable certainty. Reliable technology is a grouping of one or more technologies (including computational methods) that has been field tested and has been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.

        In order to establish reasonable certainty with respect to our estimated proved reserves, Cawley, Gillespie & Associates, Inc. employed technologies that have been demonstrated to yield results with consistency and repeatability. The technologies and economic data used in the estimation of our proved reserves include, but are not limited to, electrical logs, radioactivity logs, core analyses, geologic maps and available downhole and production data, 3-D seismic data and well test data. Reserves attributable to producing wells with sufficient production history were estimated using appropriate decline curves or other performance relationships. Reserves attributable to producing wells with limited production history and for undeveloped locations were estimated using performance from analogous wells in the surrounding area and geologic data to assess the reservoir continuity. These wells were considered to be analogous based on production performance from the same formation and completion using similar techniques. The evaluation included an assessment of the beneficial impact of the use of multi-stage hydraulic fracture

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stimulation treatments on estimated recoverable reserves. In addition to assessing reservoir continuity, geologic data from well logs, core analyses and 3-D seismic data were used to estimate original oil in place in certain areas.

Internal Controls over Reserves Estimation Process

        We maintain an internal staff of petroleum engineers and geoscience professionals who work closely with our independent reserve engineers to ensure the integrity, accuracy and timeliness of data furnished to our independent reserve engineers in their reserves estimation process. Our Executive Vice President—Engineering and Planning is the technical person within the company primarily responsible for overseeing the preparation of our reserves estimates. He has over 29 years of industry experience and has evaluated numerous properties throughout the United States and Canada with an emphasis on California in light oil and natural gas, heavy oil, conventional and unconventional reservoirs, operations, reservoir development and property evaluation. He holds a Bachelors of Science degree in Petroleum Engineering and is an active member with the Society of Petroleum Engineers.

        Throughout each fiscal year, our technical team meets with representatives of our independent reserve engineers to review properties and discuss methods and assumptions used in preparation of the proved reserves estimates. Historically, we had no formal committee specifically designated to review our reserves reporting and our reserves estimation process, and a preliminary copy of the reserve report was reviewed by our Executive Vice President—Engineering and Planning with representatives of our independent reserve engineers and internal technical staff. We have recently designated a Reserve Committee of our board of directors which will actively oversee our reserve reporting process. See "Management—Committees of the Board of Directors—Reserve Committee."

Operating Data

        The following table sets forth our operating data for the three years ended December 31, 2008, 2009 and 2010.

	2008		2009		2010
Oil:
Production (MBbls)		453.7		507.4		481.6
Average sales price (per Bbl), including hedges	$	79.59	$	67.40	$	74.32
Average sales price (per Bbl), excluding hedges	$	88.09	$	54.40	$	73.66
Natural Gas:
Production (MMcf)		668.9		939.0		1,334.9
Average sales price (per Mcf), including hedges	$	7.93	$	5.05	$	5.33
Average sales price (per Mcf), excluding hedges	$	7.72	$	3.91	$	4.77
Natural Gas Liquids:
Production (MBbls)		35.5		69.1		129.6
Average sales price (per Bbl), including hedges	$	57.45	$	41.77	$	56.22
Average sales price (per Bbl), excluding hedges	$	57.45	$	41.77	$	56.22
Oil Equivalents:
Production (MBoe)		600.7		733.0		833.7
Average daily production (Boe/d)		1,641		2,008		2,284
Average Production Costs (per Boe)(1)	$	34.02	$	18.35	$	18.28

(1)

Excludes ad valorem and severance taxes.

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Principal Customers

        Two of our customers, Lion Oil and Plains Marketing, comprised 47% and 39%, respectively, of total revenue for the year ended December 31, 2010 and the three months ended March 31, 2011.

Delivery Commitments

        We do not have any material delivery commitments.

Productive Wells

        The following table sets forth the number of oil and natural gas wells in which we owned a working interest at April 30, 2011.

		Oil				Natural Gas(1)				Total				Operated
		Gross		Net		Gross		Net		Gross		Net		Gross		Net
Mid-Continent			112		96.9		—		—		112		96.9		111		96.7
Rocky Mountain			199		191.6		—		—		199		191.6		197		190.9
California			57		48.7		—		—		57		48.7		46		43.2
	Total		368		337.2		—		—		368		337.2		354		330.8

(1)

All gas production is associated gas from producing oil wells.

Acreage

        The following table sets forth certain information with respect to our developed and undeveloped acreage as of December 31, 2010.

		Undeveloped				Developed
		Gross		Net		Gross		Net
Mid-Continent			—		—		18,449		15,165
Rocky Mountain(1)			52,643		38,904		37,058		29,868
California(2)			200		144		8,740		4,868
	Total		52,843		39,048		64,247		49,901

(1)

Assuming successful wells are not drilled to develop the Rocky Mountain acreage and leases are not extended, leaseholds expiring over the next three years will be 7,284 net acres in 2011, 3,076 net acres in 2012 and 11,120 net acres in 2013.

(2)

Assuming successful wells are not drilled to develop the California acreage and leases are not extended, leaseholds expiring over the next three years will be zero net acres in 2011, 15 net acres in 2012 and 36 net acres in 2013.

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Drilling Activity

Exploratory

        The following table describes the exploratory wells we drilled during the years ended December 31, 2008, 2009 and 2010.

	Productive Wells				Dry Wells				Total
Year	Gross		Net		Gross		Net		Gross		Net
2008		6		6.0		—		—		6		6.0
2009		—		—		—		—		—		—
2010		15		15.0		—		—		15		15.0

Development

        The following table describes the development wells we drilled during the years ended December 31, 2008, 2009 and 2010.

	Productive Wells				Dry Wells				Total
Year	Gross		Net		Gross		Net		Gross		Net
2008		27		26.8		—		—		27		26.8
2009(1)		—		—		—		—		—		—
2010(1)		27		27.0		—		—		27		27.0

(1)

We contract operated for HEC from May 2009 until we acquired the properties in December 2010. Excluded from the development activity are 4 wells (2.5 net) and 12 wells (9.0 net) drilled as contract operator for HEC during years 2009 and 2010, respectively, that we had a minority working interest.

Present Activity

        The following table describes drilling activities as of April 30, 2011.

	Development Wells				Exploratory Wells				Total
	Gross		Net		Gross		Net		Gross		Net
Mid-Continent		2.0		1.7		—		—		2.0		1.7
Rocky Mountain		—		—		2.0		2.0		2.0		2.0
California		1.0		0.5		—		—		1.0		0.5
Total		3.0		2.2		2.0		2.0		5.0		4.2

        Additionally, to accommodate future increased gas volumes, we are in the process of building a 12.5 MMcf/d processing facility in our Dorcheat Macedonia Field in the Mid-Continent region.

Hedging Activity

        In addition to supply and demand, oil and gas prices are affected by seasonal, economic and geo-political factors that we can neither control nor predict. We attempt to mitigate a portion of our price risk through the use of derivative transactions.

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        As of April 30, 2011, we had the following economic hedges in place, which settle monthly:

Oil Contracts

Period	Type	Volume/Month (Bbls)		Index(1)	Floor		Ceiling		Fixed Price
January 1 - December 31, 2011	Collar		15,392	WTI	$	90.00	$	123.00
April 1 - December 31, 2011	Collar		24,444	WTI	$	80.00	$	140.00
January 1 - December 31, 2011	Swap		8,917	WTI					$	64.45
January 1 - December 31, 2011	Swap		1,591	WTI					$	63.87
January 1 - December 31, 2012	Collar		13,956	WTI	$	90.00	$	123.00
January 1 - December 31, 2012	Swap		8,206	WTI					$	62.95
January 1 - December 31, 2012	Swap		1,520	WTI					$	63.47
January 1 - April 31, 2013	Collar		12,654	WTI	$	90.00	$	123.00
January 1 - October 31, 2013	Swap		7,542	WTI					$	61.50

Natural Gas Contracts

Period	Type	Volume/Month (MMBtu)		Index	Fixed Price
January 1 - December 31, 2011	Swap		18,298	Henry Hub	$	7.10
January 1 - December 31, 2012	Swap		16,860	Henry Hub	$	6.75
January 1 - October 31, 2013	Swap		15,481	Henry Hub	$	6.40

(1)

WTI refers to West Texas Intermediate price as quoted on the New York Mercantile Exchange.

        We did not apply hedge accounting treatment to any of the 2010 and 2011 contracts. Settlements on these contracts will not impact our realized commodity prices during the periods they cover. Instead, any settlements on these contracts are shown as a component of other income and expenses as a realized (gain) loss on derivative instruments. See Note 12 to our consolidated financial statements for additional information regarding our derivative instruments.

Title to Properties

        Our properties are subject to customary royalty interests, liens incident to operating agreements, liens for current taxes and other burdens, including other mineral encumbrances and restrictions. We do not believe that any of these burdens materially interfere with our use of the properties in the operation of our business. We believe that we have generally satisfactory title to or rights in all of our producing properties. As is customary in the oil and gas industry, we make minimal investigation of title at the time we acquire undeveloped properties. We make title investigations and receive title opinions of local counsel only before we commence drilling operations. We believe that we have satisfactory title to all of our other assets. Although title to our properties is subject to encumbrances in certain cases, we believe that none of these burdens will materially detract from the value of our properties or from our interest therein or will materially interfere with the operation of our business.

Competition

        The oil and natural gas industry is highly competitive and we compete with a substantial number of other companies that have greater resources. Many of these companies explore for, produce and market oil and natural gas, carry on refining operations and market the resultant products on a worldwide basis. The primary areas in which we encounter substantial competition are in locating and acquiring desirable leasehold acreage for our drilling and development operations, locating and acquiring attractive producing oil and gas properties, and obtaining transporters of the oil and gas we produce in certain regions. There is

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also competition between producers of oil and gas and other industries producing alternative energy and fuel. Furthermore, competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the government of the United States; however, it is not possible to predict the nature of any such legislation or regulation that may ultimately be adopted or its effects upon our future operations. Such laws and regulations may, however, substantially increase the costs of exploring for, developing or producing gas and oil and may prevent or delay the commencement or continuation of a given operation. The effect of these risks cannot be accurately predicted.

Regulation of the Oil and Natural Gas Industry

        Our operations are substantially affected by federal, state and local laws and regulations. In particular, oil and natural gas production and related operations are, or have been, subject to price controls, taxes and numerous other laws and regulations. All of the jurisdictions in which we own or operate properties for oil and natural gas production have statutory provisions regulating the exploration for and production of oil and natural gas, including provisions related to permits for the drilling of wells, bonding requirements to drill or operate wells, the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, sourcing and disposal of water used in the drilling and completion process, and the abandonment of wells. Our operations are also subject to various conservation laws and regulations. These include regulation of the size of drilling and spacing units or proration units, the number of wells which may be drilled in an area, and the unitization or pooling of oil and natural gas wells, as well as regulations that generally prohibit the venting or flaring of natural gas and that impose certain requirements regarding the ratability or fair apportionment of production from fields and individual wells.

        The regulatory burden on the industry increases the cost of doing business and affects profitability. Failure to comply with applicable laws and regulations can result in substantial penalties. Furthermore, such laws and regulations are frequently amended or reinterpreted, and new proposals that affect the oil and natural gas industry are regularly considered by Congress, the states, the Federal Energy Regulatory Commission, or FERC, and the courts. We believe we are in substantial compliance with all applicable laws and regulations, and that continued substantial compliance with existing requirements will not have a material adverse effect on our financial position, cash flows or results of operations. Nor are we currently aware of any specific pending legislation or regulation that is reasonably likely to be enacted, or for which we cannot predict the likelihood of enactment, and that is reasonably likely to have a material effect on our financial position, cash flows or results of operations.

Regulation of transportation of oil

        Sales of crude oil, condensate and natural gas liquids are not currently regulated and are made at negotiated prices. Nevertheless, Congress could reenact price controls in the future.

        Our sales of crude oil are affected by the availability, terms and cost of transportation. Interstate transportation of oil by pipeline is regulated by FERC pursuant to the ICA, EPAct 1992 and the rules and regulations promulgated under those laws. The ICA and its implementing regulations require that tariff rates for interstate service on oil pipelines, including interstate pipelines that transport crude oil and refined products (collectively referred to as "petroleum pipelines"), be just and reasonable and non-discriminatory and that such rates and terms and conditions of service be filed with FERC. EPAct 1992 deemed certain interstate petroleum pipeline rates then in effect to be just and reasonable under the ICA, which are commonly referred to as "grandfathered rates." Pursuant to EPAct 1992, FERC also adopted a generally applicable ratemaking methodology, which, as currently in effect, allows petroleum pipelines to change their rates provided they do not exceed prescribed ceiling levels that are tied to changes in the Producer Price Index for Finished Goods ("PPI"), plus 1.3 percent. For the five-year period beginning July 1, 2011, the index will be PPI plus 2.65%.

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        FERC has also established cost-of-service ratemaking, market-based rates, and settlement rates as alternatives to the indexing approach. A pipeline may file rates based on its cost-of-service if there is a substantial divergence between its actual costs of providing service and the rate resulting from application of the index. A pipeline may charge market-based rates if it establishes that it lacks significant market power in the affected markets. Further, a pipeline may establish rates through settlement with all current non-affiliated shippers.

        Intrastate oil pipeline transportation rates are subject to regulation by state regulatory commissions. The basis for intrastate oil pipeline regulation, and the degree of regulatory oversight and scrutiny given to intrastate oil pipeline rates, varies from state to state. Insofar as effective interstate and intrastate rates are equally applicable to all comparable shippers, we believe that the regulation of oil transportation rates will not affect our operations in any way that is of material difference from those of our competitors who are similarly situated.

        Further, interstate and intrastate common carrier oil pipelines must provide service on a non-discriminatory basis. Under this open access standard, common carriers must offer service to all similarly situated shippers requesting service on the same terms and under the same rates. When oil pipelines operate at full capacity, access is governed by prorationing provisions set forth in the pipelines' published tariffs. Accordingly, we believe that access to oil pipeline transportation services generally will be available to us to the same extent as to our similarly situated competitors.

Regulation of transportation and sales of natural gas

        Historically, the transportation and sale for resale of natural gas in interstate commerce has been regulated by the FERC under the Natural Gas Act of 1938 ("NGA"), the Natural Gas Policy Act of 1978 ("NGPA"), and regulations issued under those statutes. In the past, the federal government has regulated the prices at which natural gas could be sold. While sales by producers of natural gas can currently be made at market prices, Congress could reenact price controls in the future. Deregulation of wellhead natural gas sales began with the enactment of the NGPA and culminated in adoption of the Natural Gas Wellhead Decontrol Act which removed all price controls affecting wellhead sales of natural gas effective January 1, 1993.

        FERC regulates interstate natural gas transportation rates, and terms and conditions of service, which affect the marketing of natural gas that we produce, as well as the revenues we receive for sales of our natural gas. Since 1985, the FERC has endeavored to make natural gas transportation more accessible to natural gas buyers and sellers on an open and non-discriminatory basis. The FERC has stated that open access policies are necessary to improve the competitive structure of the interstate natural gas pipeline industry and to create a regulatory framework that will put natural gas sellers into more direct contractual relations with natural gas buyers by, among other things, unbundling the sale of natural gas from the sale of transportation and storage services. Beginning in 1992, the FERC issued a series of orders, beginning with Order No. 636, to implement its open access policies. As a result, the interstate pipelines' traditional role of providing the sale and transportation of natural gas as a single service has been eliminated and replaced by a structure under which pipelines provide transportation and storage service on an open access basis to others who buy and sell natural gas. Although the FERC's orders do not directly regulate natural gas producers, they are intended to foster increased competition within all phases of the natural gas industry.

        In 2000, the FERC issued Order No. 637 and subsequent orders, which imposed a number of additional reforms designed to enhance competition in natural gas markets. Among other things, Order No. 637 revised the FERC's pricing policy by waiving price ceilings for short-term released capacity for a two-year experimental period, and effected changes in FERC regulations relating to scheduling procedures, capacity segmentation, penalties, rights of first refusal and information reporting.

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        Gathering services, which occur upstream of jurisdictional transmission services, are regulated by the states onshore and in state waters. Although the FERC has set forth a general test for determining whether facilities perform a nonjurisdictional gathering function or a jurisdictional transmission function, the FERC's determinations as to the classification of facilities is done on a case by case basis. To the extent that the FERC issues an order which reclassifies transmission facilities as gathering facilities, and depending on the scope of that decision, our costs of getting gas to point of sale locations may increase. State regulation of natural gas gathering facilities generally includes various safety, environmental and, in some circumstances, nondiscriminatory take requirements. Although such regulation has not generally been affirmatively applied by state agencies, natural gas gathering may receive greater regulatory scrutiny in the future.

        Intrastate natural gas transportation and facilities are also subject to regulation by state regulatory agencies, and certain transportation services provided by intrastate pipelines are also regulated by FERC. The basis for intrastate regulation of natural gas transportation and the degree of regulatory oversight and scrutiny given to intrastate natural gas pipeline rates and services varies from state to state. Insofar as such regulation within a particular state will generally affect all intrastate natural gas shippers within the state on a comparable basis, we believe that the regulation of similarly situated intrastate natural gas transportation in any states in which we operate and ship natural gas on an intrastate basis will not affect our operations in any way that is of material difference from those of our competitors. Like the regulation of interstate transportation rates, the regulation of intrastate transportation rates affects the marketing of natural gas that we produce, as well as the revenues we receive for sales of our natural gas.

Regulation of production

        The production of oil and natural gas is subject to regulation under a wide range of local, state and federal statutes, rules, orders and regulations. Federal, state and local statutes and regulations require permits for drilling operations, drilling bonds and reports concerning operations. All of the states in which we own and operate properties have regulations governing conservation matters, including provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum allowable rates of production from oil and natural gas wells, the regulation of well spacing, and plugging and abandonment of wells. The effect of these regulations is to limit the amount of oil and natural gas that we can produce from our wells and to limit the number of wells or the locations at which we can drill, although we can apply for exceptions to such regulations or to have reductions in well spacing. Moreover, each state generally imposes a production or severance tax with respect to the production and sale of oil, natural gas and natural gas liquids within its jurisdiction.

        The failure to comply with these rules and regulations can result in substantial penalties. Our competitors in the oil and natural gas industry are subject to the same regulatory requirements and restrictions that affect our operations.

Market transparency rules

        In 2007, FERC took steps to enhance its market oversight and monitoring of the natural gas industry by issuing several rulemaking orders designed to promote gas price transparency and to prevent market manipulation. In December 2007, FERC issued a final rule on the annual natural gas transaction reporting requirements, as amended by subsequent orders on rehearing, or Order No. 704. Pursuant to Order No. 704, wholesale buyers and sellers of annual quantities of 2.2 million MMBtu or more of natural gas in the previous calendar year, including intrastate natural gas pipelines, natural gas gatherers, natural gas processors, natural gas marketers and natural gas producers, are required to report, by May 1 of each year, aggregate volumes of natural gas purchased or sold at wholesale in the prior calendar year to the extent such transactions utilize, contribute to, or may contribute to, the formation of price indices. Order No. 704 also requires market participants to indicate whether they report prices to any index publishers and, if so,

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whether their reporting complies with FERC's policy statement on price reporting. Some of our operations may be required to comply with Order No. 704's annual reporting requirements.

        In 2008, the FERC issued Order No. 720, which increases the Internet posting obligations of interstate pipelines, and also requires "major non-interstate" pipelines (defined as pipelines that are not natural gas companies under the NGA that deliver more than 50 million MMBtu annually and including gathering systems) to post on the Internet the daily volumes scheduled for each receipt and delivery point on their systems with a design capacity of 15,000 MMBtu per day or greater. Numerous parties requested modification or reconsideration of this rule. An order on rehearing, Order No. 720-A, was issued on January 21, 2010. In that order the FERC reaffirmed its holding that it has jurisdiction over major non-interstate pipelines for the purpose of requiring public disclosure of information to enhance market transparency. Order No. 720-A also granted clarification regarding application of the rule. Two parties have filed appeals of Order Nos. 720 and 720-A to the Fifth Circuit. The parties have filed briefs but no decision has been issued. Unless they qualify for exemptions established by FERC, some of our operations may be required to comply with Order No. 720's posting requirements.

        In May 2010, the FERC issued Order No. 735, which requires intrastate pipelines providing transportation services under Section 311 of the NGPA and Hinshaw pipelines operating under Section 1(c) of the NGA to report on a quarterly basis more detailed transportation and storage transaction information, including: rates charged by the pipeline under each contract; receipt and delivery points and zones or segments covered by each contract; the quantity of natural gas the shipper is entitled to transport, store, or deliver; the duration of the contract; and whether there is an affiliate relationship between the pipeline and the shipper. Order No. 735 further requires that such information must be supplied through a new electronic reporting system and will be posted on FERC's website, and that such quarterly reports may not contain information redacted as privileged. The FERC promulgated this rule after determining that such transactional information would help shippers make more informed purchasing decisions and would improve the ability of both shippers and the FERC to monitor actual transactions for evidence of market power or undue discrimination. Order No. 735 also extends the Commission's periodic review of the rates charged by the subject pipelines from three years to five years. In December 2010, the Commission issued Order No. 735-A. In Order No. 735-A, the Commission generally reaffirmed Order No. 735 requiring section 311 and "Hinshaw" pipelines to report on a quarterly basis storage and transportation transactions containing specific information for each transaction, aggregated by contract.

        In October 2010, the FERC issued a Notice of Inquiry seeking public comment on the issue of whether and how parties that hold firm capacity on some intrastate pipelines can allow others to use their capacity, including to what extent buy/sell transactions should permitted and whether the FERC should consider requiring such pipelines to offer capacity release programs. In the Notice of Inquiry, the FERC granted a blanket waiver regarding such transactions while the FERC is considering these policy issues. The comment period has ended but the FERC has not yet issued an order.

        With regard to our physical sales of natural gas, we are required to observe anti-market manipulation laws and related regulations enforced by the FERC. The Energy Policy Act of 2005 ("EPAct 2005") amended the NGA to add an anti-manipulation provision which makes it unlawful for any entity to engage in prohibited behavior to be prescribed by FERC, and furthermore provides FERC with additional civil penalty authority. On January 19, 2006, FERC issued Order No. 670, a rule implementing the anti-manipulation provision of EPAct 2005, and subsequently denied rehearing. The rule makes it unlawful for any entity, directly or indirectly, in connection with the purchase or sale of natural gas subject to the jurisdiction of FERC, or the purchase or sale of transportation services subject to the jurisdiction of FERC, (1) to use or employ any device, scheme or artifice to defraud; (2) to make any untrue statement of material fact or omit to make any such statement necessary to make the statements made not misleading; or (3) to engage in any act, practice, or course of business that operates as a fraud or deceit upon any person. The anti-manipulation rules do not apply to activities that relate only to intrastate or other

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non-jurisdictional sales or gathering, but do apply to activities of gas pipelines and storage companies that provide interstate services, such as Section 311 service, as well as otherwise non-jurisdictional entities to the extent the activities are conducted "in connection with" gas sales, purchases or transportation subject to FERC jurisdiction, which now includes the annual reporting requirements under Order 704.

        With regard to our sales of petroleum and petroleum products, we are required to observe anti-market manipulations laws and related regulations enforced by the Federal Trade Commission ("FTC"). In addition, the CFTC has enforcement authority over market manipulation with respect to certain derivative contracts. Each of FERC, the FTC and the CFTC has the a power to asses fines of $1 million per day per violation of applicable anti-market manipulation laws and regulations. Should we violate anti-market manipulation laws and regulations, we could also be subject to third party damage claims by, among others, sellers, royalty owners and taxing authorities.

        Additional proposals and proceedings that might affect the natural gas industry are pending before Congress, FERC and the courts. We cannot predict the ultimate impact of these or the above regulatory changes to our natural gas operations. We do not believe that we would be affected by any such action materially differently than similarly situated competitors.

Environmental, Health and Safety Regulation

        Our exploration, development, production and processing operations are subject to various federal, state and local laws and regulations relating to health and safety, the discharge of materials and environmental protection. These laws and regulations may, among other things, require the acquisition of permits to conduct exploration, drilling and production operations; govern the amounts and types of substances that may be released into the environment in connection with oil and gas drilling and production; restrict the way we handle or dispose of our wastes; limit or prohibit construction or drilling activities in sensitive areas such as wetlands, wilderness areas or areas inhabited by endangered or threatened species; require investigatory and remedial actions to mitigate pollution conditions caused by our operations or attributable to former operations; and impose obligations to reclaim and abandon well sites and pits. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations and the issuance of orders enjoining some or all of our operations in affected areas.

        These laws and regulations may also restrict the rate of oil and natural gas production below the rate that would otherwise be possible. The regulatory burden on the oil and gas industry increases the cost of doing business in the industry and consequently affects profitability. Additionally, the Congress and federal and state agencies frequently revise environmental, health and safety laws and regulations, and any changes that result in more stringent and costly waste handling, disposal, cleanup and remediation requirements for the oil and gas industry could have a significant impact on our operating costs.

        The clear trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment, and thus, any changes in environmental laws and regulations or re-interpretations of enforcement policies that result in more stringent and costly waste handling, storage, transport, disposal, or remediation requirements could have a material adverse effect on our operations and financial position in the future. We may be unable to pass on such increased compliance costs to our customers. Moreover, accidental releases or spills may occur in the course of our operations, and we cannot assure you that we will not incur significant costs and liabilities as a result of such releases or spills, including any third party claims for damage to property, natural resources or persons. We maintain insurance against costs of clean-up operations, but we are not fully insured against all such risks. While we believe that we are in substantial compliance with existing environmental laws and regulations and that current requirements would not have a material adverse effect on our financial condition or results of operations, there is no assurance that this will continue in the future.

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        The following is a summary of the more significant existing environmental, health and safety laws and regulations to which our business operations are subject and for which compliance in the future may have a material adverse impact on our capital expenditures, results of operations or financial position.

Hazardous substances and waste

        CERCLA, also known as the Superfund law, and comparable state laws impose liability without regard to fault or the legality of the original conduct on certain classes of persons who are considered to be responsible for the release of a "hazardous substance" into the environment. These persons include current and prior owners or operators of the site where the release occurred and entities that disposed or arranged for the disposal of the hazardous substances found at the site. Under CERCLA, these "responsible persons" may be subject to strict, joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources, and for the costs of certain health studies. CERCLA also authorizes the EPA and, in some instances, third parties to act in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur. It is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other pollutants into the environment. We generate materials in the course of our operations that may be regulated as hazardous substances.

        We also generate solid and hazardous wastes that are subject to the requirements of the RCRA, as amended, and comparable state statutes. RCRA imposes requirements on the generation, storage, treatment, transportation and disposal of hazardous wastes. In the course of our operations we generate petroleum hydrocarbon wastes and ordinary industrial wastes that may be regulated as hazardous wastes. RCRA regulations specifically exclude from the definition of hazardous waste "drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal energy." However, legislation has been proposed in Congress from time to time that would reclassify certain natural gas and oil exploration and production wastes as "hazardous wastes," which would make the reclassified wastes subject to much more stringent handling, disposal and clean-up requirements. If such legislation were to be enacted, it could have a significant impact on our operating costs, as well as the natural gas and oil industry in general.

        We currently own or lease, and have in the past owned or leased, properties that have been used for numerous years to explore and produce oil and natural gas. Although we have utilized operating and disposal practices that were standard in the industry at the time, hydrocarbons and wastes may have been disposed of or released on or under the properties owned or leased by us or on or under the other locations where these hydrocarbons and wastes have been taken for treatment or disposal. In addition, certain of these properties have been operated by third parties whose treatment and disposal or release of hydrocarbons and wastes was not under our control. These properties and wastes disposed thereon may be subject to CERCLA, RCRA and analogous state laws. Under these laws, we could be required to remove or remediate previously disposed wastes (including wastes disposed of or released by prior owners or operators), to clean up contaminated property (including groundwater contaminated by prior owners or operators), and to perform remedial operations to prevent future contamination.

Pipeline safety and maintenance

        Pipelines, gathering systems and terminal operations are subject to increasingly strict safety laws and regulations. Both the transportation and storage of refined products and crude oil involve a risk that hazardous liquids may be released into the environment, potentially causing harm to the public or the environment. In turn, such incidents may result in substantial expenditures for response actions, significant government penalties, liability to government agencies for natural resources damages, and significant business interruption. The U.S. Department of Transportation ("DOT") has adopted safety regulations with respect to the design, construction, operation, maintenance, inspection and management of our

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pipeline and storage facilities. These regulations contain requirements for the development and implementation of pipeline integrity management programs, which include the inspection and testing of pipelines and the correction of anomalies. These regulations also require that pipeline operation and maintenance personnel meet certain qualifications and that pipeline operators develop comprehensive spill response plans.

        There have been recent initiatives to strengthen and expand pipeline safety regulations and to increase penalties for violations. New pipeline safety legislation requiring more stringent spill reporting and disclosure obligations has been introduced in the U.S. Congress and was passed by the U.S. House of Representatives in 2010, but was not voted on in the U.S. Senate. Similar legislation is being considered by Congress again this year, either independently or in conjunction with the reauthorization of the Pipeline Safety Act. The Department of Transportation has also recently proposed legislation providing for more stringent oversight of pipelines and increased penalties for violations of safety rules, which is in addition to the Pipeline and Hazardous Materials Safety Administration's announced intention to strengthen its rules. DOT recently promulgated new regulations extending safety rules to certain low pressure, small diameter pipelines in rural areas.

Air emissions

        The Clean Air Act, as amended ("CAA"), and comparable state laws and regulations restrict the emission of air pollutants from many sources, including oil and gas operations, and impose various monitoring and reporting requirements. These laws and regulations may require us to obtain pre-approval for the construction or modification of certain projects or facilities expected to produce or significantly increase air emissions, obtain and comply with stringent air permit requirements or utilize specific equipment or technologies to control emissions. Obtaining permits has the potential to delay the development of oil and natural gas projects.

        On August 20, 2010, the U.S. Environmental Protection Agency, or the EPA, published new regulations under the CAA to control emissions of hazardous air pollutants from existing stationary reciprocating internal combustion engines. The rule may require us to undertake certain expenditures and activities, likely including purchasing and installing emissions control equipment, such as oxidation catalysts or non-selective catalytic reduction equipment, on a portion of our engines located at major sources of hazardous air pollutants and all our engines over a certain size regardless of location, following prescribed maintenance practices for engines (which are consistent with our existing practices), and implementing additional emissions testing and monitoring. On October 19, 2010, industry groups submitted a legal challenge to the U.S. Court of Appeals for the D.C. Circuit and a Petition for Administrative Reconsideration to the EPA for some monitoring aspects of the rule. The legal challenge has been held in abeyance since December 3, 2010, pending the EPA's consideration of the Petition for Administrative Reconsideration. On January 5, 2011, the EPA approved the request for reconsideration of the monitoring issues and on March 9, 2011, the EPA issued a new proposed rule and a direct final rule effective on May 9, 2011 to clarify compliance requirements related to operation and maintenance procedures for continuous parametric monitoring systems. If significant adverse comments are filed on the direct final rule, the EPA would address public comments in a subsequent final rule. At this point, we cannot predict when, how or if comments will be filed on the direct final rule or if a court ruling would modify the final rule. Compliance with the final rule currently is required by October 2013.

        In June 2010, the EPA formally proposed modifications to existing regulations under the CAA that established new source performance standards for manufacturers, owners and operators of new, modified and reconstructed stationary internal combustion engines. The proposed rule modifications, if adopted as drafted by the EPA, may require us to undertake significant expenditures, including expenditures for purchasing, installing, monitoring and maintaining emissions control equipment on a potentially significant percentage of our natural gas compression engine fleet. At this point, we cannot predict the final regulatory requirements or the cost to comply with such requirements.

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Climate change

        The United States is a party to the United Nations Framework Convention on Climate Change, an international treaty focused on stabilizing greenhouse gas concentrations in the atmosphere at a level that would prevent serious damage to the climate system. While neither the treaty itself, nor subsequent related conferences, have established an obligation for the U.S. to reduce its greenhouse gas emissions by a set amount, it has put significant political pressure on the U.S. to take responsive action. Both houses of Congress have previously considered legislation to reduce emissions of GHGs. Any future federal laws, treaties or implementing regulations that may be adopted to address greenhouse gas emissions could require us to incur increased operating costs and could adversely affect demand for the oil and natural gas we produce.

        In addition, the EPA has begun to regulate GHG emissions. In December 2009, the EPA published its finding that certain emissions of greenhouse gases presented an endangerment to human health and the environment. These findings by the EPA allow the agency to proceed with the adoption and implementation of regulations that would restrict emissions of GHGs under existing provisions of the federal Clean Air Act. Consequently, the EPA is requiring a reduction in emissions of greenhouse gases from new motor vehicles beginning with the 2012 model year. Furthermore, the EPA published a final rule on June 3, 2010 to address the permitting of GHG emissions from stationary sources under the Prevention of Significant Deterioration and Title V permitting programs. This rule "tailors" these permitting programs to apply to certain stationary sources of GHG emissions, such as power plants and oil refineries, in a multi-step process, with the largest sources first subject to permitting. Facilities required to obtain PSD permits for their GHG emissions will be required to meet emissions limits that are based on the "best available control technology," which will be established by the permitting agencies on a case-by-case basis. Starting in January 2011, stationary sources that are already obtaining a Clean Air Act permit for other pollutants must include greenhouse gases in their permits if they emit at least 75,000 tons of these emissions a year. In July 2012, the rule expands to include all new facilities that emit at least 100,000 tons of greenhouse gases per year.

        In addition, on September 2009, the EPA issued a final rule requiring the reporting of GHGs from specified large GHG emission sources beginning in 2011 for emissions in 2010. Our McKamie processing facility in Arkansas is currently required to report under this rule this year. On November 30, 2009, the EPA published a final rule expanding the existing GHG monitoring and reporting rule to include onshore and offshore oil and gas production facilities and onshore oil and natural gas processing, transmission, storage and distribution facilities. Reporting of GHG emissions from such facilities will be required on an annual basis, with reporting beginning in 2012 for emissions occurring in 2011. Our McKamie processing facility and our North Park Basin, Colorado facility are currently required to report under this rule. The EPA also published a final rule requiring reporting for natural gas liquid fractionators, which applies to the McKamie processing facility and a separate reporting rule for suppliers of carbon dioxide, which affects our operations in the North Park Basin. Several of the EPA's GHG rules are being challenged in court proceedings and depending on the outcome of such proceedings, such rules may be modified or rescinded or the EPA could develop new rules. The adoption and implementation of any regulations imposing reporting obligations on, or limiting emissions of greenhouse gases from, our equipment and operations could require us to incur costs to reduce emissions of greenhouse gases associated with our operations or could adversely affect demand for the oil and natural gas we produce.

        Even if such legislation is not adopted at the national level, almost one-half of the states have begun taking actions to control and/or reduce emissions of greenhouse gases, primarily through the planned development of greenhouse gas emission inventories and/or regional greenhouse gas cap and trade programs. Although most of the state-level initiatives have to date focused on large sources of greenhouse gas emissions, such as coal-fired electric plants, it is possible that smaller sources of emissions could become subject to greenhouse gas emission limitations or allowance purchase requirements in the future.

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Any one of these climate change regulatory and legislative initiatives could have a material adverse effect on our business, financial condition and results of operations.

        Legislation or regulations that may be adopted to address climate change could also affect the markets for our products by making our products more or less desirable than competing sources of energy. To the extent that our products are competing with higher GHG emitting energy sources such as coal, our products would become more desirable in the market with more stringent limitations on GHG emissions. To the extent that our products are competing with lower GHG emitting energy sources such as solar and wind, our products would become less desirable in the market with more stringent limitations on GHG emissions. We cannot predict with any certainty at this time how these possibilities may affect our operations.

        Finally, it should be noted that some scientists have concluded that increasing concentrations of GHGs in the Earth's atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, floods and other climatic events. If any such effects were to occur, they could adversely affect or delay demand for the oil or natural gas or otherwise cause us to incur significant costs in preparing for or responding to those effects.

Water discharges

        The Federal Water Pollution Control Act, as amended, or the Clean Water Act ("CWA"), and analogous state laws impose restrictions and controls regarding the discharge of pollutants into waters of the United States. Pursuant to the CWA and analogous state laws, permits must be obtained to discharge pollutants into state waters or waters of the U.S. Any such discharge of pollutants into regulated waters must be performed in accordance with the terms of the permit issued by the EPA or the analogous state agency. The CWA and regulations implemented thereunder also prohibit the discharge of dredge and fill material into regulated waters, including jurisdictional wetlands, unless authorized by an appropriately issued permit. Spill prevention, control and countermeasure requirements under federal law require appropriate containment berms and similar structures to help prevent the contamination of navigable waters in the event of a petroleum hydrocarbon tank spill, rupture or leak. In addition, the CWA and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. Federal and state regulatory agencies can impose administrative, civil and criminal penalties as well as other enforcement mechanisms for non-compliance with discharge permits or other requirements of the CWA and analogous state laws and regulations.

Endangered Species Act

        The federal Endangered Species Act, as amended, ("ESA") restricts activities that may affect endangered and threatened species or their habitats. While some of our facilities may be located in areas that are designated as habitat for endangered or threatened species, we believe that we are in substantial compliance with the ESA. However, the designation of previously unidentified endangered or threatened species could cause us to incur additional costs or become subject to operating restrictions or bans in the affected areas.

Employee health and safety

        We are subject to a number of federal and state laws and regulations, including the federal Occupational Safety and Health Act, as amended (the "OSH Act"), and comparable state statutes, whose purpose is to protect the health and safety of workers. In addition, the OSH Act's hazard communication standard, the EPA community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act and comparable state statutes require that information be maintained concerning hazardous materials used or produced in our operations and that this information

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be provided to employees, state and local government authorities and citizens. We believe that we are in substantial compliance with all applicable laws and regulations relating to worker health and safety.

Hydraulic fracturing

        Regulations relating to hydraulic fracturing.    The federal Safe Drinking Water Act ("SDWA"), and comparable state statutes may restrict the disposal, treatment or release of water produced or used during oil and gas development. Subsurface emplacement of fluids (including disposal wells or enhanced oil recovery) is governed by federal or state regulatory authorities that, in some cases, include the state oil and gas regulatory or the state's environmental authority. The federal Energy Policy Act of 2005 amended the Underground Injection Control, or UIC, provisions of the SDWA to expressly exclude hydraulic fracturing from the definition of "underground injection." However, the U.S. Senate and House of Representatives are currently considering bills entitled the Fracturing Responsibility and Awareness of Chemicals Act, or the FRAC Act, to amend the SDWA to repeal this exemption. If enacted, the FRAC Act would amend the definition of "underground injection" in the SDWA to encompass hydraulic fracturing activities. If enacted, such a provision could require hydraulic fracturing operations to meet permitting and financial assurance requirements, adhere to certain construction specifications, fulfill monitoring, reporting, and recordkeeping obligations, and meet plugging and abandonment requirements. The FRAC Act also proposes to require the reporting and public disclosure of chemicals used in the fracturing process. If the exemption for hydraulic fracturing is removed from the SDWA, or if the FRAC Act or other legislation is enacted at the federal, state or local level, any restrictions on the use of hydraulic fracturing contained in any such legislation could have a significant impact on our financial condition and results of operations.

        Federal agencies are also considering regulation of hydraulic fracturing. The EPA recently asserted federal regulatory authority over hydraulic fracturing involving diesel additives under the SDWA's Underground Injection Control Program. While the EPA has yet to take any action to enforce or implement this newly asserted regulatory authority, the EPA's interpretation without formal rule making has been challenged and industry groups have filed suit challenging the EPA's interpretation. If the EPA prevails in this lawsuit, its interpretation could result in enforcement actions against service providers or companies that used diesel products in the hydraulic fracturing process or could require such providers or companies to conduct additional studies regarding diesel in the groundwater. The EPA is also collecting information as part of a study into the effects of hydraulic fracturing on drinking water. The results of this study, expected in late 2012, could result in additional regulations, which could lead to operational burdens similar to those described above. The United States Department of the Interior is likewise considering whether to impose disclosure requirements or other mandates for hydraulic fracturing on federal land.

        Several state governments in the areas where we operate have adopted or are considering adopting additional requirements relating to hydraulic fracturing that could restrict its use in certain circumstances or make it more costly to utilize. Such measures may address any risk to drinking water, the potential for hydrocarbon migration and disclosure of the chemicals used in fracturing. For example, the State of Colorado, in response to an EPA request, has asked other companies operating in Colorado to report whether diesel products were used in the hydraulic fracturing process from 2004 to 2009. The State of Colorado may conduct additional investigations related to this inquiry. Any enforcement actions or requirements of additional studies or investigations by governmental authorities where we operate could increase our operating costs and cause delays or interruptions of our operations.

        At this time, it is not possible to estimate the potential impact on our business of these state and local actions or the enactment of additional federal or state legislation or regulations affecting hydraulic fracturing.

        Our use of hydraulic fracturing.    We use hydraulic fracturing as a means to maximize production of oil and gas from formations having low permeability such that natural flow is restricted. Fracture stimulation has been used for decades in both the Rocky Mountains and Mid Continent. In the Rocky Mountains,

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other companies in the oil and gas industry have fracture stimulated tens of thousands of wells since the mid 1980s. We and our predecessor companies have completed over 300 fracture stimulations since acquiring assets in the DJ Basin in 1999. At our Dorcheat property in the Mid-Continent region, fracture stimulation has been performed since the 1970s and has been used more universally since the early 1990s. We and our predecessor companies have completed over 40 fracture stimulations since acquiring our Dorcheat properties in mid-2008.

        We expect that approximately 91% of our total acreage held as of December 31, 2010 will be subject to hydraulic fracturing in one or more reservoirs, which corresponds to approximately 44% of our total proved reserves. It should be noted that a significant portion of our total acreage does not contain proved reserves at this time.

        Our use of hydraulic fracturing is limited mainly to our Mid-Continent and Rocky Mountain regions. Although the cost of each well varies, costs incurred in connection with hydraulic fracturing activities as a percentage of the total cost of drilling and completing a new-drill well average approximately 21% (or $350,000) in our Mid-Continent region and 46% (or $385,000) in our Rocky Mountain region. These costs are accounted for in the same way that all other costs of drilling and completing our wells are accounted for and are included in our normal capital expenditure budget, which is funded through operating cash flows or borrowings under our credit facility. Based on the expected capital forecast in our proved reserve report, we estimate that we will spend approximately $93.1 million for future fracturing activities on both new-drill wells and workovers on existing wells.

        For as long as we have owned and operated properties subject to hydraulic fracturing, there have not been any incidents, citations or suits related to fracturing operations or related to environmental concerns from fracturing operations.

        We periodically review our plans and policies regarding oil and gas operations, including hydraulic fracturing, in order to minimize any potential environmental impact. We adhere to applicable legal requirements and industry practices for groundwater protection. Our operations are subject to close supervision by state and federal regulators (including the Bureau of Land Management with respect to federal acreage), who frequently inspect our fracturing operations.

        During well construction, steel casing pipe and concrete are employed for protection. Once the pipe is set in place, cement is pumped into the well where it hardens to create an isolating barrier between the steel casing pipe and the surrounding geological formations. In accordance with best industry practices, casing and cement design conforms to the applicable requirements and standards of state agencies. As an example, for any fresh water aquifers, a separate string of casing is set below the base as part of the casing design to eliminate any "pathway" for the fracturing fluid to contact any fresh water aquifers during the hydraulic fracturing operations. Furthermore the hydrocarbon bearing formations are generally separated from any usable underground fresh water aquifers by thousands of feet of impermeable rock layers. This distance is approximately 5,200 feet and 6,200 feet, respectively, for our Rockies and Mid-Continent reservoirs that are being fracture stimulated. This wide separation serves as a protective barrier that prevents any migration of fracturing fluids or hydrocarbons upwards into any groundwater zones. In addition, the vendors conducting hydraulic fracturing on our properties monitor pump rates and pressures during the fracturing treatments. This monitoring occurs on a real-time basis to identify abrupt changes in rate or pressure, which permits the operator to modify or cease the fracturing process.

        Typical hydraulic fracturing treatments are made up of water, chemical additives and sand. We utilize major hydraulic fracturing service companies who track and report all additive chemicals that are used in fracturing as required by the appropriate government agencies. Each of these companies fracture stimulate a multitude of wells for the industry each year.

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        We strive to minimize water usage in our fracture stimulation designs. Water recovered from our hydraulic fracturing operations is disposed of in a way that does not impact surface waters. We dispose of our recovered water by means of approved disposal or injection wells.

        Surface spills and leaks are controlled, contained and remediated in accordance with the applicable requirements of state oil and gas commissions, as well as any Spill Prevention, Control and Countermeasures (SPCC) plans we maintain in accordance with EPA requirements. This would include any action up to and including total abandonment of the wellbore.

Other laws

        The Oil Pollution Act of 1990, as amended, ("OPA") establishes strict liability for owners and operators of facilities that are the site of a release of oil into waters of the U.S. The OPA and its associated regulations impose a variety of requirements on responsible parties related to the prevention of oil spills and liability for damages resulting from such spills. A "responsible party" under the OPA includes owners and operators of certain onshore facilities from which a release may affect waters of the U.S. The OPA assigns liability to each responsible party for oil cleanup costs and a variety of public and private damages. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill was caused by gross negligence or willful misconduct or resulted from violation of a federal safety, construction or operating regulation. If the party fails to report a spill or to cooperate fully in the cleanup, liability limits likewise do not apply. Few defenses exist to the liability imposed by the OPA. The OPA imposes ongoing requirements on a responsible party, including the preparation of oil spill response plans and proof of financial responsibility to cover environmental cleanup and restoration costs that could be incurred in connection with an oil spill.

        The National Environmental Policy Act of 1969, as amended ("NEPA"), requires federal agencies to evaluate major agency actions having the potential to significantly impact the environment before their commencement. Generally, federal agencies must prepare either an environmental assessment or an environmental impact statement depending on whether the specific circumstances surrounding the proposed federal action will have a significant impact on the environment. The NEPA process involves public input through comments which can alter the nature of a proposed project either by limiting the scope of the project or requiring resource-specific mitigation. NEPA decisions can be appealed through the administrative and federal court systems by process participants. Although we believe that our actions do not typically trigger NEPA analysis, should we ever be subject to NEPA, the process may result in delaying the permitting and development of projects, increase the costs of permitting and developing some facilities and could result in certain instances in the cancellation of certain leases.

        Our properties located in Colorado are subject to the authority of the Colorado Oil and Gas Conservation Commission, or COGCC. The COGCC recently approved new rules governing oil and gas activity which are intended to prevent or mitigate environmental impacts of oil and gas development and include the permitting of wells. Depending on how these and any other new rules are applied to our operations, they could add substantial increases in well costs in our Colorado operations. The rules could also impact the ability and extend the time necessary to obtain drilling permits, which creates substantial uncertainty about our ability to meet future drilling plans and thus production and capital expenditure targets.

Employees

        At April 30, 2011, we had approximately 65 full-time employees. None of our employees is represented by a labor union or covered by any collective bargaining agreement. We believe that our relations with our employees are satisfactory.

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Legal Proceedings

        From time to time, we are subject to legal proceedings and claims that arise in the ordinary course of business. Like other gas and oil producers and marketers, our operations are subject to extensive and rapidly changing federal and state environmental, health and safety and other laws and regulations governing air emissions, wastewater discharges, and solid and hazardous waste management activities. As of the date of this prospectus, there are no material pending or overtly threatened legal actions that we are aware of.

Insurance Matters

        As is common in the oil and gas industry, we will not insure fully against all risks associated with our business either because such insurance is not available or because premium costs are considered prohibitive. A loss not fully covered by insurance could have a materially adverse effect on our financial position, results of operations or cash flows.

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MANAGEMENT

        The following table sets forth information regarding our directors and executive officers as of the date of this prospectus and upon completion of the offering. There are no family relationships among any of our directors or executive officers.

Name	Age		Position
Michael R. Starzer		50	Director, President and Chief Executive Officer
Steven R. Enger		52	Executive Vice President and Chief Financial Officer
Steven B. Wilson		48	Vice President and Chief Accounting Officer
Gary A. Grove		50	Director, Executive Vice President—Engineering and Planning, Interim Chief Operating Officer
Patrick A. Graham		50	Executive Vice President—Corporate Development
Richard J. Carty		42	Chairman of the Board
James R. Casperson		63	Director
Marvin Chronister		60	Director
Kevin A. Neveu		50	Director
Todd A. Overbergen		45	Director

        Michael R. Starzer is a member of our board of directors and is our President and Chief Executive Officer. Mr. Starzer was a founder and co-manager of Bonanza Creek Oil Company, LLC, and served as a member of the board of managers and President and Chief Executive Officer of our predecessor BCEC since BCEC's formation in 2006. Mr. Starzer has over 28 years of experience in the oil and gas industry. Mr. Starzer has served in numerous positions in the oil and gas industry evaluating and developing oil, gas, electricity and geothermal resources. From 1983 to 1991, Mr. Starzer was employed by Unocal in various engineering and supervisory positions. From 1991 until 1993, Mr. Starzer served with the California State Lands Commission as Statewide Petroleum Reservoir Engineer and worked as a private consultant to the energy industry supervising operations and appraisals of oil, gas and geothermal resources on properties throughout the United States. In 1993, Mr. Starzer returned to Unocal as an Asset Manager assisting them with the sale and management of certain assets. Starting in 1995, Mr. Starzer served as an Officer, Manager and Vice President of Berry Petroleum until beginning his tenure with one of our predecessors in 1999. Mr. Starzer holds a degree in Petroleum Engineering from the Colorado School of Mines and a Master of Science degree in Engineering Management from the University of Alaska and is a registered professional engineer in petroleum engineering. We believe Mr. Starzer's extensive experience in the oil and gas industry, his leadership positions at other oil and gas companies and his knowledge regarding our business and operations bring important experience and leadership to our company and our board of directors.

        Steven R. Enger joined us on June 13, 2011, as Executive Vice President and Chief Financial Officer. Mr. Enger has over 30 years experience in the oil and gas industry. From August 2007 through August 2010, Mr. Enger served in a number of executive roles at Ellora Energy, an independent oil and gas exploration and production company. From August 2007 until March 2008, he was Vice President of Investor Relations and Corporate Development. He served as Executive Vice President and Chief Financial Officer from March 2008 until July 2009 and then was President and Chief Operating Officer until the sale of Ellora to ExxonMobil in August 2010. From 1997 until 2007, Mr. Enger was an analyst and Research Director with Petrie Parkman & Co., an investment banking and advisory firm focused on the energy industry, where he covered integrated oil exploration and production companies and performed oil markets analysis. Prior to Mr. Enger's tenure at Petrie Parkman, he worked for 16 years at ARCO in engineering, strategic planning and investor relations. Mr. Enger holds a B.S. in Petroleum Engineering from Colorado School of Mines and an MBA from UCLA. He is a member of the Society of Petroleum Engineers and the National Association of Petroleum Investment Analysts, where he formerly served on the Board of Directors and as President.

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Steven B. Wilson joined our company in June 2009 and is our Chief Accounting Officer and Vice President. His previous positions include serving as our Vice President and Chief Financial Officer and prior to that, as our Vice President of Finance—Treasurer. Mr. Wilson served as Treasurer for Berry Petroleum Company from March 2007 through May 2009. Mr. Wilson also served as Controller and Assistant Controller for Berry Petroleum from November 2003 to February 2007. Mr. Wilson holds a Bachelor of Science degree in Accounting from Brigham Young University. Mr. Wilson is a CPA and was employed for eight years at Price Waterhouse LLP achieving the position of Audit Manager.

Gary A. Grove is a member of our board of directors and is our Executive Vice President—Engineering and Planning and Interim Chief Operating Officer. Mr. Grove joined Bonanza Creek Oil Company in March 2003 and served as a member of the board of managers and as Executive Vice President and Chief Operating Officer of BCEC. Mr. Grove has over 29 years of experience in the oil and gas industry serving in reservoir engineering and management positions with UNOCAL and Nuevo Energy prior to joining us. Mr. Grove graduated from Marietta College in 1982 with a Bachelor of Science degree in Petroleum Engineering. Mr. Grove is an active member with the Society of Petroleum Engineers and has served in various capacities for student and local chapters since 1979. We believe Mr. Grove's extensive experience in the oil and gas industry and his knowledge regarding our business and operations brings important experience and leadership to the board of directors.

Patrick A. Graham joined Bonanza Creek Oil Company in November 2001, served as a Senior Vice President of BCEC and currently serves as our Executive Vice President—Corporate Development. From 1995 to 2001, Mr. Graham was employed by Berry Petroleum Company where he evaluated acquisition opportunities in California, the Rocky Mountain region and Canada. Mr. Graham gained experience working with major and independent oil companies while employed with Dowell Schlumberger from 1986 to 1995. Mr. Graham received his Bachelors of Science degree in Petroleum Engineering from Texas A&M University and has held various technical positions in Utah, Colorado, New Mexico, California and Alaska.

        Richard J. Carty was elected to our board of directors in December 2010 and is President of West Face Capital (USA) Corp, an affiliate of West Face Capital, a Toronto-based investment management firm, and has served on the board of directors of portfolio companies on behalf of West Face Capital. Prior to that time, Mr. Carty was a Managing Director of Morgan Stanley Principal Strategies in New York where he led the Special Situations, Strategic Investments, and Global Quantitative Equity investment teams. Mr. Carty was at Morgan Stanley & Co for 14 years in New York, and prior to that time was a partner at Gordon Capital Corp, a private Toronto-based investment bank for five years. We believe Mr. Carty's extensive asset management, capital markets, investment banking, and private equity experience bring important and valuable skills to the board of directors.

Todd A. Overbergen has served on the board of directors of our predecessor, BCEC, since 2008. Mr. Overbergen joined the D. E. Shaw Group in February 2004 and is Head of Energy and a Director in the Direct Capital Unit of the D. E. Shaw Group. From December 2000 to April 2003, Mr. Overbergen was a principal at Duke Capital Partners LLC, a merchant banking subsidiary of Duke Energy Corporation that provided mezzanine, equity, and senior debt capital to the energy industry. From 1998 to December 2000, Mr. Overbergen was a director in Arthur Andersen LLP's Global Corporate Finance group, where he co-led the national business services practice and provided investment banking services on mergers, acquisitions, and private market capital raising of debt and equity. Mr. Overbergen serves on the board of directors of numerous existing D. E. Shaw Group portfolio companies and has served on the board of directors of several previous portfolio companies of the D. E. Shaw Group and Duke Capital Partners LLC. Mr. Overbergen is a member of the Houston Producers Forum and Independent Petroleum Association of America. Mr. Overbergen holds two Bachelor of Business Administration degrees in finance and accounting from Texas A&M University. We believe Mr. Oberbergen's extensive financial, accounting, merchant banking and private equity experience, as well as his extensive experience in the energy sector, bring important and valuable skills to the board of directors.

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James R. Casperson was elected to our board of directors in March of 2011. Mr. Casperson has over 30 years of experience in the oil and gas industry and finance and accounting in the public and private sectors. Mr. Casperson is currently a private consultant to the energy industry. From 2005 until 2008, he was the Chief Financial Officer of Ellora Energy and, from 2000 until 2005, the Chief Financial Officer of Whiting Petroleum Corporation. Before joining Whiting, Mr. Casperson spent 15 years as President of Casperson Incorporated, a private consulting firm specializing in the energy industry. Mr. Casperson holds a BBA in Accounting from Texas Tech University. We believe Mr. Casperson's extensive experience in the oil and gas industry as well as his financial and accounting experience bring important and valuable skills to the board of directors.

Marvin Chronister was elected to our board of directors in March of 2011. Mr. Chronister has over 30 years experience in the oil and gas industry. Mr. Chronister is currently an independent investor, energy finance and operations consultant for Enfield Companies and on the Board of Sonde Resources Corp. From 2004 until 2006, Mr. Chronister was the Financial Operations Practice Director of Jefferson Wells International, Inc. He served as Managing Director of Corporate Finance for Deloitte & Touche from 1990 to 2003 with previous positions in industry and investment banking. Mr. Chronister holds a Bachelor of Business Administration degree from Stephen F. Austin State University. We believe Mr. Chronister's extensive experience in the oil and gas industry as well as his financial and accounting experience bring important and valuable skills to the board of directors.

Kevin A. Neveu was elected to our board of directors in March of 2011. Mr. Neveu has over 25 years of experience in the oil and gas industry. Currently, Mr. Neveu serves as a director, President and Chief Executive Officer of Precision Drilling Corporation. Mr. Neveu was previously President of the Rig Solutions Group of National Oilwell Varco, where he was responsible for the company's drilling equipment business. Beginning in 1982, Mr. Neveu held senior management positions with National Oilwell Varco and its predecessor companies in London, Moscow, Houston, Edmonton and Calgary. Mr. Neveu holds a Bachelor of Science degree and is a graduate of the Faculty of Engineering at the University of Alberta. Mr. Neveu is a Professional Engineer, as designated by the Association of Professional Engineers, Geologists and Geophysicists of Alberta and has attended the Advanced Management Program at the Harvard Business School. Mr. Neveu serves on the boards of RigNet Inc., the Heart and Stroke Foundation of Alberta and the International Association of Drilling Contractors. We believe Mr. Neveu's extensive experience in the oil and gas industry as well as his experience on the boards of directors of public energy companies bring substantial leadership and experience to the board of directors.

Board of Directors

        Our board of directors currently consists of seven members, including our President and Chief Executive Officer and our Executive Vice President—Engineering and Planning and Interim Chief Operating Officer. Each of our current directors has significant industry experience.

        We also expect that our board will review the independence of our current directors using the independence standards of the NYSE, and we expect that our board of directors will consist of seven members within one year after the completion of this offering, a majority of whom will be independent.

        West Face Capital and AIMCo, on behalf of certain of its clients, have entered into an investment management agreement by which West Face Capital has the right to vote the shares of our common stock held by certain clients of AIMCo. West Face Capital, via the investment management agreement with AIMCo and an advisory agreement with Black Bear, has more than 50% of the voting power for the election of directors, and as such, we are a "controlled company" as that term is defined in Section 303A of the NYSE Listed Company Manual. This investment management agreement may be terminated upon 90 days prior written notice or immediately in certain circumstances, at which time we would no longer be deemed a "controlled company."

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        Under the NYSE rules, a "controlled company" may elect not to comply with certain NYSE corporate governance requirements, including: (1) the requirement that a majority of our board of directors consist of independent directors, (2) the requirement that our nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities, and (3) the requirement that our compensation committee be composed entirely of independent directors with a written charter addressing the Committee's purpose and responsibilities. While these requirements will not apply to us as long as we remain a "controlled company," we expect that our board of directors will continue to consist of a majority of independent directors and that our nominating and governance committee and compensation committee will consist entirely of independent directors within one year following the completion of this offering. Our nominating and governance committee and compensation committee each has a written charter addressing such committee's purpose and responsibilities.

        In evaluating director candidates, we will assess whether a candidate possesses the integrity, judgment, knowledge, experience, skills and expertise that are likely to enhance the board's ability to manage and direct the affairs and business of the company, including, when applicable, to enhance the ability of committees of the board to fulfill their duties.

Committees of the Board of Directors

        Our board of directors currently has an audit committee, compensation committee, reserve committee and environmental safety and regulatory compliance committee, and will have a nominating and governance committee upon consummation of this offering, and may have such other committees as the board of directors shall determine from time to time. Each of the standing committees of the board of directors will have the composition and responsibilities described below.

Audit Committee

        The members of our audit committee are Messrs. Casperson (Chairman), Carty and Chronister, each of whom our board of directors has determined is financially literate. Our board of directors has determined that Messrs. Casperson and Chronister are audit committee financial experts and are "independent" under the standards of the NYSE and SEC regulations. This committee oversees, reviews, acts on and reports on various auditing and accounting matters to our board of directors, including: the selection of our independent accountants, the scope of our annual audits, fees to be paid to the independent accountants, the performance of our independent accountants and our accounting practices. In addition, the audit committee oversees our compliance programs relating to legal and regulatory requirements. We have adopted an audit committee charter defining the committee's primary duties in a manner consistent with the rules of the SEC and NYSE or market standards.

Compensation Committee

        The members of our compensation committee are Messrs. Carty (Chairman), Neveu and Overbergen. Our board of directors has determined that Mr. Neveu is independent under the standards of the NYSE and SEC regulations. This committee establishes salaries, incentives and other forms of compensation for officers and other employees. Our compensation committee also administers our incentive compensation and benefit plans. We have adopted a compensation committee charter defining the committee's primary duties in a manner consistent with the rules of the SEC and NYSE or market standards.

Nominating and Corporate Governance Committee

        Prior to the consummation of this offering, we will form a nominating and governance committee. This committee will identify, evaluate and recommend qualified nominees to serve on our board of directors, develop and oversee our internal corporate governance processes and maintain a management

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succession plan. In connection with the formation of a nominating and governance committee, we will adopt a nominating and governance committee charter defining the committee's primary duties in a manner consistent with the rules of the SEC and NYSE or market standards.

Reserve Committee

        The members of the reserve committee are Messrs. Casperson (Chairman), Chronister and Overbergen. Our reserve committee oversees, reviews, acts on and reports on our reserve engineering reports and reserve engineers to our board. Our reserve committee is responsible for (i) the integrity of our reserve reports, (ii) determinations regarding the qualifications and independence of our independent reserve engineers, (iii) the performance of our independent reserve engineers and (iv) our compliance with certain legal and regulatory requirements.

Environmental Safety and Regulatory Compliance Committee

        The members of the environmental safety & regulatory compliance ("ES&RC") committee are Messrs. Chronister (Chairman), Neveu and Grove. Our ES&RC committee's primary purpose is to assist our board of directors in fulfilling our responsibilities to provide global oversight and support of the Company's environmental safety, regulatory and compliance policies, programs and initiatives. In carrying out its responsibilities, the ES&RC committee reviews the status of our health, safety and environmental performance, including processes monitoring and reporting on compliance with internal policies and goals and applicable laws and regulations.

Compensation Committee Interlocks and Insider Participation

        No member of our compensation committee has been at any time an employee of ours. During the past fiscal year, none of our executive officers serve or has served on the board of directors or compensation committee of a company that has one or more executive officers who serve on our board of directors or compensation committee. No member of our board of directors is an executive officer of a company in which one or more of our executive officers serves as a member of the board of directors or compensation committee of that company.

        To the extent any members of our compensation committee and affiliates of theirs have participated in transactions with us, a description of those transactions is described in "Certain Relationships and Related Party Transactions."

Code of Business Conduct and Ethics

        Our board of directors has adopted a code of business conduct and ethics applicable to our employees, directors and officers, in accordance with applicable U.S. federal securities laws and the corporate governance rules of the NYSE. Any waiver of this code may be made only by our board of directors and will be promptly disclosed as required by applicable U.S. federal securities laws and the corporate governance rules of the NYSE.

Corporate Governance Guidelines

        Our board of directors has adopted corporate governance guidelines in accordance with the corporate governance rules of the NYSE.

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EXECUTIVE COMPENSATION AND OTHER INFORMATION

Compensation Discussion and Analysis

        This compensation discussion and analysis, or CD&A, provides information about our compensation objectives and policies for our principal executive officer, our principal financial officer and our other three most highly compensated executive officers at the end of the last completed fiscal year, and is intended to place in perspective the information contained in the executive compensation tables that follow this discussion. This CD&A provides a general description of our compensation program and information about its various components.

        Throughout this discussion, the following individuals are referred to as the "named executive officers" and are included in the Summary Compensation Table:

•

Michael R. Starzer, President and Chief Executive Officer;

•

Steven R. Enger, Executive Vice President and Chief Financial Officer;

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Steven B. Wilson, Vice President and Chief Accounting Officer;

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C. Stephen Black, our former Executive Vice President and Chief Operating Officer;

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Gary A. Grove, Executive Vice President—Engineering and Planning and Interim Chief Operating Officer; and

•

Patrick A. Graham, Executive Vice President—Corporate Development.

        Mr. Black resigned his position as Chief Operating Officer on May 20, 2011 to spend more time with his family. Information regarding Mr. Black's compensation is included in this CD&A and the accompanying tables and narrative sections because he was one of our named executive officers as of December 31, 2010. Our board of directors has appointed Mr. Grove to serve as interim Chief Operating Officer and has authorized a search committee comprised of three directors to identify qualified candidates to serve as our Chief Operating Officer. We expect that our board of directors will thoroughly assess all candidates presented by the search committee and will appoint a permanent Chief Operating Officer as soon as practicable.

        Mr. Enger joined our company on June 13, 2011. Information regarding Mr. Enger's compensation is included in this CD&A because he will be a named executive officer for 2011 and thereafter.

        Although the information presented in this CD&A focuses on our fiscal year 2010, we also describe compensation actions taken before or after fiscal year 2010 to the extent such discussion enhances the understanding of our executive compensation disclosure. Contemporaneous with this offering, we expect that certain of our current compensation plans and agreements with our named executive officers will be terminated or amended and that we will enter into new compensation plans and agreements to take effect upon consummation of this offering as discussed below.

Compensation Program Philosophy and Objectives

        The objective of our compensation program is to attract, retain and motivate the most qualified individuals in the oil and gas industry who we can identify and recruit. Our compensation program is designed to reward employees for performance that creates long-term stockholder value by successfully implementing our long-term strategy and achieving our short-term goals. We strive to create a compensation program that encourages long-term value creation by tying individual compensation to the attainment of our annual performance targets while acknowledging and fostering the unique qualifications, skills, experience and responsibilities of each individual.

        For 2010, as a private company, we did not have a compensation committee, compensation consultant or formally set peer group, however, our compensation was set based on our board of directors' and

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management's assessment of a variety of factors, including industry information and performance, an individual's rank, tenure, experience and job responsibilities and the performance of our company. For 2011, we have begun to establish more formal compensation standards using compensation levels at or near the market midpoint, or 50^th percentile, of our peer group as a guideline in establishing our compensation levels, although we may deviate from the 50^th percentile for individual considerations such as experience, tenure and job responsibilities. While historically long term incentives have played a relatively small role in the annual compensation of our named executive officers, after this offering, consistent with our philosophy of setting compensation levels at or near the 50^th percentile of our peer group, we intend to implement a Long-term Incentive Plan. See "Elements of Compensation and Why We Pay Each Element—Long-term Incentives" below. Under this Long-term Incentive Plan, we expect that a significant portion of our named executive officers' overall compensation will be made up of long-term incentives. The average portion of total compensation paid as long-term incentives for the named executive officers at the 50^th percentile of our peer group is approximately 40%. For 2011, the compensation for all named executive officers is reviewed and determined by our compensation committee, subject to the approval of our board of directors. In addition to actual job responsibility and competitive market data, we give consideration to individual performance of the named executive officer and internal pay equity relative to our other executive officers. Under the direction of our compensation committee and subject to the approval of our board, salaries are generally reviewed annually as part of our performance review process.

Setting Executive Officer Compensation

        The Role of Our Compensation Committee:    For 2010 and prior years, as a private company, our board of directors and management set executive officer compensation taking into account a variety of factors, including industry information and performance, an individual's rank, tenure, experience and job responsibilities and the performance of our company. For the fiscal year 2010, we did not have a compensation committee. Our board of directors established the compensation committee in March of 2011 and authorized the committee to review and propose for approval by our board of directors the compensation for our Section 16(b) executives. Our compensation committee (i) oversees our compensation programs on behalf of our board of directors; (ii) is responsible for proposing programs for approval by our board of directors that attract, retain and motivate qualified executive-level talent; and (iii) monitors our compensation programs and strives to ensure that the total compensation paid to the named executive officers is fair, reasonable and competitive with that provided to executive officers serving in similar roles and with similar responsibilities in other U.S. publicly traded energy companies.

        The Role of the Compensation Consultant:    For the fiscal year 2011, Longnecker & Associates (the "Compensation Consultant") was engaged on behalf of the compensation committee as our compensation committee's independent compensation consultant. Our predecessor did not engage a compensation consultant. Our compensation committee felt it was beneficial to have an independent third-party analysis to assist in evaluating and setting executive compensation. Our compensation committee chose the Compensation Consultant because our compensation committee believes the Compensation Consultant has extensive experience in providing executive compensation advice, including specific experience in the oil and gas industry. The Compensation Consultant provided our compensation committee with an analysis of our executive compensation programs, including total direct compensation comprised of base salary, annual incentive and long-term incentive compensation, in order to assess the competitiveness of our programs and to provide conclusions and recommendations. For fiscal 2011, our compensation committee will take into consideration the discussions, guidance and compensation studies produced by the Compensation Consultant in order to make compensation decisions. The Compensation Consultant does not provide to us any services or advice on matters unrelated to executive and independent director compensation and reports directly to and takes direction from our compensation committee, which has the authority to engage or terminate the Compensation Consultant in its discretion. Our compensation committee has determined that the advice provided by the Compensation Consultant relating to executive

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compensation was free from any relationships that could impair the professional advice or compromise the integrity of the information or data provided to our compensation committee.

        Competitive Benchmarking and Peer Group:    Our compensation committee considers competitive industry data in making executive pay determinations. Pursuant to our compensation committee's decision to maintain a peer group for compensation purposes and in view of evolving industry and competitive conditions, the Compensation Consultant proposed certain peer group companies for our compensation committee's review. As a private company, neither we nor our predecessor utilized a formal peer group, but our board of directors and management considered industry information and performance, an individual's rank, tenure, experience and job responsibilities and the performance of our company in setting compensation.

        After discussions with the Compensation Consultant and reviewing the Compensation Consultant's recommendation of a peer group based on companies with annual revenue, assets, and net income similar to ours taking into account geographic footprint and employee count, our compensation committee determined that the peer group listed below is the most appropriate for purposes of executive compensation analyses. The Compensation Consultant compiled compensation data for the peer group from a variety of sources, including proxy statements and other publicly filed documents and published survey compensation data from multiple sources, including the Economic Research Institute, Mercer and Towers Watson. This compensation data was then used to compare the compensation of our named executive officers to our peer group where the peer group had individuals serving in similar positions.

Peer Group:

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Brigham Exploration Company

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Contango Oil & Gas Company

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Endeavour International Corporation

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Georesources, Inc.

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Gulfport Energy Corporation

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Oasis Petroleum Inc.

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Petroquest Energy, Inc.

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Ram Energy Resources, Inc.

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Resolute Energy Corporation

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Rex Energy Corporation

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Warren Resources, Inc.

        While the Compensation Consultant makes recommendations to our compensation committee on compensation, our compensation committee has full discretion to act and implement compensation decisions independent of the Compensation Consultant's recommendations.

Elements of Our Compensation and Why We Pay Each Element

        From our inception, our executive compensation program has consisted primarily of base salary, bonus payments, equity-based incentives, severance and change-in-control benefits, certain perquisites and employee benefits provided to certain of our executive officers. Our compensation committee, assisted by the Compensation Consultant, is currently developing compensation programs that are intended to take effect upon or shortly after consummation of this offering and to provide our named executive officers with an overall compensation package suitable to executives of a similarly situated publicly traded company,

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subject to approval by our board of directors. Although our compensation committee has not yet determined the precise components of these compensation programs, we expect that these programs for our named executive officers will consist of five elements: base salary, annual performance-based cash incentive compensation, equity-based compensation, severance and change-in-control benefits and other employee benefits.

        Base Salary:    Base salary is the fixed annual compensation we pay to each of our named executive officers for carrying out their specific job responsibilities. Base salaries are a major component of the total annual cash compensation paid to our named executive officers. Base salaries are determined after taking into account many factors, including the following:

•

the responsibilities of the officer, the level of experience and expertise required for the position and the strategic impact of the position;

•

the need to recognize each officer's unique value and demonstrated individual contribution, as well as future contributions; and

•

salaries paid for comparable positions in similarly-situated companies.

        For 2010, base salaries were determined by our board of directors and management based on industry information and performance, an individual's rank, tenure, experience and job responsibilities and the performance of our company. For 2010, base salaries for our named executive officers increased by nominal amounts for market and cost of living reasons, except in the case of Steve Black, whose increase was due to his promotion to Chief Operating Officer.

        The Compensation Consultant has provided our compensation committee with an analysis of the base salaries paid to our executive officers in 2010 in comparison to comparable market salaries of our peer group. Based on the Compensation Consultant's analysis, our compensation committee concluded that the aggregate base salaries of our executives were at or near the market 25^th percentile, which is below the market 50^th percentile that our compensation committee has determined to be the level necessary to remain competitive with other companies in our peer group reflecting our status as a private company. Accordingly, our compensation committee recently recommended and our board of directors approved an increase in the base salaries of certain of our named executive officers in order to set their base salaries closer to the market 50^th percentile with appropriate adjustments for level of experience and job responsibility. The following table shows the base salaries for each of our named executive officers (i) in

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effect for 2011, (ii) effective as of June 1, 2010 and (iii) at the 50^th percentile of our peer group for such position.

Name and Position	2010 Base Salary		2011 Base Salary (effective 6/1/2011)		Salary for 50th Percentile of Peer Group
Michael R. Starzer, President and Chief Executive Officer	$	275,018	$	326,000	$	447,437
Steven R. Enger, Executive Vice President and Chief Financial Officer(1)		n/a	$	260,000	$	259,892
C. Stephen Black, Chief Operating Officer(2)	$	261,538	$	262,500	$	273,092
Gary A. Grove, Executive Vice President—Engineering and Planning and Interim Chief Operating Officer	$	225,014	$	240,000	$	230,458
Patrick A. Graham, Executive Vice President—Corporate Development	$	180,003	$	215,000	$	237,800

(1)

Mr. Enger began his employment with our company on June 13, 2011. His salary shown above is effective as of such date. Prior to joining us as Chief Financial Officer, Mr. Enger was a consultant to the company for which he was paid $25,000 in the aggregate for 2011.

(2)

Mr. Black resigned his position as Chief Operating Officer on May 20, 2011 to spend more time with his family. The 2011 salary shown above represents a full year of Mr. Black's salary as in effect on his departure date.

        Annual Cash Incentive Compensation:    All of our employees, including our named executive officers, are eligible to receive performance-based cash bonuses. For 2010, our bonuses were discretionary and, for the first quarter of 2010, paid quarterly. After the first quarter of 2010, the company discontinued the quarterly bonus practice. Discretionary bonus amounts for the first quarter of 2010 were based on each employee's, including each of our named executive officer's rank, contributions and performance. Management has historically utilized the aggregate bonus levels paid out by our peers relative to the EBITDAX levels generated each year by those peers as a comparative tool to recommend aggregate bonus levels to our board of directors for approval. The bonus amount approved by our board of directors and paid to employees was entirely discretionary but typically varied between 0.5% and 5% of EBITDAX generated for that year. In 2010, the aggregate bonus level paid to employees represented approximately 1% of EBITDAX generated by the Company. For 2010, Mr. Wilson and Mr. Grove received the largest bonuses for their efforts in refinancing our debt position and achieving strong reserve bookings in 2009, respectively. The amounts received by our named executive officers in 2010 as discretionary bonuses are shown below under "Summary Compensation Table." In lieu of an annual 2010 bonus, in early 2011, we paid a $500,000 aggregate bonus in connection with the Corporate Restructuring. Bonus amounts for this transaction bonus were determined based on each employee's contribution, as determined by management and our board of directors, to the Corporate Restructuring and as a percentage of their 2010 salary. With respect to the $500,000 transaction bonus in connection with the Corporate Restructuring, Mr. Starzer received $58,000, Mr. Black received $56,000, Mr. Grove received $58,000, Mr. Graham received $38,000 and Mr. Wilson received $20,000.

        For fiscal year 2011, subject to approval by our board of directors, the compensation committee has discretionary authority to identify the employees entitled to receive an award for the fiscal year and to determine the amount of such award based on performance criteria established by our compensation committee.

        We anticipate that our compensation committee will propose for approval by our board of directors an annual performance-based cash incentive, or bonus plan, to take effect upon or shortly after

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consummation of this offering. We expect that the plan proposed by the compensation committee will provide for variable cash compensation earned when established performance objectives are achieved. Such a plan will likely be designed to reward plan participants, including the named executive officers, who have achieved certain corporate and individual performance objectives. Performance criteria may include operational, financial and other performance measures, such as production, safety, retention and individual job-related targets as determined, in the case of our named executive officers, at the discretion of our compensation committee and our board of directors.

        Such bonus plan will be included as part of our compensation program because we believe this element of compensation will help us to:

•

motivate management to achieve key short-term corporate goals; and

•

align executives' interests with stockholders' interests.

        Long-term Incentives:    In connection with our Corporate Restructuring, we adopted the Management Incentive Plan which we refer to as the MIP. Under the MIP, 10,000 shares of our Class B Common Stock were reserved for issuance in connection with restricted stock awards to our management and employees. Upon the consummation of our Corporate Restructuring on December 23, 2010, 7,500 restricted shares of our Class B Common Stock were granted to our named executive officers as follows: 2,500 to Mr. Starzer, 2,000 to Mr. Grove and 1,500 to each of Messrs. Black and Graham. Mr. Black subsequently forfeited his 1,500 restricted shares of Class B Common Stock upon his resignation and separation from the company. The size of these share grants was determined as a result of negotiations between management and our principal stockholder at the time of our Corporate Restructuring. On June 30, 2011, in connection with his employment, Mr. Enger received a grant of 600 shares of Class B Common Stock. All Class B Common Stock has been granted pursuant to Restricted Stock Agreements and, upon consummation of this offering, is subject to a three-year vesting period whereby the Class B Common Stock granted to each individual vests in one third increments annually commencing on the consummation of this offering, provided that such individual remains employed by the company. We feel that the vesting provisions of the Class B Common Stock under the MIP are sufficient to encourage our senior management to produce long-term stockholder value. We intend to grant the 3,400 available restricted shares of Class B Common Stock to our management and employees prior to consummation of this offering with each such individual grant based on rank, tenure, performance and contribution to the company. Upon consummation of this offering, all 10,000 restricted shares of Class B Common Stock under the MIP will be converted into our Class A Common Stock. See "Certain Relationships and Related Party Transactions—Class B Common Stock Conversion."

        We expect that our compensation committee will propose and that our board of directors will approve a Long Term Incentive Plan, or LTIP, to take effect upon or shortly after the consummation of this offering. This LTIP will replace the MIP for equity incentives to be granted following the consummation of this offering. The purpose of our LTIP will be to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to our employees, directors and consultants, and to promote the success of our business. We anticipate that our LTIP will provide for grants of (a) incentive stock options qualified as such under U.S. federal income tax laws, (b) stock options that do not qualify as incentive stock options, (c) stock appreciation rights ("SARs"), (d) restricted stock awards, (e) restricted stock units (f) performance awards or (g) other awards, including common stock awarded as a bonus, dividend equivalents, convertible or exchangeable debt securities and similar rights.

        Our compensation committee believes long-term incentive-based equity compensation is an important component of our overall compensation program because it:

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Rewards the achievement of our long-term goals;

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Aligns our executives' interests with the long-term interests of our stockholders;

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•

Encourages executive retention; and

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Conserves our cash resources.

        We anticipate that our compensation committee will have the authority, subject to approval by our board of directors, to award incentive compensation under our LTIP to our named executive officers and others in such amounts and on such terms as our compensation committee determines appropriate in its discretion. In determining such awards, our compensation committee will review the Compensation Consultant's market analysis to determine the appropriate amount of equity to grant to our executive officers based on market data while also taking into consideration our performance, individual performance and retention concerns. Our named executive officers and other employees will be entitled to participate in our LTIP subject to certain restrictions. Our compensation philosophy is to use the 50^th percentile of our peer group as a guideline in terms of setting long term incentive compensation, which will be reflected in the size of the grants to our named executive officers under our LTIP. This philosophy is intended to attract, motivate and retain high caliber executive talent, while aligning executives' interests with those of our stockholders. The average portion of total compensation paid as long-term incentives for the named executive officers of our peer group is approximately 40%.

        We do not expect that our LTIP will be subject to the Employee Retirement Income Security Act of 1974, as amended, or ERISA. For a limited period of time following this offering, we anticipate that our LTIP will qualify for an exception to the deductibility limitations imposed by Section 162(m) of the Internal Revenue Code of 1986, as amended ("Code"), assuming that certain requirements are met. We expect that during that limited period of time, awards under our LTIP will be exempt from the limitations on the deductibility of compensation that exceeds $1,000,000. See "—Accounting and Tax Considerations" below.

        Although the terms of any LTIP have not yet been determined by our board of directors, we expect that our LTIP will have the following general features (though any of these features may be changed in the final LTIP):

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provision for certain number of shares of our common stock reserved and available for delivery in connection with awards;

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eligibility for any individual who provides services to us, including non-employee directors and consultants, subject to any limitations provided for by our compensation committee or by the terms of our LTIP;

•

administration by our compensation committee or as otherwise provided for by the terms of our LTIP;

•

stock option grants to be issued with an exercise price not less than the fair market value per share as of the date of grant;

•

SARs, each representing the right to receive an amount equal to the excess of the fair market value of one share of our common stock on the date of exercise over the grant price of the SAR (which grant price will not be less than the fair market value per share as of the date of grant);

•

restricted stock awards granting shares of common stock subject to a risk of forfeiture, restrictions on transferability and any other restrictions imposed by the compensation committee in its discretion;

•

restricted stock units consisting of rights to receive common stock, cash or a combination of both at the end of a specified period;

•

authority granted to the compensation committee to designate certain awards under our LTIP as "performance awards," the grant, exercise or settlement of which is subject to the attainment of one or more performance goals; and

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•

other awards related to common stock, subject to applicable legal limitations and the terms of our LTIP and its purposes, other awards related to common stock.

        Other Employee Benefits:    We expect that the named executive officers will continue to be eligible for the same health, welfare and other employee benefits available to our employees generally, including medical and dental insurance, short and long-term disability insurance and a 401(k) plan that includes company matching of 6% of each individual's cash earnings.

        Stock Awards:    In the fiscal year 2010, we issued 7,500 shares of our Class B Common Stock in the form of shares of restricted stock to our named executive officers, 1,500 of which were subsequently forfeited by Mr. Black upon his resignation. The share amounts were determined in connection with our Corporate Restructuring. In connection with the offering, all of the outstanding Class B Common Stock will automatically be converted into shares of our common stock pursuant to a formula set forth in our certificate of incorporation. See "Certain Relationships and Related Party Transactions—Class B Common Stock Conversion." We anticipate issuing             shares of our common stock upon conversion of the Class B Common Stock based on an assumed initial public offering price of $            (the midpoint of the price range set forth on the cover page of this prospectus).

        Salary and Cash Incentive Awards in Proportion to Total Compensation:    The following table sets forth the percentage of each named executive officer's total compensation that we paid in the form of base salary and annual cash incentive awards.

Name	Year		Percentage of Total Compensation Paid in Base Salary and Annual Incentive Awards
Michael R. Starzer		2010		95	%
		2009		96	%
		2008		97	%
C. Stephen Black(1)		2010		94	%
		2009		90	%
		2008		80	%
Steven B. Wilson		2010		95	%
		2009		91	%
		2008		—
Gary A. Grove		2010		93	%
		2009		90	%
		2008		92	%
Patrick A. Graham		2010		93	%
		2009		89	%
		2008		91	%

(1)

Mr. Black joined us in March 2008 and resigned effective as of May 20, 2011.

Employment Agreement and Severance and Change in Control Arrangements

        In 2009, we entered into employment agreements with each of our named executive officers that provide for base salary, participation in our benefit plans, paid vacation and reimbursement of reasonable business expenses. Such agreements provide for 12 months base salary in a lump sum as severance in the event of a termination of such officer's employment by us without cause, by such officer for good reason, due to permanent disability of such officer or upon resignation of such officer in connection with a change of control of our company.

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        In connection with our Corporate Restructuring, we amended and restated the employment agreements with Messrs. Starzer, Grove and Graham to provide for participation in the MIP. Mr. Enger entered into a similar employment agreement upon commencement of his employment with our company. Upon termination of employment by us without cause, by the named executive officer for good reason, due to permanent disability of the named executive officer or upon resignation in connection with a change in control of our company, such officer is entitled to (i) an immediate cash payment equal to 12 months base salary; (ii) a cash payment made within 70 days of termination, equal to 12 months base salary plus 200% (100% in Mr. Enger's case) of the two-year average bonuses paid to such officer; and (iii) for 18 months (12 months in Mr. Enger's case) following termination, monthly reimbursement of the difference between such officer's COBRA premiums and the amount our active senior executive employees pay for the same or similar coverage under our group health plan. Such named executive officers are entitled to receive these severance benefits only upon executing a general release. These amended and restated employment agreements include 2 year (1 year in Mr. Enger's case) post termination non-competition and non-solicitation clauses.

        Contemporaneous with the consummation of this offering, we plan to amend and restate the existing employment agreements with our named executive officers, including the terms and conditions of employment and the severance and change in control benefits for our named executive officers. We also expect to adopt an executive change in control and severance benefit plan, to be effective as of or shortly after the consummation of this offering, which will provide severance and change in control benefits to participants. We believe that adoption of such an executive change in control and severance benefit plan is appropriate because we believe that the interests of our stockholders are best served if we provide separation benefits to eliminate, or at least reduce, the reluctance of executive officers and other key employees to pursue potential corporate transactions that may be in the best interests of our stockholders, but that may have resulting adverse consequences to the employment situations of our executive officers and other key employees. Further, such a plan will ensure an understanding of what benefits are to be paid to participants in the event of termination of their employment in certain specified circumstances and/or upon the occurrence of a change in control.

Stock Ownership Guidelines

        Stock ownership guidelines have not been implemented for our named executive officers or directors. We will continue to periodically review best practices and reevaluate our position with respect to stock ownership guidelines in the future.

Accounting and Tax Considerations

Section 162(m) of the Code

        Generally, Section 162(m) of the Code disallows a tax deduction to any publicly-held corporation for individual compensation in excess of $1,000,000 paid in any taxable year to any of its chief executive officer or other named executive officer, other than its chief financial officer, unless the compensation is performance-based. As we are not currently publicly traded, our board of directors and compensation committee have not previously taken the deductibility limit imposed by Section 162(m) of the Code into consideration in setting compensation.

        Certain exceptions to the deductibility limitation apply for a limited period of time in the case of companies that become publicly-traded through an initial public offering, assuming certain conditions are satisfied. We expect that our arrangements will fit within that exception; however, we reserve the right to use our judgment to authorize compensation payments that do not comply with the performance-based compensation exemption in Section 162(m) of the Code when we believe that such payments are appropriate and in the best interest of our stockholders, after taking into consideration changing business

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conditions or the executive's individual performance and/or changes in specific job duties and responsibilities.

Section 409A of the Code

        Section 409A of the Code requires that "nonqualified deferred compensation" be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax liabilities and penalty taxes and interest on their vested compensation under such plans. Accordingly, as a general matter, it is our intention to design and administer our compensation and benefits plans and arrangements for all of our employees and other service providers, including our named executive officers, so that they are either exempt from, or satisfy the requirements of, Section 409A of the Code.

Section 280G of the Code

        Section 280G of the Code disallows a tax deduction with respect to excess parachute payments to certain executives of companies which undergo a change in control. In addition, Section 4999 of the Code imposes a 20% excise tax on the individual with respect to the excess parachute payment. Parachute payments are compensation linked to or triggered by a change in control and may include, but are not limited to, bonus payments, severance payments, certain fringe benefits, and payments and acceleration of vesting from long-term incentive plans including stock options and other equity-based compensation. Excess parachute payments are parachute payments that exceed a threshold determined under Section 280G of the Code based on the executive's prior compensation. In approving the compensation arrangements for our named executive officers in the future, our compensation committee will consider all elements of the cost to the company of providing such compensation, including the potential impact of Section 280G of the Code. However, our compensation committee may, in its judgment, authorize compensation arrangements that could give rise to loss of deductibility under Section 280G of the Code and the imposition of excise taxes under Section 4999 of the Code when it believes that such arrangements are appropriate to attract and retain executive talent.

        Our employment agreements with our officers, including our named executive officers, do not provide a "gross-up" or other reimbursement payment for any tax liability that such officer might owe as a result of the application of Sections 280G, 4999, or 409A of the Code and we have not agreed and are not otherwise obligated to provide any named executive officers with such a "gross-up" or other reimbursement. The employment agreements with Messrs. Starzer, Enger, Grove and Graham specify that if any severance payment to such individuals constitutes "parachute payment" (as defined under Section 280G of the Code), then either (i) such payment shall be reduced so that such payment is $1 less than the limitation under Section 280G or (ii) paid in full, whichever produces the better after tax result.

Accounting Standards

        Financial Accounting Standards Board (FASB) Accounting Standards Codification, Topic 718, "Compensation—Stock Compensation" (ASC Topic 718) requires us to recognize an expense for the fair value of equity-based compensation awards. Grants of stock options, restricted stock and other equity-based awards are accounted for under ASC Topic 718. Our compensation committee regularly considers the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.

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Summary Compensation Table

        The following table shows information concerning the annual compensation for services provided to us by our named executive officers during the fiscal years ended December 31, 2010, 2009 and 2008.

Name and Principal Position		Year		Salary			Bonus(1)		Stock Awards(2)		Non-Equity Incentive Plan Compensation		All Other Compensation(3)		Total
Michael R. Starzer			2010	$	275,018		$	4,000	$	4,000			$	9,993	$	293,011
	President and		2009	$	261,342		$	6,875		—		—	$	11,205	$	279,422
	Chief Executive Officer		2008	$	275,000		$	55,700		—		—	$	11,835	$	342,535
C. Stephen Black(4)			2010	$	261,538		$	6,000	$	2,400			$	13,475	$	283,413
	Executive Vice President and		2009	$	205,070		$	7,031		—		—	$	23,869	$	235,970
	Chief Operating Officer		2008	$	137,500	(5)	$	26,600		—		—	$	41,130	$	205,230
Steven B. Wilson			2010	$	196,543		$	13,857					$	12,139	$	222,539
	Vice President and Chief		2009	$	85,371	(6)	$	4,600		—		—	$	9,095	$	99,066
	Accounting Officer		2008		n/a			n/a		—		—		n/a		—
Gary A. Grove			2010	$	225,014		$	15,192	$	3,200		—	$	14,184	$	257,590
	Executive Vice President—		2009	$	213,825		$	15,000		—		—	$	24,219	$	253,044
	Engineering and Planning		2008	$	211,536		$	38,500		—		—	$	21,362	$	271,398
	and Interim Chief Operating Officer
Patrick A. Graham			2010	$	180,003		$	9,040	$	2,400			$	11,342	$	202,785
	Executive Vice President—		2009	$	174,805		$	21,950		—		—	$	23,136	$	219,891
	Corporate Development		2008	$	176,964		$	43,500		—		—	$	22,872	$	243,336

(1)

Values represent amounts received in 2010 under our discretionary bonus plan. See "Annual Performance-Based Cash Incentive Compensation" above.

(2)

Amounts reflect the full grant-date fair value of restricted stock awards of our Class B Common Stock granted during 2010 computed in accordance with ASC Topic 718. Beginning with an assumed per share price of $12.52 for the Class A Common Stock, the price paid by the investors in our Corporate Restructuring, the conversion rate of the Class B Common Stock was calculated on a fair market value basis, utilizing the calculation provided in our amended and restated certificate of incorporation and internal financial projections to arrive at an expected Class A Common Stock share price as of the date of the grant which was discounted to present value using a weighted average cost of capital and for lack of control and marketability. A probability factor was added to weight the likelihood that a liquidity event would take place during the forecast period. In addition, following our Corporate Restructuring in connection with the dissolution of Bonanza Creek Energy Company, LLC (BCEC), Class B Units of BCEC held by Messrs. Starzer and Grove were redeemed by BCEC in exchange for 317,142 shares and 135,953 shares, respectively, of Class A Common Stock held by BCEC with an approximate fair value of $4.0 million and $1.7 million, respectively.

(3)

Values represent each executives' 401(k) match by us for 2010.

(4)

Mr. Black resigned for family reasons effective as of May 20, 2011.

(5)

Mr. Black joined us in March 2008; full year 2008 salary would have been $200,000.

(6)

Mr. Wilson joined us in June 2009; full year 2009 salary would have been $175,000.

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Grants of Plan-Based Awards

        The following table provides information concerning each grant of plan-based awards made to our named executive officers during the fiscal year ended December 31, 2010.

Name	Grant Date		All other stock awards; Number of shares of stock units(1)		Grant date fair value of stock awards(2)
Michael R. Starzer		12/23/10		2,500	$	4,000
C. Stephen Black(3)		12/23/10		1,500		2,400
Gary A. Grove		12/23/10		2,000		3,200
Patrick A. Graham		12/23/10		1,500		2,400

(1)

Consists of restricted shares of Class B Common Stock that, contemporaneously with this offering will be converted into restricted shares of our common stock pursuant to a formula set forth in our certificate of incorporation, of which we estimate that            shares will be held by Mr. Starzer,             shares will be held by Mr. Grove and            shares will be held by Mr. Graham, based on an assumed initial public offering price of $            (the midpoint of the price range set forth on the cover page of this prospectus). Upon conversion of Mr. Enger's June 30, 2011 grant of 600 restricted shares of Class B Common Stock (grant date fair market value of $3,200), we estimate that Mr. Enger will hold             shares of our common stock, based on an assumed initial public offering price of $            (the midpoint of the price range set forth on the cover page of this prospectus). After the offering, these restricted shares of our common stock will be subject to a three-year vesting period whereby the Class B Common Stock granted to each individual vests in one-third increments annually commencing on the consummation of this offering. See "Certain Relationships and Related Party Transactions—Class B Common Stock Conversion."

(2)

Amounts reflect the full grant-date fair value of restricted stock awards of our Class B Common Stock granted during 2010 computed in accordance with ASC Topic 718. Beginning with an assumed per share price of $12.52 for the Class A Common Stock, the price paid by the investors in our Corporate Restructuring, the conversion rate of the Class B Common Stock was calculated on a fair market value basis, utilizing the calculation provided in our amended and restated certificate of incorporation and internal financial projections to arrive at an expected Class A Common Stock share price as of the date of the grant which was discounted to present value using a weighted average cost of capital and for lack of control and marketability. A probability factor was added to weight the likelihood that a liquidity event would take place during the forecast period. In addition, following our Corporate Restructuring in connection with the dissolution of BCEC, Class B Units of BCEC held by Messrs. Starzer and Grove were redeemed by BCEC in exchange for 317,142 shares and 135,953 shares, respectively, of Class A Common Stock held by BCEC with an approximate fair value of $4.0 million and $1.7 million, respectively.

(3)

Mr. Black resigned effective as of May 20, 2011, at which time his stock award of 1,500 restricted shares of Class B Common Stock was forfeited.

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Outstanding Equity Awards at Fiscal Year End

        The following table sets forth certain information with respect to the outstanding stock awards held by the named executive officers at the end of fiscal year 2010.

Name	Grant Date		Number of shares of stock that have not vested(1)		Market Value of shares of stock that have not vested(2)
Michael R. Starzer		12/23/10		2,500	$	4,000
C. Stephen Black(3)		12/23/10		1,500		2,400
Gary A. Grove		12/23/10		2,000		3,200
Patrick A. Graham		12/23/10		1,500		2,400

(1)

Consists of restricted shares of Class B Common Stock that, contemporaneously with this offering, will be converted into restricted shares of our common stock pursuant to a formula set forth in our certificate of incorporation, of which we estimate that                  shares will be held by Mr. Starzer,                   shares will be held by Mr. Grove and                   shares will be held by Mr. Graham, assuming an initial public offering price of $            per share (the midpoint of the price range set forth on the cover page of this prospectus). Upon conversion of Mr. Enger's June 30, 2011 grant of 600 restricted shares of Class B Common Stock, we estimate that Mr. Enger will hold                         shares of our common stock, based on an assumed initial public offering price of $            (the midpoint of the price range set forth on the cover page of this prospectus). After the offering, these restricted shares of will be subject to a three-year vesting period whereby the Class B Common Stock granted to each individual vests in one-third increments annually commencing on the consummation of this offering. See "Certain Relationships and Related Party Transactions—Class B Common Stock Conversion."

(2)

Amounts reflect the full grant-date fair value of restricted stock awards of our Class B Common Stock granted during 2010 computed in accordance with ASC Topic 718. Beginning with an assumed per share price of $12.52 for the Class A Common Stock, the price paid by the investors in our Corporate Restructuring, the conversion rate of the Class B Common Stock was calculated on a fair market value basis, utilizing the calculation provided in our amended and restated certificate of incorporation and internal financial projections to arrive at an expected Class A Common Stock share price as of the date of the grant which was discounted to present value using a weighted average cost of capital and for lack of control and marketability. A probability factor was added to weight the likelihood that a liquidity event would take place during the forecast period. In addition, following our Corporate Restructuring in connection with the dissolution of BCEC, Class B Units of BCEC held by Messrs. Starzer and Grove were redeemed by BCEC in exchange for 317,142 shares and 135,953 shares, respectively, of Class A Common Stock held by BCEC with an approximate fair value of $4.0 million and $1.7 million, respectively.

(3)

Mr. Black resigned effective as of May 20, 2011, at which time his stock award of 1,500 restricted shares of Class B Common Stock was forfeited.

Potential Payments upon Termination or Change of Control

        The table below discloses a hypothetical amount of compensation and/or benefits due to the named executive officers in the event of their termination of employment and/or in the event we undergo a change in control. The amounts disclosed assume such termination and/or such change of control was effective as

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of December 31, 2010. The amounts below constitute estimates of the amounts that would be paid to the named executive officers upon termination of their employment and/or upon a change in control. The actual amounts to be paid are dependent on various factors, which may or may not exist at the time a named executive officer is actually terminated and/or a change in control actually occurs. Therefore, such amounts and disclosures should be considered "forward looking statements."

		Reason for Termination
Name	Payment	For Cause, Resignation Without Good Reason or Death		Without Cause, Resignation for Good Reason or Expiration of Agreement or Disability		Change in Control(1)
Michael R. Starzer	Cash Severance		—	$	550,000	$	550,000
	Bonus Payment		—		10,875		10,875
	Stock Award(2)				—		—
	Health Payment		—		14,315		14,315
Total				$	575,190	$	575,190
C. Stephen Black(3)	Cash Severance			$	420,000	$	420,000
	Bonus Payment				12,000		12,000
	Stock Award(2)				—		—
	Health Payment				14,315		14,315
Total				$	446,315	$	446,315
Steven B. Wilson	Cash Severance		—	$	210,000	$	210,000
	Bonus Payment		—		—		—
	Stock Award		—		—		—
	Health Payment		—		—		—
Total				$	210,000	$	210,000
Gary A. Grove	Cash Severance		—	$	450,000	$	450,000
	Bonus Payment		—		30,192		30,192
	Stock Award(2)		—		—		—
	COBRA Premium		—		14,315		14,315
Total				$	494,507	$	494,507
Patrick A. Graham	Cash Severance		—	$	360,000	$	360,000
	Bonus Payment		—		30,990		30,990
	Stock Award(2)				—		—
	Health Payment		—		14,315		14,315
Total				$	405,305	$	405,305

(1)

In the case of Messrs. Starzer, Grove and Graham, the severance payment is contingent upon resignation within 30 days following the six-month anniversary of the change in control. In the case of Mr. Wilson, the severance payment is contingent upon resignation within three months following the change in control.

(2)

Upon termination without cause, resignation for good reason, death or permanent disability, one-third of the shares are forfeited with the remaining two-thirds (i) being retained subject to a three-year cliff vesting schedule as if no termination had occurred or (ii) becoming vested upon a unanimous determination of certain of the remaining members of senior management ("Senior Management"). Upon termination for cause or resignation without good reason, all of the shares are forfeited unless Senior Management determines to allow two-thirds of such shares (x) to be retained

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subject to a three-year cliff vesting schedule as if no termination had occurred or (y) to vest upon a unanimous determination of Senior Management.

(3)

Upon his resignation Mr. Black received property with a fair market value of $12,500 and 36,862 shares of Class A Common Stock as severance in exchange for a full release of the company.

Pension Benefits

        Other than our 401(k) Plan, we do not have any plan that provides for retirement benefits.

Non-Qualified Deferred Compensation

        We do not have any plan that provides for the deferral of compensation on a basis that is not tax qualified.

Director Compensation

        We did not award any compensation to our non-employee directors during the fiscal year 2010. For 2011, our board of directors believes that attracting and retaining qualified non-employee directors will be critical to the ongoing operation of our company. Accordingly, we expect that our board of directors will adopt a director compensation plan effective upon consummation of this offering based on the Compensation Consultant's recommendation and report of the companies in our peer group and utilizing the 50^th percentile of our peer group as a guideline. We expect this director compensation plan will provide for an annual cash retainer, cash payments for each meeting attended, restricted equity grants, committee chairman retainer payments and reimbursement for certain expenses.

        Directors who are also our employees will not receive any additional compensation for their service on our board of directors.

Executive Compensation Risk

        We have determined that risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on us. We do not believe that our current or proposed compensation policies and practices encourage excessive or unnecessary risk-taking.

Indemnification

        Our certificate of incorporation and bylaws provide indemnification rights to the members of our board of directors and permit us to purchase insurance on behalf of any officer, director, employee or other agent for any liability arising out of that person's actions as our officer, director, employee or agent, regardless of whether Delaware law would permit indemnification. After completion of this offering, we will evaluate our existing director and officer liability insurance coverage and make such adjustments we deem appropriate. Additionally, we have entered into separate indemnity agreements with the members of our board of directors and our executive officers to provide additional indemnification benefits, including the right to receive in advance reimbursements for expenses incurred in connection with a defense for which the director is entitled to indemnification. We believe that the limitation of liability provision in our certificate of incorporation and the indemnity agreements will facilitate our ability to continue to attract and retain qualified individuals to serve as directors and officers.

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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

        The following table represents the securities authorized for issuance under our equity compensation plans as of December 31, 2010.

Equity Compensation Plan Information
Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans(1)
Equity compensation plans approved by security holders			—		—		2,500
Equity compensation plans not approved by security holders			—		—		—
	Total		—		—		2,500

(1)

Represents the 2,500 shares of our Class B Common Stock available for issuance under the MIP as of December 31, 2010. Following Mr. Black's resignation on May 20, 2011, 4,000 aggregate shares of Class B Common Stock were available for issuance under the MIP of which 600 shares were granted to Mr. Enger on June 30, 2011 in connection with the commencement of his employment.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Class B Common Stock Conversion

        We are authorized to issue up to 10,000 shares of our Class B Common Stock in the form of shares of restricted stock to employees pursuant to our Management Incentive Plan. On December 23, 2010, Class B Common Stock was awarded in the following amounts: 2,500 shares to Michael R. Starzer, a director and President and Chief Executive Officer; 2,000 shares to Gary A. Grove, a director and Executive Vice President—Engineering and Planning and Interim Chief Operating Officer; 1,500 shares to Patrick A. Graham, Executive Vice President—Corporate Development; and 1,500 shares to C. Stephen Black (which were subsequently forfeited without vesting upon Mr. Black's resignation). Mr. Enger was granted 600 shares of our Class B Common Stock on June 30, 2011 in connection with the commencement of his employment. The terms of our Class B Common Stock are identical to the terms of our Class A Common Stock except for the conversion right discussed below. The holders of our Class B Common Stock are entitled to one vote per share, and they vote with the holders of our Class A Common Stock as a single group.

        If the Value (as defined below) to be received by us in this offering exceeds the Hurdle Rate of Return (as defined below) with respect to a share of our Original Class A Common Stock (as defined below), all outstanding shares of our Class B Common Stock will be converted automatically into shares of Class A Common Stock immediately prior to this offering based on the following conversion formula:

        Each share of Class B Common Stock will be multiplied by

•

.001% of the product of (1) the number of shares of Original Class A Common Stock and (2) the amount by which the Value of a share of Original Class A Common Stock exceeds the Hurdle Rate of Return as of the closing of this offering; less

•

the aggregate of all prior dividends and distributions with respect to a share of Class B Common Stock.

The above product will be divided by the per share fair market value of the Class A Common Stock implied by this offering, as determined by our board of directors in good faith.

        The following definitions apply to the conversion of the Class B Common Stock:

        "Hurdle Rate of Return" equals $12.52 increased at a 10% annual compounded internal rate of return from December 23, 2010, to the date of this offering; provided, however, that if this offering occurs on or prior to June 24, 2012, the Hurdle Rate of Return shall be computed as though this offering occurred on June 24, 2012.

        "Original Class A Common Stock" means only those shares of our Class A Common Stock outstanding immediately after December 23, 2010, regardless whether such shares have been transferred by the initial owner.

        "Value," as it relates to Class A Common Stock, means the sum of the following:

•

the per share offering price; plus

•

the quotient of



(x)

the amount of all dividends or distributions paid on or prior to this offering with respect to Original Class A Common Stock and all other equity securities (including additional shares of Class A Common Stock) held by a person or entity who acquired Original Class A Common Stock on December 23, 2010, or an affiliate of such person or entity, but excluding equity securities issued at fair market value (as determined in good faith by our board of directors) in connection with bona fide equity financing transactions, divided by

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(y)

the number of shares of Original Class A Common Stock; plus

•

the aggregate amount of all dividends and distributions paid with respect of all shares of Class B Common Stock on or prior to this offering, divided by the number of shares of Original Class A Common Stock.

        The Class B Common Stock conversion rights are subject to adjustment to account for certain changes to our common stock outstanding, including stock splits, stock dividends, stock combinations and recapitalization of our common stock. No fractional shares will be issued upon conversion of any Class B Common Stock, and if fractional shares result from such a conversion, the holder of the Class B Common Stock will be entitled to receive from the company cash equal to the market value of such fractional shares, as determined in good faith by our board of directors.

        Our Class B Common Stock was issued as shares of restricted stock subject to a time vesting schedule from the grant date of such Class B Common Stock. Prior to vesting, shares of our Class B Common Stock may be forfeited to us for no consideration and may not be sold, transferred or pledged as collateral. The shares of common stock issued upon conversion of the shares of Class B Common Stock immediately prior to this offering will be subject to a three-year vesting schedule commencing upon consummation of this offering.

        Following the conversion of the Class B Common Stock and immediately prior to the completion of this offering, our certificate of incorporation will be amended to provide for only one class of common stock. See "Description of Capital Stock."

BCEH

        BCEH is managed by Michael R. Starzer, our President and Chief Executive Officer, and Gary A. Grove, our Executive Vice President-Engineering and Planning and Interim Chief Operating Officer, and was formed in connection with our Corporate Restructuring to hold 207,083 shares of our Class A Common Stock for subsequent distribution to our employees pursuant to BCEC's Management Incentive Plan. These shares were issued to BCEH in order to defer any tax liability to the recipient resulting from the issuance until a liquid market in our shares of common stock existed.

BCEC Investment Trust

        The BCEC Investment Trust, u/t/a, dated April 1, 2011, was formed to hold shares of our common stock received by BCEC in connection with the redemption of BCEC's equity in our Corporate Restructuring and designated for (i) Bonanza Creek Oil Company, LLC; (ii) the co-manager of Bonanza Creek Oil Company, LLC and a former director of BCEC pursuant to his interest in BCEC's Management Incentive Plan; and (iii) employees of BCEC. Mr. Starzer is trustee of this trust. The agreement of both required beneficiaries under the trust, Mr. Starzer and the other co-manager of Bonanza Creek Oil Company, LLC, is required to distribute such shares.

Registration Rights Agreement

        We have entered into a registration rights agreement with certain of our stockholders, who we refer to as rights holders, including Black Bear and certain clients of AIMCo, relating to the shares of our common stock held by them and covered by the agreement, which shares of common stock we refer to as registrable shares. Under the registration rights agreement, the rights holders have the right, subject to the terms of the lock-up agreements to be executed in connection with this offering between each such right holder and the underwriters, to require us to register under the Securities Act for offer and sale all or a portion of the registrable shares of such rights holders.

        Demand Registration Rights.    Black Bear has the right to require us, subject to certain limitations, to register all or a portion of the registrable shares held by Black Bear and clients of AIMCo. AIMCo's

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clients have the same right with respect to their registrable shares, which may not be exercised until Black Bear either (i) exercises all of its demand rights or (ii) no longer holds registrable shares, whichever occurs first. If Black Bear intends to distribute its registrable shares through an underwritten offering, the clients of AIMCo may elect to have their registrable shares included in the offering, subject to customary underwriters' cutbacks.

        The maximum number of registrations Black Bear may require us to effect depends on the gross proceeds of this offering to be received by Black Bear and the clients of AIMCo. If Black Bear and the clients of AIMCo receive less than $175 million in gross proceeds in this offering, Black Bear may require us to file up to two registration statements. If Black Bear and the clients of AIMCo receive $175 million or more in gross proceeds from this offering Black Bear may require us to file only one registration statement. We are not required to file more than one registration statement pursuant to demand by the clients of AIMCo. We are not required to file any registration statement for 180 days after this offering.

        If we receive a demand registration request (i) within 30 days prior to a planned registered public offering in which Black Bear and clients of AIMCo may exercise piggyback rights or (ii) while we are engaged in any other activity that, in the good faith determination of our board of directors, would be adversely affected by the requested registration to our material detriment, then we may delay such demand for up to 90 days after such public offering. We may exercise this delay right once in any 12-month period.

        Piggyback Registration.    Whenever we propose to file a registration statement for our own account or for the account of one of our stockholders, the rights holders have the right to have their registrable shares included in such an offering. Participation in such an offering is subject to customary underwriters' cutbacks and the following priorities:

•

in the first demand registration requested by Black Bear: (i) the registrable shares held by Black Bear and clients of AIMCo pro rata based on the number of registrable shares owned by each such holder up to a maximum of $175 million gross proceeds attributable to such holder less any amount of gross proceeds received by such holder in our initial public offering, (ii) registrable shares of other rights holders pro rata based on the number of registriable shares owned by each such rights holder and (iii) other securities to be included in such offering;

•

in the second demand registration requested by Black Bear or in the demand registration requested by clients of AIMCo: (i) all of the registrable shares to be offered for all parties to the registration rights agreement pro rata and (ii) any other securities requested to be included in the offering; and

•

in any other such registration: (i) all of the securities to be offered for our account, (ii) the regsistrable shares to be offered for all parties to the registration rights agreement pro rata and (iii) any other securities requested to be included in the offering.

        Registration Expenses.    We are responsible for all expenses arising from or incident to our performance of, or compliance with, the registration rights agreement, regardless of whether any registration statement is declared effective. These expenses include all registration and exchange listing fees, attorneys' fees for us and for counsel selected by holders of a majority of the registrable shares, accounting expenses and liability insurance. We are not responsible for underwriting discounts, selling commissions and the fees of the selling rights holder's own counsel.

        Indemnification.    The registration rights agreement contains indemnification and contribution provisions, subject to certain conditions, by us for the benefit of the rights holders and their affiliates and representatives and each underwriter, and in limited situations, by the rights holders for the benefit of us and any underwriters with respect to information included in any registration statement, prospectus or related documents.

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        Transfer.    Each rights holder may transfer its rights under the agreement, in whole or part, only to (i) an affiliate of such rights holder or (ii) another person in a private placement exempt from registration under securities laws so long as such person holds at least 1% of the class of registrable shares.

        Commercially Reasonable Best Efforts.    All registration rights require us to use our commercially reasonable best efforts to obtain registration.

HEC Acquisition

        On December 23, 2010, the members of HEC contributed all of their outstanding membership interests in HEC to us in exchange for approximately $59 million in cash (including approximately $7.2 million in assumed debt repaid at closing) and 1,683,536 shares of our common stock with a value equal to approximately $21 million, for a total purchase price of approximately $80 million, subject to certain adjustments. The members of HEC included current and former members of our management who, collectively, owned an approximate 7.0% equity interest in HEC.

        Certain of our directors and executive officers owned equity interests in HEC and received shares of our common stock or cash in exchange for those interests. A trust controlled by Mr. Starzer, our President and Chief Executive Officer owned 1.6% of HEC. Mr. Grove, our Executive Vice President—Engineering and Planning and Interim Chief Operating Officer, owned approximately 0.6% of HEC through a family trust. Mr. Graham, our Executive Vice President—Corporate Development owned approximately 0.2% of HEC. The trust controlled by Mr. Starzer received 92,067 shares of our common stock, Mr. Grove's family trust received approximately $461,000 in cash consideration and Mr. Graham received approximately $115,000 in cash consideration. Furthermore, following the completion of this acquisition, the controlling unitholder of HEC owned approximately 5.77% of our common stock.

        Prior to the acquisition, we provided services to HEC as contractor for their Arkansas and DJ Basin operations. The scope of work included directly performing or managing all the permitting, equipment procurement, logistics, operations supervision and implementation, and documentation for all of HEC's operations. As compensation for our services, HEC reimbursed us for time and materials, and we received a management fee of approximately $34,000 per month.

CJ Bennett Family Trust

        On March 25, 2008, BCEC issued a $10 million unsecured subordinated note to the CJ Bennett Family Trust of 1987 (the "Bennett Trust"), the beneficiary of which is a father of one of our former directors. The unsecured subordinated note was repaid in full, including $2.3 million in accrued interest, on December 23, 2010 as part of our Corporate Restructuring.

Procedures for Approval of Related Party Transactions

        A "Related Party Transaction" is a transaction, arrangement or relationship in which we or any of our subsidiaries was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any related person had, has or will have a direct or indirect material interest. A "Related Person" means:

•

any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors;

•

any person who is known by us to be the beneficial owner of more than 5.0% of our common stock;

•

any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, executive officer or a beneficial owner of more than 5.0% of our common stock, and any person (other than a tenant or employee) sharing the

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household of such director, executive officer or beneficial owner of more than 5.0% of our common stock; and

•

any firm, corporation or other entity in which any of the foregoing persons is a partner or principal or in a similar position or in which such person has a 10.0% or greater beneficial ownership interest.

        Our board of directors will adopt a written related party transactions policy following the completion of this offering. Pursuant to this policy, our audit committee will review all material facts of all Related Party Transactions and either approve or disapprove entry into the Related Party Transaction, subject to certain limited exceptions. In determining whether to approve or disapprove entry into a Related Party Transaction, our audit committee will take into account, among other factors, the following: (1) whether the Related Party Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and (2) the extent of the Related Person's interest in the transaction.

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PRINCIPAL AND SELLING STOCKHOLDERS

        The following table sets forth information with respect to the beneficial ownership of our common stock as of May 31, 2011 as well as on a fully diluted basis immediately after the completion of this offering, by the following persons:

•

each stockholder known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;

•

the selling stockholders;

•

each of our named executive officers;

•

each of our directors; and

•

all of our directors and executive officers as a group.

        All information with respect to beneficial ownership assumes an offering price of $            per share of common stock (the midpoint of the range set forth on the cover page of this prospectus). Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock beneficially owned by them, except to the extent this power may be shared with a spouse. No selling stockholder is a registered broker-dealer or affiliate of a registered broker-dealer.

        The address for Project Black Bear LP is 2 Bloor Street East, Suite 810, Toronto, Ontario M4W 1A8 Canada. The address for Her Majesty the Queen in Right of Alberta a client advised by AIMCo is c/o AIMCo, 1100-10830 Jasper Avenue, Edmonton, Alberta T5J 2B3. The address for D. E. Shaw Synoptic Portfolios 5, L.L.C. is 1166 Avenue of the Americas, Fifth Floor, New York, New York, 10036. The address for the Fred S. and Barbara J. Holmes Trust dated January 10, 1983 is P.O. Box 1405, Taft, California 93268. The address for our directors and executive officers is 410 17th Street, Suite 1500, Denver, Colorado, 80202.

		Shares Beneficially Owned Prior to the Offering								Shares Being Offered	Shares Beneficially Owned After the Offering
Name of Beneficial Owner		Class A Common Stock		Class B Common Stock(1)			Percentage			Common Stock	Common Stock	Percentage
Selling Stockholders
Project Black Bear LP(2)			21,166,134		—			72.66	%
Her Majesty the Queen in Right of Alberta(3)			7,587,859		—			26.05	%
Other Significant Stockholders
West Face Capital Inc.(2)			21,166,134		—			72.66	%
Alberta Investment Management Corporation(3)			7,587,859		—			26.05	%
D. E. Shaw Synoptic Portfolios 5, L.L.C.(4).			3,763,908		—			12.92	%
BCEC Investment Trust(5)			1,811,903		—			6.22	%
The Fred S. and Barbara J. Holmes Trust			1,591,469		—			5.46	%
Directors and Executive Officers
Michael R. Starzer(6)			2,428,195		2,500	(9)		8.34	%
Gary A. Grove(7)			343,036		2,000	(9)		1.18	%
Patrick A. Graham			—		1,500	(9)		*
Steven R. Enger			—		600	(9)		*
Richard J. Carty			—		—			—
Todd A. Overbergen(8)			—		—			—
James R. Casperson			—		—			—
Marvin Chronister			—		—			—
Kevin A. Neveu			—		—			—
	All directors and executive officers as a group (9 persons)

*

Less than 1.0%.

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(1)

6,600 shares of Class B Common Stock in the form of restricted stock have been issued to certain of our named executive officers, and we intend to issue the remaining shares of Class B Common Stock prior to this offering. Immediately prior to the consummation of this offering, each share of Class B Common Stock will be converted into Class A Common Stock pursuant to the terms of our amended and restated certificate of incorporation. See "Certain Relationships and Related Party Transactions—Class B Common Stock Conversion." Our amended and restated certificate of incorporation will be amended and restated effective immediately prior to the consummation of this offering and after the conversion of the Class B Common Stock into Class A Common Stock, at which time each share of Class A Common Stock then outstanding will be exchanged for one share of our single-class common stock. Shares of our common stock previously held as Class B Common Stock will remain restricted stock and will be subject to three-year time vesting commencing from the consummation of this offering.

(2)

Includes beneficial ownership of 7,587,859 shares of common stock held by certain clients of AIMCo, over which Black Bear may exercise voting power pursuant to an investment management agreement between West Face Capital and AIMCo, on behalf of its clients. This investment management agreement may be terminated upon 90 days prior written notice or immediately in certain circumstances, at which time West Face Capital would no longer be deemed a beneficial owner of the common stock held by certain clients of AIMCo. The general partner of Black Bear, Project Black Bear GP LLC, a Delaware limited liability company, has delegated voting and investment power over the shares held by Black Bear to West Face Capital, pursuant to an advisory agreement. Voting and investment decisions of West Face Capital are made by its Co-Chief Investment Officers, Gregory Boland and Peter Fraser, each of whom disclaims beneficial ownership of any shares held by Black Bear and Her Majesty the Queen in Right of the Province of Alberta.

(3)

Her Majesty the Queen in Right of the Province of Alberta is a client of AIMCo. Her Majesty the Queen in Right of the Province of Alberta holds shares of our common stock in her own capacity and as trustee/nominee for certain other Alberta pension clients for which AIMCo serves as investment manager pursuant to the Alberta Investment Management Corporation Act R.S.A. C.A. 26-5 (2007). Black Bear may exercise voting power over all these shares pursuant to an investment management agreement between West Face Capital and AIMCo, on behalf of its clients. Voting and investment decisions of the clients of AIMCo with respect to the shares of our common stock owned by such clients are made by AIMCo's Senior Vice President Public Equities, Brian Gibson, and AIMCo's Vice President Relationship Investments, David Styles, each of whom disclaims beneficial ownership of any shares of our common stock held by the clients of AIMCo.

(4)

D. E. Shaw & Co., L.P., as investment adviser, has voting and investment control over the shares beneficially owned by D.E. Shaw Synoptic Portfolios 5, L.L.C. Voting and investment control over the shares of D.E. Shaw & Co., L.P. are exercised by Julius Gaudio, Eric Wepsic, Maximilian Stone, Anne Dinning and Lou Salkind, or their designees, each of whom disclaim beneficial ownership of the shares held by D. E. Shaw Synoptic Portfolios 5, L.L.C.

(5)

Mr. Starzer is sole trustee of the BCEC Investment Trust and, as such, has voting power over these shares, but dispositive power requires the joint consent of Mr. Starzer and the other beneficiary of the trust.

(6)

Includes (i) 1,811,903 shares over which Mr. Starzer has voting power as sole trustee of the BCEC Investment Trust; (ii) 317,142 shares held directly; (iii) 207,083 shares held by BCEH, over which Messrs. Starzer and Grove exercise joint voting and dispositive control; and (iv) 92,067 shares held by The Starzer Revocable Living Trust.

(7)

Includes (i) 135,953 shares held directly and (ii) 207,083 shares held by BCEH, over which Messrs. Starzer and Grove exercise joint voting and dispositive control.

(8)

Does not include shares held by D.E. Shaw Synoptic Portfolios 5, L.L.C., an affiliate of the D.E. Shaw Group. Mr. Overbergen is a director in the D.E. Shaw Group, and although he may be deemed to share beneficial ownership of the shares held by D.E. Shaw Synoptic Portfolios 5, L.L.C. by virtue of his relationship with the D.E. Shaw Group, he disclaims beneficial ownership of the shares held by D.E. Shaw Synoptic Portfolios 5, L.L.C.

(9)

Shares of our common stock previously held as Class B Common Stock will remain restricted stock and will be subject to three-year time vesting commencing from the consummation of this offering.

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DESCRIPTION OF CAPITAL STOCK

General

        We expect to amend and restate our certificate of incorporation and bylaws immediately prior to the consummation of this offering. The following descriptions are summaries of the material terms that we expect to include in our amended and restated certificate of incorporation and bylaws. This summary is qualified by reference to our amended and restated certificate of incorporation and amended and restated bylaws, the form of which are filed as exhibits to the registration statement of which this prospectus forms a part, and by the provisions of applicable law.

        We are authorized to issue                shares of common stock, par value $0.001 per share, and                shares of preferred stock, par value $0.001 per share. Upon completion of the offering, there will be                shares of our sole class of common stock issued and outstanding and no shares of our preferred stock outstanding.

        We intend to apply to list shares of our common stock on the NYSE under the symbol "BCEI."

Common Stock

Voting

        We expect that holders of shares of our common stock will be entitled to one vote for each share held of record on each matter submitted to a vote of stockholders, including the election of directors, and will not have any cumulative voting rights with regard to the election of directors.

Dividends

        We expect that holders of shares of our common stock will be entitled to receive ratably such dividends as our board of directors from time to time may declare out of funds legally available therefor.

Liquidation Rights

        In the event of any liquidation, dissolution or winding-up of our affairs, we expect that, after payment of all of our debts and liabilities, the holders of common stock will be entitled to share ratably in the distribution of any of our remaining assets.

Other Matters

        Except as described below, we do not expect that holders of shares of our common stock will have any conversion, preemptive or other subscription rights and that there will be no redemption rights or sinking fund provisions with respect to the common stock.

Our Preferred Stock

        We expect that our board of directors will have the authority to issue preferred stock in one or more classes or series and to fix the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any class or series, without further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of us without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock.

Transfer Agent

        Our transfer agent and registrar will be                  .

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Anti-Takeover Effects of Delaware Laws and Our Charter and Bylaws Provisions

        We expect that our certificate of incorporation and bylaws will include anti-takeover provisions that may delay, deter, or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders.

        Such provisions, if included in our certificate of incorporation and bylaws, could discourage potential acquisition proposals and could delay or prevent a change of control. Such provisions would be intended to enhance the likelihood of continuity and stability in the composition of the board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of control. Such provisions would be designed to reduce our vulnerability to an unsolicited acquisition proposal. Such provisions also would be intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our common stock that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management.

        Business Combinations.    After this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

        Section 203 defines a "business combination" as a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholders. Section 203 defines an "interested stockholder" as a person who, together with affiliates and associates, owns, or, in some cases, within three years prior, did own, 15% or more of the corporation's voting stock. Under Section 203, a business combination between us and an interested stockholder is prohibited unless:

•

our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder prior to the date the person attained the status;

•

upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding, for purposes of determining the number of shares outstanding, shares owned by persons who are directors and also officers and issued employee stock plans, under which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or

•

the business combination is approved by our board of directors on or subsequent to the date the person became an interested stockholder and authorized at an annual or special meeting of the stockholders by the affirmative vote of the holders of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.

        This provision has an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that might result in a premium over the market price for the shares of our common stock. With approval of our stockholders, we could amend our certificate of incorporation in the future to elect not to be governed by the anti-takeover law.

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SHARES ELIGIBLE FOR FUTURE SALE

        Prior to this offering, there has been no public market for our common stock. Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of a substantial number of shares of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity-related capital at a time and price we deem appropriate.

Sales of Restricted Shares

        Upon the closing of this offering, we will have outstanding an aggregate of      shares of common stock. All of the shares of common stock to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless the shares are held by any of our "affiliates" as such term is defined in Rule 144 of the Securities Act. All remaining shares of common stock held by existing stockholders will be deemed "restricted securities" as such term is defined under Rule 144. The restricted securities were issued and sold by us in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below.

        As a result of the lock-up agreements described below and the provisions of Rule 144 and Rule 701 under the Securities Act, all of the shares of our common stock (excluding the shares to be sold in this offering) will be available for sale in the public market upon the expiration of the lock-up agreements, beginning 180 days after the date of this prospectus (subject to extension) and when permitted under Rule 144 or Rule 701.

Lock-up Agreements

        We, all of our directors and officers, certain of our principal stockholders and the selling stockholders have agreed not to sell or otherwise transfer or dispose of any common stock for a period of 180 days from the date of this prospectus, subject to certain exceptions and extensions. See "Underwriters" for a description of these lock-up provisions.

Rule 144

        In general, under Rule 144 as currently in effect, once we have been a reporting company subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act for 90 days, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.

        Once we have been a reporting company subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act for 90 days, a person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of one percent of the then outstanding shares of our common stock or the average weekly trading volume of our common stock reported through the NYSE during the four calendar weeks preceding the filing of notice of the sale. Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.

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Rule 701

        Employees, directors, officers, consultants or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written compensatory agreement in accordance with Rule 701 before the effective date of the registration statement are entitled to sell such shares 90 days after the effective date of the registration statement in reliance on Rule 144 without having to comply with the holding period requirement of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, volume limitation or notice filing provisions of Rule 144. The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus.

Stock Issue Under Employee Plans

        We intend to file a registration statement on Form S-8 under the Securities Act to register stock issuable under our new Long-Term Incentive Plan upon its adoption. This registration statement is expected to be filed following the effective date of the registration statement of which this prospectus is a part and will be effective upon filing. Accordingly, shares registered under such registration statement will be available for sale in the open market following the effective date, unless such shares are subject to vesting restrictions with us, Rule 144 restrictions applicable to our affiliates or the lock-up restrictions described above.

Registration Rights

        We have entered into a registration rights agreement with the certain of our stockholders, which will require us to file and effect the registration of certain shares of our common stock held by such parties in certain circumstances. See "Certain Relationships and Related Party Transactions—Registration Rights Agreement."

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MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS TO NON-U.S. HOLDERS

        The following is a general discussion of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our common stock to a non-U.S. holder. For the purpose of this discussion, a non-U.S. holder is any beneficial owner of our common stock that is not for U.S. federal income tax purposes any of the following:

•

an individual citizen or resident of the U.S.;

•

a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in the U.S. or under the laws of the U.S. or any state or the District of Columbia;

•

a partnership (or other entity treated as a partnership or other pass-through entity for U.S. federal income tax purposes);

•

an estate whose income is subject to U.S. federal income tax regardless of its source; or

•

a trust (x) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated as a U.S. person.

        If a partnership (or an entity treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner in the partnership will generally depend on the status of the partner and upon the activities of the partnership. Accordingly, we urge partnerships that hold our common stock and partners in such partnerships to consult their tax advisors.

        This discussion assumes that a non-U.S. holder will hold our common stock issued pursuant to the offering as a capital asset (generally, property held for investment). This discussion does not address all aspects of U.S. federal income taxation or any aspects of estate, gift, alternative minimum tax, state, local or non-U.S. taxation, nor does it consider any U.S. federal income tax considerations that may be relevant to non-U.S. holders that may be subject to special treatment under U.S. federal income tax laws, including, without limitation, U.S. expatriates, life insurance companies, tax-exempt or governmental organizations, dealers in securities or currency, banks or other financial institutions, investors whose functional currency is other than the U.S. dollar, registered investment companies, real estate investment trusts, "controlled foreign corporations," passive foreign investment companies, persons who own, directly or indirectly, more than 5% of our common stock and investors that hold our common stock as part of a hedge, straddle or conversion transaction. Furthermore, the following discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, and Treasury Regulations and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect.

        We urge each prospective investor to consult a tax advisor regarding the U.S. federal, state, local and non-U.S. income and other tax consequences of acquiring, holding and disposing of shares of our common stock.

Dividends

        We have not paid any dividends on our common stock, and we do not plan to pay any dividends for the foreseeable future. However, if we do pay dividends on our common stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those dividends exceed our current and accumulated earnings and profits, the dividends will constitute a return of capital and will first reduce a holder's adjusted tax basis in the common stock, but not below zero, and then will be treated as gain from the sale of the common stock; see "—Gain on Disposition of Common Stock".

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        Any dividend (out of earnings and profits) paid to a non-U.S. holder of our common stock generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable tax treaty. To receive the benefit of a reduced treaty rate, a non-U.S. holder must provide us with an Internal Revenue Service ("IRS") Form W-8BEN or other appropriate version of IRS Form W-8 certifying qualification for the reduced rate.

        Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder (and, if required by an applicable tax treaty, attributable to a permanent establishment or fixed tax base maintained by the non-U.S. holder in the United States) are exempt from such withholding tax. To obtain this exemption, the non-U.S. holder must provide us with an IRS Form W-8ECI properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, will be subject to U.S. federal income tax on a net income basis at the same graduated rates generally applicable to U.S. persons, net of certain deductions and credits, subject to any applicable tax treaty providing otherwise. In addition to the income tax described above, dividends received by corporate non-U.S. holders that are effectively connected with a U.S. trade or business of the corporate non-U.S. holder may be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable tax treaty.

        A non-U.S. holder of our common stock may obtain a refund of any excess amounts withheld if the non-U.S. holder is eligible for a reduced rate of United States withholding tax and an appropriate claim for refund is timely filed with the Internal Revenue Service or the IRS.

Gain on Disposition of Common Stock

        A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless:

•

the gain is effectively connected with a U.S. trade or business of the non-U.S. holder and, if required by an applicable tax treaty, is attributable to a permanent establishment or fixed base maintained by such non-U.S. holder in the United States;

•

the non-U.S. holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or

•

we are or have been a "U.S. real property holding corporation" for U.S. federal income tax purposes during specified periods.

        Unless an applicable tax treaty provides otherwise, gain described in the first bullet point above will be subject to U.S. federal income tax on net income basis at the same graduated rates generally applicable to U.S. persons. Corporate non-U.S. holders also may be subject to a branch profits tax equal to 30% (or such lower rate as may be specified by an applicable tax treaty) of its earnings and profits that are effectively connected with a U.S. trade or business.

        Gain described in the second bullet point above (which may be offset by U.S. source capital losses, provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses) will be subject to a flat 30% U.S. federal income tax (or such lower rate as may be specified by an applicable tax treaty).

        Non-U.S. holders should consult any applicable income tax treaties that may provide for different rules.

        We believe that we currently are, and expect to remain for the foreseeable future, a "U.S. real property holding corporation." However, so long as our common stock is "regularly traded on an established securities market," a non-U.S. holder will be subject to U.S. federal net income tax on a disposition of our common stock only if the non-U.S. holder actually or constructively holds, or held at any

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time during the shorter of the five-year period preceding the date of disposition or the holder's holding period, more than 5% of our common stock. If our common stock is not considered to be so traded, all non-U.S. holders would be subject to U.S. federal net income tax on disposition of our common stock, and a 10% withholding would apply to the gross proceeds from the sale of our common stock by a non-U.S. holder.

Backup Withholding and Information Reporting

        Generally, we must report annually to the IRS the amount of dividends paid to each non-U.S. holder, the name and address of the recipient, and the amount, if any, of tax withheld with respect to those dividends. A similar report is sent to each non-U.S. holder. These information reporting requirements apply even if withholding was not required. Pursuant to tax treaties or other agreements, the IRS may make its reports available to tax authorities in the recipient's country of residence.

        Payments of dividends to a non-U.S. holder may be subject to backup withholding (at the applicable rate) unless the non-U.S. holder establishes an exemption, for example, by properly certifying its non-U.S. status on an IRS Form W-8BEN or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the beneficial owner is a U.S. person that is not an exempt recipient.

        Payments of the proceeds from sale or other disposition by a non-U.S. holder of our common stock effected outside the U.S. by or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, information reporting (but not backup withholding) will apply to those payments if the broker does not have documentary evidence that the holder is a non-U.S. holder, an exemption is not otherwise established, and the broker has certain relationships with the United States.

        Payments of the proceeds from a sale or other disposition by a non-U.S. holder of our common stock effected by or through a U.S. office of a broker generally will be subject to information reporting and backup withholding (at the applicable rate) unless the non-U.S. holder establishes an exemption, for example, by properly certifying its non-U.S. status on an IRS Form W-8BEN or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, information reporting and backup withholding may apply if the broker has actual knowledge, or reason to know, that the holder is a U.S. person that is not an exempt recipient.

        Backup withholding is not an additional tax. Rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is timely furnished to the IRS.

Legislation Affecting Common Stock Held Through Foreign Accounts

        On March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment Act (the "HIRE Act"), which may result in materially different withholding and information reporting requirements than those described above, for payments made after December 31, 2012. The HIRE Act limits the ability of non-U.S. holders who hold our common stock through a foreign financial institution to claim relief from U.S. withholding tax in respect of dividends paid on our common stock unless the foreign financial institution agrees, among other things, to annually report certain information with respect to "United States accounts" maintained by such institution. The HIRE Act also limits the ability of certain non-financial foreign entities to claim relief from U.S. withholding tax in respect of dividends paid by us to such entities unless (1) those entities meet certain certification requirements; (2) the withholding agent does not know or have reason to know that any such information provided is incorrect and (3) the withholding agent reports the information provided to the IRS. The HIRE Act provisions will have a similar effect with respect to dispositions of our common stock after December 31, 2012. A non-U.S. holder generally would be permitted to claim a refund to the extent any tax withheld exceeded the holder's actual tax liability. Non-U.S. holders are encouraged to consult with their tax advisers regarding the possible implication of the HIRE Act on their investment in respect of the common stock.

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UNDERWRITERS

        Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. LLC is acting as the representative, have severally agreed to purchase, and we and the selling stockholders have agreed to sell to them, severally, the number of shares indicated below:

Name	Number of Shares
Morgan Stanley & Co. LLC

        The underwriters and the representatives are collectively referred to as the "underwriters" and the "representatives," respectively. The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and the selling stockholders and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters' over-allotment option described below.

        The per share price of any shares sold by the underwriters shall be the public offering price listed on the cover page of this prospectus, in United States dollars, less an amount not greater than the per share amount of the concession to dealers described below.

        The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $            a share under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in excess of $            a share to other underwriters or to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives.

        The selling stockholders have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of       additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriter's name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table. If the underwriters' option is exercised in full, the total price to the public would be approximately $            , the total underwriters' discounts and commissions would be approximately $             million, and the total proceeds to the selling stockholders would be approximately $             million.

        The underwriters have informed us that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of common stock offered by them.

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        We intend to apply to list shares of our common stock on the NYSE under the symbol "BCEI."

        We, all of our directors and officers, certain of our principal stockholders and the selling stockholders have agreed that, without the prior written consent of Morgan Stanley & Co. LLC and subject to certain exceptions, on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus:

•

offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of directly or indirectly, any shares of common stock or any securities convertible into or exercisable for common stock; or

•

enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock.

        whether any transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

        The restrictions described in the immediately preceding paragraph shall not apply to:

•

the sale of shares to the underwriters;

•

the issuance by us of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing; or

•

transactions by any person other than us relating to shares of common stock or other securities acquired in open market transactions after completion of the offering of the shares.

        In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may over-allot in connection with the offering, creating a short position in the common stock for their own account. In addition, to cover over-allotments or to stabilize the price of the common stock, the underwriters may bid for, and purchase, shares of common stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in the offering, if the syndicate repurchases previously distributed common stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time.

        We, the selling stockholders and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

Pricing of the Offering

        Prior to this offering, there has been no public market for our common stock. The initial public offering price is determined by negotiations between us, the selling stockholders and the representatives. Among the factors to be considered in determining the initial public offering price will be the information set forth in this prospectus, our history and future prospects, the history of and future prospects for our industry in general, our sales, earnings and certain other financial and operating information in recent

130

periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors.

Relationships with Underwriters

        From time to time in the ordinary course of business, certain of the underwriters and their respective affiliates have performed, and may in the future perform, various commercial banking, investment banking and other financial services for us for which they received, or will receive, customary fees and reimbursement of expenses.

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LEGAL MATTERS

        The validity of our common stock offered by this prospectus will be passed upon for Bonanza Creek Energy, Inc., by Mayer Brown LLP, Houston, Texas. Certain legal matters in connection with this offering will be passed upon for the underwriters by Latham & Watkins LLP, Houston, Texas.

EXPERTS

        Our consolidated financial statements as of December 31, 2010 and for the period from inception (December 23, 2010) to December 31, 2010 included in this prospectus has been so included in reliance on the report of Hein & Associates LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

        The consolidated financial statements of BCEC as of December 23, 2010 and December 31, 2009 and for the period January 1, 2010 to December 23, 2010 and for the years ended December 31, 2009 and 2008 included in this prospectus have been so included in reliance on the report of Hein & Associates LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

        The financial statements of HEC as of December 23, 2010 and December 31, 2009 and for the period January 1, 2010 to December 23, 2010 and for the period from Inception (May 1, 2009) to December 31, 2009 included in this prospectus have been so included in reliance on the report of Hein & Associates LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

        We have filed with the SEC a registration statement on Form S-1 (including the exhibits, schedules and amendments thereto) under the Securities Act, with respect to the shares of our common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to us and the common stock offered hereby, we refer you to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus as to the contents of any contract, agreement or any other document are summaries of the material terms of this contract, agreement or other document. With respect to each of these contracts, agreements or other documents filed as an exhibit to the registration statement, reference is made to the exhibits for a more complete description of the matter involved. A copy of the registration statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the SEC at 100 F Street NE, Washington, D.C. 20549. Copies of these materials may be obtained, upon payment of a duplicating fee, from the Public Reference Section of the SEC at 100 F Street NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facility. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the SEC's website is http://www.sec.gov.

        After we have completed this offering, we will file annual, quarterly and current reports, proxy statements and other information with the SEC. We expect to have an operational website concurrently with the completion of this offering and we expect to make our periodic reports and other information filed with or furnished to the SEC available, free of charge, through our website, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus. You may read and copy any reports, statements or other information on file at the public reference rooms. You can also request copies of these documents, for a copying fee, by writing to the SEC, or you can review these documents on the SEC's website, as described above. In addition, we will provide electronic or paper copies of our filings free of charge upon request.

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GLOSSARY OF CERTAIN INDUSTRY TERMS

        The definitions set forth below shall apply to the indicated terms as used in this prospectus. All natural gas reserves and production reported in this prospectus are stated at the legal pressure base of the state or area where the reserves exist and at 60 degrees Fahrenheit.

        "3-D seismic data" Geophysical data that depicts the subsurface strata in three dimensions.

        "API gravity" or "American Petroleum Institute gravity" API gravity is a measure of how heavy or light a petroleum liquid is compared to water. If its API gravity is greater than 10°, it is lighter and floats on water; if less than 10°, it is heavier and sinks. API gravity is thus an inverse measure of the relative density of a petroleum liquid and the density of water, but it is used to compare the relative densities of petroleum liquids. Generally speaking, oil with an API gravity between 40° and 45° commands the highest prices. Above 45° degrees the molecular chains become shorter and less valuable to refineries. Crude oil is classified as light, medium or heavy, according to its measured API gravity:

(a)

Light crude oil is defined as having an API gravity higher than 31.1°API.



(b)

Medium oil is defined as having an API gravity between 22.3°API and 31.1°API.



(c)

Heavy oil is defined as having an API gravity below 22.3°API.



(d)

Extra heavy oil is defined with API gravity below 10.0°API.

        "Analogous reservoir" Analogous reservoirs, as used in resources assessments, have similar rock and fluid properties, reservoir conditions (depth, temperature, and pressure) and drive mechanisms, but are typically at a more advanced stage of development than the reservoir of interest and thus may provide concepts to assist in the interpretation of more limited data and estimation of recovery. When used to support proved reserves, an "analogous reservoir" refers to a reservoir that shares the following characteristics with the reservoir of interest:

          (i)  Same geological formation (but not necessarily in pressure communication with the reservoir of interest);

         (ii)  Same environment of deposition;

        (iii)  Similar geological structure; and

        (iv)  Same drive mechanism.

        "Basin" A large natural depression on the earth's surface in which sediments generally brought by water accumulate.

        "Bbl" One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in reference to crude oil or other liquid hydrocarbons.

        "Boe" One barrel of oil equivalent. Determined using a ratio of one barrel of crude oil to six Mcf of natural gas.

        "Btu" British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.

        "Completion" The process of strengthening a well hole with casing, evaluating the pressure and temperature of the formation, and then installing the proper equipment to ensure an efficient flow of oil and natural gas out of the well.

        "Condensate" Liquid hydrocarbons associated with the production of a primarily natural gas reserve.

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        "Developed oil and gas reserves" Developed oil and gas reserves are reserves of any category that can be expected to be recovered:

          (i)  Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and

         (ii)  Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

        "Development costs" Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing the oil and gas. More specifically, development costs, including depreciation and applicable operating costs of support equipment and facilities and other costs of development activities, are costs incurred to:

          (i)  Gain access to and prepare well locations for drilling, including surveying well locations for the purpose of determining specific development drilling sites, clearing ground, draining, road building, and relocating public roads, gas lines, and power lines, to the extent necessary in developing the proved reserves.

         (ii)  Drill and equip development wells, development-type stratigraphic test wells, and service wells, including the costs of platforms and of well equipment such as casing, tubing, pumping equipment, and the wellhead assembly.

        (iii)  Acquire, construct, and install production facilities such as lease flow lines, separators, treaters, heaters, manifolds, measuring devices, and production storage tanks, natural gas cycling and processing plants, and central utility and waste disposal systems.

        (iv)  Provide improved recovery systems.

        "Development project" A development project is the means by which petroleum resources are brought to the status of economically producible. As examples, the development of a single reservoir or field, an incremental development in a producing field, or the integrated development of a group of several fields and associated facilities with a common ownership may constitute a development project.

        "Development well" A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive.

        "EBITDAX" See "Summary Reserve and Operations Data—Non-GAAP Financial Measures and Reconciliation—Adjusted EBITDAX."

        "Economically producible" The term economically producible, as it relates to a resource, means a resource which generates revenue that exceeds, or is reasonably expected to exceed, the costs of the operation. The value of the products that generate revenue shall be determined at the terminal point of oil and gas producing activities.

        "Environmental assessment" A study that can be required pursuant to federal law to assess the potential direct, indirect and cumulative impacts of a project.

        "Exploratory well" A well drilled to find and produce natural gas or oil reserves not classified as proved, to find a new reservoir in a field previously found to be productive of natural gas or oil in another reservoir or to extend a known reservoir.

        "Field" An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. There may be two or more reservoirs in a field that are separated vertically by intervening impervious, strata, or laterally by local geologic barriers, or by both. Reservoirs that are associated by being in overlapping or adjacent fields may be treated as a single or common operational field. The geological terms structural feature and

134

stratigraphic condition are intended to identify localized geological features as opposed to the broader terms of basins, trends, provinces, plays, areas-of-interest, etc.

        "Formation" A layer of rock which has distinct characteristics that differ from nearby rock.

        "Fracture stimulation" A process whereby fluids mixed with proppants are injected into a well bore under pressure in order to fracture, or crack open, reservoir rock, thereby allowing oil and/or natural gas trapped in the reservoir rock to travel through the fractures and into the well for production.

        "Gross well or acre" A well or acre in which the registrant owns a working interest. The number of gross wells is the total number of wells in which the registrant owns a working interest.

        "Horizon" A reservoir bed within the stratigraphic series of an oil province from which gas or liquid hydrocarbons can be obtained by drilling a well.

        "Horizontal drilling" A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval.

        "Infill drilling" Drilling wells in between established producing wells to increase recovery of oil and natural gas from a known reservoir.

        "MBbls" One thousand barrels of crude oil or other liquid hydrocarbons.

        "MBoe" One thousand barrels of oil equivalent. Determined using the ratio of one barrel of crude oil to six Mcf of natural gas.

        "Mcf" One thousand cubic feet of natural gas.

        "Millidarcy" or "millidarcies" A unit of measure of permeability. A millidarcy is 1/1000 of a darcy; one darcy reflects permeability such that a pressure differential of 1 atmosphere across 1 cubic centimeter of rock will force a liquid of 1 centipoise of viscosity through the rock at a rate of 1 cubic centimeter per second.

        "MMBbls" One million barrels of crude oil or other liquid hydrocarbons.

        "MMBoe" One million barrels of oil equivalent. Determined using the ratio of one barrel of crude oil to six Mcf of natural gas.

        "MMBtu" One million British thermal units (Btu).

        "MMcf" One million cubic feet of natural gas.

        "Net revenue interest" Economic interest remaining after deducting all royalty interests, overriding royalty interests and other burdens from the working interest ownership.

        "Net well or acre" Deemed to exist when the sum of fractional ownership working interests in gross wells or acres equals one. The number of net wells or acres is the sum of the fractional working interests owned in gross wells or acres expressed as whole numbers and fractions of whole numbers.

        "NYMEX" The New York Mercantile Exchange.

        "Original oil in place" Refers to the oil in place before the commencement of production. Oil in place is distinct from oil reserves, which are the technically and economically recoverable portion of oil volume in the reservoir.

        "Play" A term applied to a portion of the exploration and production cycle following the identification by geologists and geophysicists of areas with potential oil and gas reserves.

        "Plugging and abandonment" Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another or to the surface. Regulations of all states require plugging of abandoned wells.

135

        "Probable reserves" Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered.

(a)

When deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved plus probable reserves. When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves estimates.



(b)

Probable reserves may be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir.



(c)

Probable reserves estimates also include potential incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than assumed for proved reserves.

        "Producing property" A oil and natural gas property with existing production.

        "Productive wells" Producing wells and wells mechanically capable of production.

        "Proppant" Sized particles mixed with fracturing fluid to hold fractures open after a hydraulic fracturing treatment. In addition to naturally occurring sand grains, man-made or specially engineered proppants, such as resin-coated sand or high-strength ceramic materials like sintered bauxite, may also be used. Proppant materials are carefully sorted for size and sphericity to provide an efficient conduit for production of fluid from the reservoir to the wellbore.

        "Proved developed producing" Proved developed reserves that can be expected to be recovered from a reservoir that is currently producing through existing wells.

        "Proved developed reserves" Proved gas and oil that are also developed gas and oil reserves.

        "Proved oil and gas reserves" Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible-from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations-prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. Also referred to as "proved reserves."

        "Proved undeveloped reserves" Proved oil and gas reserves that are also undeveloped oil and gas reserves.

        "PUD" Proved undeveloped drilling locations.

        "Reasonable certainty" A high degree of confidence.

        "Recompletion" Redrilling a well to a new producing zone (new depth) when the current zone is depleted.

        "Refrac" Application of additional fracture stimulation to increase production from wells that have been previously fracture stimulated.

        "Reserves" Estimated quantities of oil and natural gas and related substances anticipated to be economically producible as of a given date by application of development prospects to known accumulations.

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        "Reservoir" A porous and permeable underground formation containing a natural accumulation of producible oil and/or gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

        "Royalty interest" An interest in a oil and natural gas property entitling the owner to a share of oil or gas production free of production costs.

        "Unconventional reservoirs" A term used in the oil and natural gas industry to refer to a play in which the targeted reservoirs generally fall into one of three categories: (1) tight sands, (2) coal beds, or (3) gas shales. The reservoirs tend to cover large areas and lack the readily apparent traps, seals and discrete hydrocarbon-water boundaries that typically define conventional reservoirs. These reservoirs generally require fracture stimulation treatments or other special recovery processes in order to produce economic flow rates.

        "Undeveloped acreage" Those leased acres on which wells have not been drilled or completed to a point that would permit the production of economic quantities of oil or gas regardless of whether such acreage contains proved reserves.

        "Undeveloped oil and gas reserves" Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Also referred to as "undeveloped reserves."

        "Well spacing" The regulation of the number and location of wells over an oil or gas reservoir, as a conservation measure. Well spacing is normally accomplished by order of the regulatory conservation commission in the applicable jurisdiction. The order may be statewide in its application (subject to change for local conditions) or it may be entered for each field after its discovery. In the operational context, "well spacing" refers to the area attributable between producing wells within the scope of what is permitted under a regulatory order.

        "Wellbore" The hole drilled by the bit that is equipped for oil or gas production on a completed well. Also called well or borehole.

        "Working interest" The right granted to the lesee of a property to explore for and to produce and own oil and gas. The working interest owner bears the exploration, development and operating costs of the property.

        "WTI" West Texas Intermediate, the benchmark crude oil in the United States.

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INDEX TO FINANCIAL STATEMENTS

	PAGE
BONANZA CREEK ENERGY, INC.
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheet—December 31, 2010	F-3
Consolidated Statement of Operations—For the Period from Inception (December 23, 2010) to December 31, 2010	F-4
Consolidated Statement of Stockholders' Equity—For the Period from Inception (December 23, 2010) to December 31, 2010	F-5
Consolidated Statement of Cash Flows—For the Period from Inception (December 23, 2010) to December 31, 2010	F-6
Notes to Consolidated Financial Statements	F-7
Consolidated Balance Sheets—March 31, 2011 and December 31, 2010 (unaudited)	F-25
Consolidated Statement of Operations—For the Quarter Ended March 31, 2011 (unaudited)	F-26
Consolidated Statement of Stockholders' Equity—For the Quarter Ended March 31, 2011 (unaudited)	F-27
Consolidated Statement of Cash Flows—For the Quarter Ended March 31, 2011 (unaudited)	F-28
Notes to Condensed Consolidated Financial Statements (unaudited)	F-29
BONANZA CREEK ENERGY COMPANY, LLC AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm	F-34
Consolidated Balance Sheets—December 23, 2010 and December 31, 2009	F-35
Consolidated Statements of Operations—For the Period Ended December 23, 2010, and the Years Ended December 31, 2009 and 2008	F-36
Consolidated Statements of Members' Deficit—For the Period Ended December 23, 2010 and the Years Ended December 31, 2009 and 2008	F-37
Consolidated Statements of Cash Flows—For the Period Ended December 23, 2010, and the Years Ended December 31, 2009 and 2008	F-38
Notes to Consolidated Financial Statements	F-39
HOLMES EASTERN COMPANY, LLC
Report of Independent Registered Public Accounting Firm	F-58
Consolidated Balance Sheets—December 23, 2010 and December 31, 2009	F-59
Statements of Income and Retained Earnings—For the Period Ended December 23, 2010 and for the Period from Inception (May 1, 2009) to December 31, 2009	F-60
Statements of Cash Flows—For the Period Ended December 23, 2010 and for the Period from Inception (May 1, 2009) to December 31, 2009	F-61
Notes to the Financial Statements	F-62

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Bonanza Creek Energy, Inc.

        We have audited the accompanying consolidated balance sheet of Bonanza Creek Energy, Inc. and subsidiaries (the "Company") as of December 31, 2010 and the related statements of operations, stockholders' equity and cash flows for the period from inception (December 23, 2010) to December 31, 2010. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above presents fairly, in all material respects, the consolidated financial position of Bonanza Creek Energy, Inc. and its subsidiaries as of December 31, 2010 and the results of their operations and cash flows for the period from inception (December 23, 2010) to December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

HEIN & ASSOCIATES LLP

Denver, Colorado
July 21, 2011

F-2

BONANZA CREEK ENERGY, INC.

CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2010

ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	—
	Accounts receivable:
		Oil and gas sales			8,894,831
		Other			2,940,590
	Prepaid expenses and other				703,063
	Inventory of oilfield equipment				415,650
	Derivative asset				1,396,472
			Total current assets		14,350,606
OIL AND GAS PROPERTIES—using the successful efforts method of accounting
	Proved properties				441,303,069
	Unproved properties				14,749,117
	Wells in progress				8,387,164
					464,439,350
	Less: accumulated depreciation, depletion and amortization				(470,390	)
					463,968,960
NATURAL GAS PLANT					31,840,475
	Less: accumulated depreciation				(20,017	)
					31,820,458
PROPERTY AND EQUIPMENT					802,679
	Less: accumulated depreciation				(10,008	)
					792,671
LONG-TERM DERIVATIVE ASSET					2,045,182
OTHER ASSETS					3,125,670
TOTAL ASSETS				$	516,103,547
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Accounts payable and accrued expenses			$	16,101,536
	Oil and gas revenue distribution payable				3,444,077
	Derivative liability				3,691,998
			Total current liabilities		23,237,611
LONG-TERM LIABILITIES:
	Bank revolving credit				55,400,000
	Ad valorem taxes				1,213,445
	Derivative liability				5,854,980
	Deferred income taxes, net				68,405,393
	Asset retirement obligations				5,611,709
TOTAL LIABILITIES					159,723,138
COMMITMENTS AND CONTINGENCIES (Notes 7 and 10)
STOCKHOLDERS' EQUITY:
	Common stock, Class A, $.001 par value, 99,990,000 shares authorized, 29,122,521 issued and outstanding				29,123
	Common stock, Class B, $.001 par value, 10,000 shares authorized, 7,500 issued and outstanding				—
	Additional paid-in capital				356,513,012
	Accumulated deficit				(161,726	)
			Total stockholders' equity		356,380,409
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY				$	516,103,547

F-3

BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE PERIOD FROM INCEPTION (DECEMBER 23, 2010) TO DECEMBER 31, 2010

NET REVENUES:
		Oil and gas sales	$	1,745,415
OPERATING EXPENSES:
	Lease operating			482,828
	Severance and ad valorem taxes			69,889
	Depreciation, depletion and amortization			506,307
	General and administrative			323,545
		Total operating expenses		1,382,569
INCOME FROM OPERATIONS				362,846
OTHER INCOME (EXPENSE):
	Realized loss on settled commodity derivatives			(46,742	)
	Unrealized loss in fair value of commodity derivatives			(514,627	)
	Interest expense			(57,656	)
		Total other expense		(619,025	)
LOSS BEFORE TAXES				(256,179	)
	Deferred tax benefit			94,453
NET (LOSS)			$	(161,726	)
BASIC AND DILUTED LOSS PER SHARE			$	(0.01	)
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK—BASIC AND DILUTED				29,122,521

F-4

BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE PERIOD FROM INCEPTION (DECEMBER 23, 2010) TO DECEMBER 31, 2010

	Common Stock A Shares				Common Stock B Shares
									Additional Paid-In Capital		Accumulated Deficit
	Shares		Amount		Shares		Amount							Total
BALANCES at December 23, 2010		—		—		—		—	$	—	$	—		$	—
Contribution of capital		29,122,521	$	29,123		7,500	$	—		356,513,012		—			356,542,135
Net (loss)		—		—		—		—		—		(161,726	)		(161,726	)
BALANCES at December 31, 2010		29,122,521	$	29,123		7,500	$	—	$	356,513,012	$	(161,726	)	$	356,380,409

F-5

BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM INCEPTION (DECEMBER 23, 2010) TO DECEMBER 31, 2010

CASH FLOWS FROM OPERATING ACTIVITIES:
	Net (loss)				$	(161,726	)
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation, depletion and amortization				506,307
		Deferred income taxes				(94,453	)
		Amortization of deferred financing costs				15,589
		Valuation decrease in commodity derivatives				514,627
		Increase in operating assets:
			Accounts receivable			(2,104,097	)
		Decrease in operating liabilities:
			Accounts payable and accrued expenses			(309,076	)
				Net cash (used) by operating activities		(1,632,829	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Exploration and development of oil and gas properties					(817,362	)
				Net cash used in investing activities		(817,362	)
NET DECREASE IN CASH AND CASH EQUIVALENTS						(2,450,191	)
CASH AND CASH EQUIVALENTS:
	Beginning of period					2,450,191
	End of year				$	—
SUPPLEMENTAL CASH FLOW DISCLOSURE:
	Cash paid for interest				$	—
	Cash paid for income taxes				$	—
	Value of stock issued to members of BCEC and HEC				$	99,613,966

F-6

Bonanza Creek Energy, Inc.

Notes to the Consolidated Financial Statements as of December 31, 2010

1. ORGANIZATION AND BUSINESS:

        On December 23, 2010, Bonanza Creek Energy, Inc. (a Delaware C corporation) (the "Company" or BCEI) was formed in conjunction with the following transactions which were accomplished simultaneously:

(1)

The contribution by Bonanza Creek Energy Company, LLC (BCEC) of all of its ownership in Bonanza Creek Energy Operating Company, LLC (a wholly owned subsidiary) to BCEI and assumption by BCEI of BCEC's remaining debt (as described below) in exchange for a 21.55% ownership interest of BCEI. BCEC had no other significant assets or subsidiaries at such time. BCEC was an operating oil and gas company that was initially founded in 2006;



(2)

The sale of $265 million of common stock of BCEI which constituted an ownership interest of 72.68% of BCEI to Project Black Bear LP ("Black Bear"), an entity advised by West Face Capital Inc. ("West Face Capital"), and to certain clients of Alberta Investment Management Corporation ("AIMCo"); and



(3)

The exchange of shares of 5.77% of BCEI's common stock together with $59 million in cash (which came from the $265 million sale of common stock of BCEI described in (2) above), for all of the equity interests of Holmes Eastern Company, LLC (HEC), a Limited Liability Company that was majority owned by a minority member of Bonanza Creek Oil Company, LLC (BCOC). BCOC was the predecessor of BCEC and owned 29.9% of BCEC on a fully diluted basis at the time of such transaction. HEC was initially formed in 2009 and has been an operating oil and gas exploration and production business since its formation.

        The BCEC ownership (21.55%) of BCEI was distributed to or for the benefit of BCEC's members based on management's estimate of fair value of the BCEI shares received by BCEC to holders of the equity interests of BCEC in connection with the redemption of BCEC's equity and BCEC's dissolution to:

(1)

BCOC in the amount of 5.5% (for its Series A Units of BCEC);



(2)

D.E. Shaw Laminar Portfolios, L.L.C. (Laminar) in the amount of 12.91% (for its Series A Units of BCEC); and



(3)

The management of BCEC, in the amount of 3.14% (for their Series B Units of BCEC).

        Cash proceeds of approximately $182 million were used to retire BCEC's second lien term loan, senior subordinated notes and a related party note payable, and to reduce the outstanding principal balance on BCEC's bank revolving credit facility by $29 million thereby reducing the balance outstanding to approximately $55.4 million as of December 31, 2010. This loan at the same time was assumed by BCEI.

        The Company is engaged primarily in acquiring, developing, exploiting and producing oil and gas properties. As of December 31, 2010, the Company's assets and operations are concentrated primarily in southern Arkansas and in the Denver Julesburg and North Park Basins in the Rocky Mountains.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

        Principles of Consolidation—The consolidated balance sheet includes the accounts of the Company and its wholly owned subsidiaries, Bonanza Creek Energy Operating Company, LLC, Bonanza Creek Energy Resources Company, LLC and HEC. All significant intercompany accounts and transactions have been eliminated.

F-7

Bonanza Creek Energy, Inc.

Notes to the Consolidated Financial Statements as of December 31, 2010 (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)

        Fair Value of Financial Instruments—The Company's financial instruments consist of trade receivables, trade payables, accrued liabilities, long-term debt and derivative instruments.

        Use of Estimates—The preparation of this balance sheet in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of oil and gas reserves, assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

        Cash and Cash Equivalents—The Company considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents.

        Accounts Receivable—Trade accounts receivable are recorded at net realizable value which is estimated to be fair value at December 31, 2010. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Delinquent trade accounts receivable are charged against the allowance for doubtful accounts once collectibility has been determined.

        The Company's crude oil and natural gas receivables are generally collected within two months. The Company accrues an allowance on a receivable when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of any allowance may be reasonably estimated.

        Inventory of Oilfield Equipment—Inventory consists of material and supplies used in connection with the Company's drilling program. These inventories are stated at the lower of average cost or market which as of December 31, 2010 approximated fair value.

        Oil and Gas Producing Activities—The Company follows the successful efforts method of accounting for its oil and gas properties. Under this method of accounting, all property acquisition costs and costs of exploratory and development wells will be capitalized at cost when incurred, pending determination of whether the well has found proved reserves. If an exploratory well has not found proved reserves, the costs of drilling the well and other associated costs will be charged to expense. The costs of development wells will be capitalized whether productive or nonproductive. Costs incurred to maintain wells and related equipment and lease and well operating costs are charged to expense as incurred. Gains and losses arising from sales of properties will be included in income. However, sales that do not significantly affect a field's unit-of-production depletion rate will be accounted for as normal retirements with no gain or loss recognized. Geological and geophysical costs of exploratory prospects and the costs of carrying and retaining unproved properties are expensed as incurred.

        Depletion, depreciation and amortization (DD&A) of capitalized costs of proved oil and gas properties are provided for on a field-by-field basis using the units of production method based upon proved reserves. The computation of DD&A takes into consideration the anticipated proceeds from equipment salvage and the Company's expected cost to abandon its well interests.

        The Company assesses its proved oil and gas properties for impairment whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. The impairment test compares undiscounted future net cash flows to the assets' net book value. If the net capitalized costs

F-8

Bonanza Creek Energy, Inc.

Notes to the Consolidated Financial Statements as of December 31, 2010 (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)

exceed future net cash flows, then the cost of the property will be written down to "fair value." Fair value for oil and natural gas properties is generally determined based on discounted future net cash flows.

        The Company will record the fair value of a liability for an asset retirement obligation as an asset and a liability when there is a legal obligation associated with the retirement of a long-lived asset and the amount can be reasonably estimated. As of December 23, 2010 this liability was recorded based on its estimated fair value. Refer also to Note 10 relating to asset retirement obligations, which includes additional information on the Company's asset retirement obligations.

        Long-Lived Assets—Long-lived assets to be held and used or disposed of other than by sale are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used or disposed of other than by sale are recognized based on the fair value of the asset. Long-lived assets to be disposed of by sale are reported at the lower of their carrying amount or fair value less cost to sell. As of December 23, 2010, long-lived assets were recorded at management's estimate of fair value.

        Other Property and Equipment—Property and equipment are recorded at fair value as of December 23, 2010. Property additions subsequent to December 23, 2010 have been recorded at cost. Depreciation will be calculated using the straight-line method over the estimated useful lives of the assets, which range from three to ten years.

        Revenue Recognition—The Company records revenues from the sales of crude oil and natural gas when delivery to the customer has occurred and title has transferred, net of royalties, discounts and allowances, as applicable. This occurs when oil or gas has been delivered to a pipeline or a tank lifting has occurred. The Company has interests with other producers in certain properties in which case the Company uses the entitlement method to account for gas imbalances. There were no gas imbalances as of December 31, 2010.

        For gathering and processing services, the Company either receives fees or commodities from natural gas producers depending on the type of contract. Under the percentage-of-proceeds contract type, the Company is paid for its services by keeping a percentage of the natural gas liquids (NGL) produced and a percentage of the residue gas resulting from processing the natural gas. Commodities received are, in turn, sold and recognized as revenue in accordance with the criteria outline above.

        Income Taxes—The Company accounts for income taxes under the liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the balance sheet or tax returns. Deferred tax assets and liabilities were determined based on the difference between the fair value of the assets acquired and liabilities assumed as compared to their tax bases of assets and liabilities using enacted tax rates in effect.

        Concentrations of Credit Risk—The Company has maintained cash balances in excess of the Federal Deposit Insurance Corporation (FDIC) insured limit.

        For the period from inception (December 23, 2010) to December 31. 2010, Lion Oil Trading & Transport and Plains Marketing accounted for 52% and 30%, respectively, of oil and natural gas sales.

        Risks and Uncertainties—Historically, oil and gas prices have experienced significant fluctuations and have been particularly volatile in recent years. Price fluctuations can result from variations in weather,

F-9

Bonanza Creek Energy, Inc.

Notes to the Consolidated Financial Statements as of December 31, 2010 (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)

levels of regional or national production and demand, availability of transportation capacity to other regions of the country and various other factors.

        Oil and Gas Derivative Activities—The Company recognizes all derivative instruments on the balance sheet as either assets or liabilities at fair value.

        The Company is exposed to commodity price risk related to oil and gas prices. To mitigate this risk, the Company enters into oil and gas forward contracts as economic hedges. The contracts, which are generally placed with major financial institutions or with counter parties which management believes to be of high credit quality, may take the form of futures contracts, swaps or options. The oil and gas reference prices of these contracts are based upon oil and natural gas futures, which have a high degree of historical correlation with actual prices received by the Company.

        Adopted and Recently Issued Accounting Pronouncements—The Company follows the provisions of FASB ASC 740, Accounting for Uncertainty in Income Taxes. The statement does not have a material effect on the Company's financial position. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company files income tax returns in the U.S. federal jurisdiction and various states. The tax return for December 31, 2010 has not yet been filed and the Company has not taken any uncertain tax positions.

        In December 2010, the FASB issued Accounting Standards Update No. 2010-29, Business Combinations: Disclosure of Supplementary Pro Forma Information for Business Combinations (ASU 2010-29), which provides amendments to FASB ASC Topic 805, Business Combinations. The objective of ASU 2010-29 is to clarify and expand the pro forma revenue and earnings disclosure requirements for business combinations. ASU 2010-29 is effective for fiscal years beginning after December 15, 2010. The adoption of this standard will not have an impact on the Company's consolidated balance sheet other than additional disclosures.

        In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Improving Disclosures about Fair Value Measurements (ASU 2010-06), which provides amendments to FASB ASC Topic 820, Fair Value Measurements and Disclosures. The objective of ASU 2010-06 is to provide more robust disclosures about (i) the different classes of assets and liabilities measured at fair value, (ii) the valuation techniques and inputs used, (iii) the activity in Level 3 fair value measurements, and (iv) significant transfers between Levels 1, 2 and 3. ASU 2010-06 was effective for fiscal years and interim periods beginning after December 15, 2009, except for the activity in Level 3 measurement disclosures which is effective January 1, 2011. The Company adopted ASU 2010-06 effective December 31, 2010, which did not have an impact on its consolidated balance sheet, other than additional disclosures.

        In December 2008, the SEC issued Modernization of Oil and Gas Reporting: Final Rule, which published the final rules and interpretations updating its oil and gas reporting requirements. The final rule includes updates to definitions in the existing oil and gas rules to make them consistent with the petroleum resource management system, which is a widely accepted standard for the management of petroleum resources that was developed by several industry organizations. Key revisions include the ability to include nontraditional resources in reserves, the use of new technology for determining reserves, permitting disclosure of probable and possible reserves, and changes to the pricing used to determine reserves in that companies must use a 12-month average price. The average is calculated using the first-day-of-the-month price for each of the 12 months that make up the reporting period. In January 2010, the FASB issued Accounting Standards Update No. 2010-03, Oil and Gas Reserve Estimation and Disclosures (ASU

F-10

Bonanza Creek Energy, Inc.

Notes to the Consolidated Financial Statements as of December 31, 2010 (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)

2010-03), which provides amendments to FASB ASC topic Extractive Activities-Oil and Gas. The objective of ASU 2010-03 is to align the oil and gas reserve estimation and disclosure requirements of the FASB ASC with the requirements in the SEC's Modernization of Oil and Gas Reporting: Final Rule. BCEC and HEC, the predecessor companies adopted the new rules effective December 31, 2009, and as a result, the Company's December 31, 2010 acquisition reserves were prepared in accordance with the new reserve definitions in ASU 2010-03 that conform to the SEC's revised reserve definitions, and reported proved undeveloped reserve quantities in Disclosure About Oil and Gas Producing Activities. Oil and gas reserve quantities or their values are a significant component of the Company's depreciation, depletion and amortization, asset retirement obligation, and proved property impairment analyses. Due to the number of estimates that rely upon reserve quantities and values, any significant changes to the Company's oil and gas reserves has a pervasive effect on the Company's consolidated balance sheet, and it is therefore impracticable to estimate the effect that the adoption of ASU 2010-03 had on the Company's consolidated balance sheet.

3. ACQUISITIONS:

        On December 23, 2010, the Company completed the following transactions: (i) the sale of 21,166,134 shares of common stock for $12.52 per share; (ii) the issuance of 6,272,851 shares of common stock valued at $12.52 per share to the holders of BCEC in exchange for all of BCEC's ownership in Bonanza Creek Energy Operating Company, LLC (a wholly owned subsidiary); and (iii) the acquisition of all of the ownership of HEC for approximately $59 million in cash and 1,683,536 shares of its common stock valued at $12.52 per share. As part of the transactions, the Company also retired debt of approximately $182 million for cash and paid approximately $17 million for debt extinguishment penalties assumed as part of the merger. Because the penalties for the extinguishment of debt were considered as part of the liabilities assumed, the penalties were allocated to the assets acquired and the liabilities assumed as part of the purchase price. Furthermore, a deferred tax liability was recorded based on the difference between the

F-11

Bonanza Creek Energy, Inc.

Notes to the Consolidated Financial Statements as of December 31, 2010 (Continued)

3. ACQUISITIONS: (Continued)

tax basis of the contributed assets and liabilities and their fair value at an effective tax rate of approximately 37%. Fair value was allocated to the assets contributed and liabilities assumed as follows:

	Bonanza Creek Energy Company, LLC			Holmes Eastern Company, LLC			Debt Extinguishment		Deferred Tax Adjustment			Bonanza Creek Energy, Inc.
Current assets, including cash and commodity derivatives	$	10,917,445		$	3,848,328		$	—	$	—		$	14,765,773
Proved oil and gas properties		280,831,550			77,985,048			16,680,311		65,711,707			441,303,069
Unproved oil and gas properties		11,376,727			—			678,704		2,693,686			14,749,117
Wells in progress		5,782,885			1,786,917			—		—			7,569,802
Natural gas plant		31,840,475			—			—		—			31,840,475
Property and equipment		777,564			25,115			—		—			802,679
Other noncurrent assets, including commodity derivatives		5,357,346			—			—		—			5,357,346
Current liabilities, including commodity derivatives		(19,894,250	)		(3,559,307	)		—		—			(23,453,557	)
Bank revolving credit		(84,400,000	)		—			29,000,000		—			(55,400,000	)
Senior subordinated notes		(125,145,205	)		—			125,145,205		—			—
Second lien term loan, including pre-payment penality of $3,031,667		(33,031,667	)		—			33,031,667		—			—
Note payable—related party		(12,276,228	)		—			12,276,228		—			—
Commodity derivatives		(5,673,460	)		—			—		—			(5,673,460	)
Deferred income taxes, net		—			—			—		(68,405,393	)		(68,499,846	)
Other noncurrent liabilities, including asset retirement obligations		(5,917,784	)		(901,479	)		—		—			(6,819,263	)
Value of common stock issued as consideration		60,545,398			79,184,622			216,812,115		—			356,542,135

        Supplemental Pro Forma Results (unaudited)—The following unaudited pro forma financial information represents the combined results for BCEC and HEC for year ended December 31, 2010 as if the contribution and acquisition had occurred on January 1, 2010. In connection with the Company's payoff and retirement of BCEC's senior subordinated notes and the second lien term loan early termination fees were paid in the amount of $14,327,348 and $3,031,667, respectively. These early termination payments were considered a component of the acquisition of BCEC and not reflected in the pro forma below. These pro forma adjustments assume such obligations were paid off and retired on January 1, 2010, the adjustment to depreciation, depletion and amortization assumes that the oil and gas property step up in basis occurred January 1, 2010.

F-12

Bonanza Creek Energy, Inc.

Notes to the Consolidated Financial Statements as of December 31, 2010 (Continued)

3. ACQUISITIONS: (Continued)

        The pro forma financial information is not intended to represent or be indicative of the consolidated results of operations or financial condition of the Company that would have been reported had the acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations of the Company.

			Bonanza Creek Energy Company, LLC			Holmes Eastern Company, LLC			Bonanza Creek Energy, Inc.			Pro Forma Adjustments			Bonanza Creek Energy, Inc.
Net revenues:
	Oil and gas sales		$	48,328,094		$	13,957,560		$	1,745,415		$	—		$	64,031,069
Operating expenses:
	Lease operating			14,791,785			2,010,187			482,828			—			17,284,800
	Severance and ad valorem taxes			1,620,495			834,282			69,889			—			2,524,666
	Exploration			360,742			19,234			—			—			379,976
	Depreciation, depletion and amortization			14,225,309			3,005,888			506,307			3,179,496			20,917,000
	General and administrative			8,374,875			639,598			323,545			—			9,338,018
	Cancelled private placement			2,378,468			—			—			—			2,378,468
		Total operating expenses		41,751,674			6,509,189			1,382,569			3,179,496			52,822,928
Income from operations				6,576,420			7,448,371			362,846			(3,179,496	)		11,208,141
Other income (expense):
	Gain on sale of oil and gas properties			4,055,153			—			—			—			4,055,153
	Other income (loss)			19,173			(65,694	)		—			—			(46,521	)
	Write-off of deferred financing costs			(1,663,167	)		—			—			—			(1,663,167	)
	Change in fair value of warrant put option			34,344,894			—			—			(34,344,894	)		—
	Amortization of debt discount			(8,861,955	)		—			—			8,861,955			—
	Realized gain on settled commodity derivatives			5,918,702			—			(46,742	)		—			5,871,960
	Unrealized loss in fair value of commodity derivatives			(7,604,742	)		—			(514,627	)		—			(8,119,369	)
	Interest expense			(18,000,796	)		(439,171	)		(57,656	)		17,234,623			(1,263,000	)
		Total other income (expense)		8,207,262			(504,865	)		(619,025	)		(8,248,316	)		(1,164,944	)
Income before taxes			$	14,783,682		$	6,943,506		$	(256,179	)	$	(11,427,812	)	$	10,043,197

        The following table sets forth certain unaudited pro forma information concerning BCEI's proved oil and gas reserves giving effect to the acquisition of HEC properties and the reorganization of BCEC into BCEI as if they had occurred on January 1, 2010. The following estimates of proved oil and gas reserves, both developed and undeveloped, represent interests acquired by BCEI in the transaction described above,

F-13

Bonanza Creek Energy, Inc.

Notes to the Consolidated Financial Statements as of December 31, 2010 (Continued)

3. ACQUISITIONS: (Continued)

and are located solely within the United States. Proved reserves represent estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are the quantities expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells for which relatively major expenditures are required for completion.

        The estimate of proved reserves and related valuations for the year ended December 31, 2009 and 2010 were based upon a report prepared by Cawley, Gillespie & Associates, Inc. Petroleum Consultants. The estimates of proved reserves are inherently imprecise and are continually subject to revision based on production history, results of additional exploration and development, price changes and other factors. These estimates do not include probable or possible reserves. The information provided does not represent BCEI's estimate of expected future cash flows or value of proved oil and gas reserves.

Changes in estimated reserve quantities:

	Oil (MBbl)									Natural Gas (MMcf)
	Bonanza Creek Energy Company, LLC			Holmes Eastern Company, LLC			Pro Forma Combined			Bonanza Creek Energy Company, LLC			Holmes Eastern Company, LLC			Pro Forma Combined
Balance—December 31, 2009		15,270			6,118			21,388			27,610			16,565			44,175
Extensions and discoveries		2,250			183			2,433			5,023			744			5,767
Sales of minerals in place		(568	)		—			(568	)		—			—			—
Production		(611	)		(141	)		(752	)		(1,335	)		(797	)		(2,132	)
Revisions to previous estimates		319			(441	)		(122	)		9,900			5,174			15,074
Balance—December 31, 2010		16,660			5,719			22,379			41,198			21,686			62,884
Proved developed reserves:
December 31, 2009		4,710			1,292			6,002			7,021			5,346			12,367
December 31, 2010		6,449			1,731			8,180			13,677			6,397			20,074
Proved undeveloped reserves
December 31, 2009		10,560			4,826			15,386			20,589			11,219			31,808
December 31, 2010		10,211			3,988			14,199			27,521			15,289			42,810

        The following table sets forth unaudited pro forma information concerning the discounted future net cash flows from proved oil and gas reserves of BCEI as of December 31, 2010, net of income tax expense, and giving effect to the acquisition of the HEC properties and the reorganization of BCEC into BCEI as if they had occurred on January 1, 2010. Future income tax expenses are calculated by applying appropriate year-end tax rates to future pretax net cash flows relating to proved oil and natural gas reserves. Future income tax expenses give effect to permanent differences, tax credits and loss carryforwards relating to the proved oil and natural gas reserves. Future net cash flows are discounted at a rate of 10% annually to derive the standardized measure of discounted future net cash flows. This calculation procedure does not

F-14

Bonanza Creek Energy, Inc.

Notes to the Consolidated Financial Statements as of December 31, 2010 (Continued)

3. ACQUISITIONS: (Continued)

necessarily result in an estimate of the fair market value or the present value of BCEI's oil and natural gas properties.

Standardized measure of discounted future net cash flows from estimated production of proved oil and gas reserves (in thousands) as of December 31, 2010:

		Bonanza Creek Energy Company, LLC			Holmes Eastern Company, LLC			Pro Forma Combined
Future cash flows		$	1,365,714		$	528,463		$	1,894,177
Future production costs			(434,148	)		(138,406	)		(572,554	)
Future development costs			(221,190	)		(130,202	)		(351,392	)
Future income tax expense			(126,005	)		(57,242	)		(183,247	)
Future net cash flows			584,371			202,613			786,984
10% annual discount for estimated timing of cash flows			(299,267	)		(112,942	)		(412,209	)
	Standardized measure of discounted future net cash flows	$	285,104		$	89,671		$	374,775

        Future cash flows as shown above were reported without consideration for the effects of derivative transactions outstanding at each period end.

Changes in standardized measure of discounted future net cash flows from proved oil and gas reserves (in thousands):

	Bonanza Creek Energy Company, LLC			Holmes Eastern Company, LLC			Pro Forma Combined
Beginning of year	$	185,704		$	58,150		$	243,854
Sale of oil and gas produced, net of production costs		(32,809	)		(11,412	)		(44,221	)
Net changes in prices and production costs		97,702			42,509			140,211
Extensions, discoveries and improved recoveries		45,497			4,641			50,138
Development costs incurred		21,615			9,342			30,957
Changes in estimated development cost		(30,350	)		(14,006	)		(44,356	)
Sales of mineral in place		(10,972	)		—			(10,972	)
Revisions of previous quantity estimates		38,059			7,793			45,852
Net change in income taxes		(38,938	)		(10,041	)		(48,979	)
Accretion of discount		20,824			7,344			28,168
Changes in production rates and other		(11,228	)		(4,649	)		(15,877	)
End of year	$	285,104		$	89,671		$	374,775

F-15

Bonanza Creek Energy, Inc.

Notes to the Consolidated Balance Sheet as of December 31, 2010

3. ACQUISITIONS: (Continued)

        Average wellhead prices inclusive of adjustments for quality and location used in determining future net revenues related to the standardized measure calculation as of December 31, 2010 were calculated using the first-day-of-the-month price for each of the 12 months that made up the reporting period.

	Bonanza Creek Energy Company, LLC		Holmes Eastern Company, LLC
Oil (per Bbl)	$	74.77	$	75.33
Gas (per Mcf)	$	4.72	$	4.98

4. OTHER ASSETS:

        Other assets include the following:

The Company has multiple certificates of deposit at three financial institutions to meet financial bonding requirements in the states of Colorado, Wyoming and California. As of December 31, 2010 the certificate of deposits totaled $645,000.

As of December 31, 2010, the Company had a note receivable of approximately $987,000 from the operator of the Sargent field and was paid in full during February of 2011.

As of December 31, 2010, the Company had approximately $1,494,000 of unamortized deferred financing costs related to the bank revolving credit agreement that was retained by the Company.

Certificates of deposit	$	645,000
Note receivable		986,906
Deferred financing cost		1,493,764
	$	3,125,670

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

        Accounts payable and accrued expenses contain the following:

	2010
Drilling and completion costs	$	4,597,857
Accounts payable trade		6,213,962
Ad valorem taxes		1,373,548
Accrued general and administrative cost		1,608,995
Lease operating expense		1,240,481
Accrued reclamation cost		400,000
Interest		106,034
Accrued oil and gas hedging		244,527
Production taxes and other		316,132
	$	16,101,536

F-16

Bonanza Creek Energy, Inc.

Notes to the Consolidated Balance Sheet as of December 31, 2010

6. LONG-TERM DEBT:

        Senior Secured Revolving Credit Facility—On May 7, 2010, Bonanza Creek Energy Operating Company, LLC, previously a wholly owned subsidiary of BCEC, and now a wholly owned subsidiary of the Company entered into a Senior Secured Revolving Credit Agreement, (the "Revolver"), with a syndication of banks with BNP Paribas as the administrative agent and issuing lender, which provides for borrowings of up to $200 million. The Revolver provides for interest rates plus an applicable margin to be determined based on LIBOR or a bank base rate (the "Base Rate"), at the Company's election. LIBOR borrowings bear interest at LIBOR plus 2.25% to 3.00% depending on the utilization level and the Base Rate borrowings bear interest at the "Bank Prime Rate," as defined plus 1.25% to 2.00%.

        During March of 2011, the Company entered into a new $300 million Senior Secured Revolving Credit Agreement with an initial borrowing base of $130 million with a syndicate of banks led by BNP Paribas. As of December 31, 2010 the credit facility had a balance of $55,400,000.

        The Revolver has a $130 million borrowing base as of March 31, 2011 and is subject to semi-annual re-determinations in April and October of each year. The Revolver provides for commitment fees of 0.5% and restricts, among other items, the payment of dividends, certain additional indebtedness, sale of assets, loans, certain investments and mergers. The Revolver also contains certain financial covenants, which require the maintenance of a minimum current ratio and a minimum debt coverage ratio, as defined. The Company was in compliance with these covenants as of March 31, 2011. The Revolver is collateralized by substantially all the Company's assets and matures on March 29, 2015.

7. COMMITMENTS AND CONTINGENT LIABILITIES:

        Office Leases—The Company rents office facilities under various noncancelable operating lease agreements. The Company's noncancelable operating lease agreements result in total future minimum noncancelable lease payments are presented below. The Company also has principal payment requirements for its line of credit which is also presented below:

	Office Leases		Line of Credit		Total
2011	$	347,437	$	—	$	347,437
2012		294,934		—		294,934
2013		298,873		55,400,000		55,698,873
2014		305,438		—		305,438
2015 and thereafter		462,591		—		462,591
	$	1,709,273	$	55,400,000	$	57,109,273

        Environmental—The Company is engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures as they relate to the drilling of oil and gas wells and the operations. In the Company's acquisition of existing or previously drilled well bores, the Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a liability exists with respect to any environmental clean up or restoration, the liability to cure such a violation could fall upon the Company. Management believes its properties are operated in conformity with local, state and federal regulations. No claim has been made, nor is the Company aware of any uninsured liability which the Company may have, as it relates to any environmental cleanup, restoration or the violation of any rules or regulations.

F-17

Bonanza Creek Energy, Inc.

Notes to the Consolidated Balance Sheet as of December 31, 2010

7. COMMITMENTS AND CONTINGENT LIABILITIES: (Continued)

        Legal Proceeding—The Company may from time to time be involved in various other legal actions arising in the normal course of business. In the opinion of management, the Company's liability, if any, in these pending actions would not have a material adverse effect on the financial positions of the Company. The Company's general and administrative expenses would include amounts incurred to resolve claims made against the Company.

8. STOCKHOLDERS' EQUITY:

        Common Stock—On December 23, 2010 the Company was formed by the issuance of 21,166,134 shares of common stock to West Face Capital and to certain clients of AIMCo at $12.52 per share. Also as part of the formation on December 23, 2010 BCEC contributed all of its ownership interest in Bonanza Creek Energy Operating Company, LLC to the Company for 6,272,851 shares of its common stock valued at $12.52 per share. On December 23, 2010, the Company issued 1,683,536 shares of its common stock valued at $12.52 per share to the majority owner of HEC and a member of Bonanza Creek Energy, Inc's management who also owned a minority interest of HEC (refer to Note 3).

        Management Incentive Plan—On December 23, 2010, the Company established the Management Incentive Plan (the "Plan" or MIP) for the benefit of certain employees, officers and other individuals performing services for the Company. The maximum number of shares of Class B common stock available under the Plan is 10,000. Such shares will be converted into Class A common stock upon a liquidity event. The conversion rate is determined based on formula factoring in the rate of return to the Class A common stockholders. As of December 31, 2010, the Company issued 7,500 shares from the Plan and the fair value of each share was determined to be $1.60.

        The related compensation expense is immaterial to the financial statements. Compensation expense will be recognized in BCEI's statement of operations when the unissued Class B common stock is granted to employees.

        BCEC Management Incentive Plan—In connection with the recapitalization described in Note 1, the remaining unissued Class B member units were converted into 317,142 shares of Class A common stock of BCEI. These shares are being held in trust for the benefit of employees. When the shares are released and employees are notified of the award, compensation expense will be recorded on BCEI's statement of operations.

9. INCOME TAXES:

        During the period ended December 31, 2010, the net deferred tax liabilities increased by $68.4 million related to the formation of the Company. The $68.4 million net deferred tax liabilities represent the basis differences between financial reporting assets and liabilities and tax basis of assets and liabilities.

        In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future results of operations, and tax planning strategies in making this assessment.

F-18

Bonanza Creek Energy, Inc.

Notes to the Consolidated Balance Sheet as of December 31, 2010

9. INCOME TAXES: (Continued)

        The Company adopted the applicable provisions of ASC 740 to recognize, measure, and disclose uncertain tax positions in the financial statements. Under ASC 740, tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption and in subsequent periods. As of December 31, 2010, the Company has no uncertain tax benefits.

        The Company recognizes interest and penalties related to uncertain tax positions in income tax (benefit)/expense. No interest and penalties related to uncertain tax positions were accrued as of December 31, 2010.

        The 2010 tax period for federal and state returns have not been filed and remains open to examination by the major taxing jurisdictions in which the Company operates. There are currently no federal or state examinations.

        The Company's deferred tax assets and liabilities consist of the following at December 31, 2010:

Tax Assets:
Derivative liability		$	2,250,832
Asset retirement obligation			1,921,385
	Total tax assets		4,172,217
Tax Liabilities:
Property and equipment			72,577,610
	Net deferred tax liability	$	68,405,393
Reconciliation of the Company's effective tax rate to the expected federal tax rate of 34% is as follows: Expected federal tax rate			34	%
State income tax rate, net of federal benefit			2.87	%
	Effective tax rate		36.87	%

10. ASSET RETIREMENT OBLIGATIONS:

        In connection with the Company's acquisition of BCEC and HEC, asset retirement obligations in the amount of $4,970,441, and $641,268, respectively, were assumed. The value of the asset retirement obligations assumed as of December 31, 2010, approximates the fair value of these obligations.

11. FAIR VALUE MEASUREMENTS:

        The Company follows FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The statement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions of what market participants would use in pricing the asset or liability developed based on the

F-19

Bonanza Creek Energy, Inc.

Notes to the Consolidated Balance Sheet as of December 31, 2010

11. FAIR VALUE MEASUREMENTS: (Continued)

best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

Level 1:	Quoted prices are available in active markets for identical assets or liabilities;
Level 2:	Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; or
Level 3:	Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.

        ASC 820 requires financial assets and liabilities to be classified based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

        The following table presents the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2010 by level within the fair value hierarchy:

	Fair Value Measurements Using
	Level 1		Level 2		Level 3
Commodity derivative assets	$	—	$	1,062,025	$	2,379,629
Commodity derivative liabilities	$	—	$	9,546,979	$	—

        The Company's commodity swaps are valued using a market approach based on several factors, including observable transactions for the same or similar commodity options using the NYMEX futures index, and are designated as Level 2 within the valuation hierarchy. The Company's collars, which are designated as Level 3 within the valuation hierarchy, are also valued using a market approach, but are not validated by observable transactions with respect to volatility. The counterparty in all of the commodity derivative financial instruments is the lender on the Company's Senior Secured Revolving Credit facility (Note 6).

        The allocation of the purchase price to the assets acquired and the liabilities assumed of BCEC and HEC was determined using Level 3 inputs. Compensation expense associated with the common stock class B shares was determined using Level 3 inputs.

F-20

Bonanza Creek Energy, Inc.

Notes to the Consolidated Balance Sheet as of December 31, 2010

12. DERIVATIVES:

        As of December 31, 2010, the Company's derivative commodity contracts with BNP Paribas are as follows:

Contract Term	Notional Volume	Floor		Ceiling		Fixed Price
January 1 - December 31, 2011	15,392 Bbl./Month	$	90.00	$	123.00		—
January 1 - December 31, 2012	13,956 Bbl./Month	$	90.00	$	123.00		—
January 1 - April 30, 2013	12,654 Bbl./Month	$	90.00	$	123.00		—
January 1 - December 31, 2011	8,917 Bbl./Month		—		—	$	64.45
January 1 - December 31, 2012	8,206 Bbl./Month		—		—	$	62.95
January 1 - October 31, 2013	7,542 Bbl./Month		—		—	$	61.50
January 1 - December 31, 2011	18,298 MMBTU/Month		—		—	$	7.10
January 1 - December 31, 2012	16,860 MMBTU/Month		—		—	$	6.75
January 1 - October 31, 2013	15,481 MMBTU/Month		—		—	$	6.40

        The table below contains a summary of all the Company's derivative positions reported on the consolidated balance sheet as of December 31, 2010:

Derivatives		Balance Sheet Location	Fair Value
Asset
Commodity derivatives		Current derivative assets	$	1,396,472
Commodity derivatives		Long-term derivative assets		2,045,182
Liability
Commodity derivatives		Current derivative liability		(3,691,998	)
Commodity derivatives		Long-term derivative liability		(5,854,980	)
	Total		$	(6,105,324	)

13. SUBSEQUENT EVENTS:

        During February of 2011, the Company received approximately $1 million as payment in full of the Company's note receivable from Patriot Resources, LLC the operator of the Sargent field in California.

        During March of 2011, the Company entered into a new $300 million Senior Secured Revolving Credit Agreement with an initial borrowing base of $130 million with a syndicate of banks led by BNP Paribas.

        On March 24, 2011, the Company entered into a new oil derivative commodity contract with Societe General with a floor price of $80.00 per Bbl with a ceiling price of $140.00 per Bbl covering 24,000 Bbl per month from April 1, 2011 through December 31, 2011.

        Subsequent to December 31, 2010 the Company entered into new office operating leases in Bakersfield, California, and Denver, Colorado.

F-21

Bonanza Creek Energy, Inc.

Notes to the Consolidated Balance Sheet as of December 31, 2010

14. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED):

        The Company's oil and natural gas activities are entirely within the United States. Costs incurred in oil and natural gas producing activities are as follows:

		2010
Unproved property acquisition		$	—
Proved property acquisition			—
Development			817,362
Exploration			—
	Total	$	817,362

        In December 2008, the SEC published the final rules and interpretations updating its oil and gas reporting requirements. The Company adopted the rules effective December 31, 2010, and the rule changes, including those related to pricing and technology, are included in the Company's reserve estimates.

        In January 2010, the FASB aligned ASC Topic 932 with the aforementioned SEC requirements. Please refer to the section entitled "Adopted and Recently Issued Accounting Pronouncements" under Note 2 – Summary of Significant Accounting Policies for additional discussion regarding both adoptions.

        The estimate of proved reserves and related valuations for the year ended December 31, 2010 were based upon a report prepared by Cawley, Gillespie & Associates, Inc. Petroleum Consultants. The estimates of proved reserves are inherently imprecise and are continually subject to revision based on production history, results of additional exploration and development, price changes and other factors.

        All of BCEI' oil and natural gas reserves are attributable to properties within the United States. A summary of BCEI's changes in quantities of proved oil and natural gas reserves for the year ended December 31, 2010 are as follows:

		Oil			Natural Gas
		(MBbl)			(MMcf)
Balance—December 23, 2010			—			—
	Extensions and discoveries		—			—
	Purchases of minerals in place		22,398			62,926
	Production		(19	)		(42	)
	Revisions to previous estimates		—			—
Balance—December 31, 2010			22,379			62,884
Proved developed reserves:
	December 23, 2010		—			—
	December 31, 2010		8,180			20,074
Proved undeveloped reserves:
	December 23, 2010		—			—
	December 31, 2010		14,199			42,810

F-22

Bonanza Creek Energy, Inc.

Notes to the Consolidated Balance Sheet as of December 31, 2010

14. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): (Continued)

        The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves were prepared in accordance with the provisions of ASC Topic 932. Future cash inflows were computed by applying prices to estimated future production. Future production and development costs are computed by estimating the expenditures to be incurred in developing and producing the proved oil and natural gas reserves at year-end, based on costs and assuming continuation of existing economic conditions.

        Future income tax expenses are calculated by applying appropriate year-end tax rates to future pretax net cash flows relating to proved oil and natural gas reserves. Future income tax expenses give effect to permanent differences, tax credits and loss carryforwards relating to the proved oil and natural gas reserves. Future net cash flows are discounted at a rate of 10% annually to derive the standardized measure of discounted future net cash flows. This calculation procedure does not necessarily result in an estimate of the fair market value or the present value of BCEI's oil and natural gas properties.

        The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves are as follows (in thousands):

		December 31, 2010
Future cash flows		$	1,894,178
Future production costs			(572,553	)
Future development costs			(351,392	)
Future income tax expense			(182,725	)
Future net cash flows			787,508
10% annual discount for estimated timing of cash flows			(412,854	)
	Standardized measure of discounted future net cash flows	$	374,654

        Future cash flows as shown above were reported without consideration for the effects of derivative transactions outstanding at period end. The effect of hedging transactions in place as of year-end on the future cash flows for the period ended December 31, 2010 was immaterial.

        The changes in the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves are as follows (in thousands):

	2010
Beginning of period	$	—
Sale of oil and gas produced, net of production costs		(1,193	)
Development costs incurred		817
Changes in estimated development cost		(817	)
Purchases of mineral in place		374,768
Net change in income taxes		26
Accretion of discount		1,012
Changes in production rates and other		41
End of year	$	374,654

F-23

Bonanza Creek Energy, Inc.

Notes to the Consolidated Balance Sheet as of December 31, 2010

14. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): (Continued)

        The average wellhead prices used in determining future net revenues related to the standardized measure calculation as of December 31, 2010 were calculated using the first-day-of-the-month price inclusive of adjustments for quality and location for each of the 12 months of calendar year 2010.

	2010
Oil (per Bbl)	$	74.93
Gas (per Mcf)	$	4.81

F-24

BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

				March 31, 2011			December 31, 2010
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	768,048		$	—
	Accounts receivable:
		Oil and gas sales			10,160,791			8,894,831
		Other, net of $60,000 allowance			2,222,392			2,940,590
	Prepaid expenses and other				1,052,061			703,063
	Inventory of oilfield equipment				1,701,186			415,650
	Derivative asset				500,547			1,396,472
			Total current assets		16,405,025			14,350,606
OIL AND GAS PROPERTIES—at cost, using the successful efforts method of accounting:
	Proved properties				446,663,305			441,303,069
	Unproved properties				14,749,117			14,749,117
	Wells in progress				16,281,855			8,387,164
					477,694,277			464,439,350
	Less: accumulated depreciation, depletion and amortization				(6,445,660	)		(470,390	)
					471,248,617			463,968,960
NATURAL GAS PLANT—at cost					36,847,855			31,840,475
	Less: accumulated depreciation				(266,564	)		(20,017	)
					36,581,291			31,820,458
PROPERTY AND EQUIPMENT—at cost					867,908			802,679
	Less: accumulated depreciation				(45,294	)		(10,008	)
					822,614			792,671
LONG-TERM DERIVATIVE ASSET					500,931			2,045,182
OTHER ASSETS, net					2,923,798			3,125,670
TOTAL ASSETS				$	528,482,276		$	516,103,547
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Accounts payable and accrued expenses			$	17,127,041		$	16,101,536
	Oil and gas revenue distribution payable				3,902,717			3,444,077
	Derivative liability				5,756,860			3,691,998
		Total current liabilities			26,786,618			23,237,611
LONG-TERM LIABILITIES:
	Bank revolving credit				63,500,000			55,400,000
	Ad valorem taxes				374,656			1,213,445
	Derivative liability				6,804,488			5,854,980
	Deferred income taxes, net				68,597,393			68,405,393
	Asset retirement obligations				5,711,792			5,611,709
TOTAL LIABILITIES					171,774,947			159,723,138
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY:
	Common stock, Class A, $.001 par value, 99,990,000 shares authorized, 29,122,521 issued and outstanding				29,123			29,123
	Common stock, Class B, $.001 par value, 10,000 shares authorized, 7,500 shares issued and outstanding				—			—
	Additional paid-in capital				356,513,012			356,513,012
	Retained earnings accumulated (deficit)				165,194			(161,726	)
		Total stockholders' equity			356,707,329			356,380,409
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY				$	528,482,276		$	516,103,547

F-25

BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES AND PREDECESSOR

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

			Bonanza Creek Energy, Inc. Three Months Ended March 31, 2011			Bonanza Creek Energy Company, LLC (Predecessor) Three Months Ended March 31, 2010
NET REVENUES:
		Oil and gas sales	$	22,212,617		$	10,720,464
OPERATING EXPENSES:
	Lease operating			4,614,024			3,434,461
	Severance and ad valorem taxes			1,052,919			332,732
	Exploration			525,464			113,782
	Depreciation, depletion and amortization			6,387,444			3,261,064
	General and administrative			2,238,554			2,086,925
		Total operating expenses		14,818,405			9,228,964
INCOME FROM OPERATIONS				7,394,212			1,491,500
OTHER INCOME (EXPENSE):
	Gain on sale of oil and gas properties			—			4,091,579
	Other income (loss)			67,946			(59,542	)
	Change in fair value of warrant put option			—			(24,203,740	)
	Amortization of debt discount			—			(2,126,841	)
	Interest expense			(712,772	)		(3,958,774	)
	Unrealized gain (loss) in fair value of derivatives			(5,454,546	)		(1,142,426	)
	Realized gain (loss) in fair value of commodity derivatives			(775,920	)		1,584,787
		Total other income (expense)		(6,875,292	)		(25,814,957	)
INCOME (LOSS) BEFORE TAXES				518,920			(24,323,457	)
	Deferred income taxes			(192,000	)		—
NET INCOME (LOSS)			$	326,920		$	(24,323,457	)
BASIC AND DILUTED INCOME PER SHARE:			$	0.01			—
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK—BASIC AND DILUTED				29,122,521			—

See accompanying notes to these consolidated financial statements.

F-26

BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(unaudited)

FOR THE QUARTER ENDED MARCH 31, 2011

					Common Stock B Shares
	Common Stock A Shares
									Additional Paid-In Capital		Retained Earnings
	Shares		Amount		Shares		Amount							Total
BALANCES at January 1, 2011		29,122,521	$	29,123		7,500	$	—	$	356,513,012	$	(161,726	)	$	356,380,409
Net income		—		—		—		—		—		326,920			326,920
BALANCES at March 31, 2011		29,122,521	$	29,123		7,500	$	—	$	356,513,012	$	165,194		$	356,707,329

F-27

BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES AND PREDECESSOR

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

					Bonanza Creek Energy, Inc. Three Months Ended March 31, 2011			Bonanza Creek Energy Company, LLC (Predecessor) Three Months Ended March 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss				$	326,920		$	(24,323,457	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation, depletion and amortization				6,387,444			3,261,064
		Deferred income taxes				192,000			—
		Exploration				(1,751	)		—
		Amortization of deferred financing costs				201,782			281,640
		Amortization of deferred novation fees				—			85,329
		Accretion of debt discount				—			2,126,841
		Payment in kind interest				—			2,682,829
		Gain on sale of oil and gas properties				—			(4,091,579	)
		Valuation increase (decrease) in outstanding warrants				—			24,203,740
		Valuation increase in commodity derivatives				5,454,546			1,142,426
		Unrealized loss on derivative liability assumed				—			(1,311,868	)
		(Increase) decrease in operating assets:
			Accounts receivable			(547,762	)		(613,391	)
			Prepaid expenses and other assets			(1,999,941	)		138,472
		(Decrease) increase in operating liabilities:
			Accounts payable and accrued liabilities			(1,445,852	)		675,566
			Settlement of asset retirement obligations			(32,200	)		(33,003	)
				Net cash (used in) provided by operating activities		8,535,186			4,224,609
CASH FLOWS FROM INVESTING ACTIVITIES:
	Acquisition of oil and gas properties					(46,738	)		4,260
	Exploration and development of oil and gas properties					(10,402,241	)		(1,500,872	)
	Gas plant capital expenditures					(5,353,380	)		(316,990	)
	Proceeds from note receivable					986,906			35,224
	Proceeds from sale of properties					—			7,506,300
	Increase in receivable from Holmes Eastern Company, LLC					—			192,814
	Additions to property and equipment—non oil and gas					(65,229	)		(223,423	)
				Net cash provided by (used in) investing activities		(14,880,322	)		5,697,313
CASH FLOWS FROM FINANCING ACTIVITIES:
	Increase in bank revolving credit					71,900,000			—
	Payment on bank revolving credit and subordinated debt					(63,800,000	)		(9,100,000	)
	Deferred financing costs					(986,816	)		(53,379	)
				Net cash (used in) provided by financing activities		7,113,184			(9,153,379	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS						768,048			768,543
CASH AND CASH EQUIVALENTS:
	Beginning of period					—			2,521,513
	End of period				$	768,048		$	3,290,056
SUPPLEMENTAL CASH FLOW DISCLOSURE:
	Cash paid for interest				$	609,196		$	994,305
	Accrued interest on senior subordinated and related party notes					—		$	2,682,829
	Changes in working capital related to drilling expenditures and property acquisition				$	2,209,959		$	13,926

See accompanying notes to these consolidated financial statements.

F-28

Bonanza Creek Energy, Inc.

Notes to the Consolidated Financial Statements as of March 31, 2011 (unaudited)

1. ORGANIZATION AND BUSINESS:

        On December 23, 2010, Bonanza Creek Energy, Inc. (a Delaware C corporation) (the Company or BCEI) was formed in conjunction with the following transactions which were accomplished simultaneously:

(1)

The contribution by Bonanza Creek Energy Company, LLC (BCEC) of all of its ownership in Bonanza Creek Energy Operating Company, LLC (a wholly owned subsidiary) to BCEI and assumption by BCEI of BCEC's remaining debt (as described below) in exchange for a 21.55% ownership interest of BCEI. BCEC had no other significant assets or subsidiaries at such time. BCEC was an operating oil and gas company that was initially founded in 2006;



(2)

The sale of $265 million of common stock of BCEI which constituted an ownership interest of 72.68% of BCEI to two private equity firms: Project Black Bear LP ("Black Bear"), an entity advised by West Face Capital Inc. ("West Face Capital"), and to certain clients of Alberta Investment Management Corporation (AIMCo); and



(3)

The exchange of shares of 5.77% of BCEI's common stock together with $59 million in cash (which came from the $265 million sale of common stock of BCEI described in (2) above), for all of the equity interests of Holmes Eastern Company, LLC (HEC), a limited liability company that was majority owned by a minority member of Bonanza Creek Oil Company, LLC (BCOC). BCOC was the predecessor of BCEC and owned 29.9% of BCEC on a fully diluted basis at the time of such transaction. HEC was initially formed in 2009 and has been an operating oil and gas exploration and production business since its formation.

        Ultimately, the BCEC ownership (21.55%) of BCEI will be distributed to BCEC's members based on management's estimate of fair value of the BCEI shares received by BCEC to holders of the equity interests of BCEC in connection with the redemption of BCEC's equity and BCEC's dissolution to:

(1)

BCOC in the amount of 5.5% (for its Series A Units of BCEC);



(2)

D.E. Shaw Laminar Portfolios, L.L.C. (Laminar) in the amount of 12.91% (for its Series A Units of BCEC); and



(3)

The management of BCEC, in the amount of 3.14% (for their Series B Units of BCEC).

        Cash proceeds of approximately $182 million were used to retire BCEC's second lien term loan, senior subordinated notes and a related party note payable, and to reduce the outstanding principal balance on BCEC's outstanding bank revolving credit facility by $29 million thereby reducing the balance outstanding to approximately $55.4 million as of December 31, 2010. This loan at the same time was assumed by BCEI.

        The Company is engaged primarily in acquiring, developing, exploiting and producing oil and gas properties. As of March 31, 2011, the Company's assets and operations are concentrated primarily in southern Arkansas and in the Denver-Julesburg and North Park Basins in the Rocky Mountains.

2. RECENT ACCOUNTING PRONOUNCEMENTS:

        The Company follows the provisions of FASB ASC 740, Accounting for Uncertainty in Income Taxes. The statement does not have a material effect on the Company's financial position. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company files income tax returns in the U.S. federal jurisdiction and various states. The tax return for December 31, 2010 has not yet been filed and the Company has not taken any uncertain tax positions.

F-29

Bonanza Creek Energy, Inc.

Notes to the Consolidated Financial Statements as of March 31, 2011 (unaudited)

2. RECENT ACCOUNTING PRONOUNCEMENTS: (Continued)

        In December 2010, the FASB issued Accounting Standards Update No. 2010-29, Business Combinations: Disclosure of Supplementary Pro Forma Information for Business Combinations (ASU 2010-29), which provides amendments to FASB ASC Topic 805, Business Combinations. The objective of ASU 2010-29 is to clarify and expand the pro forma revenue and earnings disclosure requirements for business combinations. ASU 2010-29 is effective for fiscal years beginning after December 15, 2010. The adoption of this standard will not have an impact on the Company's consolidated financial statements other than additional disclosures.

3. SENIOR SECURED REVOLVING CREDIT FACILITY:

        Senior Secured Revolving Credit Facility—On March 29, 2011, the Company entered into a Senior Secured Revolving Credit Agreement (the "Revolver") with a syndication of banks, with BNP Paribas as the administrative agent and issuing lender, which provides for borrowings of up to $300 million. The Revolver provides for interest rates plus an applicable margin to be determined based on the London Interbank Offered Rate (LIBOR) or a bank base rate ("Base Rate"), at the Company's election. LIBOR borrowings bear interest at LIBOR plus 2.00% to 3.00% depending on the utilization level, and the Base Rate borrowings bear interest at the "Bank Prime Rate," as defined plus 1.00% to 2.00%.

        The Revolver has a $130 million borrowing base as of March 31, 2011 and is subject to semi-annual re-determinations in April and October of each year. The Revolver provides for commitment fees of 0.5% and restricts, among other items, the payment of dividends, certain additional indebtedness, sale of assets, loans, certain investments and mergers. The Revolver also contains certain financial covenants, which require the maintenance of a minimum current ratio and a minimum debt coverage ratio, as defined. The Company was in compliance with these covenants as of March 31, 2011. The Revolver is collateralized by substantially all the Company's assets and matures on March 29, 2015.

        In association with the Revolver agreement, the Company incurred deferred financing costs of approximately $987,000.

4. COMMITMENTS AND CONTINGENT LIABILITIES:

        Office Leases—The Company rents office facilities under various noncancelable operating lease agreements. Rental expense for these leases was $138,561 for the three months ended March 31, 2011. The Company's noncancelable operating lease agreements result in total future minimum noncancelable lease payments which are presented below:

	Office Leases		Line of Credit		Total
2011	$	301,594	$	—	$	301,594
2012		436,550		—		436,550
2013		444,733		—		444,733
2014		455,678		—		455,678
2014		468,594		63,500,000		63,968,594
2016 and thereafter		200,832		—		200,832
	$	2,307,981	$	63,500,000	$	65,807,981

F-30

Bonanza Creek Energy, Inc.

Notes to the Consolidated Financial Statements as of March 31, 2011 (unaudited)

4. COMMITMENTS AND CONTINGENT LIABILITIES: (Continued)

        Environmental—The Company is engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures as they relate to the drilling of oil and gas wells and the operations. In the Company's acquisition of existing or previously drilled well bores, the Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a liability exists with respect to any environmental clean up or restoration, the liability to cure such a violation could fall upon the Company. Management believes its properties are operated in conformity with local, state and federal regulations. No claim has been made, nor is the Company aware of any uninsured liability which the Company may have, as it relates to any environmental cleanup, restoration or the violation of any rules or regulations.

        Legal Proceeding—The Company may, from time to time, be involved in various other legal actions arising in the normal course of business. In the opinion of management, the Company's liability, if any, in these pending actions would not have a material adverse effect on the financial positions of the Company. The Company's general and administrative expenses would include amounts incurred to resolve claims made against the Company.

5. FAIR VALUE MEASUREMENTS AND ASSET RETIREMENT OBLIGATION:

        The Company follows FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The statement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

Level 1:	Quoted prices are available in active markets for identical assets or liabilities;
Level 2:	Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; or
Level 3:	Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.

        ASC 820 requires financial assets and liabilities to be classified based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

F-31

Bonanza Creek Energy, Inc.

Notes to the Consolidated Financial Statements as of March 31, 2011 (unaudited)

5. FAIR VALUE MEASUREMENTS AND ASSET RETIREMENT OBLIGATION: (Continued)

        The following table presents the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2011 by level within the fair value hierarchy:

	Fair Value Measurements Using
	Level 1		Level 2		Level 3
Commodity derivative assets	$	—	$	915,735	$	85,743
Commodity derivative liabilities	$	—	$	12,201,477	$	359,870

        The following table presents the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2010 by level within the fair value hierarchy:

	Fair Value Measurements Using
	Level 1		Level 2		Level 3
Commodity derivative assets	$	—	$	1,062,025	$	2,379,629
Commodity derivative liabilities	$	—	$	9,546,979	$	—

        The Company's commodity swaps are valued based on the counterparty's mark-to-market statements, which are validated by observable transactions for the same or similar commodity options using the NYMEX futures index, and are designated as Level 2 within the valuation hierarchy. The Company's collars, which are designated as Level 3 within the valuation hierarchy, are also valued based on the counterparty's mark-to-market statements, but are not validated by observable transactions with respect to volatility. The counterparties in all of the commodity derivative financial instruments are lenders on the Company's senior secured revolving credit facility.

        The following table reflects the activity for the commodity derivatives measured at fair value using Level 3 inputs:

		For the Three Months Ended March 31, 2010
Beginning net asset (liability) balance		$	2,379,629
	Net decrease in fair value		(2,643,320	)
	Net realized gain on settlement		(10,436	)
	Transfers in (out) of Level 3		—
Ending net asset (liability) balance		$	(274,127	)

F-32

Bonanza Creek Energy, Inc.

Notes to the Consolidated Financial Statements as of March 31, 2011 (unaudited)

5. FAIR VALUE MEASUREMENTS AND ASSET RETIREMENT OBLIGATION: (Continued)

        As of March 31, 2011, the Company's derivative commodity contracts with BNP Paribas and Societe Generale are as follows:

Contract Term	Notional Volume	Floor		Ceiling		Fixed Price
April 1 - December 31, 2011	24,400 Bbl./Month	$	80.00	$	140.00		—
April 1 - December 31, 2011	15,392 Bbl./Month	$	90.00	$	123.00		—
January 1 - December 31, 2012	13,956 Bbl./Month	$	90.00	$	123.00		—
January 1 - April 30, 2013	12,654 Bbl./Month	$	90.00	$	123.00		—
April 1 - December 31, 2011	9,964 Bbl./Month		—		—	$	64.45
April 1 - December 31, 2011	1,604 Bbl./Month		—		—	$	63.87
January 1 - December 31, 2012	8,206 Bbl./Month		—		—	$	62.95
January 1 - December 31, 2012	1,520 Bbl./Month		—		—	$	63.47
January 1 - October 31, 2013	7,542 Bbl./Month		—		—	$	61.50
April 1 - December 31, 2011	18,298 MMBTU/Month		—		—	$	7.10
January 1 - December 31, 2012	16,860 MMBTU/Month		—		—	$	6.75
January 1 - October 31, 2013	15,481 MMBTU/Month		—		—	$	6.40

        The table below contains a summary of all the Company's derivative positions reported on the consolidated balance sheet as of March 31, 2011:

Derivatives		Balance Sheet Location	Fair Value
Asset
Commodity derivatives		Current derivative assets	$	500,547
Commodity derivatives		Long-term derivative assets		500,931
Liability
Commodity derivatives		Current derivative liability		(5,756,860	)
Commodity derivatives		Long-term derivative liability		(6,804,488	)
	Total		$	(11,559,870	)

        Realized gains and losses on commodity derivatives and the unrealized gains or losses are recorded in other income (expense).

6. SUBSEQUENT EVENTS:

        Subsequent events have been evaluated by management through the date of issuance of these financial statements.

F-33

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Managers
Bonanza Creek Energy Company, LLC

        We have audited the consolidated balance sheets of Bonanza Creek Energy Company, LLC and subsidiaries as of December 23, 2010 and December 31, 2009 and the related consolidated statements of operations, members' equity, and cash flows for the period January 1, 2010 to December 23, 2010 and the years ended December 31, 2009 and 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bonanza Creek Energy Company, LLC and its subsidiaries as of December 23, 2010 and December 31, 2009 and the results of their operations and their cash flows for the period from January 1, 2010 to December 23, 2010 and for the years ending December 31, 2009 and 2008 in conformity with U.S. generally accepted accounting principles.

/s/ Hein & Associates LLP

Denver, Colorado
July 21, 2011

F-34

BONANZA CREEK ENERGY COMPANY, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

				December 23, 2010			December 31, 2009
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	2,450,191		$	2,521,513
	Accounts receivable:
		Oil and gas sales, net of $0 and $273,048 allowance			5,212,542			4,599,281
		Holmes Eastern Company, LLC			3,665,703			—
		Other, net of $60,000 allowance			670,456			557,560
	Prepaid expenses and other				755,751			783,109
	Inventory of oilfield equipment				415,650			709,364
	Derivative asset				1,465,545			2,445,386
			Total current assets		14,635,838			11,616,213
OIL AND GAS PROPERTIES—at cost, using the successful efforts method of accounting:
	Proved properties				227,508,385			198,962,097
	Unproved properties				2,647,655			1,896,268
	Wells in progress				5,785,954			1,333,810
					235,941,994			202,192,175
	Less: accumulated depreciation, depletion and amortization				(51,635,257	)		(40,658,624	)
					184,306,737			161,533,551
NATURAL GAS PLANT—at cost					33,387,027			29,392,723
	Less: accumulated depreciation				(5,304,814	)		(3,336,359	)
					28,082,213			26,056,364
PROPERTY AND EQUIPMENT—at cost					2,192,642			1,777,377
	Less: accumulated depreciation				(1,398,846	)		(1,000,135	)
					793,796			777,242
LONG-TERM DERIVATIVE ASSET					2,216,087			4,899,191
OTHER ASSETS, net					6,010,519			6,669,541
TOTAL ASSETS				$	236,045,190		$	211,552,102
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
	Accounts payable and accrued expenses			$	14,614,980		$	5,434,419
	Oil and gas revenue distribution payable				1,808,136			1,612,965
	Derivative liability				3,598,869			—
	Bank revolving credit—current portion				—			2,700,000
		Total current liabilities			20,021,985			9,747,384
LONG-TERM LIABILITIES:
	Bank revolving credit				84,400,000			99,000,000
	Senior subordinated notes (net of discount of $14,327,348 and $23,189,303)				110,817,857			92,441,757
	Second lien term loan				30,000,000			—
	Note payable—related party				12,276,228			10,798,846
	Ad valorem taxes				964,594			1,078,667
	Derivative liability				5,286,378			9,754,968
	Asset retirement obligations				4,966,366			1,857,486
	Warrants				47,123,364			81,468,258
TOTAL LIABILITIES					315,856,772			306,147,366
COMMITMENTS AND CONTINGENCIES (Notes 1, 7 and 8)
MEMBERS' DEFICIT:
	Class A units, $1.00 par value, 29,775 units authorized, 14,090 issued, liquidation preference of $10,450,163				8,504,941			8,504,941
	Class B units, $1.00 par value, 7,452 units authorized, 4,844 issued				—			—
	Class A warrants, 33,089 units under warrants, respectively				—			—
	Accumulated deficit				(88,316,523	)		(103,100,205	)
		Total members' deficit			(79,811,582	)		(94,595,264	)
TOTAL LIABILITIES AND MEMBERS' DEFICIT				$	236,045,190		$	211,552,102

F-35

BONANZA CREEK ENERGY COMPANY, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

						For the Years Ended December 31,
			For the Period January 1, 2010 to December 23, 2010
						2009			2008
NET REVENUES:
		Oil and gas sales	$	48,328,094		$	34,441,453		$	47,914,801
OPERATING EXPENSES:
	Lease operating			14,791,785			13,449,246			20,434,655
	Severance and ad valorem taxes			1,620,495			2,147,723			1,846,984
	Exploration			360,742			131,059			25,278
	Depreciation, depletion and amortization			14,225,309			14,107,774			25,463,113
	Impairment of oil and gas properties			—			579,337			26,437,380
	General and administrative			8,374,875			7,610,252			7,476,776
	Cancelled private placement			2,378,468			—			—
		Total operating expenses		41,751,674			38,025,391			81,684,186
INCOME (LOSS) FROM OPERATIONS				6,576,420			(3,583,938	)		(33,769,385	)
OTHER INCOME (EXPENSE):
	Gain on sale of oil and gas properties			4,055,153			303,085			7,715
	Write off of deferred financing costs			(1,663,167	)		—			—
	Change in fair value of warrant put option			34,344,894			(80,639,866	)		70,972,241
	Accretion of debt discount			(8,861,955	)		(7,963,031	)		(5,986,491	)
	Realized gain (loss) on settled commodity derivatives			5,918,702			13,450,810			1,912,725
	Interest expense			(18,000,796	)		(16,581,566	)		(12,870,332	)
	Unrealized gain (loss) in fair value of commodity derivatives			(7,604,742	)		(34,589,118	)		48,716,636
	Other income (loss)			19,173			(179,840	)		(229,366	)
		Total other income (expense)		8,207,262			(126,199,526	)		102,523,128
NET INCOME (LOSS)			$	14,783,682		$	(129,783,464	)	$	68,753,743
UNAUDITED PRO FORMA INCOME TAXES:
	Net income (loss) as presented		$	14,783,682		$	(129,783,464	)	$	68,753,743
	Pro Forma income taxes			—			—			—
		Pro Forma, net income (loss) as adjusted	$	14,783,682		$	(129,783,464	)	$	68,753,743

F-36

BONANZA CREEK ENERGY COMPANY, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF MEMBERS' DEFICIT

FOR THE PERIOD ENDED DECEMBER 23, 2010,

AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

					Class A Units Under Warrants
	Common Stock								Class B Units
													Accumulated Deficit
	Shares		Amount		Units		Amount		Units		Amount					Total
BALANCES at January 1, 2008		14,090	$	8,504,941		19,672	$	—		4,844	$	—	$	(42,070,484	)	$	(33,565,543	)
Issuance of units		—		—		13,417		—		—		—		—			—
Net income		—		—		—		—		—		—		68,753,743			68,753,743
BALANCES at December 31, 2008		14,090		8,504,941		33,089		—		4,844		—		26,683,259			35,188,200
Issuance of units		—		—		—		—		—		—		—			—
Net income		—		—		—		—		—		—		(129,783,464	)		(129,783,464	)
BALANCES at December 31, 2009		14,090		8,504,941		33,089		—		4,844		—		(103,100,205	)		(94,595,264	)
Net income		—		—		—		—		—		—		14,783,682			14,783,682
BALANCES at December 23, 2010		14,090	$	8,504,941		33,089	$	—		4,844	$	—	$	(88,316,523	)	$	(79,811,582	)

F-37

BONANZA CREEK ENERGY COMPANY, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

								For the Years Ended December 31,
					For the Period January 1, 2010 to December 23, 2010
								2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income (loss)				$	14,783,682		$	(129,783,464	)	$	68,753,743
	Adjustments to reconcile net income (loss) to net cash provided by operating activities
		Depreciation, depletion and amortization				14,225,309			14,107,774			25,463,113
		Change in unrealized loss on derivative liability assumed				(4,811,518	)		(5,779,144	)		(5,624,682	)
		Exploration				42,758			—			—
		Impairment of oil and gas properties				—			579,337			26,437,380
		Amortization of deferred financing costs				1,641,209			1,643,883			1,094,962
		Write off of deferred financing costs				1,663,167			—			—
		Amortization of deferred novation fees				403,676			341,314			220,186
		Accretion of debt discount				8,861,955			7,963,031			5,986,491
		Payment in kind interest				10,991,527			9,778,365			6,401,568
		Gain on sale of oil and gas properties				(4,055,153	)		(303,085	)		(7,715	)
		Provision for losses on accounts receivable				—			—			342,258
		Valuation increase (decrease) in outstanding warrants				(34,344,894	)		80,639,866			(70,972,241	)
		Valuation increase in commodity derivatives				7,604,742			34,589,118			(48,716,636	)
		Other				—			137,712			—
		(Increase) decrease in operating assets:
			Accounts receivable			(726,157	)		(100,356	)		(3,662,512	)
			Prepaid expenses and other assets			27,358			544,913			(189,064	)
		(Decrease) increase in operating liabilities:
			Accounts payable and accrued liabilities			6,495,772			(3,183,544	)		5,613,557
			Settlement of asset retirement obligations			(44,758	)		(41,664	)		(12,495	)
				Net cash provided by operating activities		22,758,675			11,134,056			11,127,913
CASH FLOWS FROM INVESTING ACTIVITIES:
	Acquisition of oil and gas properties					(1,066,277	)		(650,306	)		(40,845,931	)
	Exploration and development of oil and gas properties					(34,727,567	)		(6,611,956	)		(38,384,063	)
	Proceeds from note receivable					103,903			238,544			—
	Proceeds from sale of properties					7,475,654			307,257			142,533
	Decrease in restricted cash					250,000			—			—
	Increase in receivable from Holmes Eastern Company, LLC					(3,665,703	)		—			—
	Additions to property and equipment—non oil and gas					(497,073	)		(468,588	)		(493,977	)
				Net cash used in investing activities		(32,127,063	)		(7,185,049	)		(79,581,438	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Increase in bank revolving credit and subordinated debt					118,200,000			3,000,000			72,125,699
	Payment on bank revolving credit and subordinated debt					(105,500,000	)		(8,300,000	)		(4,000,000	)
	Increase in note payable					—			—			10,000,000
	Deferred financing costs					(3,075,534	)		(215,439	)		(3,743,644	)
	Deferred novation fees					(327,400	)		—			(1,840,585	)
				Net cash (used in) provided by financing activities		9,297,066			(5,515,439	)		72,541,470
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS						(71,322	)		(1,566,432	)		4,087,945
CASH AND CASH EQUIVALENTS:
	Beginning of period					2,521,513			4,087,945			—
	End of period				$	2,450,191		$	2,521,513		$	4,087,945
SUPPLEMENTAL CASH FLOW DISCLOSURE:
	Cash paid for interest				$	5,410,127		$	5,159,318		$	5,373,801
	Assumption of bank debt related to acquisition of oil and gas properties				$	—		$	—		$	52,100,000
	Assumption of hedge liability related to acquisition of oil and gas properties				$	—		$	—		$	27,372,262
	Fair value of warrants issued for debt				$	—		$	—		$	28,949,888
	Changes in working capital related to drilling expenditures and property acquisition				$	2,723,130		$	(70,292	)	$	(1,996,326	)

F-38

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

1. ORGANIZATION AND BUSINESS:

        Bonanza Creek Energy Company, LLC (a Delaware limited liability company) (BCEC) and subsidiaries (collectively "Bonanza Creek" or the "Company") was formed on May 17, 2006 for the purpose of consolidating certain oil and natural gas assets of Bonanza Creek Oil Company, LLC ("BCOC") and to sell senior subordinated unsecured notes in the amount of $27 million to Laminar Direct Capital VI, L.L.C. ("Laminar"). In connection with the transaction, BCOC contributed certain oil and natural gas assets and liabilities to BCEC in exchange for 13,250 Class A membership units in the Company. Since the contribution was among related parties, the assets and liabilities were recorded at their book values. Simultaneous with the contribution of assets and liabilities, Bonanza Creek sold $27 million in notes to Laminar (see Notes 7 and 9).

        Bonanza Creek is engaged primarily in acquiring, developing, exploiting and producing oil and gas properties. As of December 23, 2010, the Company's assets and operations are concentrated primarily in southern Arkansas and in the DJ and North Park Basins in the Rocky Mountains.

        On December 23, 2010 Bonanza Creek Energy Inc. (a Delaware C corporation) (BCEI) was formed in connection with the sale of $265 million of common stock which constituted an ownership interest of 72.68% to Project Black Bear LP, an entity advised by West Face Capital Inc. ("West Face Capital") and to certain clients of AIMCo. In connection with this transaction, BCEC contributed all of its ownership in Bonanza Creek Energy Operating Company, LLC (a wholly owned subsidiary) for a 21.55% ownership interest in BCEI's common stock. The remaining 5.77% of BCEI's common stock, along with $59 million in cash, was exchanged for all of the ownership of Holmes Eastern Company, LLC (HEC) a single member LLC that was majority owned by a member of BCOC and parties and members of BCEC's management. Upon completion of the sale of common stock and the acquisition of HEC, BCEC's ownership was approved by the Board of Directors to be liquidated by distribution of all of its BCEI common stock (21.55%) to BCOC in the amount of 5.5%, Laminar in the amount of 12.91%, and management in the amount of 3.14%. Subsequent to the sale to BCEI cash proceeds of approximately $182 million were used to retire the second lien debt, the senior subordinated notes, the related party note payable, and made a $29 million principal payment on its bank revolving credit facility which reduced the balance outstanding to approximately $55.4 million.

        Subsequent to the transaction with BCEI, BCEC incurred the following expenses in connection with repayment of debt:

Write off of deferred financing costs	$	(2,869,080	)
Subordinated note payoff penalty	$	(14,327,348	)
Second lien loan term loan payoff penalty	$	(3,031,667	)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

        Principles of Consolidation—The consolidated financial statements include the accounts of BCEC and its wholly owned subsidiaries, Bonanza Creek Energy Operating Company and Bonanza Creek Energy Resources Company. All significant intercompany accounts and transactions have been eliminated.

        Fair Value of Financial Instruments—Bonanza Creek's financial instruments consist of cash, trade receivables, trade payables, accrued liabilities, long-term debt and derivative instruments. The carrying

F-39

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

value of cash and cash equivalents, trade receivables and trade payables are considered to be representative of their fair market value, due to the short maturity of these instruments. Long-term debt is based on variable rate interest and, accordingly, approximates fair value. The fair value of derivative contracts are estimated based on market conditions in effect at the end of each reporting period.

        Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of oil and gas reserves, assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

        Cash and Cash Equivalents—Bonanza Creek considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents.

        Accounts Receivable—Trade accounts receivable are recorded at net realizable value. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Delinquent trade accounts receivable are charged against the allowance for doubtful accounts once uncollectibility has been determined.

        The Company's crude oil and natural gas receivables are generally collected within two months. The Company accrues a reserve on a receivable when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated.

        Inventory of Oilfield Equipment—Inventory consists of material and supplies used in connection with the Company's drilling program. These inventories are stated at the lower of average cost or market.

        Oil and Gas Producing Activities—Bonanza Creek follows the successful efforts method of accounting for its oil and gas properties. Under this method of accounting, all property acquisition costs and costs of exploratory and development wells are capitalized when incurred, pending determination of whether the well has found proved reserves. If an exploratory well has not found proved reserves, the costs of drilling the well and other associated costs are charged to expense. During 2010, 2009 and 2008, the Company recorded charges to exploration expense in the amount of $0, $0, and $0, respectively, for exploratory wells that did not find proved reserves. The costs of development wells are capitalized whether productive or nonproductive. Interest cost is capitalized as a component of property cost for capital development projects exceeding $1,000,000 that require greater than six months to be readied for their intended use. For the period ended December 23, 2010, and for the years ended December 31, 2009, and 2008, the Company did not capitalize any interest expense. Costs incurred to maintain wells and related equipment and lease and well operating costs are charged to expense as incurred. Gains and losses arising from sales of properties are included in income. However, sales that do not significantly affect a field's unit-of-production depletion rate are accounted for as normal retirements with no gain or loss recognized. Geological and geophysical costs of exploratory prospects and the costs of carrying and retaining unproved properties are expensed as incurred.

        Depletion, depreciation and amortization (DD&A) of capitalized costs of proved oil and gas properties are provided for on a field-by-field basis using the units of production method based upon proved reserves. The computation of DD&A takes into consideration the anticipated proceeds from equipment salvage and Bonanza's expected cost to abandon its well interests. DD&A expense for oil and

F-40

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

gas producing property and related equipment was $11,826,605, $11,792,914, and $23,710,388 for the period ended December 23, 2010, and for the years ended December 31, 2009 and 2008, respectively.

        The Company assesses its proved oil and gas properties for impairment whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. The impairment test compares undiscounted future net cash flows to the assets' net book value. If the net capitalized costs exceed future net cash flows, then the cost of the property is written down to "fair value." Fair value for oil and natural gas properties is generally determined based on discounted future net cash flows.

        For the period ended December 23, 2010, for the years ended December 31, 2009, and 2008, the Company recorded impairment expenses of $0, $0.6 million, and $26.4 million, respectively, related to proved property impairment write-downs. These calculations involved significant unobservable inputs and, therefore, they are Level 3 fair value estimates.

        The Company records the fair value of a liability for an asset retirement obligation as an asset and a liability when there is a legal obligation associated with the retirement of a long-lived asset and the amount can be reasonably estimated. Refer also to Note 8 relating to asset retirement obligations, which includes additional information on the Company's asset retirement obligations.

        Long-Lived Assets—Long-lived assets to be held and used or disposed of other than by sale are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used or disposed of other than by sale are recognized based on the fair value of the asset. Long-lived assets to be disposed of by sale are reported at the lower of their carrying amount or fair value less cost to sell.

        Other Property and Equipment—Property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to ten years.

        Revenue Recognition—The Company records revenues from the sales of crude oil and natural gas when delivery to the customer has occurred and title has transferred, net of royalties, discounts and allowances, as applicable. This occurs when oil or gas has been delivered to a pipeline or a tank lifting has occurred. The Company has interests with other producers in certain properties in which case the Company uses the entitlement method to account for gas imbalances. There were no gas imbalances in any period presented.

        For gathering and processing services, the Company either receives fees or commodities from natural gas producers depending on the type of contract. Under the percentage-of-proceeds contract type, the Company is paid for its services by keeping a percentage of the natural gas liquids (NGL) produced and a percentage of the residue gas resulting from processing the natural gas. Commodities received are, in turn, sold and recognized as revenue in accordance with the criteria outline above.

        Income Taxes—Bonanza Creek is a limited liability company. Accordingly, no provision for income tax has been recorded as the income, deductions, expenses and credits of the Company are reported on the individual income tax returns of the Company's members.

        For financial reporting purposes, the Company has included pro-forma income taxes and pro-forma net income (loss) as if it had been a tax reporting entity. No pro-forma taxes were presented primarily due to the permanent differences between financial reporting and tax reporting on this change to fair value of

F-41

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

the warrant put option. The change in the fair value of the warrant put option is a permanent difference between financial reporting and tax reporting in the amount of $34.3 million, $(80.6) million, and $71.0 million for the period ended December 23, 2010 and years ended December 31, 2009 and 2008, respectively. During these periods there was a net financial reporting loss after removal of the change in the fair value of the warrant put option. During these same periods, the taxable loss exceeds the adjusted financial reporting loss due to the deduction of intangible costs.

        Concentrations of Credit Risk—The Company maintains cash and cash equivalents at various financial institutions. At various times throughout the period ended December 23, 2010 and the year ended December 31, 2009, the Company's cash balances exceeded the Federal Deposit Insurance Corporation (FDIC) insured limit of $250,000.

        During 2010, Lion Oil Trading & Transport and Plains Marketing accounted for 52% and 30%, respectively, of oil and natural gas sales. During 2009, Lion Oil Trading & Transport, Plains Marketing and Hathaway LLC accounted for 46%, 27% and 12%, respectively, of oil and gas sales. During 2008, Lion Oil Trading & Transport, Teppco Crude Oil, Independent Oil Producers and Plains Marketing accounted for 28%, 16%, 15% and 11%, respectively, of oil and gas sales.

        Risks and Uncertainties—Historically, oil and gas prices have experienced significant fluctuations and have been particularly volatile in recent years. Price fluctuations can result from variations in weather, levels of regional or national production and demand, availability of transportation capacity to other regions of the country, and various other factors. Increases or decreases in prices received could have a significant impact on future results.

        Oil and Gas Derivative Activities—The Company recognizes all derivative instruments on the balance sheet as either assets or liabilities at fair value. Changes in the derivative's fair value will be recognized in the statement of operations.

        The Company is exposed to commodity price risk related to oil and gas prices. To mitigate this risk, the Company enters into oil and gas forward contracts as hedges. The Company maintained oil and gas contracts that economically hedged approximately 46%, 52% and 29%, respectively, of oil and gas sales during 2010, 2009 and 2008. The contracts, which are generally placed with major financial institutions or with counter parties which management believes to be of high credit quality, may take the form of futures contracts, swaps or options. The oil and gas reference prices of these contracts are based upon oil and natural gas futures, which have a high degree of historical correlation with actual prices received by the Company. The Company had realized gains on these oil contracts, reflected in other income, of $5,918,702, $13,450,810 and $1,912,725 for 2010, 2009 and 2008, respectively.

        Prior Period Reclassifications—Certain reclassifications have also been made to the prior year consolidated financial statements to conform to the current year presentation. Such reclassifications had no effect on net income (loss).

        Adopted and Recently Issued Accounting Pronouncements—The Company adopted the provisions of FASB ASC 740, Accounting for Uncertainty in Income Taxes, on January 1, 2009. The adoption of this statement did not have a material effect on the Company's financial position, results of operations or cash flows. The Company has not recorded any liabilities as of December 23, 2010 and December 31, 2009 related to the adoption of this statement. Subsequent to adoption, there have been no changes to the Company's assessment of uncertain tax positions. The Company recognizes interest and penalties related

F-42

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

to uncertain tax positions in income tax expense. As of December 23, 2010 and December 31, 2009, the Company made no provision for interest or penalties related to uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and various states. There are currently no federal or state income tax examinations underway for these jurisdictions. Furthermore, the Company is no longer subject to U.S. federal income tax examinations by the Internal Revenue Service for tax years before 2006 and for state and local tax authorities for years before 2006. The Company's tax years of 2006 and forward are subject to examination by federal and state taxing authorities.

        In December 2010, the FASB issued Accounting Standards Update No. 2010-29, Business Combinations: Disclosure of Supplementary Pro Forma Information for Business Combinations (ASU 2010-29), which provides amendments to FASB ASC Topic 805, Business Combinations. The objective of ASU 2010-29 is to clarify and expand the pro forma revenue and earnings disclosure requirements for business combinations. ASU 2010-29 is effective for fiscal years beginning after December 15, 2010. The adoption of this standard will not have an impact on the Company's consolidated financial statements other than additional disclosures.

        In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Improving Disclosures about Fair Value Measurements (ASU 2010-06), which provides amendments to FASB ASC Topic 820, Fair Value Measurements and Disclosures. The objective of ASU 2010-06 is to provide more robust disclosures about (i) the different classes of assets and liabilities measured at fair value, (ii) the valuation techniques and inputs used, (iii) the activity in Level 3 fair value measurements, and (iv) significant transfers between Levels 1, 2 and 3. ASU 2010-06 was effective for fiscal years and interim periods beginning after December 15, 2009, except for the activity in Level 3 measurement disclosures which was effective January 1, 2011. The Company adopted ASU 2010-06 effective January 1, 2010, which did not have an impact on its consolidated financial statements, other than additional disclosures.

        In December 2008, the SEC issued Modernization of Oil and Gas Reporting: Final Rule, which published the final rules and interpretations updating its oil and gas reporting requirements. The final rule includes updates to definitions in the existing oil and gas rules to make them consistent with the petroleum resource management system, which is a widely accepted standard for the management of petroleum resources that was developed by several industry organizations. Key revisions include the ability to include nontraditional resources in reserves, the use of new technology for determining reserves, permitting disclosure of probable and possible reserves, and changes to the pricing used to determine reserves in that companies must use a 12-month average price. The average is calculated using the first-day-of-the-month price for each of the 12 months that make up the reporting period. The Company adopted the new rules effective December 31, 2009, and as a result, the Company (i) prepared its reserve estimates as of December 31, 2009 and 2010 based on the new reserve definitions, (ii) has estimated its December 31, 2009 and 2010 reserve quantities using the 12-month average price and (iii) included additional disclosures as required by the new rule. Oil and gas reserve quantities or their values are a significant component of the Company's depreciation, depletion and amortization, asset retirement obligation, and impairment analyses. Due to the number of estimates that rely upon reserve quantities and values, any significant changes to the Company's oil and gas reserves has a pervasive effect on the Company's consolidated financial statements, and it is therefore impracticable to estimate the effect that the adoption of the SEC's Modernization of Oil and Gas Reporting: Final Rule had on the Company's financial statements.

        In January 2010, the FASB issued Accounting Standards Update No. 2010-03, Oil and Gas Reserve Estimation and Disclosures (ASU 2010-03), which provides amendments to FASB ASC Topic, Extractive

F-43

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

Activities-Oil and Gas. The objective of ASU 2010-03 is to align the oil and gas reserve estimation and disclosure requirements of the FASB ASC with the requirements in the SEC's Modernization of Oil and Gas Reporting: Final Rule. The Company adopted ASU 2010-03 effective December 31, 2009, and as a result, the Company (i) has estimated its 2009 and 2010 reserve quantities using the 12-month average price, (ii) prepared its reserve estimates as of December 31, 2009 and 2010 based on the new and amended reserve definitions in ASU 2010-03 that conform to the SEC's revised reserve definitions, and (iii) reported proved undeveloped reserve quantities in Disclosure About Oil and Gas Producing Activities. Oil and gas reserve quantities or their values are a significant component of the Company's depreciation, depletion and amortization, asset retirement obligation, and proved property impairment analyses. Due to the number of estimates that rely upon reserve quantities and values, any significant changes to the Company's oil and gas reserves have a pervasive effect on the Company's consolidated financial statements, and it is therefore impracticable to estimate the effect that the adoption of ASU 2010-03 had on the Company's financial statements.

3. ACQUISITIONS AND DIVESTITURES:

        In April 2008, the Company acquired all of the outstanding units in an existing LLC (MLA) for $121.2 million that owned interests in oil and gas properties and a natural gas plant located in Columbia, Lafayette and Union Counties, Arkansas. The purchase price included cash consideration of $43.6 million and the assumption of existing liabilities. The acquisition was funded by the sale of senior subordinated unsecured notes, a short term note payable, and the existing credit facility.

Supplemental Pro Forma Results (unaudited)

        The following pro forma financial information represents the combined results for the Company and MLA for the year ended December 31, 2008 as if the acquisition had occurred on January 1, 2008. The pro forma financial information includes adjustments to reflect MLA as if its crude oil and natural gas properties had been accounted for under the successful efforts method of accounting. The pro forma financial information is not intended to represent or be indicative of the consolidated results of operations or financial condition of the Company that would have been reported had the acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial condition of the Company.

	For the Year Ended December 31, 2008
Net revenues	$	52,903,943
Operating income	$	(32,675,019	)
Net income (loss)	$	60,101,562

        In March of 2010, the Company entered into a Purchase and Sale Agreement to sell its non-operating 50% ownership in the Jasmin property in California for approximately $7.5 million with an effective date of March 1, 2010 and closing date of March 31, 2010. The Company recorded a gain on the sale of oil and gas properties in the amount of $4 million related to this transaction. As indicated, the Jasmin property was not operated by the Company and is not a strategic oil and gas asset. The Jasmin property revenues

F-44

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

3. ACQUISITIONS AND DIVESTITURES: (CONTINUED)

and direct expenses were not material to the Company's operations and the Company did not curtail any of its regional operations as a result of this sale.

4. ACCOUNTS RECEIVABLE:

        Accounts receivable consists of the following:

	2010			2009
Oil and gas sales	$	5,212,542		$	4,872,329
Oil and gas derivative receivables		—			247,457
Accounts receivable from Holmes Eastern, LLC		3,665,703			—
Other		368,627			114,096
Joint interest receivable		361,829			256,007
		9,608,701			5,489,889
Less: allowance for doubtful accounts		(60,000	)		(333,048	)
	$	9,548,701		$	5,156,841

5. OTHER ASSETS:

        During 2010 the Company paid approximately $327,000 to novate existing hedge contracts in connection with entering into the line of credit agreement with BNP Paribas (see Note 5). As of December 23, 2010 and December 31, 2009 the Company had capitalized novation fees of approximately $2,168,000 and $1,841,000, respectively, and recorded accumulated amortization for these novation fees in the amounts of $965,000 and $562,000, respectively. These costs are being amortized on the straight-line method over the term of the derivative contracts. During 2010, the Company capitalized approximately $3,076,000 of deferred financing costs to enter into a new line of credit agreement with BNP Paribas (see Note 5). As of December 23, 2010 and December 31, 2009, the Company had capitalized deferred financing costs of approximately $10,082,000 and $7,007,000, respectively, and recorded accumulated amortization and impairment for these deferred financing costs in the amounts of $6,922,000 and $3,602,000, respectively. The costs are being amortized on the straight-line method over the term of the agreements.

        In connection with the repayment of debt (see Note 1), the remaining capitalized offering costs were expensed subsequent to December 23, 2010.

F-45

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

        Accounts payable and accrued expenses contain the following:

	2010		2009
Drilling and completion costs	$	2,886,438	$	980,670
Accounts payable trade		8,186,349		2,046,233
Accounts payable to Holmes Eastern Company, LLC		353,441		—
Ad valorem taxes		812,075		867,116
General and administrative		1,105,285		474,040
Lease operating expense		565,936		428,700
Interest		42,174		100,600
Accrued oil and gas hedging		197,785		84,319
Accrued reclamation		400,000		400,000
Production taxes and other		65,497		52,741
	$	14,614,980	$	5,434,419

7. LONG-TERM DEBT:

        Senior Secured Revolving Credit Facility—On May 7, 2010, the Company entered into a Senior Secured Revolving Credit Agreement, (the "Revolver"), with a syndication of banks with BNP Paribas as the administrative agent and issuing lender, which provides for borrowings of up to $200 million. The Revolver provides for interest rates plus an applicable margin to be determined based on the London Interbank Offered Rate (LIBOR) or a bank base rate ("Base Rate"), at the Company's election. LIBOR borrowings bear interest at LIBOR plus 2.25% to 3.00% depending on the utilization level, and the Base Rate borrowings bear interest at the "Bank Prime Rate," as defined plus 1.25% to 2.00%.

        This Revolver was used to retire a previously existing line of credit. All remaining deferred offering costs for the previously existing line of credit were expensed.

        The Revolver has a $100 million borrowing base as of December 23, 2010 and is subject to semi-annual re-determinations in May and November of each year. The Revolver provides for commitment fees of 0.5% and restricts, among other items, the payment of dividends, certain additional indebtedness, sale of assets, loans, certain investments and mergers. The Revolver also contains certain financial covenants, which require the maintenance of a minimum current ratio and a minimum debt coverage ratio and minimum interest coverage ratio, as defined. The Company was in compliance with these covenants as of December 23, 2010. The interest on the note is approximately 3% as of December 23, 2010. The Revolver is collateralized by substantially all the Company's assets and matures on May 7, 2013. As of December 23, 2010 and December 31, 2009, the outstanding amount under the Revolver is $84.4 million and $99 million, respectively. During March of 2011, the BCEI entered into a new $300 million Senior Secured Revolving Credit Agreement with an initial borrowing base of $130 million with a syndicate of banks led by BNP Paribas. Refer to Note 12, "Subsequent Events."

F-46

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

7. LONG-TERM DEBT: (CONTINUED)

        Senior Subordinated Unsecured Notes—On May 17, 2006, the Company entered into a Note Purchase Agreement (the "Note Agreement") with Laminar which provides for the sale of up to $50 million in senior subordinated unsecured Series A notes (the "Series A Notes"). The Series A Notes bear interest based on LIBOR plus 3% payable monthly if paid in cash or LIBOR plus 4% if paid in kind (PIK). In addition, there is a floor on the LIBOR of 4%, which results in a minimum real interest rate of 7% on cash and 8% on PIK interest. The Note Agreement also provides for the issuance of warrants (the "Warrants") in connection with the sale of the Series A Notes for up to 16,525 Class A membership units.

        In 2006 and 2007, the Company sold Series A Notes for $50 million and Warrants to purchase 16,525 Class A membership units at $0.01 per unit. The Company allocated $9.2 million of the proceeds received on the issuance of the Series A Notes to the Warrants "put right" (see Note 7), which represented the fair value of the Warrants on the date of issuance, and recorded the offsetting amount as a debt discount. The debt discount is being amortized over the life of the Series A Notes. Subsequent to the sale of BCEI, the Series A Notes were paid in full and retired. See to Note 1.

        On July 20, 2007, the Company entered into a Amended and Restated Note Purchase Agreement (the "A&R Note Agreement") with Laminar which provides for the sale of up to an additional $20 million in Series B senior subordinated unsecured notes (the "Series B Notes"). The A&R Note Agreement extended the maturity date of the Series A Notes by one year to May 17, 2012. The A&R Note Agreement also provides the Company with the option to PIK accrued interest on the Series A and B Notes. The Company has elected to PIK all accrued interest on the Series A and B Notes. This election to PIK all accrued interest results in the interest being added to the outstanding principal of the Series A and B Notes on a monthly basis and results in no cash requirements to service the Series A and B Notes. Subsequent to the sale to BCEI, the Series B Notes were paid in full and retired. Refer to Note 1.

        The Series B Notes bear interest based on the LIBOR plus 4% payable monthly in arrears or payable monthly in kind. In 2008 and 2007, the Company sold Series B Notes for approximately $20 million and Warrants to purchase 6,625 Class A membership units at $0.01 per unit. The Company allocated approximately $8.2 million of the proceeds received on the issuance of the Subordinated Unsecured Series B Notes to the Warrants "put right" (see Note 7), which represented the fair value of the Warrants on the date of issuance, and recorded the offsetting amount as a debt discount. The debt discount is being amortized over the life of the Subordinated Unsecured Notes.

        In April 2008, the Company entered into a second Amended and Restated Note Purchase Agreement ("Second A&R Note Agreement") with Laminar which provides for the sale of up to an additional $30 million in Series C senior subordinated unsecured notes ("Series C Notes"). The Second A&R Note Agreement provides the Company with the option to PIK accrued interest on the Series C Notes. The Company has elected to PIK all accrued interest on the Series C Notes. This election to PIK all accrued interest results in the interest being added to the outstanding principal of the Series C Notes on a monthly basis and results in no cash requirements to service the Series C Notes. Subsequent to the sale to BCEI, the Series C Notes were paid in full and retired. See Note 1.

        The Series C Notes bear interest based on the LIBOR plus 4% payable monthly in arrears or payable monthly in kind. The Company subsequently sold Series C Notes for $30 million and Warrants to purchase 9,939 Class A membership units at $0.01 per unit. The Company allocated $22.1 million of the proceeds received on the issuance of the Subordinated Unsecured Series C Notes to the Warrants "put right" (see Note 7), which represented the fair value of the Warrants on the date of issuance, and recorded the

F-47

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

7. LONG-TERM DEBT: (CONTINUED)

offsetting amount as a debt discount. The debt discount is being amortized over the life of the Subordinated Unsecured Notes.

        Accretion expense was recognized on the Series A, B and C Notes during 2010 and 2009 of approximately $8.9 million and $8.0 million, respectively.

        Subsequent to the sale to BCEI, the Company incurred penalties of $14,327,348 for the payoff of the subordinated debentures (see Note 1).

        The Note Agreements restrict, among other items, the payment of dividends, additional indebtedness, general and administrative expenses, sale of assets, loans, certain investments and mergers. The Note Agreements also contain certain financial covenants commencing on September 30, 2009, which require the maintenance of a minimum current ratio, minimum debt coverage ratios and minimum asset coverage ratio, as defined. The Company is in compliance with these covenants as of December 23, 2010. The Notes are due May 17, 2012.

        As of December 23, 2010, and as of December 31, 2009, the amounts outstanding are as follows:

		2010			2009
Senior subordinated unsecured note		$	125,145,205		$	115,631,060
Debt discount			(14,327,348	)		(23,189,303	)
	Total	$	110,817,857		$	92,441,757

        A reconciliation of the changes in the Company's debt discount is as follows:

		2010			2009			2008
Beginning debt discount		$	(23,189,303	)	$	(31,152,334	)	$	(8,188,937	)
Additional discounts from issuance of warrants			—			—			(28,949,888	)
Accretion of discount debt			8,861,955			7,963,031			5,986,491
	Ending debt discount	$	(14,327,348	)	$	(23,189,303	)	$	(31,152,334	)

        On May 7, 2010, the Company entered into a Second Lien Term Loan Agreement (the "Term Loan") with a group of lenders which provides for borrowing up to $30 million. The Term Loan provides for interest rates to be determined based on LIBOR (subject to a 4% floor) plus 10%. The initial borrowings under the Term Loan were $30 million, the proceeds of which were used, in part, to repay the Revolver. The Term Loan contains certain financial covenants which require the maintenance of a minimum current ratio, certain interest and debt coverage ratios, and an asset coverage ratio. The Term Loan is collateralized by a second lien on substantially all of the Company's assets and matures on May 7, 2013. As of December 23, 2010, and as of December 31, 2009, the amount outstanding was as follows:

		2010		2009
Second lien term loan		$	30,000,000	$	—
	Total	$	30,000,000	$	—

F-48

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

7. LONG-TERM DEBT: (CONTINUED)

        Subsequent to the sale to BCEI, the Second Lien Term Loan was paid in full and retired with approximately $3,032,000 in penalties. See Note 1.

        Unsecured Subordinated Promissory Note—On March 25, 2008, the Company entered into an unsecured subordinated note ("Promissory Note") with a related party for $10 million due on February 18, 2009. During 2009, this note was extended until the discharge of the Senior Obligations (as defined) has occurred. The note is subordinated to the Senior Secured Credit Facility and the Senior Secured Subordinated Notes. The Promissory Note bears a cash interest rate of 12%. Beginning in June 2009, the interest was PIK at 13%. As of December 23, 2010, the balance of the note was $12,276,228. On December 23, 2010, the Unsecured Subordinated Promissory Note was paid in full and retired. Refer to Note 1.

8. COMMITMENTS AND CONTINGENT LIABILITIES:

        Office Leases—Bonanza Creek rents office facilities under various noncancelable operating lease agreements. Rental expense for these leases was $537,267 in 2010, $355,461 in 2009 and $371,656 in 2008. Bonanza Creek's noncancelable operating lease agreements result in total future minimum noncancelable lease payments are presented below. Bonanza Creek also has principal payment requirements for its Line of Credit, 2^nd Lien Term Loan, Subordinated Debt, and the unsecured Promissory Note (assuming PIC interest at 13%) as of December 23, 2010, are also presented below:

	Office Leases		Line of Credit		2nd Lien Term Loan		Subordinated Debt		Unsecured Subordinated Promissory Note		Total
2011	$	347,437	$	—	$	—	$	—	$	—	$	347,437
2012		294,934		—		—		125,145,205		—		125,440,139
2013		298,873		84,400,000		30,000,000		—		16,524,606		131,223,479
2014		305,438		—		—		—		—		305,438
2015 and thereafter		462,591		—		—		—		—		462,591
	$	1,709,273	$	84,400,000	$	30,000,000	$	125,145,205	$	16,524,606	$	257,779,084

        Environmental—The Company is engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures as they relate to the drilling of oil and gas wells and the operations. In the Company's acquisition of existing or previously drilled well bores, the Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a liability exists with respect to any environmental clean up or restoration, the liability to cure such a violation could fall upon the Company. Management believes its properties are operated in conformity with local, state and federal regulations. No claim has been made, nor is the Company aware of any uninsured liability which the Company may have, as it relates to any environmental cleanup, restoration or the violation of any rules or regulations.

        Legal Proceeding—The Company may, from time to time, be involved in various other legal actions arising in the normal course of business. In the opinion of management, the Company's liability, if any, in these pending actions would not have a material adverse effect on the financial positions of the Company.

F-49

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

8. COMMITMENTS AND CONTINGENT LIABILITIES: (CONTINUED)

The Company's general and administrative expenses would include amounts incurred to resolve claims made against the Company.

9. MEMBERS' DEFICIT:

        Member Units Class A and Class B—As of December 23, 2010 and December 31, 2009, a total of 14,090 Class A and 4,844 Class B member units, both $1.00 par value, were issued and outstanding. In connection with the transaction described in Note 1, the remaining unissued Class B member units were converted into Class A common stock of BCEI. These shares were deposited into trusts for the benefit of employees. When the shares are released from the trust and the employees are notified of the award, compensation expense will be recorded on BCEI's statement of operations.

        Preferred Return—Class A Members receive a preferred return that accrues at a ten percent rate per annum. The preferred return accrues on a daily basis on the actual days elapsed on 365-day per year and shall compound on each December 31. Class B members do not receive a preferred return.

        Distributions—Holders of Class A Member Units receive the first 100% proceeds of the distribution equal to the sum of the aggregate capital contributions and the Class A preferred return. The remaining distribution proceeds are allocated to both Class A and Class B Member Units. Class A Members Units receive 80% and Class B receive 20% of the remaining distribution based on a pro rata distribution.

        Voting Rights—Class A Member Units carry one vote per unit, while Class B Member Units carry no voting rights.

        Liquidation Rights—After payment and discharge of all debt, liabilities and obligations, Class A and Class B Members will receive the remaining proceeds based on the distribution allocation.

        Warrant—In 2006, 2007 and 2008, the Company issued 33,089 warrants in connection with the sale of the Senior Subordinated Unsecured Notes (see Note 5). The Warrants are exercisable at any time at $0.01 per warrant to purchase a like number of Class A membership units, until their expiration date on May 17, 2026.

        The Warrants also included a "put right" whereby beginning on May 17, 2014, the unit holder, Laminar has a one-time right and option to put the Warrants back to the Company at fair market value less the exercise price. At December 31, 2009 and 2008, the estimated fair value was calculated to be $81 million and $1 million, respectively. The warrants were exercised on December 23, 2010 in connection with the transaction described in Note 1 and value at the time of exercise was approximately $47.1 million. These amounts were recorded as a warrant liability (see Note 9). A reconciliation of the changes in this liability is:

		2010			2009		2008
Balance as of beginning of period		$	81,468,258		$	828,392	$	42,850,745
	Additional warrants issued		—			—		28,949,888
	Total unrealized (gains) loss included in earnings		(34,344,894	)		80,639,866		(70,972,241	)
	Transfers in and out of Level 3		—			—		—
Balance as of end of period		$	47,123,364		$	81,468,258	$	828,392

F-50

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

10. ASSET RETIREMENT OBLIGATIONS:

        A reconciliation of the changes in the Company's liability is as follows:

	2010			2009			2008
Beginning asset retirement obligation	$	1,857,486		$	1,781,806		$	297,229
Liabilities acquired from property acquisitions		—			—			702,599
Obligation on properties sold		(41,519	)		—			—
Liabilities incurred from new drilling		307,220			—			44,752
Revisions		2,746,405			(16,574	)		619,951
Liabilities settled		(44,758	)		(41,664	)		(12,495	)
Accretion expense		141,532			133,918			129,770
Ending asset retirement obligation	$	4,966,366		$	1,857,486		$	1,781,806

        In 2010, the Company revised its estimated cost for plugging and abandoning wells and recorded a $2.7 million increase to asset retirement obligations. The upward revision is related to revised engineering estimates for the cost to plug, abandon, and reclaim well locations in California.

11. FAIR VALUE MEASUREMENTS:

        The Company follows FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The statement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

Level 1:	Quoted prices are available in active markets for identical assets or liabilities;
Level 2:	Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; or
Level 3:	Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.

        ASC 820 requires financial assets and liabilities to be classified based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

F-51

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

11. FAIR VALUE MEASUREMENTS: (CONTINUED)

        The following table presents the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 23, 2010 by level within the fair value hierarchy:

	Fair Value Measurements Using
	Level 1		Level 2		Level 3
Commodity derivative assets	$	—	$	1,149,976	$	2,531,656
Commodity derivative liabilities	$	—	$	8,885,247	$	—
Warrant liabilities	$	—	$	—	$	47,123,364

        The following table presents the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2009 by level within the fair value hierarchy:

	Fair Value Measurements Using
	Level 1		Level 2		Level 3
Commodity derivative assets	$	—	$	558,297	$	6,786,280
Commodity derivative liabilities	$	—	$	9,754,968	$	—
Warrant liabilities	$	—	$	—	$	81,468,258

        The Company's commodity swaps are valued based on the counterparty's mark-to-market statements, which are validated by observable transactions for the same or similar commodity options using the NYMEX futures index, and are designated as Level 2 within the valuation hierarchy. The Company's collars, which are designated as Level 3 within the valuation hierarchy, are also valued based on the counterparty's mark-to-market statements, but are not validated by observable transactions with respect to volatility. The counterparty in all of the commodity derivative financial instruments is the lender on the Company's senior secured revolving credit facility (Note 7).

        The rollforward for the Company's warrants which were designated as Level 3 within the valuation hierarchy as of December 23, 2010 and December 31, 2009 is presented in Note 9. The rollforward of the Level 3 commodity collar is presented below:

Balance as of January 1		$	6,786,280
	Realized gains and losses		(4,254,624	)
	New derivatives		—
	Balance as of December 23	$	2,531,656

        The Company recognizes an estimated liability for future costs associated with the abandonment of its oil and gas properties. The Company's asset retirement obligation is initially measured using primarily Level 3 inputs. The significant unobservable inputs include the cost of abandoning oil and gas wells, the economic lives of its properties, the inflation rate, and the credit adjusted risk-free rate. The Company bases its estimate of the liability on its historical experience and current estimated costs.

F-52

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

12. DERIVATIVE COMMODITY CONTRACTS:

        As of December 23, 2010, the Company's derivative commodity contracts with BNP Paribas are as follows:

Contract Term	Notional Volume	Floor		Ceiling		Fixed Price
January 1 - December 31, 2011	15,392 Bbl./Month	$	90.00	$	123.00		—
January 1 - December 31, 2012	13,956 Bbl./Month	$	90.00	$	123.00		—
January 1 - April 30, 2013	12,654 Bbl./Month	$	90.00	$	123.00		—
January 1 - December 31, 2011	8,917 Bbl./Month		—		—	$	64.45
January 1 - December 31, 2012	8,206 Bbl./Month		—		—	$	62.95
January 1 - October 31, 2013	7,542 Bbl./Month		—		—	$	61.50
January 1 - December 31, 2011	18,298 MMBTU/Month		—		—	$	7.10
January 1 - December 31, 2012	16,860 MMBTU/Month		—		—	$	6.75
January 1 - October 31, 2013	15,481 MMBTU/Month		—		—	$	6.40

        The table below contains a summary of all the Company's derivative positions reported on the consolidated balance sheet as of December 23, 2010:

Derivatives		Balance Sheet Location	Fair Value
Asset
Commodity derivatives		Current derivative assets	$	1,465,545
Commodity derivatives		Long-term derivative assets		2,216,087
Liability
Commodity derivatives		Current derivative liability		(3,598,869	)
Commodity derivatives		Long-term derivative liability		(5,286,378	)
	Total		$	(5,203,615	)

        Realized gains and losses on commodity derivatives and the unrealized gains or losses are recorded in other income (expense).

F-53

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

13. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED):

        BCEC's oil and natural gas activities are entirely within the United States. Costs incurred in oil and natural gas producing activities are as follows:

		2010		2009		2008
Unproved property acquisition		$	751,387	$	67,491	$	1,439,070
Proved property acquisition			273,275		582,815		39,406,861
Development(a)			27,385,767		6,765,085		31,348,342
Exploration(b)			8,691,755		482,159		7,520,313
	Total	$	37,102,184	$	7,897,550	$	79,714,586

(a)

Development costs include workover costs of $2,213,333, $504,230, and $459,314 charged to lease operating expense during 2010, 2009, and 2008, respectively.

(b)

Exploration costs include $266,332, $131,059, and $25,278 charged to exploration expense during 2010, 2009, and 2008, respectively.

        During 2010, 2009 and 2008, additions to oil and gas properties of approximately $307,220, $0, and $747,351 were recorded for the estimated costs of future abandonment related to new wells drilled or acquired.

Exploratory wells in progress as of each year end were not significant to the Company's financial statements.

        In December 2008, the SEC published the final rules and interpretations updating its oil and gas reporting requirements. The Company adopted the rules effective December 31, 2009, and the rule changes, including those related to pricing and technology, are included in the company's reserve estimates.

        In January 2010, the FASB aligned ASC Topic 932 with the aforementioned SEC requirements. Please refer to the section entitled "Adopted and Recently Issued Accounting Pronouncements" under Note 2 – Summary of Significant Accounting Policies for additional discussion regarding both adoptions.

        The estimate of proved reserves and related valuations for the years ended December 31, 2010 and 2009 were based upon reports prepared by Cawley, Gillespie & Associates, Inc. Petroleum Consultants. The estimate of proved reserves and related valuations for the year ended December 31, 2008 was prepared by MHA Petroleum Consultants, Inc. independent petroleum engineers. The estimates of proved reserves are inherently imprecise and are continually subject to revision based on production history, results of additional exploration and development, price changes and other factors.

F-54

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

13. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): (CONTINUED)

        All of BCEC's oil and natural gas reserves are attributable to properties within the United States. A summary of BCEC's changes in quantities of proved oil and natural gas reserves for the years ended December 31, 2008, 2009 and 2010 are as follows:

		Oil			Natural Gas
		(MBbl)			(MMcf)
Balance—January 1, 2008			7,019			6,903
	Extensions and discoveries		478			712
	Purchases of minerals in place		4,258			12,220
	Production		(476	)		(682	)
	Revisions to previous estimates(a)		1,177			753
Balance—December 31, 2008			12,456			19,906
	Extensions and discoveries		3,694			9,470
	Production		(564	)		(939	)
	Revisions to previous estimates		(316	)		(827	)
Balance—December 31, 2009			15,270			27,610
	Extensions and discoveries		2,250			5,023
	Sales of minerals in place		(568	)		—
	Production		(595	)		(1,309	)
	Revisions to previous estimates(b)		319			9,900
Balance—December 31, 2010			16,676			41,224
Proved developed reserves:
	December 31, 2008		4,905			7,164
	December 31, 2009		4,710			7,021
	December 31, 2010		6,465			13,703
Proved undeveloped reserves:
	December 31, 2008		7,551			12,742
	December 31, 2009		10,560			20,589
	December 31, 2010		10,211			27,521

(a)

In 2008, net revisions to previous estimates of 1,303 MBoe resulted primarily from well results and extensive engineering and geological reviews of the Mid-Continent properties that led to a change in planned development well spacing from 20 acres to 10 acres.

(b)

In 2010, net revisions to previous estimates of 1,969 MBoe were due primarily to positive price changes and changes to the rate forecasts for wells in the Mid-Continent region based on results from improved stimulation techniques in smaller, tighter, higher gas oil ratio sands that led to increased gas reserves and slightly higher NGL reserves.

        The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves and the changes in standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves were prepared in accordance with the provisions of ASC Topic 932. Future cash

F-55

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

13. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): (CONTINUED)

inflows were computed by applying prices to estimated future production. Future production and development costs are computed by estimating the expenditures to be incurred in developing and producing the proved oil and natural gas reserves at year-end, based on costs and assuming continuation of existing economic conditions.

        Future income tax expenses are calculated by applying appropriate year-end tax rates to future pretax net cash flows relating to proved oil and natural gas reserves. Future income tax expenses give effect to permanent differences, tax credits and loss carryforwards relating to the proved oil and natural gas reserves. Future net cash flows are discounted at a rate of 10% annually to derive the standardized measure of discounted future net cash flows. This calculation procedure does not necessarily result in an estimate of the fair market value or the present value of BCEC's oil and natural gas properties.

        The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves are as follows (in thousands):

		2010			2009			2008
Future cash flows		$	1,366,948		$	932,676		$	612,530
Future production costs			(434,498	)		(346,119	)		(234,453	)
Future development costs			(222,007	)		(177,297	)		(163,103	)
Future income tax expense			(126,005	)		(44,293	)		(1,961	)
Future net cash flows			584,438			364,967			213,013
10% annual discount for estimated timing of cash flows			(299,329	)		(179,263	)		(129,092	)
	Standardized measure of discounted future net cash flows	$	285,109		$	185,704		$	83,921

        Future cash flows as shown above were reported without consideration for the effects of derivative transactions outstanding at each period end.

F-56

Bonanza Creek Energy Company, LLC

Notes to the Consolidated Financial Statements as of December 23, 2010

13. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): (CONTINUED)

        The changes in the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves are as follows (in thousands):

	2010			2009			2008
Beginning of year	$	185,704		$	83,921		$	171,217
Sale of oil and gas produced, net of production costs		(31,916	)		(18,844	)		(25,633	)
Net changes in prices and production costs		97,725			44,531			(110,024	)
Extensions, discoveries and improved recoveries		45,498			79,186			5,634
Development costs incurred		21,615			6,261			30,889
Changes in estimated development cost		(30,350	)		2,974			(101,988	)
Purchases of mineral in place		—			—			59,440
Sales of mineral in place		(10,972	)		—			—
Revisions of previous quantity estimates		38,058			(6,816	)		12,299
Net change in income taxes		(38,932	)		(21,765	)		42,466
Accretion of discount		20,368			8,469			21,445
Changes in production rates and other		(11,689	)		7,787			(21,824	)
End of year	$	285,109		$	185,704		$	83,921

        Average wellhead prices in effect at December 31, 2008, inclusive of adjustments for quality and location were used in determining future net revenues related to the standardized measure calculation. The average wellhead prices inclusive of adjustments for quality and location used in determining future net revenues related to the standardized measure calculation as of December 31, 2009 and 2010 were calculated using the first-day-of-the-month price for each of the 12 months that made up the reporting period.

	2010		2009		2008
Oil (per Bbl)	$	74.77	$	57.79	$	41.91
Gas (per Mcf)	$	4.72	$	3.42	$	4.99

14. SUBSEQUENT EVENTS:

        During February 2011, BCEI received approximately $1 million as payment in full of the note receivable from Patriot Resources, LLC, the operator of the Sargent field in California. During March of 2011, BCEI entered into a new $300 million Senior Secured Revolving Credit Agreement with an initial borrowing base of $130 million with a syndicate of banks led by BNP Paribas. On March 24, 2011, BCEI entered into a new oil derivative commodity contract with Societe General with a floor price of $80.00 per Bbl with a ceiling price of $140.00 per Bbl covering 800 Bbl per day from April 1, 2011 through December 31, 2011.

F-57

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Managers
Holmes Eastern Company, LLC

        We have audited the balance sheets of Holmes Eastern Company, LLC as of December 23, 2010 and December 31, 2009 and the related statements of income and retained earnings, and cash flows for the period January 1, 2010 to December 23, 2010 and the period from inception (May 1, 2009) to December 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Holmes Eastern Company, LLC as of December 23, 2010 and December 31, 2010, are its results of operations and its cash flows for the period January 1, 2010 to December 23, 2010 and for the period from inception (May 1, 2009) to December 31, 2009 in conformity with U.S. generally accepted accounting principles.

/s/ Hein & Associates LLP

Denver, Colorado
July 21, 2011

F-58

HOLMES EASTERN COMPANY, LLC

BALANCE SHEETS

			December 23, 2010			December 31, 2009
ASSETS
CURRENT ASSETS:
	Cash and equivalents		$	—		$	1,734,300
	Receivables:
	Oil and gas sales			2,497,985			1,768,135
	Joint interest receivable and other			2,563,291			1,132,786
	Prepaid expenses and other			31,885			119,473
	Inventory			—			99,572
		Total current assets		5,093,161			4,854,266
OIL AND GAS PROPERTIES—at cost, using the successful efforts method:
	Proved properties			36,285,240			23,955,105
	Wells in progress			1,786,917			1,832,005
	Less: accumulated depletion, depreciation and amortization			(4,039,965	)		(1,095,201	)
				34,032,192			24,691,909
PROPERTY AND EQUIPMENT, net of accumulated depletion and depreciation of $7,541 and $3,000, respectively				17,574			22,115
OTHER ASSETS, net				367,164			4,715
TOTAL ASSETS			$	39,510,091		$	29,573,005
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
	Accounts payable and accrued liabilities		$	2,221,763		$	3,921,145
	Payable to Bonanza Creek Energy Company, LLC			3,665,703			15,961
	Oil and gas revenue distributions payable			1,337,544			616,092
	Notes payable—related party			—			6,500,000
		Total current liabilities		7,225,010			11,053,198
LONG-TERM LIABILITIES:
	Bank debt			7,200,000			—
	Ad valorem taxes			262,027			579,361
	Asset retirement obligation			639,452			700,350
TOTAL LIABILITIES				15,326,489			12,332,909
COMMITMENTS AND CONTINGENCIES (Notes 1, 4 and 5)
MEMBERS' EQUITY:
	Member units (15,661 units issued and outstanding)			15,661,000			15,661,000
	Retained earnings			8,522,602			1,579,096
		Total members' equity		24,183,602			17,240,096
TOTAL LIABILITIES AND MEMBERS' EQUITY			$	39,510,091		$	29,573,005

F-59

HOLMES EASTERN COMPANY, LLC

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

			For the Period from January 1, 2010 to December 23, 2010			For the Period from Inception (May 1, 2009) to December 31, 2009
NET REVENUES:
	Oil and gas sales		$	13,957,560		$	4,961,126
OPERATING EXPENSES:
	Lease operating			2,010,187			1,174,621
	Severance and ad valorem taxes			834,282			288,970
	Exploration and lease rentals			19,234			4,597
	Depreciation, depletion and amortization			3,005,888			1,133,321
	General and administrative			639,598			351,891
		Total operating expenses		6,509,189			2,953,400
INCOME FROM OPERATIONS				7,448,371			2,007,726
INTEREST EXPENSE				(439,171	)		(428,630	)
OTHER INCOME (LOSS)				(65,694	)		—
TOTAL OTHER INCOME AND (EXPENSE)				(504,865	)		(428,630	)
NET INCOME				6,943,506			1,579,096
RETAINED EARNINGS, beginning				1,579,096			—
RETAINED EARNINGS, ending			$	8,522,602		$	1,579,096

F-60

HOLMES EASTERN COMPANY, LLC

STATEMENTS OF CASH FLOWS

				For the Period January 1, 2010 to December 23, 2010			For the Period from Inception (May 1, 2009) to December 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income			$	6,943,506		$	1,579,096
	Adjustments to reconcile net income to net cash from operating activities:
		Depreciation, depletion and amortization			3,005,888			1,133,321
		Amortization of deferred financing costs			117,386			—
		Other			—			(13,174	)
		Changes in operating assets and liabilities:
			Increase in accounts receivable		(2,160,355	)		(2,352,696	)
			(Increase) in prepaid expense and other		87,588			—
			Increase (decrease) in current liabilities		(589,358	)		2,435,967
			Net cash provided by operating activities		7,404,655			2,782,514
CASH FLOWS FROM INVESTING ACTIVITIES:
	Acquired assets, net of assumed liabilities				—			(20,948,073	)
	Exploration and development of oil and gas properties				(13,024,823	)		(2,256,426	)
			Net cash used in investing activities		(13,024,823	)		(23,204,499	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Equity issuance				—			15,661,000
	Increase in bank revolving credit				11,600,000			—
	Payment on bank revolving credit				(4,400,000	)		—
	Increase in note payable—related party				—			6,500,000
	Payment on note payable				(6,500,000	)		—
	Deferred financing costs				(479,835	)		(4,715	)
	Increase in payable to Bonanza Creek Energy Company, LLC				3,665,703			—
			Net cash provided by financing activities		3,885,868			22,156,285
NET CHANGE IN CASH AND EQUIVALENTS					(1,734,300	)		1,734,300
CASH AND EQUIVALENTS, beginning of period					1,734,300			—
CASH AND EQUIVALENTS, end of period				$	—		$	1,734,300
SUPPLEMENTAL CASH FLOW DISCLOSURE:
	Changes in working capital related to drilling expenditures and property acquisition			$	(728,308	)	$	1,622,365
	Cash paid for interest			$	228,759		$	—
	Asset retirement obligation			$	111,039		$	665,230

F-61

Holmes Eastern Company, LLC

Notes to the Financial Statements as of December 23, 2010

1. ORGANIZATION, OPERATIONS, AND SIGNIFICANT ACCOUNTING POLICIES:

        Organization and Operations—Holmes Eastern Company, LLC (HEC or the Company) is a Limited Liability Company under the laws of Delaware and was formed April 13, 2009. HEC is owned 87% by one individual. HEC is involved in the acquisition, exploration and development of oil and gas properties. As of December 31, 2010, all of the Company's producing oil and gas properties were located in the Denver-Julesburg (DJ) Basin of Colorado and the Arkansas Basin of Arkansas.

        On December 23, 2010 Bonanza Creek Energy Inc. (a Delaware C corporation, BCEI) was formed in connection with the sale of $265 million of its common stock which constituted an ownership interest of 72.68% to Project Black Bear LP ("Black Bear"), an entity advised by West Face Capital Inc. ("West Face Capital"), and to certain clients of Alberta Investment Management Corporation or ("AIMCo"). Approximately 5.77% of BCEI common stock, along with $59 million in cash, was exchanged for all of the ownership of HEC. Cash proceeds from this transaction of approximately $7.2 million were used to retire debt on December 23, 2010. Operating revenues and expenses were recorded through December 31, 2010 because such activity was not material.

        Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of oil and gas reserves, assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

        Cash and Equivalents—HEC considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

        Accounts Receivable—Trade accounts receivable are recorded at net realizable value. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Joint interest billings receivable represent amounts receivable for lease operating expenses and other costs due from third-party working interest owners in the wells that HEC operates. The receivable is recognized when the cost is incurred and the related payable and HEC's share of the cost is recorded. Most receivables are due within 30 days of receipt and interest is provided for late payments. The receivables are reviewed periodically and appropriate actions are taken on past due amounts, if any.

        Inventory—Inventory consists of materials and supplies used in connection with HEC's drilling program. These inventories are stated at the lower of average cost or market.

        Oil and Gas Properties—HEC follows the successful efforts method of accounting for its oil and gas properties. Under this method of accounting, all property acquisition costs and costs of exploratory and development wells are capitalized when incurred, pending determination of whether the well has found proved reserves. If an exploratory well has not found proved reserves, the costs of drilling the well are charged to expense. The costs of development wells are capitalized whether productive or nonproductive. Geological and geophysical costs and the costs of carrying and retaining undeveloped properties are expensed as incurred. Unproved oil and gas properties are periodically assessed to determine whether impairment has occurred. Depreciation and depletion of capitalized costs for developed oil and gas properties is provided using the units-of-production method based upon estimated proved reserves.

        Property and Equipment—Property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets.

F-62

Holmes Eastern Company, LLC

Notes to the Financial Statements as of December 23, 2010 (Continued)

1. ORGANIZATION, OPERATIONS, AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

        Revenue Recognition—Revenues from oil and gas sales are recorded on the accrual basis as sales are made and deliveries occur.

        Income Taxes—The Company is a Limited Liability Company. Accordingly, no provision for income taxes has been recorded as the income, deductions, expenses and credits of the Company are reported on the individual income tax returns of the Company's members.

        The Company adopted the provisions of FASB ASC 740, Accounting for Uncertainty in Income Taxes, on January 1, 2009. The adoption of this statement did not have a material effect on HEC's financial position, results of operations or cash flows. The Company has not recorded any liabilities as of December 31, 2009 related to the adoption of this statement. Subsequent to adoption, there have been no changes to the Company's assessment of uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2009, HEC made no provision for interest or penalties related to uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and various states. There are currently no federal or state income tax examinations underway for these jurisdictions. Furthermore, HEC is no longer subject to U.S. federal income tax examinations by the Internal Revenue Service for tax years before 2006 and for state and local tax authorities for years before 2006. The Company's tax years of 2006 and forward are subject to examination by federal and state taxing authorities.

        Asset Retirement Obligations—HEC recognizes an estimated liability for future costs associated with the abandonment of its oil and gas properties. The Company's asset retirement obligation is measured using primarily Level 3 inputs. The significant unobservable inputs include the cost of abandoning oil and gas wells, the economic lives of its properties, the inflation rate, and the credit adjusted risk-free rate. The Company bases its estimate of the liability on its historical experience and current estimated costs.

        HEC's asset retirement obligations as of December 23, 2010 are as follows:

Beginning of the period, May 1, 2009		$	—
	Liabilities incurred in the current period		665,230
	Liabilities settled in the current period		—
	Accretion expense		35,120
End of period, December 31, 2009			700,350
	Liabilities reduced in the current period		(111,039	)
	Liabilities settled in the current period		(6,441	)
	Accretion expense		56,582
End of period, December 23, 2010			639,452
	Less current portion		—
Long-term asset retirement obligation		$	639,452

        Fair Value of Financial Instruments—HEC's financial instruments consist of cash, trade receivables, trade payables, accrued liabilities, long-term debt and derivative instruments. The carrying value of cash and cash equivalents, trade receivables and trade payables are considered to be representative of their fair market value, due to the short maturity of these instruments. Long-term debt is based on variable rate interest and accordingly, approximates fair value. The fair value of derivative contracts are estimated based on market conditions in effect at the end of each reporting period.

F-63

Holmes Eastern Company, LLC

Notes to the Financial Statements as of December 23, 2010 (Continued)

1. ORGANIZATION, OPERATIONS, AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

        Long-Lived Assets—Long-lived assets to be held and used or disposed of other than by sale are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used or disposed of other than by sale are recognized based on the fair value of the asset. Long-lived assets to be disposed of by sale are reported at the lower of their carrying amount or fair value less cost to sell.

        Concentrations of Credit Risk—At various times throughout 2010 and 2009, HEC's cash balances exceeded the Federal Deposit Insurance Corporation (FDIC) insured limit of $250,000.

        HEC had two major customers that provided approximately 82% of total revenue for the period ended December 23, 2010. HEC had three major customers that provided approximately 80%, of total revenue for the period ended December 31, 2009. Management believes that the loss of any individual purchaser would not have a long-term material adverse impact on the financial position or results of operations of HEC.

        Risks and Uncertainties—Historically, oil and gas prices have experienced significant fluctuations and have been particularly volatile in recent years. Price fluctuations can result from variations in weather, levels of regional or national production and demand, availability of transportation capacity to other regions of the country and various other factors. Increases or decreases in prices received could have a significant impact on future results.

2. ACQUISITIONS:

        Effective April 1, 2009, HEC purchased property in the DJ Basin of Colorado. The purchase price was $13.2 million and the funds necessary to complete this transaction came from member equity contributions and a promissory note.

        Effective May 1, 2009, HEC purchased property in the Arkansas Basin of Arkansas. The purchase price was $8.8 million and the funds necessary to complete this transaction came from member equity contributions and a promissory note.

        The allocation of the purchase price for these transactions was $22 million to the oil and gas asset properties.

        Supplemental Pro Forma Results (unaudited)—The following pro forma financial information represents the combined results for the HEC and the acquired properties in the DJ Basin, Colorado and Arkansas Basin, Arkansas for the year ended December 31, 2009 as if the acquisition had occurred on January 1, 2009. The pro forma financial information includes adjustments to reflect these acquisition as if its crude oil and natural gas properties had been accounted for under the successful efforts method of accounting. The pro forma financial information is not intended to represent or to be indicative of the consolidated results of operations or financial condition of HEC that would have been reported had the acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial condition of HEC.

Net revenues	$	6,617,827
Operating income	$	2,162,226
Net income	$	1,519,281

F-64

Holmes Eastern Company, LLC

Notes to the Financial Statements as of December 23, 2010 (Continued)

3. RELATED PARTY NOTE PAYABLE:

        On May 1, 2009, HEC entered into a note with a related party for $4.5 million due ninety days following the close of the Company's acquisition of the DJ Basin, Colorado properties. This note was extended until a bank credit facility was completed. On May 14, 2009, HEC entered into a second note with the same related party for $2 million due ninety days following the close of HEC's acquisition of the Arkansas Basin, Arkansas properties. This note was extended until a bank credit facility was completed. The promissory note had a cash interest rate of 10% due monthly. These notes have been paid in full in 2010.

4. BANK DEBT:

        On February 8, 2010, HEC entered into a Senior Secured Revolving Credit Facility, (the "Revolver"), with Wells Fargo Bank, N.A. (the "Lender"), which provided for borrowings up to $100 million. The Revolver provided for interest rates plus an applicable margin to be determined based on LIBOR or a base rate advance (Base Rate), at the Company's election. LIBOR borrowings bear interest at LIBOR plus 2.5% to 3.25% and Base Rate borrowings bear interest at the Adjusted Base Rate, as defined, plus 1.0% to 1.75%.

        The Revolver had an initial borrowing base of $13,000,000 and was subject to semi-annual re-determinations in May and November of each year. The Revolver provided for commitment fees of 0.50% based on the borrowing utilization and restricts, among other items, the payments of distributions, certain additional indebtedness, sale of assets, loans, certain investments and mergers. The Revolver also contained certain financial covenants, which require the maintenance of a maximum leverage ratio, a minimum interest coverage ratio and a minimum current ratio, as defined. HEC was in compliance of its covenants. The interest on the note approximates 3% as of December 23, 2010. This note was paid subsequent to the sale to BCEI (see Note 1).

5. COMMITMENTS AND CONTINGENCIES:

        Environmental—HEC is subject to extensive federal, state, and local environmental laws and regulations. These laws, which are constantly 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.

        Contingencies—HEC may, from time to time, be involved in various claims, lawsuits, disputes with third parties, actions involving allegations of discrimination, or breach of contract incidental to the operations of its business. The Company is not currently involved in any such incidental litigation which it believes could have a materially adverse effect on its financial conditions or results of operations.

        Contract Operations—HEC has entered into an agreement with Bonanza Creek Energy Resources (BCER) and Bonanza Creek Energy Operating Company (BCEOC) to operate its properties in Arkansas and Colorado, respectively. The agreement is for a term of one year and will continue unless either party provides proper notice of termination.

6. MEMBERS' EQUITY:

        During the period from inception to December 31, 2009, HEC issued 15,661 units to members at $100 per unit and no units were issued during the period ended December 23, 2010.

F-65

Holmes Eastern Company, LLC

Notes to the Financial Statements as of December 23, 2010 (Continued)

7. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED):

        HEC's oil and natural gas activities are entirely within the United States. Costs incurred in oil and natural gas producing activities are as follows:

		2010		2009
Unproved property acquisition		$	—	$	—
Proved property acquisition			—		20,947,958
Development(a)			12,573,898		3,906,664
Exploration			3,411		—
	Total	$	12,577,309	$	24,854,622

(a)

Development costs include workover costs of $288,851 and $15,578 charged to lease operating expense during 2010 and 2009, respectively.

        In December 2008, the SEC published the final rules and interpretations updating its oil and gas reporting requirements. The Company adopted the rules effective December 31, 2009, and the rule changes, including those related to pricing and technology, are included in the company's reserve estimates. In January 2010, the FASB aligned ASC Topic 932 with the aforementioned SEC requirements. Please refer to the section entitled "New Accounting Pronouncements" under Note 1—Organization, Operations, and Significant Accounting Policies for additional discussion regarding both adoptions.

        The estimate of proved reserves and related valuations for the years ended December 31, 2010 and 2009 were based upon reports prepared by Cawley, Gillespie & Associates, Inc. Petroleum Consultants. The estimates of proved reserves are inherently imprecise and are continually subject to revision based on production history, results of additional exploration and development, price changes and other factors.

F-66

Holmes Eastern Company, LLC

Notes to the Financial Statements as of December 23, 2010 (Continued)

7. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): (Continued)

        All of HEC's oil and natural gas reserves are attributable to properties within the United States. A summary of HEC's changes in quantities of proved oil and natural gas reserves for the years ended December 31, 2009 and 2010 are as follows:

		Oil			Natural Gas
		(MBbl)			(MMcf)
Balance—January 1, 2009			—			—
	Extensions and discoveries		—			—
	Purchases of minerals in place		6,103			16,864
	Production		(56	)		(324	)
	Revisions to previous estimates		71			25
Balance—December 31, 2009			6,118			16,565
	Extensions and discoveries		183			744
	Production		(138	)		(781	)
	Revisions to previous estimates(a)		(441	)		5,174
Balance—December 31, 2010			5,722			21,702
Proved developed reserves:
	December 31, 2009		1,292			5,346
	December 31, 2010		1,734			6,413
Proved undeveloped reserves:
	December 31, 2009		4,826			11,219
	December 31, 2010		3,988			15,289

(a)

In 2010, net revisions to previous estimates were due primarily to changes to the rate forecasts for wells in the Mid-Continent region based on results from improved stimulation techniques in smaller, tighter, higher gas oil ratio sands that led to increased gas reserves.

        The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves and the changes in standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves were prepared in accordance with the provisions of ASC Topic 932. Future cash inflows were computed by applying prices to estimated future production. Future production and development costs are computed by estimating the expenditures to be incurred in developing and producing the proved oil and natural gas reserves at year-end, based on costs and assuming continuation of existing economic conditions.

        Future income tax expenses are calculated by applying appropriate year-end tax rates to future pretax net cash flows relating to proved oil and natural gas reserves. Future income tax expenses give effect to permanent differences, tax credits and loss carryforwards relating to the proved oil and natural gas reserves. Future net cash flows are discounted at a rate of 10% annually to derive the standardized measure of discounted future net cash flows. This calculation procedure does not necessarily result in an estimate of the fair market value or the present value of HEC's oil and natural gas properties.

F-67

Holmes Eastern Company, LLC

Notes to the Financial Statements as of December 23, 2010 (Continued)

7. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): (Continued)

        The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves are as follows (in thousands):

		2010			2009
Future cash flows		$	528,802		$	415,869
Future production costs			(138,515	)		(140,855	)
Future development costs			(130,202	)		(113,477	)
Future income tax expense			(57,242	)		(33,636	)
Future net cash flows			202,843			127,901
10% annual discount for estimated timing of cash flows			(113,149	)		(69,751	)
	Standardized measure of discounted future net cash flows	$	89,694		$	58,150

        Future cash flows as shown above were reported without consideration for the effects of derivative transactions outstanding at each period end.

        The changes in the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves are as follows (in thousands):

	2010			2009
Beginning of period	$	58,150		$	—
Sale of oil and gas produced, net of production costs		(11,113	)		(3,498	)
Net changes in prices and production costs		42,468			(2,089	)
Extensions, discoveries and improved recoveries		4,637			—
Development costs incurred		9,342			3,891
Changes in estimated development cost		(14,006	)		(282	)
Purchases of mineral in place		—			41,438
Revisions of previous quantity estimates		7,786			1,059
Net change in income taxes		(10,019	)		(3,790	)
Accretion of discount		7,183			5,294
Changes in production rates and other		(4,734	)		16,127
End of period	$	89,694		$	58,150

        The average wellhead prices inclusive of adjustments for quality and location used in determining future net revenues related to the standardized measure calculation as of December 31, 2009 and 2010 were calculated using the first-day-of-the-month price for each of the 12 months that made up the reporting period.

	2010		2009
Oil (per Bbl)	$	75.33	$	58.19
Gas (per Mcf)	$	4.98	$	3.94

8. SUBSEQUENT EVENTS:

        The financial statements were evaluated by management through July 21, 2011.

F-68

Part II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.    Other Expenses of Issuance and Distribution

        The following table sets forth an itemized statement of the amounts of all expenses (excluding underwriting discounts and commissions) payable by us in connection with the registration of the common stock offered hereby. With the exception of the Registration Fee, FINRA Filing Fee and NYSE listing fee), the amounts set forth below are estimates. The selling stockholders do not bear any portion of such expenses.

SEC Registration Fee	$	23,220
FINRA Filing Fee		20,500
New York Stock Exchange listing fee		*
Accountants' fees and expenses		*
Legal fees and expenses		*
Printing and engraving expenses		*
Transfer agent and registrar fees		*
Miscellaneous		*
Total	$

*

To be provided by amendment

ITEM 14.    Indemnification of Directors and Officers

        We expect to amend and restate our certificate of incorporation and bylaws immediately prior to the consummation of this offering. We expect that our amended and restated certificate of incorporation will provide that a director will not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director's duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of the law, (3) under section 174 of the DGCL for unlawful payment of dividends or improper redemption of stock or (4) for any transaction from which the director derived an improper personal benefit. In addition, we expect that if the DGCL is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the corporation, in addition to the limitation on personal liability provided for in our certificate of incorporation, will be limited to the fullest extent permitted by the amended DGCL. We expect that our amended and restated bylaws will provide that the corporation will indemnify, and advance expenses to, any officer or director to the fullest extent authorized by the DGCL.

        Section 145 of the DGCL provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement in connection with specified actions, suits and proceedings whether civil, criminal, administrative, or investigative, other than a derivative action by or in the right of the corporation, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification extends only to expenses, including attorneys' fees, incurred in connection with the defense or settlement of such action and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation's certificate of incorporation, bylaws, disinterested director vote, stockholder vote, agreement or otherwise.

II-1

        We expect that amended and restated certificate of incorporation will also contain indemnification rights for our directors and our officers. Specifically, we expect that our certificate of incorporation will provide that we will indemnify our officers and directors to the fullest extent authorized by the DGCL. Further, we expect to be allowed to maintain insurance on behalf of our officers and directors against expense, liability or loss asserted incurred by them in their capacities as officers and directors.

        We have obtained directors' and officers' insurance to cover our directors, officers and some of our employees for certain liabilities.

        We have entered into written indemnity agreements with our directors and executive officers. Under these agreements, if a director or officer makes a claim of indemnification to us, either a majority of the independent directors or independent legal counsel selected by the independent directors will review the relevant facts and make a determination whether the officer or director has met the standards of conduct under Delaware law that would permit (under Delaware law) and require (under the indemnity agreement) us to indemnify the officer or director.

ITEM 15.    Recent Sales of Unregistered Securities

        In connection with our formation on December 23, 2010, we issued shares of our Class A Common Stock in the quantities and for the consideration set forth below:

•

BCEC contributed all of its ownership interest in its wholly owned subsidiary BCEOC to us in exchange for 6,272,851 shares of our Class A common stock. Upon the dissolution of BCEC, the shares of our common stock held by BCEC were distributed for the benefit of its members.

•

In exchange for $265 million in cash, we sold shares of our Class A common stock ("Class A Common Stock") to Black Bear, an entity advised by West Face Capital, and to certain clients of AIMCo.

•

The members of HEC contributed all of their outstanding membership interests in HEC to us in exchange for approximately $59 million in cash (including approximately $7.2 million in assumed debt repaid at closing) and 1,683,536 shares of our Class A Common Stock with a value equal to approximately $21 million, for a total purchase price of approximately $80 million, subject to certain adjustments.

        Also on December 23, 2010, we issued 7,500 shares of our Class B Common Stock in the form of shares of restricted stock to employees pursuant to our management incentive plan. Upon his resignation, effective May 20, 2011, Mr. Black received 36,862 shares of our Class A Common Stock. On June 30, 2011, Mr. Enger received 600 shares of our Class B Common Stock in connection with his employment with the company.

        The issuance of our Class A Common Stock and our Class B Common Stock did not involve any underwriters or a public offering, and we believe that such issuance was exempt from the registration requirements pursuant to Section 4(2) of the Securities Act of 1933, as amended, due to the limited number of persons involved and their relationship with us.

ITEM 16.    Exhibits and Financial Statement Schedules

(a)

Exhibits

        A list of exhibits filed as part of this registration statement is set forth in the Exhibit Index, which incorporated herein by reference.

II-2

ITEM 17.    Undertakings

        The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

        Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

        The undersigned registrant hereby undertakes that:

        (1)   For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

        (2)   For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-3

SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Denver, State of Colorado, on Date: July 25, 2011.

BONANZA CREEK ENERGY, INC. (Registrant)
By:	/s/ MICHAEL R. STARZER Michael R. Starzer, President and Chief Executive Officer

        KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Michael R. Starzer, Gary A. Grove and Steven B. Wilson, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place, and stead in any and all capacities, to sign this registration statement on Form S-1 filed by Bonanza Creek Energy, Inc. pursuant to the Securities Act of 1933, as amended (the "Securities Act"), and any and all amendments to this registration statement (including post-effective amendments and registration statements filed pursuant to Rule 462(b) under the Securities Act, and otherwise), and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done to the end that such registration statement or registration statements shall comply with the Securities Act and the applicable rules and regulations adopted or issued pursuant thereto, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitutes or resubstitutes, may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Date: July 25, 2011	By:	/s/ MICHAEL R. STARZER Michael R. Starzer, Director, President and Chief Executive Officer (Principal Executive Officer)
Date: July 25, 2011	By:	*
		Gary A Grove, Director, Executive Vice President—Engineering and Planning and Interim Chief Operating Officer
Date: July 25, 2011	By:	/s/ STEVEN R. ENGER
		Steven R. Enger, Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Date: July 25, 2011	By:	*
		Steven B. Wilson, Vice President and Chief Accounting Officer (Principal Accounting Officer)

II-4

Date: July 25, 2011	By:	*
		Richard J. Carty, Chairman of the Board
Date: July 25, 2011	By:	*
		Todd A. Overbergen, Director
Date: July 25, 2011	By:	*
		James R. Casperson, Director
Date: July 25, 2011	By:	*
		Marvin Chronister, Director
Date: July 25, 2011	By:	*
		Kevin A. Neveu, Director
	*By:	/s/ MICHAEL R. STARZER Michael R. Starzer, Attorney-in-Fact

II-5

INDEX TO EXHIBITS

Exhibit Number			Description
	1.1	*	Form of Underwriting Agreement
	3.1	*	Form of Second Amended and Restated Certificate of Incorporation of the Registrant
	3.2	*	Form of Second Amended and Restated Bylaws of the Registrant
	5.1	*	Opinion of Mayer Brown LLP as to legality of the securities being registered
	10.1		Credit Agreement, dated as of March 29, 2011, among the Registrant, BNP Paribas, as Administrative Agent, and the lenders party thereto
	10.2†		Amendment No. 1, dated as of April 29, 2011, to the Credit Agreement, among the Registrant, BNP Paribas, as Administrative Agent, and the lenders party thereto
	10.3		Registration Rights Agreement, among the Registrant, Project Black Bear LP and Her Majesty the Queen in Right of Alberta, in her own capacity and as a trustee/nominee for certain designated entities
	10.4		Form of Indemnity Agreement between the Registrant and each of the directors and executive officers
	10.5	*	Form of Restricted Stock Award Agreement
	10.6	*	Form of Amended and Restated Employment Agreement between Michael R. Starzer and the Registrant
	10.7	*	Form of Amended and Restated Employment Agreement between Gary A. Grove and the Registrant
	10.8	*	Form of Amended and Restated Employment Agreement between Patrick A. Graham and the Registrant
	10.9	*	Form of Amended and Restated Employment Agreement between Steven B. Wilson and the Registrant
	10.10	*	Form of Long-Term Incentive Plan
	10.11		Stock Purchase Agreement, dated as of December 23, 2010, among the Registrant, Bonanza Creek Energy Operating Company, LLC, Project Black Bear LP and Her Majesty Queen in Right of Alberta
	10.12		Contribution Agreement, dated as of December 23, 2010, among the Registrant, Bonanza Creek Energy Company, LLC, Bonanza Creek Energy Operating Company, LLC, Bonanza Creek Energy Resources, LLC and members of Holmes Eastern Company, LLC
	10.13		Contribution Agreement, dated as of December 23, 2010, between the Registrant and Bonanza Creek Energy Company, LLC
	21.1†		List of subsidiaries
	23.1	*	Consent of Mayer Brown LLP (included in Exhibit 5.1)
	23.2		Consent of Hein & Associates LLP
	23.3		Consent of Independent Petroleum Engineers, Cawley, Gillespie & Associates, Inc.
	23.4		Consent of Independent Petroleum Engineers, MHA Petroleum Consultants LLC
	24.1		Powers of Attorney (included on signature page of this registration statement)
	99.1		Report of Independent Petroleum Engineers, Cawley, Gillespie & Associates, Inc. for reserves as of January 1, 2011

Exhibit Number		Description
	99.2	Report of Independent Petroleum Engineers, Cawley, Gillespie & Associates, Inc. for reserves as of January 1, 2010
	99.3	Report of Independent Petroleum Engineers, MHA Petroleum Consultants LLC

*

To be filed by amendment

†

Previously filed with this registration statement

EX-10.1

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Exhibit 10.1

$300,000,000

CREDIT AGREEMENT

dated as of March 29, 2011

Among

BONANZA CREEK ENERGY, INC.

as Borrower,

THE LENDERS PARTY HERETO FROM TIME TO TIME

as Lenders,

BNP PARIBAS

as Administrative Agent and Issuing Lender,

BNP PARIBAS SECURITIES CORP.

as Sole Lead Arranger and Book Runner,

SOCIÉTÉ GÉNÉRALE

as Syndication Agent,

and

COMPASS BANK

as Documentation Agent

TABLE OF CONTENTS

			Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS				1
	Section 1.01	Certain Defined Terms		1
	Section 1.02	Computation of Time Periods		17
	Section 1.03	Accounting Terms; Changes in GAAP		17
	Section 1.04	Types of Advances		17
	Section 1.05	Miscellaneous		17
ARTICLE II CREDIT FACILITIES				18
	Section 2.01	Commitment for Advances		18
	Section 2.02	Borrowing Base		18
	Section 2.03	Method of Borrowing		21
	Section 2.04	Reduction of the Commitments		23
	Section 2.05	Prepayment of Advances; Deposits Into Cash Collateral Account		23
	Section 2.06	Repayment of Advances		25
	Section 2.07	Letters of Credit		25
	Section 2.08	Fees		29
	Section 2.09	Interest		29
	Section 2.10	Payments and Computations		31
	Section 2.11	Sharing of Payments, Etc.		31
	Section 2.12	Breakage Costs		32
	Section 2.13	Increased Costs		32
	Section 2.14	Taxes		33
	Section 2.15	Mitigation Obligations; Replacement of Lenders		35
	Section 2.16	Defaulting Lender Cure		36
ARTICLE III CONDITIONS PRECEDENT				37
	Section 3.01	Conditions Precedent to Effectiveness		37
	Section 3.02	Conditions Precedent to All Borrowings		40
ARTICLE IV REPRESENTATIONS AND WARRANTIES				40
	The Borrower represents and warrants as follows:			40
	Section 4.01	Corporate Existence; Subsidiaries		40
	Section 4.02	Power		41
	Section 4.03	Authorization and Approvals		41
	Section 4.04	Enforceable Obligations		41

i

			Page
	Section 4.05	Financial Statements		41
	Section 4.06	True and Complete Disclosure		42
	Section 4.07	Litigation; Compliance with Law		42
	Section 4.08	Use of Proceeds		42
	Section 4.09	Investment Company Act		42
	Section 4.10	Federal Power Act		42
	Section 4.11	Taxes		42
	Section 4.12	Pension Plans		43
	Section 4.13	Condition of Property; Casualties		43
	Section 4.14	No Burdensome Restrictions; No Defaults		44
	Section 4.15	Environmental Condition		44
	Section 4.16	Permits, Licenses, Etc.		44
	Section 4.17	Gas Contracts		45
	Section 4.18	Liens; Titles, Leases, Etc.		45
	Section 4.19	Solvency and Insurance		45
	Section 4.20	Hedge Contracts		45
	Section 4.21	Material Agreements		45
ARTICLE V AFFIRMATIVE COVENANTS				46
	Section 5.01	Compliance with Laws, Etc.		46
	Section 5.02	Maintenance of Insurance		46
	Section 5.03	Preservation of Corporate Existence, Etc.		47
	Section 5.04	Payment of Taxes, Etc.		47
	Section 5.05	Visitation Rights		48
	Section 5.06	Reporting Requirements		48
	Section 5.07	Maintenance of Property		51
	Section 5.08	Agreement to Pledge		52
	Section 5.09	Use of Proceeds		52
	Section 5.10	Title Opinions		52
	Section 5.11	Further Assurances; Cure of Title Defects		52
ARTICLE VI NEGATIVE COVENANTS				53
	Section 6.01	Liens, Etc.		53
	Section 6.02	Debts, Guaranties, and Other Obligations		55
	Section 6.03	Agreements Restricting Liens and Distributions		55

ii

			Page
	Section 6.04	Merger or Consolidation; Asset Sales		55
	Section 6.05	Restricted Payments		56
	Section 6.06	Investments		56
	Section 6.07	Affiliate Transactions		57
	Section 6.08	Compliance with ERISA		57
	Section 6.09	Sale-and-Leaseback		58
	Section 6.10	Change of Business		58
	Section 6.11	Organizational Documents, Name Change		58
	Section 6.12	Use of Proceeds; Letters of Credit		58
	Section 6.13	Take-or-Pay or Other Prepayments		58
	Section 6.14	Limitation on Speculative Hedging		59
	Section 6.15	Additional Subsidiaries		59
	Section 6.16	Accounts Payable		60
	Section 6.17	Current Ratio		60
	Section 6.18	Maximum Debt Ratio		60
	Section 6.19	Sale or Discount of Receivables		60
ARTICLE VII EVENTS OF DEFAULT; REMEDIES				60
	Section 7.01	Events of Default		60
	Section 7.02	Optional Acceleration of Maturity		62
	Section 7.03	Automatic Acceleration of Maturity		62
	Section 7.04	Right of Set-off		63
	Section 7.05	Non-exclusivity of Remedies		63
	Section 7.06	Application of Proceeds		63
ARTICLE VIII [INTENTIONALLY OMITTED]				64
ARTICLE IX THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER				64
	Section 9.01	Authorization and Action		64
	Section 9.02	Administrative Agent's Reliance, Etc.		64
	Section 9.03	The Administrative Agent and Its Affiliates		64
	Section 9.04	Lender Credit Decision		65
	Section 9.05	Indemnification		65
	Section 9.06	Successor Administrative Agent and Issuing Lender		65
	Section 9.07	Collateral Matters		66
	Section 9.08	Additional Agents		66

iii

			Page
ARTICLE X MISCELLANEOUS				67
	Section 10.01	Amendments, Etc.		67
	Section 10.02	Notices, Etc.		67
	Section 10.03	No Waiver; Remedies		68
	Section 10.04	Costs and Expenses		68
	Section 10.05	Binding Effect		69
	Section 10.06	Lender Assignments and Participations		69
	Section 10.07	Indemnification		71
	Section 10.08	No Consequential Damages		72
	Section 10.09	Execution in Counterparts		72
	Section 10.10	Survival of Representations, Etc.		72
	Section 10.11	Severability		72
	Section 10.12	Business Loans		72
	Section 10.13	Governing Law		72
	Section 10.14	Submission to Jurisdiction		73
	Section 10.15	Confidentiality		73
	Section 10.16	[Reserved]		74
	Section 10.17	WAIVER OF JURY TRIAL		74
	Section 10.18	USA PATRIOT ACT Notice		74
	Section 10.19	ORAL AGREEMENTS		74

iv

EXHIBITS:

Exhibit A	—	Form of Assignment and Assumption
Exhibit B	—	Form of Compliance Certificate
Exhibit C	—	Form of Guaranty
Exhibit D-1	—	Form of Colorado Mortgage
Exhibit D-2	—	Form of California Mortgage
Exhibit D-3	—	Form of Arkansas Mortgage
Exhibit E	—	Form of Note
Exhibit F	—	Form of Notice of Borrowing
Exhibit G	—	Form of Notice of Conversion or Continuation
Exhibit H	—	Form of Pledge Agreement
Exhibit I	—	Form of Security Agreement
Exhibit J	—	Form of Transfer Letters
Exhibit K-1	—	Form of Legal Opinion
Exhibit K-2	—	Form of Local Counsel Legal Opinion

SCHEDULES:

Schedule I	—	Pricing Information
Schedule II	—	Borrower, Administrative Agent, and Lender Information
Schedule 3.01	—	Existing Hedge Contracts
Schedule 4.01	—	Subsidiaries
Schedule 4.05	—	Existing Debt
Schedule 4.07	—	Litigation
Schedule 4.20	—	Hedge Contracts
Schedule 4.21	—	Material Contracts

CREDIT AGREEMENT

        This Credit Agreement dated as of March 29, 2011 is among Bonanza Creek Energy, Inc., a Delaware corporation (the "Borrower"), the Lenders (as defined below), BNP Paribas, as Administrative Agent and Issuing Lender (each term as defined below) for such Lenders, Société Générale, as syndication agent (the "Syndication Agent"), and Compass Bank, as documentation agent (the "Documentation Agent").

        The Borrower, the Administrative Agent, the Issuing Lender and the Lenders do hereby agree as follows:

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

        Section 1.01    Certain Defined Terms.    As used in this Agreement, the terms defined above shall have the meanings set forth above and the following terms shall have the following meanings (unless otherwise indicated, such meanings to be equally applicable to both the singular and plural forms of the terms defined):

        "Acceptable Security Interest" in any Property means a Lien which (a) exists in favor of the Administrative Agent for the benefit of the Secured Parties, (b) is superior to all Liens or rights of any other Person in the Property encumbered thereby other than Permitted Subject Liens, (c) secures the Obligations, and (d) is perfected and enforceable.

        "Adjusted LIBO Rate" means, with respect to any Eurodollar Rate Advance for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next ¹/100 of 1%) equal to the LIBO Rate for such Interest Period multiplied by the Statutory Reserve Rate.

        "Administrative Agent" means BNP Paribas, in its capacity as agent pursuant to Article IX, and any successor agent pursuant to Section 9.06.

        "Advance" means an advance by a Lender to the Borrower pursuant to Section 2.01(a) as part of a Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance.

        "Affiliate" means, as to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person or any Subsidiary of such Person. The term "control" (including the terms "controlled by" or "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of a Control Percentage, by contract, or otherwise. Without limiting the generality of the foregoing, a Person shall be deemed to be controlled by another Person if such other Person possesses, directly or indirectly, the power to vote 25% or more of the securities having ordinary voting power for the election of directors, managing general partners or the equivalent.

        "Agreement" means this Credit Agreement, as the same may be amended, supplemented, or otherwise modified from time to time in accordance with the terms hereof.

        "Alternate Base Rate" means, for any day, the fluctuating rate per annum of interest equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus ¹/2 of 1.00% and (c) the LIBO Rate for an Interest Period of three months on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1.00%. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or the LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the Federal Funds Effective Rate or the LIBO Rate.

1

        "Applicable Margin" means, with respect to any Advance, commitment fee or Letter of Credit fee, (a) during any time when an Event of Default or a Borrowing Base Deficiency exists and the Required Lenders have elected to charge a default rate of interest, 2% per annum plus the rate per annum set forth in the Pricing Grid for Base Rate Advances based on the Utilization Level applicable at such time, and (b) at any other time, the rate per annum set forth in the Pricing Grid for the relevant Type of such Advance or fee based on the Utilization Level applicable at such time. The Applicable Margin for any Advance or fee shall change when and as the relevant Utilization Level changes.

        "Approved Fund" means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

        "Assignment and Assumption" means an assignment and assumption entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of the attached Exhibit A.

        "Base Rate Advance" means an Advance which bears interest as provided in Section 2.09(a).

        "Book Runner" means BNP Paribas Securities Corp. in its capacity as book runner.

        "Bond Debt" means Debt in respect of the issuance by the Borrower of senior or senior subordinated bonds or notes, which Debt (a) shall have (i) a cash pay interest rate reasonably satisfactory to the Administrative Agent, (ii) a scheduled maturity date that is no earlier than March 29, 2017, (iii) covenants and events of default that are no more restrictive in any material respect than those set forth in this Agreement and the other Loan Documents, (iv) no restriction on the ability of the Borrower or any of its Subsidiaries to amend, modify or otherwise supplement this Agreement or the other Loan Documents or to repay or prepay Loans, (v) no Lien securing such Debt, (vi) no restriction on the ability of the Borrower or any of its Subsidiaries to guarantee the Obligations or pledge assets as collateral security for the Obligations, and (vii) a bullet repayment and not provide for scheduled amortization or mandatory prepayments that are not Events of Default hereunder (other than amortization resulting from any mandatory prepayments required in respect of such Debt in connection with the occurrence of an event of default under such Debt, a change in control of the issuer, including a disposition of all or substantially all of the assets of the Borrower and its Subsidiaries, a liquidation or dissolution of the Borrower, or any event constituting a Change in Control (as defined herein) or an asset sale by the issuer or a Subsidiary thereof), (b) shall not otherwise cause the occurrence of a Default or Event of Default after giving effect to the issuance of such Debt, (c) shall not require any payments of cash upon any conversion of such Debt (if such Debt is convertible) other than in respect of fractional interests or to the extent such conversion may not be exercised prior to one year after the Maturity Date, and (d) may be guaranteed by the Subsidiaries of the Borrower, provided that no Lien secures such guarantees and such Subsidiaries are Obligors.

        "Bond Refinancing Debt" means Debt (for purposes of this definition, "new Debt") incurred in exchange for, or proceeds of which are used to refinance, all of any other Bond Debt (the "Refinanced Debt"); provided that (a) such new Debt complies with the terms set forth in the definition of Bond Debt, and (b) such new Debt is in an aggregate principal amount not in excess of the sum of (i) the aggregate principal amount then outstanding of the Refinanced Debt (or, if the Refinanced Debt is exchanged or acquired for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount) and (ii) an amount necessary to pay any fees and expenses, including premiums, related to such exchange or refinancing.

        "Borrowing" means a borrowing consisting of Advances made on the same day by the Lenders pursuant to Section 2.01(a) or the Conversion or continuation of such Advances pursuant to Section 2.03(b).

        "Borrowing Base" means at any particular time, the Dollar amount determined as the "Borrowing Base" in accordance with Section 2.02 on account of Proven Reserves attributable to Oil and Gas

2

Properties of the Borrower and its Subsidiaries that are subject to an Acceptable Security Interest to the extent required under Section 5.08, and described in the most recent Independent Engineering Report or Internal Engineering Report, as applicable, delivered to the Administrative Agent and the Lenders pursuant to Section 2.02.

        "Borrowing Base Deficiency" means, at any time, an amount equal to (a) the sum of (i) the aggregate outstanding principal amount of all Advances at such time and (ii) the excess, if any, of the Letter of Credit Exposure over the amount held in the Cash Collateral Account at such time minus (b) the lesser of (i) the then effective Borrowing Base and (ii) the aggregate Commitments in effect at such time.

        "Business Day" means (a) a day of the year other than (i) a Saturday or a Sunday or (ii) a legal holiday or other day on which banks are required or authorized to close in Houston, Texas or New York, New York and (b) if the applicable Business Day relates to any Eurodollar Rate Advances, then in addition to the requirements of clause (a) above, a day on which dealings are carried on by banks in the London interbank market.

        "Capital Leases" means, as applied to any Person, any lease of any Property by such Person as lessee which would, in accordance with GAAP, be required to be classified and accounted for as a capital lease on the balance sheet of such Person.

        "Cash Collateral Account" means a special interest bearing cash collateral account pledged by the Borrower to the Administrative Agent containing cash deposited pursuant to Sections 2.05(b), 7.02(b), or 7.03(b) to be maintained with the Administrative Agent in accordance with Section 2.07(g) and bear interest or be invested in the Administrative Agent's reasonable discretion.

        "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, state and local analogs, and all rules and regulations and requirements thereunder in each case as now or hereafter in effect.

        "Change in Control" means the occurrence of any of the following events:

        (a)   the Borrower ceases to own, either directly or indirectly, 100% of the Equity Interest in any Subsidiary other than as a result of a sale of assets or merger permitted under Section 6.04 of this Agreement;

        (b)   prior to the successful completion of an IPO, the failure of the Permitted Investors to collectively (i) control, directly or indirectly, 50.1% or more of the Equity Interests in the Borrower or (ii) have the right to appoint a majority of the members of the board of directors or equivalent governing body of the Borrower;

        (c)   prior to the successful completion of an IPO, the failure of Mike Starzer to be the president and chief executive officer of the Borrower, unless within 60 days of such failure, a successor president and chief executive officer or other individual, in either case, acceptable to the Required Lenders in its sole discretion is appointed to manage the operations of the Borrower; or

        (d)   after the successful completion of an IPO, any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than one or more Permitted Investors, becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have "beneficial ownership" of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an "option right")), directly or indirectly, of more than 35% of the Equity Interests in the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower, determined on a fully-diluted basis (and taking

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into account all such Equity Interests that a person or group has the right to acquire pursuant to any option right).

        For purposes of this definition, (i) "IPO" shall mean the initial underwritten initial public offering of equity securities of the Borrower that is registered under the Securities Act and which generates net cash proceeds of at least $25,000,000 and (ii) "Permitted Investors" shall mean Her Majesty the Queen in Right of Alberta, in her own capacity and as trustee/nominee for certain designated entities, investment entities with respect to which West Face Capital, Inc. is the manager or advisor, D.E. Shaw Synoptic Portfolios 5, L.L.C., The Fred S. and Barbara J. Holmes Trust and Michael R. Starzer.

        "Closing Date" means March 29, 2011.

        "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute.

        "Collateral" means (a) all "Collateral," "Pledged Collateral," and "Mortgaged Properties" (as defined in each of the Mortgages, the Security Agreements, and the Pledge Agreements, as applicable) or similar terms used in the Security Instruments and (b) all amounts contained in bank accounts of the Borrower and each Guarantor.

        "Commitment" means, for any Lender, the amount set opposite such Lender's name on Schedule II as its Commitment, or if such Lender has entered into any Assignment and Acceptance, as set forth for such Lender as its Commitment in the Register maintained by the Administrative Agent pursuant to Section 10.06(c), as such amount may be reduced or terminated pursuant to Section 2.04 or Article VII or otherwise under this Agreement, and "Commitments" shall mean all such Commitments collectively. The aggregate Commitments on the date hereof are $300,000,000.

        "Commitment Termination Date" means the earlier of (a) the Maturity Date and (b) the earlier termination in whole of the Commitments pursuant to Section 2.04 or Article VII.

        "Compliance Certificate" means a compliance certificate in the form of the attached Exhibit B signed by a Responsible Officer of the Borrower.

        "Consolidated Net Income" means, with respect to the Borrower and its consolidated Subsidiaries, for any period, the net income for such period after taxes, as determined in accordance with GAAP excluding, however, (a) extraordinary items, including (i) any net non-cash gain or loss of the Borrower and its consolidated Subsidiaries during such period arising from the sale, exchange, retirement or other disposition of capital assets (such term to include all fixed assets and all securities) other than in the ordinary course of business and (ii) any write up or write down of assets, (b) the cumulative effect of any change in GAAP, and (c) through and including June 30, 2011, non-recurring general and administrative expenses incurred in connection with the contemplated 144A offering and the strategic sales process, provided that, the exclusion provided for in this part (c) shall not exceed $3,000,000 in the aggregate. For the avoidance of doubt, after June 30, 2011, Consolidated Net Income shall be calculated without regards to part (c) of this definition.

        "Control Percentage" means, with respect to any Person, the percentage of the outstanding Equity Interest (including any options, warrants or similar rights to purchase such Equity Interest) of such Person having ordinary voting power which gives the direct or indirect holder of such Equity Interest the power to elect a majority of the board of directors (or other applicable governing body) of such Person.

        "Controlled Group" means all members of a controlled group of corporations and all businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code.

        "Convert," "Conversion," and "Converted" each refers to a conversion of an Advance of one Type into an Advance of another Type pursuant to Section 2.03(b).

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        "Credit Extensions" means (a) an Advance made by any Lender, and (b) the issuance, increase or extension of any Letter of Credit by the Issuing Lender.

        "Current Assets" means, for any period, the current assets of the Borrower and its consolidated Subsidiaries. For purposes of this definition "Current Assets" shall include, as of the date of calculation, the aggregate of all Lenders' Unused Commitment Amounts and shall exclude, as of the date of calculation, (a) the current portion of deferred tax assets, (b) any assets representing a valuation account arising from the application of ASC 410, 718 and 815, and (c) any cash deposited with or at the request of a counterparty to any Hedge Contract.

        "Current Liabilities" means, for any period, the current liabilities of the Borrower and its consolidated Subsidiaries. For purposes of this definition "Current Liabilities" shall exclude, as of the date of calculation, (a) the current portion of long-term Debt, (b) any liabilities representing a valuation account arising from the application of ASC 410, 718 and 815, and (c) the current portion of deferred tax obligations.

        "Debt," for any Person, means without duplication:

        (a)   indebtedness of such Person for borrowed money, including, without limitation, obligations under letters of credit and agreements relating to the issuance of letters of credit or acceptance financing;

        (b)   obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;

        (c)   obligations of such Person to pay the deferred purchase price of Property or services (including, without limitation, obligations that are non-recourse to the credit of such Person but are secured by the assets of such Person, but excluding accounts payable);

        (d)   obligations of such Person as lessee under Capital Leases and obligations of such Person in respect of synthetic leases;

        (e)   obligations of such Person under any Hedge Contract;

        (f)    obligations of such Person owing in respect of redeemable preferred stock or other preferred equity interest of such Person;

        (g)   any obligations of such Person owing in connection with any volumetric or dollar-denominated production payments;

        (h)   any other obligations which (i) would under GAAP be shown on such Person's balance sheet as a liability and (ii) are payable more than one year from the date of creation thereof (other than (i) reserves, including reserves for taxes or contingent obligations, and (ii) asset retirement obligations);

        (i)    obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) of such Person to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (h) above;

        (j)    indebtedness or obligations of others of the kinds referred to in clauses (a) through (i) secured by any Lien on or in respect of any Property of such Person (limited to the lower of (i) the fair market value of such Property and (ii) the amount of such indebtedness or obligations secured); and

        (k)   all liabilities of such Person in respect of unfunded vested benefits under any Plan.

        "Default" means (a) an Event of Default or (b) any event or condition which with notice or lapse of time or both would become an Event of Default.

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        "Defaulting Lender" means any Lender (a) that has failed to fund any portion of the Advances or participations in Letter of Credit Obligations required to be funded by it hereunder within one (1) Business Day of the date required to be funded by it hereunder unless such failure has been cured within three (3) Business Days (or such longer time period accepted by the Borrower and the Administrative Agent), (b) that has otherwise failed to pay over to the Administrative Agent, the Issuing Lender or any other Lender any other amount required to be paid by it hereunder within one (1) Business Day of the date when due, unless the subject of a good faith dispute or unless such failure has been cured within three (3) Business Days (or such longer time period accepted by the Administrative Agent, the Issuing Lender or such other Lender, as applicable), (c) that has notified the Administrative Agent, or has stated publicly, that it will not comply with any such obligations hereunder, or has defaulted on its funding obligations under any other loan agreement or credit agreement or other financing agreement, (d) that has, for three (3) or more Business Days, failed to confirm in writing to the Administrative Agent, in response to a written request of the Administrative Agent, that it will comply with its funding obligations hereunder, or (e) as to which a Lender Insolvency Event has occurred and is continuing with respect to such Lender. Any determination that a Lender is a Defaulting Lender will be made by the Administrative Agent in its sole discretion acting in good faith; provided that a Lender shall not become a Defaulting Lender solely as the result of the acquisition or maintenance of an ownership interest in such Lender or its Parent Company by a governmental authority or an instrumentality thereof.

        "Documentation Agent" is defined in the preamble.

        "Dollars" and "$" mean lawful money of the United States of America.

        "EBITDAX" means for any period, without duplication (a) Consolidated Net Income for such period plus (b) to the extent deducted in determining such Consolidated Net Income, interest expense, exploration expenses, income taxes, depreciation, depletion, amortization, and other non-cash charges for such period, including non-cash losses under ASC 410, 718 and 815 as a result of changes in the fair market value of derivatives minus (c) to the extent included in determining such Consolidated Net Income, non-cash income under ASC 410, 718 and 815 as a result of changes in the fair market value of derivatives; provided that EBITDAX shall be subject to pro forma adjustments for acquisitions assuming that such transactions had occurred on the first day of the applicable calculation period for the ratio set forth in Sections 6.18, which adjustments shall be made in accordance with the guidelines for pro forma presentations set forth by the SEC or in a manner otherwise acceptable to the Administrative Agent.

        "Eligible Assignee" means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund, and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent and the Issuing Lender which consent may not be unreasonably withheld or delayed and (ii) unless an Event of Default has occurred and is continuing at the time any assignment is effected pursuant to this Agreement, the Borrower, which consent by the Borrower may not be unreasonably withheld or delayed; provided that notwithstanding the foregoing, "Eligible Assignee" shall not include any Obligor or any Affiliate or Subsidiary of an Obligor

        "Engineering Report" means either an Independent Engineering Report or an Internal Engineering Report.

        "Environment" or "Environmental" shall have the meanings set forth in 42 U.S.C. 9601(8) (1988).

        "Environmental Claim" means any third party (including governmental agencies and employees) action, lawsuit, claim, demand, regulatory action or proceeding, order, decree, consent agreement or notice of potential or actual responsibility or violation (including claims or proceedings under the Occupational Safety and Health Acts or similar laws or requirements relating to health or safety of employees) which seeks to impose liability under any Environmental Law or common law theories.

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        "Environmental Law" means, as to any Obligor or any Subsidiary of an Obligor, all Legal Requirements and common law theories applicable to such Obligor or such Subsidiary arising from, relating to, or in connection with the Environment, health, or safety, including without limitation CERCLA, relating to (a) pollution, contamination, injury, destruction, loss, protection, cleanup, reclamation or restoration of the air, surface water, groundwater, land surface or subsurface strata, or other natural resources; (b) solid, gaseous or liquid waste generation, treatment, processing, recycling, reclamation, cleanup, storage, disposal or transportation; (c) exposure to pollutants, contaminants, hazardous or toxic substances, materials or wastes; (d) the safety or health of employees; or (e) the manufacture, processing, handling, transportation, distribution in commerce, use, storage or disposal of hazardous or toxic substances, materials or wastes.

        "Environmental Permit" means any permit, license, order, approval, registration or other authorization under Environmental Law.

        "Equity Interest" means with respect to any Person, any shares, interests, participation, or other equivalents (however designated) of corporate stock, membership interests, or partnership interests (or any other ownership interests) of such Person.

        "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.

        "ERISA Affiliate" means each member of a controlled group of corporations and all businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code.

        "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Federal Reserve Board (or any successor), as in effect from time to time.

        "Eurodollar Rate Advance" means an Advance which bears interest as provided in Section 2.09(b).

        "Event of Default" has the meaning specified in Section 7.01.

        "Existing Credit Agreement" means that certain Amended and Restated Credit Agreement, dated May 7, 2010, among Bonanza Creek Energy Operating Company, LLC, a Delaware limited liability company, the lenders party thereto, and BNP Paribas, as administrative agent and as issuing lender.

        "Expiration Date" means, with respect to any Letter of Credit, the date on which such Letter of Credit will expire or terminate in accordance with its terms.

        "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next ¹/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next ¹/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

        "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any of its successors.

        "Fee Letter" means that certain Senior Secured Revolving Credit Facility Fee Letter dated as of February 11, 2011 among the Borrower, BNP Paribas and BNP Paribas Securities Corp. regarding the payment of certain fees.

        "Financial Statements" means, for any period, the consolidated and consolidating financial statements of the Borrower and its consolidated Subsidiaries, including statements of income, retained

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earnings, changes in equity and cash flow for such period as well as a balance sheet as of the end of such period, all prepared in accordance with GAAP.

        "Fund" means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

        "GAAP" means United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent with the requirements of Section 1.03.

        "Governmental Authority" means, as to any Person in connection with any subject, any foreign, national, state or provincial governmental authority, or any political subdivision of any state thereof, or any agency, department, commission, board, authority or instrumentality, bureau or court, in each case having jurisdiction over such Person or such Person's Property in connection with such subject.

        "Guarantor" means each entity executing a Guaranty, including each Subsidiary of the Borrower.

        "Guaranty" means a Guaranty in substantially the form of the attached Exhibit C and executed by a Guarantor, and "Guaranties" shall mean all such guaranties collectively.

        "Hazardous Substance" means the substances identified as such pursuant to CERCLA and those regulated under any other Environmental Law, including without limitation pollutants, contaminants, petroleum, petroleum products, radionuclides, radioactive materials, and medical and infectious waste.

        "Hazardous Waste" means the substances regulated as such pursuant to any Environmental Law.

        "Hedge Contract" means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a "Master Agreement"), including any such obligations or liabilities under any Master Agreement.

        "Hydrocarbon Hedge Agreement" means a Hedge Contract that is intended to reduce or eliminate the risk of fluctuations in the price of Hydrocarbons.

        "Hydrocarbons" means oil, gas, coal seam gas, coalbed methane, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons produced or to be produced in conjunction therewith from a well bore and all products, by-products, and other substances derived therefrom or the processing thereof, and all other minerals and substances produced in conjunction with such substances, including, but not limited to, sulfur, geothermal steam, water, carbon dioxide, helium, and any and all minerals, ores, or substances of value and the products and proceeds therefrom.

        "Independent Engineer" means MHA Petroleum Consultants, Inc. or any other engineering firm reasonably acceptable to the Administrative Agent.

        "Independent Engineering Report" means a report, in form and substance reasonably satisfactory to the Administrative Agent, prepared by an Independent Engineer, addressed to the Administrative

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Agent and the Lenders with respect to the Oil and Gas Properties owned by the Borrower or any Subsidiary of the Borrower (or to be acquired by the Borrower or any Subsidiary of the Borrower, as applicable) which are or are to be included in the Borrowing Base, which report shall (a) specify the location, quantity, and type of the estimated Proven Reserves attributable to such Oil and Gas Properties, (b) contain a projection of the rate of production of such Oil and Gas Properties, (c) contain an estimate of the net operating revenues to be derived from the production and sale of Hydrocarbons from such Proven Reserves based on product price and cost escalation assumptions reasonably specified by the Administrative Agent and the Lenders, and (d) contain such other information as is customarily obtained from and provided in such reports or is otherwise reasonably requested by the Administrative Agent.

        "Initial Engineering Report" means an Independent Engineering Report dated effective as of December 31, 2010.

        "Initial Financial Statements" means (a) the unaudited consolidated balance sheet for the Borrower as of December 31, 2010 (subject to the absence of footnotes and to year end audit adjustments), (b) the unaudited annual financial statements for Holmes Eastern Company, LLC for the fiscal year ending December 31, 2010 (subject to the absence of footnotes and to year end audit adjustments), and (c) the unaudited annual financial statements for Bonanza Creek Energy Company, LLC for the fiscal year ending December 31, 2010 (subject to the absence of footnotes and to year end audit adjustments), together with the related unaudited consolidating financial statements of each Subsidiary of Bonanza Creek Energy Company, LLC for such fiscal year end.

        "Interest Hedge Agreement" means a Hedge Contract between an Obligor and one or more financial institutions providing for the exchange of nominal interest obligations between such Obligor and such financial institution or the cap of the interest rate on any Debt of such Obligor.

        "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into a Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and Section 2.03 and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below and Section 2.03. The duration of each such Interest Period shall be one, two, three, or six months, in each case as the Borrower may, upon notice received by the Administrative Agent not later than noon (Houston, Texas time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that:

        (a)   the Borrower may not select any Interest Period that ends after the Commitment Termination Date;

        (b)   Interest Periods commencing on the same date for Advances comprising part of the same Borrowing shall be of the same duration;

        (c)   whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and

        (d)   any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month in which it would have ended if there were a numerically corresponding day in such calendar month.

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        "Internal Engineering Report" means a report, in form and substance reasonably satisfactory to the Administrative Agent, prepared by the Borrower and certified by a Responsible Officer of the Borrower, addressed to the Administrative Agent and the Lenders with respect to the Oil and Gas Properties owned by the Borrower or any Subsidiary of the Borrower (or to be acquired by the Borrower or any Subsidiary of the Borrower) which are or are to be included in the Borrowing Base, which report shall (a) specify the location, quantity, and type of the estimated Proven Reserves attributable to such Oil and Gas Properties, (b) contain a projection of the rate of production of such Oil and Gas Properties, (c) contain an estimate of the net operating revenues to be derived from the production and sale of Hydrocarbons from such Proven Reserves based on product price and cost escalation assumptions reasonably specified by the Administrative Agent and the Lenders, and (d) contain such other information as is customarily obtained from and provided in such reports or is otherwise reasonably requested by the Administrative Agent.

        "Issuing Lender" means BNP Paribas and any successor issuing bank pursuant to Section 9.06.

        "Leases" means all oil and gas leases, oil, gas and mineral leases, oil, gas and casinghead gas leases or any other instruments, agreements, or conveyances under and pursuant to which the owner thereof has or obtains the right to enter upon lands and explore for, drill, and develop such lands for the production of Hydrocarbons.

        "Legal Requirement" means, as to any Person, any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or official interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority, including, but not limited to, Regulations D, T, U, and X, that is applicable to such Person.

        "Lender Insolvency Event" means that (a) a Lender or its Parent Company is insolvent, or is generally unable to pay its debts as they become due, or admits in writing its inability to pay its debts as they become due, or makes a general assignment for the benefit of its creditors, or (b) such Lender or its Parent Company is the subject of a bankruptcy, insolvency, reorganization, liquidation or similar proceeding, or a receiver, trustee, conservator, intervenor or sequestrator or the like has been appointed for such Lender or its Parent Company, or such Lender or its Parent Company has taken any action in furtherance of or indicating its consent to or acquiescence in any such proceeding or appointment.

        "Lenders" means the lenders listed on the signature pages of this Agreement and each Eligible Assignee that shall become a party to this Agreement pursuant to Section 10.06.

        "Lending Office" means, as to any Lender, the office or offices of such Lender described as such in such Lender's administrative questionnaire requested by the Administrative Agent, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.

        "Letter of Credit" means any standby letter of credit issued by the Issuing Lender for the account of the Borrower or a Subsidiary of the Borrower in connection with the Commitments and that is subject to this Agreement, and "Letters of Credit" means all such letters of credit collectively.

        "Letter of Credit Application" means the Issuing Lender's standard form letter of credit application for standby letters of credit that has been executed by the Borrower and accepted by the Issuing Lender in connection with the issuance of a Letter of Credit.

        "Letter of Credit Documents" means all Letters of Credit, Letter of Credit Applications, and agreements, documents, and instruments entered into in connection therewith or relating thereto.

        "Letter of Credit Exposure" means, at any time, the sum of (a) the aggregate undrawn maximum face amount of all Letters of Credit at such time plus (b) the aggregate unpaid amount of all Reimbursement Obligations at such time.

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        "Letter of Credit Obligations" means the obligations of the Borrower under this Agreement in connection with the Letters of Credit, including the Reimbursement Obligations.

        "LIBO Rate" means, with respect to any Eurodollar Rate Advance for any Interest Period, the rate appearing on Reuters Screen LIBOR01 Page (or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page of such service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Rate Advance for such Interest Period shall be the rate (rounded upwards, if necessary, to the next ¹/100 of 1%) at which dollar deposits of an amount comparable to such Eurodollar Rate Advance and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period.

        "Lien" means any mortgage, lien, pledge, assignment, charge, deed of trust, security interest, hypothecation, preference, deposit arrangement for a third party's benefit or encumbrance (or other type of arrangement having the practical effect of the foregoing) to secure or provide for the payment of any obligation of any Person, whether arising by contract, operation of law, or otherwise (including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, synthetic lease, Capital Lease, or other title retention agreement).

        "Liquid Investments" means:

        (a)   direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States maturing within 180 days from the date of any acquisition thereof;

        (b)   (i) negotiable or nonnegotiable certificates of deposit, time deposits, or other similar banking arrangements maturing within 180 days from the date of acquisition thereof ("bank debt securities"), issued by (A) any Lender (or any Affiliate of any Lender) or (B) any other bank or trust company if at the time of deposit or purchase, such bank debt securities are rated not less than "AA" (or the then equivalent) by the rating service of Standard & Poor's Ratings Group or of Moody's Investors Service, Inc., and (ii) commercial paper issued by (A) any Lender (or any Affiliate of any Lender) or (B) any other Person if at the time of purchase such commercial paper is rated not less than "A-1" (or the then equivalent) by the rating service of Standard & Poor's Ratings Group or not less than "P-1" (or the then equivalent) by the rating service of Moody's Investors Service, Inc., or upon the discontinuance of both of such services, such other nationally recognized rating service or services, as the case may be, as shall be selected by the Borrower with the consent of the Required Lenders;

        (c)   deposits in money market funds investing exclusively in investments described in clauses (a) and (b) above;

        (d)   repurchase agreements relating to investments described in clauses (a) and (b) above with a market value at least equal to the consideration paid in connection therewith, with any Person who regularly engages in the business of entering into repurchase agreements and has a combined capital surplus and undivided profit of not less than $500,000,000.00, if at the time of entering into such agreement the debt securities of such Person are rated not less than "AA" (or the then equivalent) by the rating service of Standard & Poor's Ratings Group or of Moody's Investors Service, Inc.; and

        (e)   such other instruments (within the meaning of Article 9 of the Texas Business and Commerce Code) as the Borrower may request and the Administrative Agent may approve in writing.

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        "Loan Documents" means this Agreement, the Notes, the Letter of Credit Documents, the Guaranties, the Security Instruments, and each other agreement, instrument, certificate or document executed by the Borrower, any other Obligor, or any Obligor's Subsidiary or any of their respective officers at any time in connection with this Agreement.

        "Material Adverse Change" means (a) a material adverse change in the business, assets (including the Oil and Gas Properties), condition (financial or otherwise), or results of operations of the Obligors and the Subsidiaries of the Obligors taken as a whole, (b) a material adverse effect on any Obligor's or any Obligor's Subsidiary's ability to perform its obligations under this Agreement, any Note, any Guaranty, or any other Loan Document, (c) a material impairment of the enforceability or priority of Administrative Agent's Liens with respect to any material Collateral as a result of an action or failure to act on the part of any Obligor or any Obligor's Subsidiary, or (d) a material adverse change in, or material adverse effect on, the validity or enforceability of any Loan Document or the rights and remedies of or benefits available to the Administrative Agent, the Issuing Lender or any Lender under any Loan Document.

        "Maturity Date" means March 29, 2015.

        "Maximum Rate" means the maximum nonusurious interest rate under applicable law (determined under such laws after giving effect to any items which are required by such laws to be construed as interest in making such determination, including without limitation if required by such laws, certain fees and other costs).

        "Mortgages" means, collectively, the Mortgages, Deeds of Trust, Security Agreements, Assignment of Liens and Security Interests, Financing Statements and Assignments of Production and any other mortgage or deed of trust executed by any Obligor or any Subsidiary of an Obligor in favor of the Administrative Agent for the ratable benefit of the Secured Parties in substantially the form of the attached Exhibit D-1, Exhibit D-2 or Exhibit D-3, as applicable, or such other form as may be requested by the Administrative Agent.

        "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA.

        "Non-Consenting Lender" means any Lender that does not consent to a proposed agreement, amendment, waiver, consent or release with respect to this Agreement or any other Loan Document that requires the consent of each Lender, including any increases to the Borrowing Base.

        "Non-Defaulting Lender" means, at any time, each Lender that is not a Defaulting Lender at such time.

        "Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of the attached Exhibit E, evidencing indebtedness of the Borrower to such Lender resulting from Advances owing to such Lender.

        "Notice of Borrowing" means a notice of borrowing in the form of the attached Exhibit F signed by a Responsible Officer of the Borrower.

        "Notice of Conversion or Continuation" means a notice of conversion or continuation in the form of the attached Exhibit G signed by a Responsible Officer of the Borrower.

        "Obligations" means (a) all principal, interest, fees, reimbursements, indemnifications, and other amounts payable by any Obligor or any Subsidiary of an Obligor to the Administrative Agent, the Issuing Lender, or the Lenders under the Loan Documents, including without limitation, the Letter of Credit Obligations and (b) all obligations of any Obligor or any Subsidiary of an Obligor owing to any Swap Counterparty under any Hedge Contract; provided that (i) when any Swap Counterparty assigns or otherwise transfers any interest held by it under any Hedge Contract to any other Person pursuant to the terms of such agreement, the obligations thereunder shall constitute Obligations only if such

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assignee or transferee is also then a Lender or an Affiliate of a Lender and (ii) if a Swap Counterparty ceases to be a Lender hereunder or an Affiliate of a Lender hereunder, obligations owing to such Swap Counterparty shall be included as Obligations only to the extent such obligations arise from transactions under such Hedge Contracts entered into at the time such Swap Counterparty was a Lender hereunder or an Affiliate of a Lender hereunder, without giving effect to any extension, increases, or modifications thereof which are made after such Swap Counterparty ceases to be a Lender hereunder or an Affiliate of a Lender hereunder.

        "Obligor" means any of the Borrower or the Guarantors, and "Obligors" shall mean all such Persons collectively.

        "Oil and Gas Properties" means fee mineral interests, term mineral interests, Leases, subleases, farm-outs, royalties, overriding royalties, net profit interests, carried interests, production payments, back in interests and reversionary interests and similar mineral interests, and all unsevered and unextracted Hydrocarbons in, under, or attributable to such oil and gas Properties and interests or any interest therein.

        "Parent Company" means, with respect to a Lender, the bank holding company (as defined in Federal Reserve Board Regulation Y), if any, of such Lender, and/or any Person owning, beneficially or of record, directly or indirectly, a majority of the shares of such Lender.

        "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

        "Permit" means any approval, certificate of occupancy, consent, waiver, exemption, variance, franchise, order, permit, authorization, right or license of or from any Governmental Authority, including without limitation, an Environmental Permit.

        "Permitted Liens" means the Liens permitted under Section 6.01.

        "Permitted Subject Liens" means the Liens permitted under paragraphs (c), (e), (f), (g), (h), (i), (j), (k), (l) and (m) of Section 6.01.

        "Person" means an individual, partnership, corporation (including a business trust), joint stock company, limited liability corporation or company, limited liability partnership, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof or any trustee, receiver, custodian or similar official.

        "Plan" means an employee benefit plan (other than a Multiemployer Plan) maintained for employees of the Borrower or any member of the Controlled Group and covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code.

        "Pledge Agreement" means a Pledge Agreement in substantially the form of the attached Exhibit H, executed by any of the Obligors or any Subsidiary of an Obligor.

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        "Potential Defaulting Lender" means, at any time, a Lender (a) as to which the Administrative Agent has notified the Borrower that an event of the kind referred to in the definition of "Lender Insolvency Event" has occurred and is continuing in respect of any Subsidiary of such Lender, (b) as to which the Administrative Agent or the Issuing Lender has in good faith determined and notified the Borrower (and in the case of the Issuing Lender the Administrative Agent) that such Lender or its Parent Company or a Subsidiary thereof has notified the Administrative Agent, or has stated publicly, that it will not comply with its funding obligations under any other loan agreement or credit agreement or other financing agreement or (c) that has, or whose Parent Company has, a non-investment grade rating from Moody's or S&P or another nationally recognized rating agency. Any determination that a Lender is a Potential Defaulting Lender will be made by the Administrative Agent or, in the case of clause (b), the Issuing Lender, as the case may be, in its sole discretion acting in good faith. The Administrative Agent will promptly send to all parties hereto a copy of any notice to the Borrower provided for in this definition.

        "Pricing Grid" means the pricing information set forth in Schedule I.

        "Prime Rate" means the rate of interest per annum publicly announced from time to time by BNP Paribas as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. Such rate is set by BNP Paribas as a general reference rate of interest, taking into account such factors as BNP Paribas may deem appropriate; it being understood that many of BNP Paribas' commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that BNP Paribas may make various commercial or other loans at rates of interest having no relationship to such rate.

        "Pro Rata Share" means, with respect to any Lender, (a) with respect to amounts owing under the Commitments, (i) if such Commitments have not been canceled, the ratio (expressed as a percentage) of such Lender's uncancelled Commitment at such time to the aggregate uncancelled Commitments at such time, or (ii) if the aggregate Commitments have been terminated, the ratio as determined pursuant to the preceding clause (i) immediately prior to such termination or (b) with respect to amounts owing generally under this Agreement and the other Loan Documents, the ratio (expressed as a percentage) of aggregate Commitments of such Lender to the aggregate Commitments of all the Lenders (or if such Commitments have been terminated, the ratio (expressed as a percentage) of Credit Extensions owing to such Lender to the aggregate Credit Extensions owing to all such Lenders).

        "Property" of any Person means any property or assets (whether real, personal, or mixed, tangible or intangible) of such Person.

        "Proven Reserves" means, at any particular time, the estimated quantities of Hydrocarbons recoverable in future years from known reservoirs attributable to Oil and Gas Properties which are Proved Reserves as defined in the Definitions for Oil as Gas Reserves promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question.

        "Register" has the meaning set forth in paragraph (c) of Section 10.06.

        "Regulations D, T, U, and X" mean Regulations D, T, U, and X of the Federal Reserve Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof.

        "Reimbursement Obligations" means the obligations of the Borrower to reimburse the Issuing Lender for amounts paid by the Issuing Lender under Letters of Credit as established by the Letter of Credit Applications and Section 2.07(d)(i).

        "Related Parties" means, with respect to any Person, such Person's Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person's Affiliates.

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        "Release" shall have the meaning set forth in CERCLA or under any other Environmental Law.

        "Reportable Event" means a "reportable event" described in Section 4043 of ERISA and the regulations issued thereunder.

        "Required Lenders" means Lenders holding at least 66²/3% of the aggregate Commitments, or if the Commitments have been terminated or expired, the outstanding principal amount of the Advances and Letter of Credit Exposure (with the aggregate amount of each Lender's risk participation and funded participation in Letter of Credit Obligations being deemed to be "held" by such Lender for purposes of this definition); provided, in each case, that if there are two or more Lenders, the Commitment of, and the portion of the Advances and Letter of Credit Exposure held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders unless all of the Lenders are Defaulting Lenders.

        "Response" shall have the meaning set forth in CERCLA or under any other Environmental Law.

        "Responsible Officer" means (a) with respect to any Person that is a corporation, such Person's Chief Executive Officer, President, Chief Financial Officer, Vice President or Secretary, (b) with respect to any Person that is a limited liability company, a manager or the Chief Executive Officer, President, Chief Financial Officer, Vice President or Secretary of such Person or of such Person's managing member or manager, and (c) with respect to any Person that is a general partnership or a limited liability partnership, the Chief Executive Officer, President, Chief Financial Officer, Vice President or Secretary of such Person's general partner or partners.

        "Restricted Payment" means, with respect to any Person, (a) any direct or indirect dividend or distribution (whether in cash, securities or other Property) or any direct or indirect payment of any kind or character (whether in cash, securities or other Property) in consideration for or otherwise in connection with any retirement, purchase, redemption or other acquisition of any Equity Interest of such Person, or any options, warrants or rights to purchase or acquire any such Equity Interest of such Person or (b) principal or interest payments (in cash, Property or otherwise) on, or redemptions of, subordinated debt of such Person; provided that the term "Restricted Payment" shall not include any dividend or distribution payable solely in Equity Interests of such Person or warrants, options, or other rights to purchase such Equity Interests.

        "Secured Parties" means the Administrative Agent, the Issuing Lender, the Lenders, and the Swap Counterparties.

        "Security Agreements" means the Security Agreements, each in substantially the form of the attached Exhibit I, executed by any of the Obligors or any Subsidiary of an Obligor.

        "Security Instruments" means, collectively, (a) the Mortgages, (b) the Transfer Letters, (c) the Pledge Agreements, (d) the Security Agreements, (e) each other agreement, instrument or document executed at any time in connection with the Pledge Agreements, the Security Agreements, or the Mortgages, (f) each agreement, instrument or document executed in connection with the Cash Collateral Account, and (g) each other agreement, instrument or document executed at any time in connection with securing the Obligations.

        "Sole Lead Arranger" means BNP Paribas Securities Corp. in its capacity as sole lead arranger.

        "Solvent" means, with respect to any Person as of the date of any determination, that on such date (a) the fair value of the Property of such Person (both at fair valuation and at present fair saleable value) is greater than the total liabilities, including contingent liabilities, of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations, and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and

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does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's Property would constitute unreasonably small capital after giving due consideration to current and anticipated future capital requirements and current and anticipated future business conduct and the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, such liabilities shall be computed at the amount which, in light of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

        "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Rate Advances shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

        "Subsidiary" of a Person means any corporation or other entity of which more than 50% of the outstanding Equity Interests having ordinary voting power under ordinary circumstances to elect a majority of the board of directors or similar governing body of such corporation or other entity (irrespective of whether at such time Equity Interests of any other class or classes of such corporation or other entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more Subsidiaries of such Person or by one or more Subsidiaries of such Person. Unless otherwise indicated herein, each reference to the term "Subsidiary" shall mean a Subsidiary of the Borrower.

        "Swap Counterparty" means any counterparty to a Hedge Contract with an Obligor or any of its Subsidiaries; provided that, (a) with respect to any Hedge Contract existing on the date hereof, such counterparty is a Lender or an Affiliate of a Lender on the date hereof, or (b) with respect to any Hedge Contract entered into after the date hereof, such counterparty is a Lender or an Affiliate of a Lender at the time such Hedge Contract is entered into.

        "Syndication Agent" is defined in the preamble.

        "Termination Event" means (a) a Reportable Event with respect to a Plan (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under such regulations), (b) the withdrawal of the Borrower or any of its Affiliates from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any other event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan.

        "Transfer Letters" means, collectively, the letters in lieu of transfer orders in substantially the form of the attached Exhibit J and executed by any Obligor or any Subsidiary of an Obligor executing a Mortgage.

        "Type" has the meaning set forth in Section 1.04.

        "Unused Commitment Amount" means, with respect to a Lender at any time, (a) the lesser of (i) such Lender's Commitment at such time and (ii) such Lender's Pro Rata Share of the Borrowing

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Base in effect at such time minus (b) in each case the sum of (i) the aggregate outstanding principal amount of all Advances owed to such Lender at such time plus (ii) such Lender's Pro Rata Share of the aggregate Letter of Credit Exposure at such time.

        "Utilization Level" means the applicable category (being Level I, Level II, Level III, Level IV or Level V) of pricing criteria contained in Schedule I, which is based at any time of its determination on the percentage obtained by dividing (a) the outstanding principal amount of the Advances and the Letter of Credit Exposure at such time by (b) the lesser of (i) the Commitments and (ii) the Borrowing Base then in effect at such time.

        Section 1.02    Computation of Time Periods.    In this Agreement, with respect to the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding".

        Section 1.03    Accounting Terms; Changes in GAAP.    Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at the time of delivery thereof) be prepared, in accordance with GAAP applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Lenders hereunder (which prior to the delivery of the first financial statements under Section 5.06 hereof, shall mean the Initial Financial Statements). All calculations made for the purposes of determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with those used in the preparation of the annual or quarterly financial statements furnished to the Lenders pursuant to Section 5.06 hereof most recently delivered prior to or concurrently with such calculations (or, prior to the delivery of the first financial statements under Section 5.06 hereof, used in the preparation of the Initial Financial Statements). If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth herein, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein, and (b) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. In addition, all calculations and defined accounting terms used herein shall, unless expressly provided otherwise, when referring to any Person, refer to such Person on a consolidated basis and mean such Person and its consolidated Subsidiaries.

        Section 1.04    Types of Advances.    Advances are distinguished by "Type." The "Type" of an Advance refers to the determination whether such Advance is a Eurodollar Rate Advance or Base Rate Advance.

        Section 1.05    Miscellaneous.    Article, Section, Schedule, and Exhibit references are to Articles and Sections of and Schedules and Exhibits to this Agreement, unless otherwise specified. All references to instruments, documents, contracts, and agreements are references to such instruments, documents, contracts, and agreements as the same may be amended, supplemented, and otherwise modified from time to time and shall include all schedules and exhibits thereto, in each case, unless otherwise specified. The words "hereof", "herein", and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The term "including" means "including, without limitation,". Paragraph headings have been inserted in this Agreement as a matter of convenience for reference only and it is agreed that

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such paragraph headings are not a part of this Agreement and shall not be used in the interpretation of any provision of this Agreement.

ARTICLE II
CREDIT FACILITIES

        Section 2.01    Commitment for Advances.

        (a)   Each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Advances to the Borrower from time to time on any Business Day during the period from the date of this Agreement until the Commitment Termination Date in an amount for each Lender not to exceed such Lender's Unused Commitment Amount. Each Borrowing shall, in the case of Borrowings consisting of Base Rate Advances, be in an aggregate amount not less than the lesser of (i) $250,000 and (ii) the aggregate of all Lenders' Unused Commitment Amounts, and in integral multiples of $100,000 in excess thereof, and in the case of Borrowings consisting of Eurodollar Rate Advances, be in an aggregate amount not less than $500,000 and in integral multiples of $250,000 in excess thereof, and in each case shall consist of Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender's Commitment, and subject to the terms of this Agreement, the Borrower may from time to time borrow, prepay, and reborrow Advances.

        (b)    Notes.    The indebtedness of the Borrower to each Lender resulting from the Advances owing to such Lender shall be evidenced by a Note of the Borrower payable to the order of such Lender.

        Section 2.02    Borrowing Base.

        (a)   Borrowing Base.    The initial Borrowing Base in effect as of the date of this Agreement has been set by the Administrative Agent and the Lenders and acknowledged and accepted by the Borrower as $130,000,000. Such initial Borrowing Base shall remain in effect until the next redetermination made pursuant to this Section 2.02. The Borrowing Base shall be determined in accordance with the standards set forth in Section 2.02(d) and is subject to periodic redetermination pursuant to Sections 2.02(b), 2.02(c) and 2.02(e).

        (b)   Calculation of Borrowing Base.

          (i)  The Borrower shall deliver to the Administrative Agent and each of the Lenders on or before each April 1, beginning April 1, 2012, an Independent Engineering Report dated effective as of the immediately preceding January 1, and such other information as may be reasonably requested by the Administrative Agent or any Lender with respect to the Oil and Gas Properties included or to be included in the Borrowing Base. The Administrative Agent shall promptly, and in any event within 30 days after the Administrative Agent and the Lenders' receipt of such Independent Engineering Report and other information, deliver to each Lender the Administrative Agent's recommendation for the redetermined Borrowing Base (for purposes of this subsection, the "Proposed Borrowing Base"). After having received notice of such proposal, the Lenders shall have 15 days to agree or disagree with the Proposed Borrowing Base. If at the end of the 15 days, any Lender has not communicated its approval or disapproval to the Administrative Agent, such silence shall be deemed to be a disapproval of the Proposed Borrowing Base. If at the end of such 15 days, the Required Lenders (or all of the Lenders if the Borrowing Base is to be increased) have approved the Proposed Borrowing Base, then the Proposed Borrowing Base shall become the redetermined Borrowing Base, effective on the date specified in Section 2.02(d). To the extent that within such 15 day period the Administrative Agent has not received the requisite number of approvals from the Lenders, the requisite number of Lenders shall, within a reasonable period of time, agree on a redetermined Borrowing Base. After a redetermined Borrowing Base is approved

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by the Required Lenders or all of the Lenders, as applicable, the Administrative Agent shall notify the Borrower of the amount of the redetermined Borrowing Base.

         (ii)  The Borrower shall deliver to the Administrative Agent and each Lender on or before each October 1, beginning October 1, 2011, an Internal Engineering Report dated effective as of the immediately preceding July 1, and such other information as may be reasonably requested by the Administrative Agent or any Lender with respect to the Oil and Gas Properties included or to be included in the Borrowing Base. The Administrative Agent shall promptly, and in any event within 30 days after the Administrative Agent and the Lenders' receipt of such Internal Engineering Report and other information, deliver to each Lender the Administrative Agent's recommendation for the redetermined Borrowing Base (for purposes of this subsection, the "Proposed Borrowing Base"). After having received notice of such proposal, the Lenders shall have 15 days to agree or disagree with the Proposed Borrowing Base. If at the end of the 15 days, any Lender has not communicated its approval or disapproval to the Administrative Agent, such silence shall be deemed to be a disapproval of the Proposed Borrowing Base. If at the end of such 15 days, the Required Lenders (or all of the Lenders if the Borrowing Base is to be increased) have approved the Proposed Borrowing Base, then the Proposed Borrowing Base shall become the redetermined Borrowing Base, effective on the date specified in Section 2.02(d). To the extent that within such 15 day period the Administrative Agent has not received the requisite number of approvals from the Lenders, the requisite number of Lenders shall, within a reasonable period of time, agree on a redetermined Borrowing Base. After a redetermined Borrowing Base is approved by the Required Lenders or all of the Lenders, as applicable, the Administrative Agent shall notify the Borrower of the amount of the redetermined Borrowing Base.

        (iii)  In the event that the Borrower does not furnish to the Administrative Agent and the Lenders the Independent Engineering Report, Internal Engineering Report or other information specified in clauses (i) and (ii) above by the date specified therein, the Administrative Agent and the Lenders may nonetheless redetermine the Borrowing Base and redesignate the Borrowing Base from time-to-time thereafter in their sole discretion until the Administrative Agent and the Lenders receive the relevant Independent Engineering Report, Internal Engineering Report, or other information, as applicable, whereupon the Administrative Agent and the Lenders shall redetermine the Borrowing Base as otherwise specified in this Section 2.02.

        (iv)  Each delivery of an Engineering Report by the Borrower to the Administrative Agent and the Lenders shall constitute a representation and warranty by the Borrower to the Administrative Agent and the Lenders that (A) the Borrower and its Subsidiaries, as applicable, own the Oil and Gas Properties specified therein with all of the Proven Reserves covered therein subject to an Acceptable Security Interest to the extent required by Section 5.08, and free and clear of any Liens (except Permitted Liens), and (B) on and as of the date of such Engineering Report each Oil and Gas Property described as "proved developed" therein was developed for oil and gas, and the wells pertaining to such Oil and Gas Properties that are described therein as producing wells ("Wells"), were each producing oil and gas in paying quantities, except for Wells that were utilized as water or gas injection wells or as water disposal wells or wells temporarily shut-in for workovers or other repairs in the ordinary course of business.

        (c)    Interim Redeterminations.    In addition to the Borrowing Base redeterminations provided for in Sections 2.02(b) and 2.02(e), the Required Lenders (acting through the Administrative Agent) may (i) in their sole discretion make one additional redetermination of the Borrowing Base during any six-month period between scheduled redeterminations and (ii) at the request of the Borrower make one additional redetermination of the Borrowing Base during any six-month period between scheduled redeterminations, and in any case, based on such information as the Administrative Agent and the Lenders deem relevant (but in accordance with Section 2.02(d)). The party requesting the redetermination shall give the other party at least 10 days' prior written notice that a redetermination

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of the Borrowing Base pursuant to this paragraph (c) is to be performed. In connection with any redetermination of the Borrowing Base under this Section 2.02(c), the Borrower shall provide the Administrative Agent and the Lenders with such information regarding the Borrower's and its Subsidiaries' business (including their respective Oil and Gas Properties, the Proven Reserves attributable thereto, and production relating thereto) as the Administrative Agent may request, including an updated Independent Engineering Report. The Administrative Agent shall promptly, and in any event within 45 days after the Administrative Agent and the Lenders' receipt of such information, and to the extent applicable, an updated Independent Engineering Report, notify the Borrower in writing of each redetermination of the Borrowing Base pursuant to this Section 2.02(c) and the amount of the Borrowing Base as so redetermined.

        (d)    Standards for Redetermination.    Each redetermination of the Borrowing Base by the Administrative Agent and the Lenders pursuant to this Section 2.02 shall be made (i) in the sole discretion of the Administrative Agent and the Lenders (but in accordance with the other provisions of this Section 2.02(d)), (ii) in accordance with the Administrative Agent's and the Lenders' customary internal standards and practices for valuing and redetermining the value of Oil and Gas Properties in connection with reserve based oil and gas loan transactions, (iii) in conjunction with the most recent Independent Engineering Report or Internal Engineering Report, as applicable, or other information received by the Administrative Agent and the Lenders relating to the Proven Reserves of the Borrower and its Subsidiaries, and (iv) based upon the estimated value of the Proven Reserves owned by the Borrower and its Subsidiaries as determined by the Administrative Agent and the Lenders. In valuing and redetermining the Borrowing Base, the Administrative Agent and the Lenders may also consider the business, financial condition and Debt obligations of the Borrower and its Subsidiaries and such other factors as the Administrative Agent and the Lenders customarily deem appropriate, including without limitation, commodity price assumptions, projections of production, operating expenses, general and administrative expenses, capital costs, working capital requirements, liquidity evaluations, dividend payments, environmental costs, and legal costs. In that regard, the Borrower acknowledges that the determination of the Borrowing Base contains an equity cushion (market value in excess of loan value), which is essential for the adequate protection of the Administrative Agent and the Lenders. No Proven Reserves shall be included or considered for inclusion in the Borrowing Base unless the Administrative Agent and the Lenders shall have received, at the Borrower's expense, evidence of title satisfactory in form and substance to the Administrative Agent and evidence satisfactory to the Administrative Agent that the Administrative Agent has an Acceptable Security Interest, to the extent required by Section 5.08, in the Oil and Gas Properties relating thereto pursuant to the Security Instruments and subject to Section 5.10 of this Agreement. At all times after the Administrative Agent has given the Borrower notification of a redetermination of the Borrowing Base under this Section 2.02, the Borrowing Base shall be equal to the redetermined amount or such lesser amount designated by the Borrower and disclosed in writing to the Administrative Agent and the Lenders until the Borrowing Base is redetermined in accordance with the other provisions of this Section 2.02.

        (e)    Borrowing Base Reductions.    The Borrowing Base may be reduced from time to time pursuant to Section 6.02(g) hereof.

        (f)    Voting.    Any changes in, or renewals of, the Borrowing Base (other than increases in the Borrowing Base) must be consented to in writing by the Required Lenders. Any increases in the Borrowing Base must be consented to in writing by all of the Lenders.

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        Section 2.03    Method of Borrowing.

        (a)    Notice.    Each Borrowing shall be made pursuant to a Notice of Borrowing (or by telephone notice promptly confirmed in writing by a Notice of Borrowing), given not later than (i) 12:00 p.m. (Houston, Texas time) on the third Business Day before the date of the proposed Borrowing, in the case of a Borrowing comprised of Eurodollar Rate Advances or (ii) 11:00 a.m. (Houston, Texas time) on the Business Day of the proposed Borrowing, in the case of a Borrowing comprised of Base Rate Advances, by the Borrower to the Administrative Agent, which shall in turn give to each Lender prompt notice of such proposed Borrowing by facsimile or telex. Each Notice of a Borrowing shall be given by facsimile or telex, confirmed immediately in writing if by telex, specifying the information required therein. In the case of a proposed Borrowing comprised of Eurodollar Rate Advances, the Administrative Agent shall promptly notify each Lender of the applicable interest rate under Section 2.09(b). Each Lender shall, before 1:00 p.m. (Houston, Texas time) on the date of such Borrowing, make available for the account of its Lending Office to the Administrative Agent at its address referred to in Section 10.02, or such other location as the Administrative Agent may specify by notice to the Lenders, in same day funds, in the case of a Borrowing, such Lender's Pro Rata Share of such Borrowing. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent shall make such funds available to the Borrower at its account with the Administrative Agent.

        (b)    Conversions and Continuations.    The Borrower may elect to Convert or continue any Borrowing under this Section 2.03 by delivering an irrevocable Notice of Conversion or Continuation to the Administrative Agent at the Administrative Agent's office no later than 12:00 p.m. (Houston, Texas time) (i) on the date which is at least three (3) Business Days in advance of the proposed Conversion or continuation date in the case of a Conversion to or a continuation of a Borrowing comprised of Eurodollar Rate Advances and (ii) on the Business Day of the proposed Conversion in the case of a Conversion to a Borrowing comprised of Base Rate Advances. Each such Notice of Conversion or Continuation shall be in writing or by telex or facsimile, confirmed immediately in writing if by telex, specifying the information required therein and executed by a Responsible Officer of the Borrower. Promptly after receipt of a Notice of Conversion or Continuation under this Section, the Administrative Agent shall provide each Lender with a copy thereof and, in the case of a Conversion to or a continuation of a Borrowing comprised of Eurodollar Rate Advances, notify each Lender of the applicable interest rate under Section 2.09(b).

        (c)    Certain Limitations.    Notwithstanding anything to the contrary contained in paragraphs (a) and (b) above:

          (i)  at no time shall there be more than ten Interest Periods applicable to outstanding Eurodollar Rate Advances and the Borrower may not select Eurodollar Rate Advances for any Borrowing at any time that a Default has occurred and is continuing;

         (ii)  if any Lender shall, at least one (1) Business Day before the date of any requested Borrowing, Conversion, or continuation, notify the Administrative Agent and the Borrower that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful, for such Lender or its Lending Office to perform its obligations under this Agreement to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances, the right of the Borrower to select Eurodollar Rate Advances from such Lender shall be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and the Advance made by such Lender in respect of such Borrowing, Conversion, or continuation shall be a Base Rate Advance;

        (iii)  if the Administrative Agent is unable to determine the Adjusted LIBO Rate for Eurodollar Rate Advances comprising any requested Borrowing, the right of the Borrower to select

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Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Base Rate Advance;

        (iv)  if the Required Lenders shall, at least one (1) Business Day before the date of any requested Borrowing, notify the Administrative Agent that the Adjusted LIBO Rate for Eurodollar Rate Advances comprising such Borrowing will not adequately reflect the cost to such Lenders of making or funding their respective Eurodollar Rate Advances, as the case may be, for such Borrowing, the Administrative Agent shall promptly notify the Borrower and the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the Administrative Agent shall notify the Borrower and such Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Base Rate Advance;

         (v)  if any Lender shall, at least one (1) Business Day before the date of any requested Borrowing, notify the Administrative Agent that due to a material disruption in the funds generally available to prime banks in the London interbank market the Adjusted LIBO Rate for Eurodollar Rate Advances comprising such Borrowing will not adequately reflect the cost to such Lender of making or funding their respective Eurodollar Rate Advances, as the case may be, for such Borrowing, the Administrative Agent shall promptly notify the Borrower and the right of the Borrower to select Eurodollar Rate Advances from such Lender for such Borrowing or for any subsequent Borrowing shall be suspended until the circumstances causing such suspension no longer exist (and such Lender, by giving the notice pursuant to this Section 2.03(c)(v), shall be obligated to promptly notify the Borrower and the Administrative Agent at the time such circumstances no longer exist), and during the period that the right to so select such Eurodollar Rate Advances shall be suspended pursuant to this Section 2.03(c)(v), each Advance from such Lender comprising such Borrowing shall be a Base Rate Advance and such Lender may further require during such period that the Applicable Margin that would otherwise apply to any such Base Rate Advance be increased by an amount reasonably demonstrated by such Lender to be necessary to maintain a margin over its actual costs of funding such Borrowing equivalent to the Applicable Margin for Eurodollar Rate Advances.

        (vi)  if the Borrower shall fail to select the duration or continuation of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01 and paragraph (b) above, the Administrative Agent shall forthwith so notify the Borrower and the Lenders and such Advances shall be made available to the Borrower on the date of the Borrowing comprised of such Advances as Base Rate Advances or, if existing Eurodollar Rate Advances, shall Convert into Base Rate Advances.

        (d)    Notices Irrevocable.    Each Notice of Borrowing and Notice of Conversion or Continuation shall be irrevocable and binding on the Borrower. In the case of any Borrowing for which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, out-of-pocket cost, or expense incurred by such Lender as a result of any failure by the Borrower to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III including, without limitation, any loss, cost, or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date.

        (e)    Administrative Agent Reliance.    Unless the Administrative Agent shall have received notice from a Lender before the date of any Borrowing that such Lender shall not make available to the Administrative Agent such Lender's Pro Rata Share of a Borrowing, the Administrative Agent may

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assume that such Lender has made its Pro Rata Share of such Borrowing available to the Administrative Agent on the date of such Borrowing in accordance with paragraph (a) of this Section 2.03 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made its Pro Rata Share of such Borrowing available to the Administrative Agent, such Lender and the Borrower severally agree to immediately repay to the Administrative Agent on demand such corresponding amount, together with interest on such amount, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable on such day to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Effective Rate for such day. If such Lender shall repay to the Administrative Agent such corresponding amount and interest as provided above, such corresponding amount so repaid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement even though not made on the same day as the other Advances comprising such Borrowing.

        (f)    Lender Obligations Several.    The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, to make its Advance on the date of such Borrowing. No Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing.

        Section 2.04    Reduction of the Commitments.

        (a)    Optional.    The Borrower shall have the right, upon at least three (3) Business Days' irrevocable notice from the Borrower to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portion of the Commitments; provided that, in each case, each partial reduction shall be in the aggregate amount of $250,000 or in integral multiples of $100,000 in excess thereof.

        (b)    Application.    Any reduction and termination of the Commitments pursuant to this Section 2.04 shall be applied ratably to each Lender's Commitments and shall be permanent, with no obligation of the Lenders to reinstate such Commitments.

        Section 2.05    Prepayment of Advances; Deposits Into Cash Collateral Account.

        (a)    Optional.    The Borrower may prepay the Advances, after giving by 11:00 a.m. (Houston, Texas time) (i) in the case of Eurodollar Rate Advances, at least three (3) Business Days' or (ii) in the case of Base Rate Advances, same Business Day's, irrevocable prior written notice from the Borrower to the Administrative Agent stating the proposed date and aggregate principal amount of such prepayment. If any such notice is given, the Borrower shall prepay the Advances in whole or ratably in part in an aggregate principal amount equal to the amount specified in such notice, together with accrued interest to the date of such prepayment on the principal amount prepaid and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date; provided, however, that each partial prepayment with respect to: (a) any amounts prepaid in respect of Eurodollar Rate Advances shall be applied to Eurodollar Rate Advances comprising part of the same Borrowing; (b) any prepayments made in respect of Base Rate Advances shall be made in a minimum amounts of $250,000 and in integral multiples of $100,000 in excess thereof; and (c) any prepayments made in respect of any Borrowing comprised of Eurodollar Rate Advances shall be made in an aggregate principal amount of at least $250,000 and in integral multiples of $100,000 in excess thereof, and in an aggregate principal amount such that after giving effect thereto such Borrowing shall have a remaining principal amount outstanding with respect to such Borrowing of at least $500,000. Full prepayments of any Borrowing are permitted without restriction of amounts.

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        (b)    Borrowing Base Deficiency.

          (i)  If a Borrowing Base Deficiency exists, the Borrower shall, after receipt of written notice from the Administrative Agent regarding such deficiency, take any of the following actions (and the failure of the Borrower to take such actions to remedy such Borrowing Base Deficiency shall constitute an Event of Default):

        (A)  deliver, within 20 days after the date such deficiency notice is received by the Borrower, to the Administrative Agent written notice indicating the Borrower's election to prepay the Advances or, if the Advances have been repaid in full, make deposits into the Cash Collateral Account to provide cash collateral for the Letter of Credit Exposure, such that the Borrowing Base Deficiency is cured within 30 days after the date such deficiency notice is received by the Borrower from the Administrative Agent;

        (B)  pledge, within 30 days after the date such deficiency notice is received by the Borrower from the Administrative Agent, as Collateral for the Obligations additional Oil and Gas Properties acceptable to the Administrative Agent and the Lenders, which the Administrative Agent and the Lenders deem sufficient in their sole discretion to eliminate such Borrowing Base Deficiency; or

        (C)  (i) deliver, within 20 days after the date such deficiency notice is received by the Borrower from the Administrative Agent, written notice to the Administrative Agent indicating the Borrower's election to repay the Advances and make deposits into the Cash Collateral Account to provide cash collateral for the Letter of Credit Exposure, each in six monthly installments equal to one-sixth of such Borrowing Base Deficiency with the first such installment due 30 days after the date such deficiency notice is received by the Borrower from the Administrative Agent and each following installment due 30 days after the preceding installment and (ii) make such payments and deposits within such time periods; or

        (D)  (i) deliver, within 20 days after the date such deficiency notice is received by the Borrower from the Administrative Agent, written notice to the Administrative Agent indicating the Borrower's election to combine the options provided in clause (B) and clause (C) above, and also indicating the amount to be prepaid in installments and the amount to be provided as additional Collateral, and (ii) make such six equal consecutive monthly installments and deliver such additional Collateral within the time required under clause (B) and clause (C) above.

The failure of the Borrower to provide a notice of its election within the time required above shall be deemed to be an election by the Borrower to take the actions provided in clause (A) above.

         (ii)  Each prepayment pursuant to this Section 2.05(b) shall be accompanied by accrued interest on the amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date. Each prepayment under clause (i) of this Section 2.05(b) shall be applied to the Advances as determined by the Administrative Agent and agreed to by the Lenders in their sole discretion.

        (c)    Reduction of Commitments.    On the date of each reduction of the aggregate Commitments pursuant to Section 2.04, the Borrower agrees to make a prepayment in respect of the outstanding amount of the Advances to the extent, if any, that the sum of the aggregate unpaid principal amount of the Advances plus the excess, if any, of the Letter of Credit Exposure over the amount held in the Cash Collateral Account at such time exceeds the lesser of (i) aggregate Commitments, as so reduced and (ii) the Borrowing Base. Each prepayment pursuant to this Section 2.05(c) shall be accompanied by accrued interest on the amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date. Each prepayment under this Section 2.05(c) shall be applied to the Advances as determined by the Administrative Agent and agreed to by the Lenders in their sole discretion.

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        (d)    Illegality.    If any Lender shall notify the Administrative Agent and the Borrower that, on or after the date hereof, the introduction of or any change in or in the interpretation of any Legal Requirement makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful for such Lender or its Lending Office to perform its obligations under this Agreement to maintain any Eurodollar Rate Advances of such Lender then outstanding hereunder, (i) the Borrower shall, no later than noon (Houston, Texas time) (A) if not prohibited by law, on the last day of the Interest Period for each outstanding Eurodollar Rate Advance made by such Lender or (B) if required by such notice, on the second Business Day following its receipt of such notice, prepay all of the Eurodollar Rate Advances made by such Lender then outstanding, together with accrued interest on the principal amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date, (ii) such Lender shall simultaneously make a Base Rate Advance to the Borrower on such date in an amount equal to the aggregate principal amount of the Eurodollar Rate Advances prepaid to such Lender, and (iii) the right of the Borrower to select Eurodollar Rate Advances from such Lender for any subsequent Borrowing shall be suspended until such Lender gives notice referred to above shall notify the Administrative Agent that the circumstances causing such suspension no longer exist.

        (e)    No Additional Right; Ratable Prepayment.    The Borrower shall not have the right to prepay any principal amount of any Advance except as provided in this Section 2.05, and all notices given pursuant to this Section 2.05 shall be irrevocable and binding upon the Borrower. Each payment of any Advance pursuant to this Section 2.05 shall be made in a manner such that all Advances comprising part of the same Borrowing are paid in whole or ratably in part.

        Section 2.06    Repayment of Advances.    The Borrower shall repay to the Administrative Agent for the ratable benefit of the Lenders the outstanding principal amount of each Advance, together with any accrued interest thereon, on the Maturity Date or such earlier date pursuant to Section 7.02 or Section 7.03.

        Section 2.07    Letters of Credit.

        (a)    Commitments for Letters of Credit.    From time to time from the date of this Agreement until 30 days prior to the Maturity Date at the request of the Borrower, the Issuing Lender shall, on the terms and conditions hereinafter set forth, issue, increase, or extend the Expiration Date of, Letters of Credit for the account of the Borrower on any Business Day. No Letter of Credit will be issued, increased, or extended:

          (i)  if such issuance, increase, or extension would cause the Letter of Credit Exposure to exceed the lesser of (A) $5,000,000 and (B) an amount equal to the lesser of (1) the aggregate Commitments at such time and (2) the Borrowing Base in effect at such time minus, in each case under this clause (B), the sum of the aggregate outstanding principal amount of all Advances at such time;

         (ii)  if such Letter of Credit has an Expiration Date later than five Business Days prior to the Maturity Date;

        (iii)  if such Letter of Credit has an Expiration Date later than one year after its issuance or extension; provided that any such Letter of Credit with a one-year tenor may expressly provide that it is automatically renewable for additional one-year periods so long as the Issuing Lender, in its sole discretion, does not object to any such renewal;

        (iv)  unless the Letter of Credit Documents are in form and substance acceptable to the Issuing Lender in its sole discretion;

         (v)  unless such Letter of Credit is a standby letter of credit not supporting the repayment of indebtedness for borrowed money of any Person;

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        (vi)  unless the Borrower has delivered to the Issuing Lender a completed and executed Letter of Credit Application;

       (vii)  unless such Letter of Credit is governed by (A) the Uniform Customs and Practice for Documentary Credits (2007 Revision) or the Uniform Customs and Practice for Documentary Credits (2006 Revision), International Chamber of Commerce Publication No. 500 or (B) the International Standby Practices (ISP98), International Chamber of Commerce Publication No. 590, in either case, including any subsequent revisions thereof approved by a Congress of the International Chamber of Commerce and adhered to by the Issuing Lender; and

      (viii)  if any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Lender from issuing such Letter of Credit, or any Legal Requirement applicable to the Issuing Lender or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Lender shall prohibit, or request that the Issuing Lender refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Lender with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Lender is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuing Lender any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Issuing Lender in good faith deems material to it;

        (ix)  if the issuance of such Letter of Credit would violate one or more policies of the Issuing Lender applicable to letters of credit generally;

         (x)  except as otherwise agreed by the Issuing Lender, if Letter of Credit is to be denominated in a currency other than Dollars; or

        (xi)  a default of any Lender's obligations to fund under Section 2.07(d) exists or any Lender is at such time a Defaulting Lender or a Potential Defaulting Lender hereunder, unless the Issuing Lender has entered into satisfactory arrangements with the Borrower or such Lender to eliminate the Issuing Lender's risk with respect to such Lender.

If the terms of any Letter of Credit Application referred to in the foregoing clause (v) conflicts with the terms of this Agreement, the terms of this Agreement shall control.

        (b)    Participations.    Upon the date of the issuance or increase of a Letter of Credit, the Issuing Lender shall be deemed to have sold to each other Lender and each other Lender shall have been deemed to have purchased from the Issuing Lender a participation in the related Letter of Credit Obligations equal to such Lender's Pro Rata Share at such date and such sale and purchase shall otherwise be in accordance with the terms of this Agreement. The Issuing Lender shall promptly notify each such participant Lender by telephone, or facsimile of each Letter of Credit issued, increased, or extended or converted and the actual dollar amount of such Lender's participation in such Letter of Credit.

        (c)    Issuing.    Each Letter of Credit shall be issued, increased, or extended pursuant to a Letter of Credit Application (or by telephone notice promptly confirmed in writing by a Letter of Credit Application), given by the Borrower not later than noon (Houston, Texas time) on the fifth Business Day before the date of the proposed issuance, increase, or extension of such Letter of Credit, and the Issuing Lender shall give to each other Lender prompt notice thereof by telex, telephone, or facsimile. Each Letter of Credit Application shall be delivered by facsimile or by mail specifying the information required therein; provided that if such Letter of Credit Application is delivered by facsimile, the Borrower shall follow such facsimile with an original by mail. After the Issuing Lender's receipt of such Letter of Credit Application (by facsimile or by mail) and upon fulfillment of the applicable conditions set forth in Article III, the Issuing Lender shall issue, increase, or extend such Letter of Credit for the

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account of the Borrower or applicable Subsidiary of the Borrower. Each Letter of Credit Application shall be irrevocable and binding on the Borrower.

        (d)    Reimbursement.

          (i)  The Borrower hereby agrees to pay to the Issuing Lender an amount equal to any amount paid by the Issuing Lender under any Letter of Credit, which amount shall be due and payable on demand given by the Issuing Lender to the Borrower. In the event the Issuing Lender makes a payment pursuant to a request for draw presented under a Letter of Credit and such payment is not promptly reimbursed by the Borrower upon demand, the Issuing Lender shall give the Administrative Agent notice of the Borrower's failure to make such reimbursement and the Administrative Agent shall promptly notify each Lender of the amount necessary to reimburse the Issuing Lender. Upon such notice from the Administrative Agent, each Lender shall promptly reimburse the Issuing Lender for such Lender's Pro Rata Share of such amount, and such reimbursement shall be deemed for all purposes of this Agreement to be an Advance to the Borrower transferred at the Borrower's request to the Issuing Lender. If such reimbursement is not made by any Lender to the Issuing Lender on the same day on which the Administrative Agent notifies such Lender to make reimbursement to the Issuing Lender hereunder, such Lender shall pay interest on its Pro Rata Share thereof to the Issuing Lender at a rate per annum equal to the Federal Funds Effective Rate. The Borrower hereby unconditionally and irrevocably authorizes, empowers, and directs the Administrative Agent and the Lenders to record and otherwise treat such reimbursements to the Issuing Lender as Base Rate Advances under a Borrowing made at the request of the Borrower (without regard to the minimums and multiples referenced in Section 2.01) to reimburse the Issuing Lender which have been transferred to the Issuing Lender at the Borrower's request.

         (ii)  Each Lender's obligation to make Advances or to purchase and fund risk participations in Letters of Credit pursuant to this Section 2.07(d) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Issuing Lender, any Obligor, or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing. No such funding of risk participations shall relieve or otherwise impair the obligation of the Borrower to pay the Reimbursement Obligations together with interest as provided herein. Nothing herein is intended to release the Borrower's obligations under any Letter of Credit Application, but only to provide an additional method of payment therefor. The making of any Borrowing under Section 2.07(d)(i) shall not constitute a cure or waiver of any Default or Event of Default, other than the payment Default or Event of Default which is satisfied by the application of the amounts deemed advanced hereunder, caused by the Borrower's failure to comply with the provisions of this Agreement or the Letter of Credit Application.

        (e)    Obligations Unconditional.    The obligations of the Borrower under this Agreement in respect of each Letter of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances:

          (i)  any lack of validity or enforceability of any Letter of Credit Documents;

         (ii)  any amendment or waiver of, or any consent to or departure from, any Letter of Credit Documents;

        (iii)  the existence of any claim, set-off, defense, or other right which any Obligor may have at any time against any beneficiary or transferee of such Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Lender, or any other

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Person, whether in connection with this Agreement, the transactions contemplated in this Agreement or in any Letter of Credit Documents, or any unrelated transaction;

        (iv)  any statement or any other document presented under such Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

         (v)  payment by the Issuing Lender under such Letter of Credit against presentation of a draft or certificate which does not strictly comply with the terms of such Letter of Credit; or

        (vi)  any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

provided, however, that nothing contained in this paragraph (e) shall be deemed to constitute a waiver of any remedies of the Borrower in connection with the Letters of Credit or the Borrower's rights under Section 2.07(f) below.

        (f)    Liability of Issuing Lender.    The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Issuing Lender nor any of its Related Parties shall be liable or responsible for:

          (i)  the use which may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith;

         (ii)  the validity, sufficiency, or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent, or forged;

        (iii)  payment by the Issuing Lender against presentation of documents which do not strictly comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the relevant Letter of Credit; or

        (iv)  any other circumstances whatsoever in making or failing to make payment under any Letter of Credit (INCLUDING THE ISSUING LENDER'S OWN NEGLIGENCE),

except that the Borrower shall have a claim against the Issuing Lender, and the Issuing Lender shall be liable to the Borrower, to the extent of any direct, as opposed to consequential, damages suffered by the Borrower which a court determines in a final, non-appealable judgment were caused by the Issuing Lender's willful misconduct or gross negligence in determining whether documents presented under a Letter of Credit comply with the terms of such Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Lender may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary.

        (g)    Cash Collateral Account.

          (i)  If the Borrower is required to deposit funds in the Cash Collateral Account pursuant to terms hereof, then the Borrower and the Issuing Lender shall establish the Cash Collateral Account and the Borrower shall execute any documents and agreements, including the Issuing Lender's standard form assignment of deposit accounts, that the Issuing Lender requests in connection therewith to establish the Cash Collateral Account and grant the Administrative Agent a first priority security interest in such account and the funds therein. The Borrower hereby pledges to the Administrative Agent and grants to the Administrative Agent for the benefit of the Secured Parties a security interest in the Cash Collateral Account, whenever established, all funds held in the Cash Collateral Account from time to time, and all proceeds thereof as security for the payment of the Obligations.

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         (ii)  So long as no Default or Event of Default exists, (A) the Administrative Agent may apply the funds held in the Cash Collateral Account only to the reimbursement of any Letter of Credit Obligations, and (B) the Issuing Lender shall release to the Borrower, at the Borrower's written request, any funds held in the Cash Collateral Account in an amount up to but not exceeding the excess, if any (immediately prior to the release of any such funds), of the total amount of funds held in the Cash Collateral Account over the Letter of Credit Exposure. During the existence of any Default, the Administrative Agent may apply any funds held in the Cash Collateral Account to the Obligations in accordance with Section 7.06, regardless of the Letter of Credit Exposure that may remain outstanding.

        (iii)  The Administrative Agent shall exercise reasonable care in the custody and preservation of any funds held in the Cash Collateral Account and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Administrative Agent accords its own Property, it being understood that the Administrative Agent shall not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any such funds.

        (h)    Defaulting Lender.    If, at any time, a Defaulting Lender or a Potential Defaulting Lender exists hereunder, then, at the request of the Issuing Lender, the Borrower shall deposit funds with Administrative Agent into the Cash Collateral Account an amount equal to such Defaulting Lender's or Potential Defaulting Lender's Pro Rata Share of the Letter of Credit Exposure.

        Section 2.08    Fees.

        (a)    Commitment Fees.    The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee at a per annum rate equal to the Applicable Margin on the daily Unused Commitment Amount of such Lender from the date of this Agreement until the Commitment Termination Date. The commitment fees shall be due and payable quarterly in arrears on the last day of each March, June, September, and December commencing on March 31, 2011 and continuing thereafter through and including the Commitment Termination Date.

        (b)    Letter of Credit Fees.

          (i)  The Borrower agrees to pay (A) to the Administrative Agent for the pro rata benefit of the Lenders a per annum letter of credit fee for each Letter of Credit issued hereunder in an amount equal to the Applicable Margin for Eurodollar Rate Advances times the daily maximum amount available to be drawn under such Letter of Credit and (B) to the Issuing Lender, a fronting fee for each Letter of Credit equal to the greater of (1) 0.25% per annum on the face amount of such Letter of Credit and (2) $500. The fees required under this clause (i) shall be computed on a quarterly basis in arrears and be due and payable on the last day of each March, June, September, and December commencing March 31, 2011.

         (ii)  The Borrower also agrees to pay to the Issuing Lender such other usual and customary fees associated with any transfers, amendments, drawings, negotiations or reissuances of any Letters of Credit.

        (c)    Administrative Fees; Upfront Fees.    The Borrower agrees to pay the arrangement, agency and upfront fees described in the Fee Letter.

        Section 2.09    Interest.    The Borrower shall pay interest on the unpaid principal amount of each Advance made by each Lender from the date of such Advance until such principal amount shall be paid in full at the following rates per annum:

        (a)    Base Rate Advances.    If such Advance is a Base Rate Advance, a rate per annum equal at all times to the Alternate Base Rate in effect from time to time plus the Applicable Margin in effect from

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time to time, payable quarterly in arrears on the last day of each March, June, September, and December, commencing March 31, 2011, and on the date such Base Rate Advance shall be paid in full

        (b)    Eurodollar Rate Advances.    If such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during the Interest Period for such Advance to the Adjusted LIBO Rate for such Interest Period plus the Applicable Margin in effect from time to time, payable on the last day of such Interest Period, and, in the case of six-month Interest Periods, on the day which is the three month anniversary of the first day of such Interest Period.

        (c)    Usury Recapture.

          (i)  If, with respect to any Lender or the Issuing Lender, the effective rate of interest contracted for under the Loan Documents, including the stated rates of interest and fees contracted for hereunder and any other amounts contracted for under the Loan Documents which are deemed to be interest, at any time exceeds the Maximum Rate, then the outstanding principal amount of the loans made by such Lender or Issuing Lender, as applicable, hereunder shall bear interest at a rate which would make the effective rate of interest for such Lender or Issuing Lender, as applicable, under the Loan Documents equal the Maximum Rate until the difference between the amounts which would have been due at the stated rates and the amounts which were due at the Maximum Rate (the "Lost Interest") has been recaptured by such Lender or Issuing Lender, as applicable.

         (ii)  If, when the loans and reimbursement obligations made hereunder are repaid in full, the Lost Interest has not been fully recaptured by such Lender or Issuing Lender, as applicable, pursuant to the preceding paragraph, then, to the extent permitted by law, for the loans and other credit extensions made hereunder by such Lender or Issuing Lender, as applicable, the interest rates charged under Section 2.09 hereunder shall be retroactively increased such that the effective rate of interest under the Loan Documents was at the Maximum Rate since the effectiveness of this Agreement to the extent necessary to recapture the Lost Interest not recaptured pursuant to the preceding sentence and, to the extent allowed by law, the Borrower shall pay to such Lender or Issuing Lender, as applicable, the amount of the Lost Interest remaining to be recaptured by such Lender or Issuing Lender, as applicable.

(iii)  NOTWITHSTANDING THE FOREGOING OR ANY OTHER TERM IN THIS AGREEMENT AND THE LOAN DOCUMENTS TO THE CONTRARY, IT IS THE INTENTION OF EACH LENDER, THE ISSUING LENDER AND THE BORROWER TO CONFORM STRICTLY TO ANY APPLICABLE USURY LAWS. ACCORDINGLY, IF ANY LENDER OR THE ISSUING LENDER CONTRACTS FOR, CHARGES, OR RECEIVES ANY CONSIDERATION WHICH CONSTITUTES INTEREST IN EXCESS OF THE MAXIMUM RATE, THEN ANY SUCH EXCESS SHALL BE CANCELED AUTOMATICALLY AND, IF PREVIOUSLY PAID, SHALL AT SUCH LENDER'S OR THE ISSUING LENDER'S OPTION, AS APPLICABLE, BE APPLIED TO THE OUTSTANDING AMOUNT OF THE LOANS MADE HEREUNDER BY SUCH LENDER OR REIMBURSEMENT OBLIGATIONS DUE HEREUNDER, AS APPLICABLE, OR BE REFUNDED TO THE BORROWER.

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        Section 2.10    Payments and Computations.

        (a)    Payment Procedures.    The Borrower shall make each payment under this Agreement and under the Notes not later than noon (Houston, Texas time) on the day when due in Dollars to the Administrative Agent at its Lending Office (or such other location as the Administrative Agent shall designate in writing to the Borrower) in same day funds without deduction, setoff, or counterclaim of any kind. The Administrative Agent shall promptly thereafter cause to be distributed like funds relating to the payment of principal, interest or fees ratably (other than amounts payable solely to the Administrative Agent, the Issuing Lender, or a specific Lender pursuant to Section 2.08(b), 2.08(c), 2.09(c), 2.12, 2.13, 2.14, 9.05, or 10.07, but after taking into account payments effected pursuant to Section 7.04) in accordance with each Lender's Pro Rata Share to the Lenders for the account of their respective Lending Offices, and like funds relating to the payment of any other amount payable to any Lender or the Issuing Lender to such Lender or Issuing Lender for the account of its Lending Office, in each case to be applied in accordance with the terms of this Agreement.

        (b)    Computations.    All computations of interest based on the Reference Rate and of fees (other than Letter of Credit fees) shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Adjusted LIBO Rate and the Federal Funds Effective Rate and Letter of Credit fees shall be made by the Administrative Agent, on the basis of a year of 360 days, in each case for the actual number of days (including the first day, but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent of an interest rate or fee shall be conclusive and binding for all purposes, absent manifest error.

        (c)    Non-Business Day Payments.    Whenever any payment shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.

        (d)    Administrative Agent Reliance.    Unless the Administrative Agent shall have received written notice from the Borrower prior to the date on which any payment is due to the Lenders that the Borrower shall not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender, together with interest, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Effective Rate for such day.

        Section 2.11    Sharing of Payments, Etc.    If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances or Letter of Credit Obligations made by it in excess of its Pro Rata Share of payments on account of the Advances or Letter of Credit Obligations obtained by all the Lenders, such Lender shall notify the Administrative Agent and forthwith purchase from the other Lenders such participations in the Advances made by them or Letter of Credit Obligations held by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such Lender's ratable share (according to the proportion of (a) the amount of the participation sold by such Lender to the purchasing Lender as a

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result of such excess payment to (b) the total amount of such excess payment) of such recovery, together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to the purchasing Lender to (ii) the total amount of all such required repayments to the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.11 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.

        Section 2.12    Breakage Costs.    If (a) any payment of principal of any Eurodollar Rate Advance is made other than on the last day of the Interest Period for such Advance, whether as a result of any payment pursuant to Section 2.05, the acceleration of the maturity of the Notes pursuant to Article VII, or otherwise, or (b) the Borrower fails to make a principal or interest payment with respect to any Eurodollar Rate Advance on the date such payment is due and payable, the Borrower shall, within 10 days of any written demand (which written demand shall include a calculation of the losses, costs and expenses referred to below, and shall be conclusive in the absence of manifest error) sent by any Lender to the Borrower through the Administrative Agent, pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, out-of-pocket costs or expenses which it may reasonably incur as a result of such payment or nonpayment, including, without limitation, any loss (but excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance.

        Section 2.13    Increased Costs.

        (a)    Eurodollar Rate Advances.    If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements with respect to liabilities or assets consisting of or including Eurocurrency Liabilities) in or in the interpretation of any Legal Requirement or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding, or maintaining Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand by such Lender to the Borrower (with a copy of such demand to the Administrative Agent), immediately pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost; provided, however, that the Borrower shall not be obligated for the payment of any such additional amounts to the extent such costs accrued more than 120 days prior to the date the Borrower was given such demand. A certificate as to the amount of such increased cost and detailing the calculation of such cost submitted to the Borrower and the Administrative Agent by such Lender shall be conclusive and binding for all purposes, absent manifest error.

        (b)    Capital Adequacy.    If any Lender or the Issuing Lender determines in good faith, on or after the date hereof, that compliance with any Legal Requirement or any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or the Issuing Lender or any corporation controlling such Lender or the Issuing Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend or the Issuing Lender's commitment to issue the Letters of Credit and other commitments of this type, then, upon 30 days' prior written notice by such Lender or the Issuing Lender to the Borrower (with a copy of any such demand to the Administrative Agent), the Borrower shall immediately pay to the Administrative Agent for the account of such Lender or to the Issuing Lender, as the case may be, from time to time as specified by such Lender or the Issuing Lender, additional amounts sufficient to compensate such Lender or the Issuing Lender, in light of such circumstances, (i) with respect to such

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Lender, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend under this Agreement and (ii) with respect to the Issuing Lender, to the extent that the Issuing Lender reasonably determines such increase in capital to be allocable to the issuance or maintenance of the Letters of Credit. A certificate as to such amounts and detailing the calculation of such amounts submitted to the Borrower by such Lender or the Issuing Lender shall be conclusive and binding for all purposes, absent manifest error.

        (c)    Letters of Credit.    If any change after the Closing Date in any applicable Legal Requirement or in the interpretation thereof by any court or administrative or Governmental Authority charged with the administration thereof shall either (i) impose, modify, or deem applicable any reserve, special deposit, or similar requirement against letters of credit issued by, or assets held by, or deposits in or for the account of, the Issuing Lender or (ii) impose on the Issuing Lender any other condition regarding the provisions of this Agreement relating to the Letters of Credit or any Letter of Credit Obligations, and the result of any event referred to in the preceding clause (i) or (ii) shall be to increase the cost to the Issuing Lender of issuing or maintaining any Letter of Credit (which increase in cost shall be determined by the Issuing Lender's reasonable allocation of the aggregate of such cost increases resulting from such event), then, upon demand by the Issuing Lender to the Borrower, the Borrower shall pay to the Issuing Lender, from time to time as specified by the Issuing Lender, additional amounts which shall be sufficient to compensate the Issuing Lender for such increased cost; provided, however, that the Borrower shall not be obligated for the payment of any such additional amounts to the extent such costs accrued more than 120 days prior to the date the Borrower was given such demand. A certificate as to such increased cost incurred by the Issuing Lender, as a result of any event mentioned in clause (i) or (ii) above, and detailing the calculation of such increased costs submitted by the Issuing Lender to the Borrower, shall be conclusive and binding for all purposes, absent manifest error.

        (d)    Dodd-Frank Act.    Notwithstanding anything to the contrary contained herein, for purposes of this Agreement, the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, guidelines or directives in connection therewith are deemed to have gone into effect and adopted after the date of this Agreement.

        Section 2.14    Taxes.

        (a)    No Deduction for Certain Taxes.    Any and all payments by the Borrower shall be made, in accordance with Section 2.10, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender, the Issuing Lender, and the Administrative Agent, taxes imposed on its income, and franchise taxes imposed on it by the jurisdiction under the laws of which such Lender, Issuing Lender or Administrative Agent (as the case may be) is organized, or the jurisdiction of such Person's Lending Office, or any political subdivision of such jurisdiction (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by any Legal Requirement to deduct any Taxes from or in respect of any sum payable to any Lender, the Issuing Lender, or the Administrative Agent, (A) the sum payable shall be increased as may be necessary so that, after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14), such Lender, the Issuing Lender, or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made; provided, however, that if the Borrower's obligation to deduct or withhold Taxes is caused solely by such Lender's, the Issuing Lender's, or the Administrative Agent's failure to provide the forms described in paragraph (d) of this Section 2.14 and such Lender, the Issuing Lender, or the Administrative Agent could have provided such forms, no such increase shall be required; (B) the Borrower shall make such deductions; and (C) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with all applicable Legal Requirements.

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        (b)    Other Taxes.    In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Notes, or the other Loan Documents (hereinafter referred to as "Other Taxes").

        (c)    Indemnification.THE BORROWER INDEMNIFIES EACH LENDER, THE ISSUING LENDER, AND THE ADMINISTRATIVE AGENT FOR THE FULL AMOUNT OF TAXES OR OTHER TAXES (INCLUDING, WITHOUT LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED BY ANY JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 2.14) PAID BY SUCH LENDER, THE ISSUING LENDER, OR THE ADMINISTRATIVE AGENT (AS THE CASE MAY BE) AND ANY LIABILITY (INCLUDING INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED. EACH PAYMENT REQUIRED TO BE MADE BY THE BORROWER IN RESPECT OF THIS INDEMNIFICATION SHALL BE MADE TO THE ADMINISTRATIVE AGENT FOR THE BENEFIT OF ANY PARTY CLAIMING SUCH INDEMNIFICATION WITHIN 30 DAYS FROM THE DATE THE BORROWER RECEIVES WRITTEN DEMAND THEREFOR FROM THE ADMINISTRATIVE AGENT ON BEHALF OF ITSELF AS ADMINISTRATIVE AGENT, FROM THE ISSUING LENDER, OR FROM ANY SUCH LENDER. IF ANY LENDER, THE ADMINISTRATIVE AGENT, OR THE ISSUING LENDER RECEIVES A REFUND IN RESPECT OF ANY TAXES PAID BY THE BORROWER UNDER THIS PARAGRAPH (C), SUCH LENDER, THE ADMINISTRATIVE AGENT, OR THE ISSUING LENDER, AS THE CASE MAY BE, SHALL PROMPTLY PAY TO THE BORROWER THE BORROWER'S SHARE OF SUCH REFUND.

        (d)    Foreign Lender Withholding Exemption.    Each Lender and Issuing Lender that is not incorporated under the laws of the United States of America or a state thereof agrees that, at the time or times prescribed by applicable law and from time to time as reasonably requested in writing by the Borrower, it shall deliver to the Borrower and the Administrative Agent (i) two duly completed copies of United States Internal Revenue Service Form W8-ECI or W8-BEN or successor applicable form, as the case may be, certifying in each case that such Lender is entitled to receive payments under this Agreement and the Notes payable to it, without deduction or withholding of any United States federal income taxes, (ii) if applicable, an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax, and (iii) any other certification, identification, information or documentation which is necessary or required under an applicable tax treaty or otherwise by law to reduce or eliminate any withholding tax. Each Lender and Issuing Lender which delivers to the Borrower and the Administrative Agent a Form W8-ECI, W8-BEN, W-8 or W-9 pursuant to the next preceding sentence further undertakes to deliver to the Borrower and the Administrative Agent two further copies of such letter and Form W8-ECI, W8-BEN, W-8 or W-9, or successor applicable forms, or other applicable certification, as the case may be, on or before the date that any such form or certification expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form or other certification previously delivered by it to the Borrower and the Administrative Agent, and such extensions or renewals thereof as may reasonably be requested by the Borrower and the Administrative Agent certifying in the case of a Form W8-ECI or W8-BEN that such Lender or Issuing Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes. If an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any delivery required by the preceding sentence would otherwise be required which renders all such forms inapplicable or which would prevent any Lender or Issuing Lender from duly completing and delivering any such letter or form with respect to it and such Lender or Issuing Lender advises the Borrower and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax, such Lender or Issuing

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Lender shall not be required to deliver such letter or forms. The Borrower shall withhold tax at the rate and in the manner required by the laws of the United States with respect to payments made to a Lender failing to timely provide the requisite Internal Revenue Service forms.

        (e)    Evidence of Payments.    As soon as practicable after any payment of Taxes, Other Taxes or any taxes which are paid pursuant to clause (c) above by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

        Section 2.15    Mitigation Obligations; Replacement of Lenders.

        (a)    Designation of a Different Lending Office.    If any Lender requests compensation under Section 2.13, or requires the Borrower to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Advances hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.13 or 2.14, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. A Lender shall not be required to make any such delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such delegation cease to apply.

        (b)    Replacement of Lenders.    If (i) any Lender requests compensation under Section 2.13, (ii) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, (iii) any Lender suspends its obligation to continue, or Convert Advances into, Eurodollar Rate Advances pursuant to Section 2.03(c)(ii), Section 2.03(c)(v) or Section 2.05(d), (iv) any Lender becomes a Defaulting Lender, or (v) any Lender is a Non-Consenting Lender (any Lender described in the foregoing clauses (i), (ii), (iii), (iv) or (v), a "Subject Lender"), then (A) in the case of a Defaulting Lender, the Administrative Agent may, upon notice to the Subject Lender and the Borrower, require such Subject Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an Eligible Assignee that shall assume such obligations (which Eligible Assignee may be another Lender, if a Lender accepts such assignment) and (B) in the case of any Subject Lender, including a Defaulting Lender, the Borrower may, upon notice to the Subject Lender and the Administrative Agent and at the Borrower's sole cost and expense, require such Subject Lender to assign, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that:

          (i)  other than for an assignment of a Defaulting Lender requested by the Administrative Agent, the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 10.06;

         (ii)  such Lender shall have received payment of an amount equal to the outstanding principal of its Advances and participations in Letter of Credit Obligations, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 2.12 unless such assignment is an assignment of a Defaulting Lender) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);

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        (iii)  in the case of any such assignment resulting from a claim for compensation under Section 2.13 or payments required to be made pursuant to Section 2.14, such assignment will result in a reduction in such compensation or payments thereafter;

        (iv)  such assignment does not conflict with applicable Legal Requirements; and

         (v)  with respect to a Non-Consenting Lender, the proposed agreement, amendment, waiver, consent or release with respect to this Agreement or any other Loan Document (including any increases to the Borrowing Base) has been approved by the Required Lenders and such agreement, amendment, waiver, consent or release can be effected as a result of the assignment contemplated by this Section.

A Lender shall not be required to make any such assignment if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment cease to apply. Solely for purposes of effecting the assignment required for a Defaulting Lender under this Section 2.15, and to the extent permitted under applicable Legal Requirements, each Lender hereby designates and appoints the Administrative Agent as true and lawful agent and attorney-in-fact, with full power and authority, for and on behalf of and in the name of such Lender to execute, acknowledge and deliver the Assignment and Assumption required hereunder if such Lender was a Defaulting Lender and such Lender shall be bound thereby as fully and effectively as if such Lender had personally executed, acknowledged and delivered the same.

        Section 2.16    Defaulting Lender Cure.    If the Borrower, the Administrative Agent and the Issuing Lender agree in writing in their discretion that a Lender that is a Defaulting Lender or a Potential Defaulting Lender should no longer be deemed to be a Defaulting Lender or Potential Defaulting Lender, as the case may be, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, such Lender will, to the extent applicable, purchase such portion of outstanding Advances of the other Lenders and/or make such other adjustments as the Administrative Agent may determine to be necessary to cause the Advances and Letter of Credit Exposure of the Lenders to be on a pro rata basis in accordance with their respective Commitments, whereupon such Lender will cease to be a Defaulting Lender or Potential Defaulting Lender and will be a Non-Defaulting Lender (and the Advances and Letter of Credit Exposure of each Lender will automatically be adjusted on a prospective basis to reflect the foregoing); provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while such Lender was a Defaulting Lender; and provided further that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender or Potential Defaulting Lender to Non-Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lender's having been a Defaulting Lender or Potential Defaulting Lender.

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ARTICLE III
CONDITIONS PRECEDENT

        Section 3.01    Conditions Precedent to Effectiveness.    The obligation of each Lender to make its initial Advance as part of the initial Borrowing or the Issuing Bank to issue the initial Letters of Credit is subject to the conditions precedent that:

        (a)    Documentation.    The Administrative Agent shall have received the following duly executed by all the parties thereto, in form and substance satisfactory to the Administrative Agent, the Issuing Lender and the Lenders, and, where applicable, in sufficient copies for each Lender:

          (i)  this Agreement, a Note payable to the order of each Lender in the amount of its Commitment, the Guaranties, the Pledge Agreements, the Security Agreements, Mortgages encumbering at least 80% of the Borrower's and its Subsidiaries' Proven Reserves and Oil and Gas Properties (as set forth in the Initial Engineering Report) and each of the other Loan Documents, and all attached exhibits and schedules;

         (ii)  a favorable opinion of (A) the Borrower's counsel dated as of the date of this Agreement in form of the attached Exhibit K-1 and (B) the Borrower's local counsel in the states of Arkansas, California, and Colorado dated as of the date of this Agreement in form of Exhibit K-2 covering the matters discussed in such Exhibit and such other matters as any Lender through the Administrative Agent may reasonably request;

        (iii)  copies, certified as of the date of this Agreement by a Responsible Officer or the secretary or an assistant secretary of the Borrower of (A) the resolutions of the board of directors or managers (or other applicable governing body) of the Borrower approving the Loan Documents to which it is a party, (b) the articles or certificate (as applicable) of incorporation (or organization) and bylaws, limited liability company agreement, operating agreement, limited partnership agreement or other governing documents of the Borrower, and (c) all other documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Notes, and the other Loan Documents;

        (iv)  certificates of a Responsible Officer of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign this Agreement, the Notes, the Notices of Borrowing, the Notices of Conversion or Continuation, and the other Loan Documents to which the Borrower is a party;

         (v)  copies, certified as of the date of this Agreement by a Responsible Officer or the secretary or an assistant secretary of each Guarantor of (a) the resolutions of the board of directors or managers (or other applicable governing body) of such Guarantor approving the Loan Documents to which it is a party, (b) the articles or certificate (as applicable) of incorporation (or organization) and bylaws, limited liability company agreement, operating agreement, limited partnership agreement or other governing documents of such Guarantor, and (c) all other documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Guaranty, the Security Instruments, and the other Loan Documents to which such Guarantor is a party;

        (vi)  a certificate of the secretary or an assistant secretary of each Guarantor certifying the names and true signatures of officers of such Guarantor authorized to sign the Guaranty, the Security Instruments, and the other Loan Documents to which such Guarantor is a party;

       (vii)  certificates of good standing for the Borrower and each Guarantor in each state in which each such Person is organized or qualified to do business, which certificate shall be dated a date not sooner than 30 days prior to the date of this Agreement;

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      (viii)  a certificate dated as of the date of this Agreement from a Responsible Officer of the Borrower stating that (a) all representations and warranties of the Borrower set forth in this Agreement are true and correct in all material respects; (b) no Default has occurred and is continuing; and (c) the conditions in this Section 3.01 have been met;

        (ix)  appropriate UCC-1 and UCC-3, as applicable, Financing Statements covering the Collateral for filing by the Administrative Agent with the appropriate authorities and any other documents, agreements or instruments reasonably necessary to create an Acceptable Security Interest in such Collateral;

         (x)  to the extent required in connection with the Pledge Agreements, (A) stock or, to the extent applicable under the Person's organizational documents, membership or partnership interest certificates, and stock powers executed in blank for each such stock certificate endorsed in blank to the Administrative Agent and (B) to the extent such Person is a limited liability company or a limited partnership, copies of its limited liability company agreement, partnership agreement or other similar document the terms of which expressly provide that membership interests or partnership interests, as applicable, in such Person are securities governed by Chapter 8 of the Uniform Commercial Code as in effect in the State of Texas;

        (xi)  casualty insurance certificates naming the Administrative Agent loss payee and liability insurance certificates naming Administrative Agent as additional insured and evidencing insurance which meets the requirements of this Agreement and the Security Instruments, and which is otherwise satisfactory to the Administrative Agent;

       (xii)  (a) the Initial Engineering Report and (b) a certified production report dated effective December 31, 2010 as described in Section 5.06(d); and

      (xiii)  such other documents, governmental certificates, agreements and lien searches as the Administrative Agent or any Lender may reasonably request.

        (b)    Payment of Fees.    On the date of this Agreement, the Borrower shall have paid the Administrative Agent's fees required by Section 2.08(c), the fees required to be paid on the Closing Date under the Fee Letter and all costs and expenses that have been invoiced and are payable pursuant to Section 10.04.

        (c)    Delivery of Financial Statements.    The Administrative Agent and the Lenders shall have received true and correct copies of (i) the Initial Financial Statements, (ii) a certificate by an authorized Responsible Officer of the Borrower certifying that the Initial Financial Statements have been prepared in accordance with GAAP and fairly present, in all material respects, the consolidated financial condition, results of operations, and cash flows as of such date in accordance with GAAP (subject, in each case, to the absence of footnotes and to year end audit adjustments), and (iii) such other financial information as the Lenders may reasonably request.

        (d)    Security Instruments.    The Administrative Agent shall have received all appropriate evidence required by the Administrative Agent and the Lenders in their sole discretion necessary to determine that the Administrative Agent (for its benefit and the benefit of the Secured Parties) shall have an Acceptable Security Interest in the Collateral (which shall include at least 80% of the Borrower's and its Subsidiaries' Proven Reserves and Oil and Gas Properties (as set forth in the Initial Engineering Report)) and that all actions or filings necessary to protect, preserve and validly perfect such Liens have been made, taken or obtained, as the case may be, and are in full force and effect.

        (e)    Title.    The Administrative Agent and the Lenders shall have received an irrevocable and unconditional commitment for issuance of ALTA (or equivalent) lender's policy of title insurance insuring the lien of the Mortgage described on Exhibit D-3 securing the processing plant and related midstream assets in Lafayette County, Arkansas as a first priority lien in the amount of $25,000,000, in

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form and substance reasonably acceptable to Administrative Agent, including all endorsements reasonably requested by Administrative Agent, together with evidence that the corresponding premiums associated with such policy have either been paid or escrowed on terms acceptable to the Administrative Agent.

        (f)    Environmental.    The Administrative Agent shall have received such environmental assessments or other reports as it may reasonably require and shall be satisfied with the condition of the Oil and Gas Properties with respect to the Borrower's compliance with Environmental Laws.

        (g)    No Default.    No Default shall have occurred and be continuing.

        (h)    Representations and Warranties.    The representations and warranties contained in Article IV hereof and in each other Loan Document shall be true and correct in all material respects as of the date of the initial Borrowing (except in the case of representations and warranties which are made solely as of an earlier date or time, which representations and warranties shall be true and correct in all material respects as of such earlier date or time).

        (i)    Material Adverse Change.    No event or circumstance that could reasonably be expected to cause a Material Adverse Change shall have occurred.

        (j)    No Proceeding or Litigation; No Injunctive Relief.    No action, suit, investigation or other proceeding (including, without limitation, the enactment or promulgation of a statute or rule) by or before any arbitrator or any Governmental Authority shall be threatened or pending and no preliminary or permanent injunction or order by a state or federal court shall have been entered (i) in connection with (A) any of the Oil and Gas Properties or other Properties of any of the Borrower and its Subsidiaries or (B) this Agreement or any transaction contemplated hereby or (ii) which, in any case, in the judgment of the Administrative Agent, could reasonably be expected to result in a Material Adverse Change.

        (k)    Consents, Licenses, Approvals, etc.    The Administrative Agent shall have received true copies (certified to be such by the Borrower or other appropriate party) of all consents, licenses and approvals required in accordance with applicable Legal Requirements, or in accordance with any document, agreement, instrument or arrangement to which any Obligor or any Subsidiary of an Obligor is a party, and in each case, in connection with the execution, delivery, performance, validity and enforceability of this Agreement and the other Loan Documents. In addition, each Obligor and its respective Subsidiaries shall have all such material consents, licenses and approvals required in connection with the continued operation of the Obligor and its respective Subsidiaries, and such approvals shall be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on this Agreement and the actions contemplated hereby.

        (l)    Material Contracts.    The Borrower shall have delivered to the Administrative Agent copies of all contracts, agreements, or instruments contemplated by Section 4.21.

        (m)    Notice of Borrowing.    The Administrative Agent shall have received a Notice of Borrowing from the Borrower, with appropriate insertions and executed by a duly authorized Responsible Officer of the Borrower for any Advances to be made on the Closing Date.

        (n)    USA Patriot Act.    The Administrative Agent shall have received all appropriate information needed to be in compliance with the USA Patriot Act, including taxpayer identification and social security numbers of all institutions or individuals holding ten percent (10%) or greater of the outstanding Equity Interests of the Borrower or its Subsidiaries.

        (o)    Required Commodity Hedges.    The Administrative Agent and the Lenders shall be satisfied with the Borrower's and its Subsidiaries' existing Hedge Contracts, as listed on Schedule 3.01.

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        (p)    Minimum Liquidity.    The sum of the aggregate of all Lenders' Unused Commitment Amounts as of the Closing Date after giving effect to the Borrowings requested and made on the Closing Date shall be at least fifteen percent (15%) of the initial Borrowing Base in effect as of the date of this Agreement.

        (q)    Payment of Existing Debt.    Administrative Agent shall have received sufficient evidence satisfactory to it indicating that simultaneously with the effectiveness of this Agreement, (i) the obligations of each Obligor (for purposes of this paragraph (q), as such term is defined in the Existing Credit Agreement) under the Existing Credit Agreement and the other Loan Documents (for purposes of this paragraph (q), as such term is defined in the Existing Credit Agreement) shall have been satisfied in full and all of the commitments thereunder shall have been terminated and (ii) acceptable provisions have been made for the termination of the Liens securing the same.

        Section 3.02    Conditions Precedent to All Borrowings.    The obligation of each Lender to make an Advance on the occasion of each Borrowing and of the Issuing Lender to issue, increase, or extend any Letter of Credit shall be subject to the further conditions precedent that on the date of such Borrowing or the date of the issuance, increase, or extension of such Letter of Credit:

        (a)   the following statements shall be true (and each of the giving of the applicable Notice of Borrowing, Notice of Conversion or Continuation, or Letter of Credit Application and the acceptance by the Borrower of the proceeds of such Borrowing or the issuance, increase, or extension of such Letter of Credit shall constitute a representation and warranty by the Borrower that on the date of such Borrowing or on the date of such issuance, increase, or extension of such Letter of Credit, as applicable, such statements are true):

          (i)  the representations and warranties contained in Article IV of this Agreement and the representations and warranties contained in the Security Instruments, the Guaranties, and each of the other Loan Documents are true and correct in all material respects on and as of the date of such Borrowing or the date of the issuance, increase, or extension of such Letter of Credit, before and after giving effect to such Borrowing or to the issuance, increase, or extension of such Letter of Credit and to the application of the proceeds from such Borrowing, as though made on and as of such date, except those representations and warranties that speak of a certain date, which representations and warranties were true and correct as of such date; and

         (ii)  no Default has occurred and is continuing or would result from such Borrowing or from the application of the proceeds therefrom, or would result from the issuance, increase, or extension of such Letter of Credit.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES

        The Borrower represents and warrants as follows:

        Section 4.01    Corporate Existence; Subsidiaries.    (a) the Borrower is a corporation duly organized, validly existing and in good standing under the laws of Delaware; (b) the Borrower is in good standing and qualified to do business in each jurisdiction where its ownership or lease of Property or conduct of its business requires such qualification, except where the failure to be so in good standing and qualified could not reasonably be expected to cause a Material Adverse Change; and (c) each Guarantor is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization or formation and in good standing and qualified to do business in each jurisdiction where its ownership or lease of Property or conduct of its business requires such qualification, except where the failure to be so qualified could not reasonably be expected to cause a Material Adverse Change. As of the date of this Agreement, the Borrower has no Subsidiaries other than as set forth in Schedule 4.01.

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        Section 4.02    Power.    The execution, delivery, and performance by the Borrower of this Agreement, the Notes, and the other Loan Documents to which it is a party and by the Guarantors of the Guaranties and the other Loan Documents to which they are a party and the consummation of the transactions contemplated hereby and thereby, including the request for and borrowing of any Advance by the Borrower, the request for and issuance, extension or increase of any Letter of Credit for the account of any Obligor, and the receipt and use of the proceeds of any Advance and such Letter of Credit: (a) are within such Obligor's governing powers, (b) have been duly authorized by all necessary governing action, (c) do not contravene (i) any Obligor's certificate or articles of incorporation, bylaws, limited liability company agreement, partnership agreement or other similar governance documents or (ii) any Legal Requirement or any contractual restriction binding on or affecting any Obligor, and (d) will not result in or require the creation or imposition of any Lien prohibited by this Agreement.

        Section 4.03    Authorization and Approvals.    Except for the filing of the Security Instruments or as contemplated by this Agreement, no consent, order, authorization, or approval or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required for the due execution, delivery, and performance by the Borrower of this Agreement, the Notes, or the other Loan Documents to which the Borrower is a party or by each Guarantor of its Guaranty or the other Loan Documents to which it is a party or the consummation of the transactions contemplated hereby or thereby (including the request and borrowing of any Advance by the Borrower, the request for and issuance extension or increase of, any Letter of Credit for the account of any Obligor, and the receipt and use of the proceeds of such Advance and such Letter of Credit) that has not been obtained or given, except for such consents, orders, authorizations, approvals, action or notices related to performance by Obligors hereunder, the failure of which could not reasonably be expected to result in a Material Adverse Change.

        Section 4.04    Enforceable Obligations.    This Agreement, the Notes, and the other Loan Documents to which an Obligor is a party have been duly executed and delivered by such Obligor. Each Loan Document is the legal, valid, and binding obligation of each Obligor which is a party to it and enforceable against such Obligor in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors' rights generally and by general principles of equity.

        Section 4.05    Financial Statements.

        (a)   The Borrower has delivered to the Administrative Agent and the Lenders copies of the Initial Financial Statements, and the Initial Financial Statements present fairly in all material respects the financial condition of the Borrower as of the date thereof in accordance with GAAP (subject, in each case, to the absence of footnotes and to year end audit adjustments). As of the date of the Initial Financial Statements, there were no material contingent obligations, liabilities for taxes, extraordinary forward or long-term commitments, or unrealized or anticipated losses of the Borrower or any of its Subsidiaries, except as disclosed therein and adequate reserves for such items have been made in accordance with GAAP.

        (b)   All projections, estimates, and pro forma financial information furnished by, or on behalf of, the Borrower were prepared on the basis of assumptions, data, information, tests, or conditions believed by the Borrower to be reasonable at the time such projections, estimates, and pro forma financial information were furnished.

        (c)   Since December 31, 2010, no event or circumstance that could reasonably be expected to cause a Material Adverse Change has occurred.

        (d)   As of the date of this Agreement and after giving effect to the making of the initial Advances or the issuance of the initial Letters of Credit, neither the Borrower nor any of its Subsidiaries has any Debt other than (i) Debt under this Agreement and (ii) any other Debt listed on Schedule 4.05.

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        Section 4.06    True and Complete Disclosure.    All written information (excluding estimates) heretofore or contemporaneously furnished by, or on behalf of, any Obligor in writing to any Lender or the Administrative Agent for purposes of or in connection with this Agreement, any other Loan Document or any transaction contemplated hereby or thereby is, and all other such written information hereafter furnished by, or on behalf of, any Obligor in writing to the Administrative Agent or any of the Lenders, taken as a whole, shall be, true and accurate in all material respects on the date as of which such information is dated or certified and does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained therein taken as a whole not misleading at such time.

        Section 4.07    Litigation; Compliance with Law.

        (a)   Except as set forth on Schedule 4.07, there is no pending or, to the knowledge of the Borrower, threatened action, suit, or legal, equitable, arbitrative or administrative proceeding affecting any Obligor before any court, Governmental Authority or arbitrator which could reasonably be expected to cause a Material Adverse Change or which purports to affect the legality, validity, binding effect or enforceability of this Agreement, any Note, or any other Loan Document. Additionally, there is no pending or, to the knowledge of the Borrower, threatened action, suit, or legal equitable, arbitrative or administrative proceeding instituted against any Obligor which seeks to adjudicate any Obligor as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its Property.

        (b)   The Borrower and its Subsidiaries have complied in all respects with all statutes, rules, regulations, orders and restrictions of any Governmental Authority having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property, except where such non-compliance could not reasonably be expected to cause a Material Adverse Change.

        Section 4.08    Use of Proceeds.    The proceeds of the Advances will be used by the Borrower for the purposes described in Section 5.09. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U). No proceeds of any Advance will be used to purchase or carry any margin stock in violation of Regulation T, U or X.

        Section 4.09    Investment Company Act.    No Obligor is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended.

        Section 4.10    Federal Power Act.    Neither the Borrower nor its Subsidiaries is subject to regulation under the Federal Power Act, as amended or any other Legal Requirement which regulates the incurring by such Person of Debt, including Legal Requirements relating to common contract carriers or the sale of electricity, gas, steam, water or other public utility services.

        Section 4.11    Taxes.

        (a)    Reports and Payments.    All Returns (as defined below in clause (c) of this Section) required to be filed by or on behalf of any Obligor or any member of the Controlled Group (hereafter collectively called the "Tax Group") have been duly filed on a timely basis or appropriate extensions have been obtained and such Returns are and will be true, complete and correct in all material respects, except where the failure to so file would not be reasonably expected to cause a Material Adverse Change; and all Taxes shown to be payable on the Returns or on subsequent assessments with respect thereto will have been paid in full on a timely basis, and no other Taxes will be payable by the Tax Group with respect to items or periods covered by such Returns, except in each case to the extent

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of (i) reserves reflected in the Initial Financial Statements or financial statements of the Borrower delivered to the Administrative Agent pursuant to this Agreement, or (ii) Taxes that are being contested in good faith. The reserves for accrued Taxes reflected in the financial statements delivered to the Lenders under this Agreement are adequate in the aggregate for the payment of all unpaid Taxes, whether or not disputed, for the period ended as of the date thereof and for any period prior thereto, and for which the Tax Group may be liable in its own right, as withholding agent or as a transferee of the assets of, or successor to, any Person.

        (b)    Taxes Definition.    "Taxes" in this Section 4.11 shall mean all taxes, charges, fees, levies, or other assessments imposed by any federal, state, local, or foreign taxing authority, including without limitation, income, gross receipts, excise, real or personal property, sales, occupation, use, service, leasing, environmental, value added, transfer, payroll, and franchise taxes (and including any interest, penalties, or additions to tax attributable to or imposed on with respect to any such assessment).

        (c)    Returns Definition.    "Returns" in this Section 4.11 shall mean any federal, state, local, or foreign report, estimate, declaration of estimated Tax, information statement or return relating to, or required to be filed in connection with, any Taxes, including any information return or report with respect to backup withholding or other payments of third parties.

        Section 4.12    Pension Plans.    All Plans are in compliance in all material respects with all applicable provisions of ERISA. No Termination Event has occurred with respect to any Plan, and each Plan has complied with and been administered in all material respects in accordance with applicable provisions of ERISA and the Code. No "accumulated funding deficiency" (as defined in Section 302 of ERISA) has occurred with respect to any Plan and there has been no excise tax imposed under Section 4971 of the Code with respect to any Plan. No Reportable Event has occurred, whether individually or in the aggregate, with respect to any Multiemployer Plan, and each Multiemployer Plan has complied with and been administered in all material respects with in accordance with applicable provisions of ERISA and the Code. The present value of all benefits vested under each Plan (based on the assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed the value of the assets of such Plan allocable to such vested benefits by an amount that could reasonably be expected to give rise to a Material Adverse Change. No Obligor and no member of the Controlled Group has had a complete or partial withdrawal from any Multiemployer Plan for which any Obligor has any withdrawal liability. As of the most recent valuation date applicable thereto, neither the Borrower nor any of its ERISA Affiliates would become subject to any liability under ERISA if the Borrower or any of ERISA Affiliate of the Borrower has received notice that any Multiemployer Plan is insolvent or in reorganization. Based upon GAAP existing as of the date of this Agreement and current factual circumstances, the Borrower has no reason to believe that the annual cost during the term of this Agreement to the Borrower or any ERISA Affiliate of the Borrower for post-retirement benefits to be provided to the current and former employees of the Borrower or any ERISA Affiliate of the Borrower under Plans that are welfare benefit plans (as defined in Section 3(1) of ERISA) could, in the aggregate, reasonably be expected to cause a Material Adverse Change.

        Section 4.13    Condition of Property; Casualties.    Each Obligor has good and defensible title to all of its Properties as is customary in the oil and gas industry in all material respects, free and clear of all Liens except for Permitted Liens. The material Properties used or to be in the continuing operations of the Borrower and its Subsidiaries are in reasonably good repair, working order and condition (ordinary wear and tear excepted). Since December 31, 2010, neither the business nor any Property of the Obligors has been affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property or cancellation of contracts, Permits, or concessions by a Governmental Authority, riot, activities of armed forces, or acts of God or of any public enemy (whether or not covered by insurance).

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        Section 4.14    No Burdensome Restrictions; No Defaults.

        (a)   Neither the Borrower nor any Subsidiary of the Borrower is a party to any indenture, loan, or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction or provision of applicable Legal Requirement that could reasonably be expected to cause a Material Adverse Change. Neither the Borrower nor any Subsidiary of the Borrower is in default under or with respect to, nor has the Borrower or any Subsidiary of the Borrower received any notice of default under, any contract, agreement, lease, or other instrument to which the Borrower or any Subsidiary is a party and which could reasonably be expected to cause a Material Adverse Change.

        (b)   No Default has occurred and is continuing.

        Section 4.15    Environmental Condition.

        (a)    Permits, Etc.    The Obligors (i) have obtained all Environmental Permits necessary for the ownership and operation of their respective Properties and the conduct of their respective businesses, except where the failure to obtain such Environmental Permit could not reasonably be expected to result in a Material Adverse Change; (ii) have at all times been and are in compliance with all terms and conditions of such Permits and with all other requirements of applicable Environmental Laws, except for any noncompliance that could not reasonably be expected to result in a Material Adverse Change; (iii) have not received notice of any violation or alleged violation of any Environmental Law or Permit that has not been resolved or that could reasonably be expected to cause a Material Adverse Change; and (iv) are not subject to any actual or contingent Environmental Claim, which could reasonably be expected to cause a Material Adverse Change.

        (b)    Certain Liabilities.    To the Borrower's actual knowledge, none of the present or previously owned or operated Property of any Obligor or of any former Subsidiary of an Obligor, wherever located: (i) has been placed on or proposed to be placed on the National Priorities List, the Comprehensive Environmental Response Compensation Liability Information System list, or their state or local analogs, or have been otherwise investigated, designated, listed, or identified as a potential site for removal, remediation, cleanup, closure, restoration, reclamation, or other response activity under any Environmental Laws; (ii) is subject to a Lien, arising under or in connection with any Environmental Laws, that attaches to any revenues or to any Property owned or operated by any Obligor, wherever located, which could reasonably be expected to cause a Material Adverse Change; or (iii) has been the site of any Release of Hazardous Substances or Hazardous Wastes from present or past operations which has caused at the site or at any third-party site any condition that has resulted in or could reasonably be expected to result in the need for Response that would cause a Material Adverse Change.

        (c)    Certain Actions.    Without limiting the foregoing, (i) all necessary notices have been properly filed, and no further action is required under current Environmental Law as to each Response or other restoration or remedial project undertaken by any Obligor or any former Subsidiary of an Obligor on any of their presently or formerly owned or operated Property and (ii) the present and, to the Borrower's knowledge, future liability, if any, of the Obligors which could reasonably be expected to arise in connection with requirements under Environmental Laws will not result in a Material Adverse Change.

        Section 4.16    Permits, Licenses, Etc.    The Obligors possess all consents, authorizations, Permits, licenses, patents, patent rights or licenses, trademarks, trademark rights, trade names rights and copyrights which are necessary to the conduct of their business, except to the extent the failure to do so could not reasonably be expected to result in a Material Adverse Change. The Obligors manage and operate their business in all material respects in accordance with all applicable Legal Requirements and good industry practices.

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        Section 4.17    Gas Contracts.    No Obligor, as of the date hereof, (a) is obligated in any material respect by virtue of any prepayment made under any contract containing a "take-or-pay" or "prepayment" provision or under any similar agreement to deliver Hydrocarbons produced from or allocated to any Obligor's Oil and Gas Properties at some future date without receiving full payment therefor at the time of delivery, or (b) has produced gas, in any material amount, subject to, and none of the Obligor's Oil and Gas Properties is subject to, balancing rights of third parties or subject to balancing duties under governmental requirements, in each case, other than those imbalances which (i) occur in the ordinary course of business and (ii) do not, in the aggregate, exceed 1% of the value of the Proven Reserves of the Obligors.

        Section 4.18    Liens; Titles, Leases, Etc.    None of the Property of any Obligor is subject to any Lien other than Permitted Liens. On the date of this Agreement, all governmental actions and all other filings, recordings, registrations, third party consents and other actions which are necessary to create and perfect the Liens provided for in the Security Instruments will have been made, obtained and taken in all relevant jurisdictions (other than filings of the Mortgages and any financing statements contemplated by the Security Instruments, which filings shall occur promptly after the date of this Agreement). All Leases and agreements for the conduct of business of the Obligors are valid and subsisting, in full force and effect and there exists no default or event of default or circumstance which with the giving of notice or lapse of time or both would give rise to a default under any of such leases or agreements which could reasonably be expected to cause a Material Adverse Change. No Obligor is a party to any agreement or arrangement (other than this Agreement and the Security Instruments), or subject to any order, judgment, writ or decree, which either restricts or purports to restrict its ability to grant Liens to secure the Obligations against their respective assets or Properties.

        Section 4.19    Solvency and Insurance.    Before and after giving effect to the making of the initial Advances, each Obligor is Solvent. Additionally, each Obligor carries insurance required under Section 5.02.

        Section 4.20    Hedge Contracts.    Schedule 4.20 sets forth, as of the date hereof, a true and complete list of all Interest Hedge Agreements, Hydrocarbon Hedge Agreements and any other Hedge Contract of each Obligor, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), and the counterparty to each such agreement.

        Section 4.21    Material Agreements.    Schedule 4.21 sets forth a complete and correct list of all material agreements, leases (other than Leases), indentures, purchase agreements, obligations in respect of letters of credit, guarantees, joint venture agreements, and other instruments in effect or to be in effect as of the date hereof providing for, evidencing, securing or otherwise relating to any Debt or other material financial obligations of any Obligor, and all obligations of any Obligor to issuers of surety or appeal bonds issued for account of such Obligor, and such list correctly sets forth on the date hereof the names of the debtor or lessee and creditor or lessor with respect to the Debt or lease obligations outstanding or to be outstanding and the Property subject to any Lien securing such Debt or lease obligation. Also set forth on Schedule 4.21 is a complete and correct list of all material agreements and other instruments of the Obligors on the date hereof relating to the purchase, transportation by pipeline, gas processing, marketing, sale and supply of natural gas and other Hydrocarbons. Except as detailed otherwise in Schedule 4.21, the Borrower has heretofore delivered to the Administrative Agent and the Lenders a complete and correct copy of all such material credit agreements, indentures, purchase agreements, contracts, letters of credit, guarantees, joint venture agreements, or other instruments, including any modifications or supplements thereto, as in effect on the date hereof and as of the Closing Date.

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ARTICLE V
AFFIRMATIVE COVENANTS

        So long as any Note or any amount under any Loan Document shall remain unpaid, any Letter of Credit shall remain outstanding or any Letter of Credit Exposure shall exist, or any Lender shall have any Commitment hereunder, the Borrower agrees, unless the Required Lenders shall otherwise consent in writing, to comply with the following covenants.

        Section 5.01    Compliance with Laws, Etc.    The Borrower shall comply, and cause each of its Subsidiaries to comply, in all material respects with all Legal Requirements. Without limiting the generality and coverage of the foregoing, the Borrower shall comply, and shall cause each of its Subsidiaries to comply, in all material respects with all Environmental Laws and all laws, regulations, or directives with respect to equal employment opportunity and employee safety in all jurisdictions in which the Borrower or any of its Subsidiaries does business; provided, however, that this Section 5.01 shall not prevent the Borrower or any such Subsidiary from, in good faith and with reasonable diligence, contesting the validity or application of any such laws or regulations by appropriate legal proceedings so long as such reserve as may be required by GAAP shall have been made therefor. Without limitation of the foregoing, the Borrower shall, and shall cause each of its Subsidiaries to, (a) maintain and possess all authorizations, Permits, licenses, trademarks, trade names, rights and copyrights which are necessary to the conduct of its business except to the extent the failure to do so could not reasonably be expected to result in a Material Adverse Change, and (b) obtain, as soon as practicable, all consents or approvals required from any states of the United States (or other Governmental Authorities) necessary to grant the Administrative Agent an Acceptable Security Interest in the Borrower's and its Subsidiaries' Oil and Gas Properties, to the extent required by Section 5.08.

        Section 5.02    Maintenance of Insurance.

        (a)   The Borrower shall, and shall cause each of its Subsidiaries to, procure and maintain or shall cause to be procured and maintained continuously in effect with financially sound and reputable insurance companies, insurance in such amounts and against such risks and liabilities as are customarily maintained by companies engaged in the same or similar businesses (including, as applicable, oil and gas exploration and production companies), operating in the same or similar locations and as otherwise reasonably satisfactory to the Administrative Agent. In addition, the Borrower shall, and shall cause each of its Subsidiaries to, comply with all requirements regarding insurance contained in the Security Instruments.

        (b)   All copies of policies (which copies must be certified by a Responsible Officer of the Borrower) or certificates thereof, and endorsements and renewals thereof shall be delivered to and retained by the Administrative Agent. All policies of insurance shall either have attached thereto a Lender's loss payable endorsement for the benefit of the Administrative Agent, as loss payee in form reasonably satisfactory to the Administrative Agent or shall name the Administrative Agent as an additional insured, as applicable. The Borrower shall furnish the Administrative Agent with a certificate of insurance or a copy certified by a Responsible Officer of the Borrower of all policies of insurance required. All policies or certificates of insurance shall set forth the coverage, the limits of liability, the name of the carrier, the policy number, and the period of coverage. In addition, all policies of insurance required under the terms hereof shall contain an endorsement or agreement by the insurer that any loss shall be payable in accordance with the terms of such policy notwithstanding any act of ordinary civil negligence of the Borrower, or a Subsidiary or any party holding under the Borrower or a Subsidiary which might otherwise result in a forfeiture of the insurance and the further agreement of the insurer waiving all rights of setoff, counterclaim or deductions against the Borrower and its Subsidiaries. All such policies shall contain a provision that notwithstanding any contrary agreements between the Borrower, its Subsidiaries, and the applicable insurance company, such policies will not be canceled, allowed to lapse without renewal or surrendered or amended in a way that materially reduces

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the scope or limits of coverage) without at least 30 days' prior written notice to the Administrative Agent. In the event that, notwithstanding the "lender's loss payable endorsement" requirement of this Section 5.02, the proceeds of any insurance policy described above are paid to the Borrower or any Subsidiary of the Borrower and any Obligations are outstanding, except as permitted under Section 5.02(c) below, the Borrower or such Subsidiary shall deliver such proceeds to the Administrative Agent immediately upon receipt.

        (c)   Prior to the occurrence and continuance of an Event of Default, (i) up to $5,000,000 of the proceeds of any insurance policy shall be paid directly to the Borrower or the applicable Subsidiary of the Borrower to repair or replace the damaged or destroyed Property covered by such policy; provided that the Borrower or such applicable Subsidiary shall make such repair or replace such Property with reasonable promptness (but no later than 180 days) after the receipt of such proceeds, and (ii) the remaining amount of such proceeds and any amount of proceeds that were paid to the Borrower or applicable Subsidiary of the Borrower as permitted under clause (i) above and not used toward the repair or replacement of such Property as required under such clause (i), shall be paid directly to the Administrative Agent and if necessary, assigned to the Administrative Agent to be, at the election of the Administrative Agent, (A) applied in accordance with Section 7.06 of this Agreement, whether or not the Obligations are then due and payable, or (B) returned to the Borrower or the applicable Subsidiary of the Borrower to repair or replace the damaged or destroyed Property covered by such policy.

        (d)   After the occurrence and during the continuance of an Event of Default, all proceeds of insurance, including any casualty insurance proceeds, property insurance proceeds, proceeds from actions, and any other proceeds, shall be paid directly to the Administrative Agent and if necessary, assigned to the Administrative Agent, to be applied in accordance with Section 7.06 of this Agreement, whether or not the Obligations are then due and payable

        (e)   In the event that any insurance proceeds are paid to the Borrower or any Subsidiary of the Borrower in violation of clause (c) or clause (d), the Borrower or such Subsidiary shall hold the proceeds in trust for the Administrative Agent, segregate the proceeds from the other funds of the Borrower or such Subsidiary, and promptly pay the proceeds to the Administrative Agent with any necessary endorsement. Upon the request of the Administrative Agent, the Borrower and its Subsidiaries shall execute and deliver to the Administrative Agent any additional assignments and other documents as may be necessary or desirable to enable the Administrative Agent to directly collect the proceeds as set forth herein.

        Section 5.03    Preservation of Corporate Existence, Etc.    The Borrower shall preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate, limited liability company or limited partnership, as applicable, existence, rights, franchises, and privileges in the jurisdiction of its incorporation or organization, as applicable, and qualify and remain qualified, and cause each such Subsidiary to qualify and remain qualified, as a foreign entity in each jurisdiction in which qualification is necessary or desirable in view of its business and operations or the ownership of its Properties, and, in each case, where failure to qualify or preserve and maintain its rights and franchises could reasonably be expected to cause a Material Adverse Change.

        Section 5.04    Payment of Taxes, Etc.    The Borrower shall pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (a) all taxes, assessments, and governmental charges or levies imposed upon it or upon its income or profits or Property that are material in amount, prior to the date on which penalties attach thereto, and (b) all lawful claims that are material in amount which, if unpaid, might by law become a Lien upon its Property; provided, however, that neither the Borrower nor any such Subsidiary shall be required to pay or discharge any such tax, assessment, charge, levy, or claim which is being contested in good faith and by appropriate proceedings, and with respect to which reserves in conformity with GAAP have been provided.

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        Section 5.05    Visitation Rights.    At any reasonable time and from time to time, upon reasonable notice, the Borrower shall, and shall cause its Subsidiaries to, permit the Administrative Agent and any Lender or any of their respective agents or representatives thereof, to (a) examine and make copies of and abstracts from the records and books of account of, and visit and inspect at their reasonable discretion the Properties of, the Borrower and any such Subsidiary and (b) discuss the affairs, finances and accounts of the Borrower and any such Subsidiary with any of their respective officers or directors.

        Section 5.06    Reporting Requirements.    The Borrower shall furnish to the Administrative Agent and each Lender:

        (a)    Annual Financials.    As soon as available but in any event not later than 90 days after the end of each fiscal year of the Borrower, commencing with the fiscal year ending December 31, 2010, (i) the unqualified audited annual Financial Statements for the Borrower accompanied by the related consolidating financial statements of each Subsidiary of the Borrower (provided that the consolidating statements will not be subject to a separate audit nor require notes), setting forth in comparative form the audited consolidated figures as of the end of and for the previous fiscal year, all prepared in conformity with GAAP consistently applied and all as audited by certified public accountants reasonably acceptable to the Administrative Agent and including any management letters delivered by such accountants to the Borrower in connection with such audit, (ii) a certificate of such accounting firm to the Administrative Agent and the Lenders stating that, in the course of the regular audit of the business of the Borrower and its consolidated Subsidiaries, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that a Default has occurred and is continuing, or if, in the opinion of such accounting firm, a Default has occurred and is continuing, a statement as to the nature thereof, and (iii) a Compliance Certificate executed by a Responsible Officer of the Borrower; provided that, in respect of the fiscal year ending December 31, 2010 only, in lieu of the requirement of clause (i) above, the Borrower shall deliver (A) not later than 120 days after the end of such fiscal year the audited consolidated balance sheet of the Borrower as of December 31, 2010, and not later than 90 days after the end of such fiscal year the audited consolidated financial statements for Holmes Eastern Company, LLC and for Bonanza Creek Energy Company, LLC for the fiscal year ending December 31, 2010, together with the related consolidating financial statements of each Subsidiary of Bonanza Creek Energy Company, LLC for such fiscal year end (provided that the consolidating statements will not be subject to a separate audit nor require notes), as audited by certified public accountants reasonably acceptable to the Administrative Agent.

        (b)    Quarterly Financials.    As soon as available and in any event not later than 60 days after the end of each of the first three fiscal quarters of the Borrower, commencing with the fiscal quarter ended March 31, 2011, (i) the unaudited Financial Statements for the Borrower accompanied by the related consolidating financial statements of each Subsidiary the Borrower for the period commencing at the end of the previous year and ending with the end of such fiscal quarter, and setting forth in comparative form the consolidated figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and duly certified with respect to such consolidated statements (subject to the absence of footnotes and to year end audit adjustments) by an authorized Responsible Officer of the Borrower as having been prepared in accordance with GAAP and as fairly presenting, in all material respects, the consolidated financial condition, results of operations, and cash flows of the Borrower and its Subsidiaries in accordance with GAAP; and (ii) a Compliance Certificate executed by an authorized Responsible Officer of the Borrower;

        (c)    Oil and Gas Reserve Reports.

          (i)  As soon as available but in any event on or before April 1 of each year, an Independent Engineering Report prepared as of the immediately preceding January 1;

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         (ii)  As soon as available but in any event on or before October 1 of each year an Internal Engineering Report prepared as of the immediately preceding July 1;

        (iii)  Such other information as may be reasonably requested by the Administrative Agent, or any Lender through the Administrative Agent, with respect to the Oil and Gas Properties included or to be included in the Borrowing Base;

        (iv)  With the delivery of each Engineering Report, a certificate from a Responsible Officer of the Borrower certifying that, to his knowledge and in all material respects: (a) the factual information provided by the Borrower in connection with the preparation of the Engineering Report was true and correct, (b) the Borrower and its Subsidiaries, as applicable, owns good and defensible title to the Oil and Gas Properties evaluated in such Engineering Report except as set forth on an exhibit to the certificate, such Properties are free of all Liens except for Permitted Liens and such Properties are subject to an Acceptable Security Interest to the extent required by Section 5.08, (c) except as set forth on an exhibit to the certificate, on a net basis there are no gas imbalances, take or pay or other prepayments with respect to its Oil and Gas Properties evaluated in such Engineering Report which would require the Borrower or its Subsidiaries to deliver Hydrocarbons produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor, (d) none of the Oil and Gas Properties of the Borrower or its Subsidiaries have been sold since the date of the last Borrowing Base determination except as set forth on an exhibit to the certificate, which certificate shall list all of its Oil and Gas Properties sold and in such detail as reasonably required by the Administrative Agent, (e) attached to the certificate is a list of its Oil and Gas Properties added to and deleted from the immediately prior Engineering Report and a list showing any change in working interest or net revenue interest in its Oil and Gas Properties occurring and the reason for such change, (f) attached to the certificate is a list of all Persons disbursing proceeds to the Borrower or its Subsidiaries, as applicable, from its Oil and Gas Properties, (g) all of the Oil and Gas Properties classified as Proven Reserves and evaluated by such Engineering Report are pledged as Collateral for the Obligations to the extent required by Section 5.08, and (h) to the extent required by the Administrative Agent or any Lender, attached to the certificate is a monthly cash flow budget for the six months following the delivery of such certificate setting forth the Borrower's projections for production volumes, revenues, expenses, taxes, budgeted capital expenditures and working capital requirements during such period;

        (d)    Production Reports.    As soon as available and in any event within 60 days after the end of each calendar quarter, commencing with the calendar quarter ended March 31, 2011, a report certified by a Responsible Officer of the Borrower in form and substance reasonably satisfactory to the Administrative Agent prepared by the Borrower covering each of the Oil and Gas Properties of the Borrower and its Subsidiaries and detailing on a monthly basis (i) the production, revenue, and price information and associated operating expenses for each such month, (ii) any changes to any producing reservoir, production equipment, or producing well during each such month, which changes could cause a Material Adverse Change, and (iii) any sales of the Borrower's or any Subsidiaries' Oil and Gas Properties during such quarter;

        (e)    Quarterly Report on Hedging.    Upon the delivery of the Engineering Reports required to be delivered by the Borrower to the Administrative Agent and the Lenders pursuant to Section 2.02 and within 60 days after the end of each calendar quarter end, a statement prepared by the Borrower and certified as being true and correct in all material respects by a Responsible Officer of the Borrower, setting forth in reasonable detail all Hydrocarbon Hedge Agreements to which any production of oil, gas or other Hydrocarbons from the Oil and Gas Properties of the Borrower or any Subsidiary of the Borrower is then subject, together with a statement of the Borrower's or such Subsidiary's, as applicable, position with respect to each such Hydrocarbon Hedge Agreement; provided, however, if the price of any of the oil, gas or other Hydrocarbons produced from such Oil and Gas Properties is

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subject to a Hydrocarbon Hedge Agreement, then the Borrower shall promptly notify the Administrative Agent and the Lenders if such Hydrocarbon Hedge Agreement is terminated, modified, amended or altered prior to the end of its contractual term, or if there is an amendment, adjustment or modification of the price of any of the oil, gas or other Hydrocarbons produced from such Oil and Gas Properties that is subject to or established by a Hydrocarbon Hedge Agreement;

        (f)    Defaults.    As soon as possible and in any event within five (5) days after (i) the occurrence of any Default or (ii) the occurrence of any default under any instrument or document evidencing Debt of any Obligor or any Subsidiary of an Obligor, in each case known to any officer of the Borrower or any Subsidiary of the Borrower which is continuing on the date of such statement, a statement of a Responsible Officer of the Borrower setting forth the details of such Default or default, as applicable, and the actions which such Obligor or such Subsidiary has taken and proposes to take with respect thereto;

        (g)    Termination Events.    As soon as possible and in any event (i) within 30 days after the Borrower or any ERISA Affiliate knows or has reason to know that any Termination Event described in clause (a) of the definition of Termination Event with respect to any Plan has occurred, and (ii) within five (5) days after the Borrower or any ERISA Affiliate knows or has reason to know that any other Termination Event with respect to any Plan has occurred, a statement of a Responsible Officer of the Borrower describing such Termination Event and the action, if any, which the Borrower or such ERISA Affiliate proposes to take with respect thereto;

        (h)    Termination of Plans.    Promptly and in any event within two (2) Business Days after receipt thereof by the Borrower or any ERISA Affiliate from the PBGC, copies of each notice received by the Borrower or any such ERISA Affiliate of the PBGC's intention to terminate any Plan or to have a trustee appointed to administer any Plan;

        (i)    Other ERISA Notices.    Promptly and in any event within five (5) Business Days after receipt thereof by the Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor, a copy of each notice received by the Borrower or any ERISA Affiliate concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA;

        (j)    Environmental Notices.    Promptly and in any event within five (5) Business Days after the receipt thereof by the Borrower or any Subsidiary of the Borrower, a copy of any form of request, notice, summons or citation received from the Environmental Protection Agency, or any other Governmental Authority, concerning (i) violations or alleged violations of Environmental Laws, which seeks to impose liability therefor and could cause a Material Adverse Change, (ii) any action or omission on the part of the Borrower or any Subsidiary of the Borrower or any of their former Subsidiaries in connection with Hazardous Waste or Hazardous Substances which could reasonably result in the imposition of liability therefor that could cause a Material Adverse Change, including without limitation any information request related to, or notice of, potential responsibility under CERCLA, or (iii) the filing of a Lien upon, against or in connection with the Borrower or any Subsidiary of the Borrower or their former Subsidiaries, or any of their leased or owned Property, wherever located;

        (k)    Other Governmental Notices.    Promptly and in any event within five (5) Business Days after receipt thereof by the Borrower or any Subsidiary of the Borrower a copy of any notice, summons, citation, or proceeding seeking to modify in any material respect, revoke, or suspend any material contract, license, permit or agreement with any Governmental Authority;

        (l)    Material Changes.    Promptly and in any event within five (5) Business Days after the knowledge thereof by the Borrower or any Subsidiary of the Borrower, written notice of any condition or event of which the Borrower has knowledge, which condition or event has resulted or may reasonably be expected to result in (i) a Material Adverse Change or (ii) a breach of or noncompliance

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with any material term, condition, or covenant of any material contract to which any Obligor or any Subsidiary of an Obligor is a party or by which they or their Properties may be bound which breach or noncompliance could reasonably be expected to result in a Material Adverse Change;

        (m)    Disputes, Etc.    Promptly and in any event within five (5) Business Days after the receipt thereof by the Borrower or any Subsidiary of the Borrower, written notice of (i) any claims, legal or arbitration proceedings, proceedings before any Governmental Authority, or disputes, or to the knowledge of the Borrower threatened, or affecting the Borrower, or any Subsidiary of the Borrower which, if adversely determined, could reasonably be expected to cause a Material Adverse Change, or any material labor controversy of which the Borrower or any Subsidiary of the Borrower has knowledge resulting in or reasonably considered to be likely to result in a strike against the Borrower or any Subsidiary of the Borrower and (ii) any claim, judgment, Lien or other encumbrance (other than a Permitted Lien) affecting any Property of the Borrower or any Subsidiary of the Borrower if the value of the claim, judgment, Lien, or other encumbrance affecting such Property shall exceed $2,000,000;

        (n)    Other Accounting Reports.    Promptly and in any event within five (5) Business Days after receipt thereof, a copy of each other report or letter submitted to the Borrower or any Subsidiary of the Borrower by independent accountants in connection with any annual, interim or special audit made by them of the books of the Borrower or any Subsidiary of the Borrower, and a copy of any response by the Borrower or any Subsidiary of the Borrower, or the board of directors (or other applicable governing body) of the Borrower or any Subsidiary of the Borrower, to such letter or report;

        (o)    Notice Regarding Early Termination of Hedge Contracts.    Promptly and in any event within one (1) Business Day after the Borrower or any Subsidiary of the Borrower learns of the impending occurrence of any novation, assignment, early termination or other unwind of any Hedge Contract of any Obligor prior to the end of its original, nominal term, a statement of a Responsible Officer of the Borrower describing such novation, assignment, early termination or unwind;

        (p)    Notices Under Other Loan Agreements.    Promptly and in any event within five (5) Business Days after the furnishing thereof, copies of any statement, report or notice furnished to any Person pursuant to the terms of any indenture, loan or credit or other similar agreement, other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other provision of this Section 5.06; and

        (q)    Other Information.    Such other information respecting the business or Properties, or the condition or operations, financial or otherwise, of the Borrower or any Subsidiary of the Borrower, as any Lender through the Administrative Agent may from time to time reasonably request. The Administrative Agent agrees to provide the Lenders with copies of any material notices and information delivered solely to the Administrative Agent pursuant to the terms of this Agreement.

        Section 5.07    Maintenance of Property.    The Borrower shall, and shall cause each of its Subsidiaries to, maintain their owned, leased, or operated Property necessary to the conduct of its business in reasonably good condition and repair (ordinary wear and tear excepted), except for any failure that could not reasonably be expected to cause a Material Adverse Change, and shall abstain, and cause each of its Subsidiaries to abstain from, knowingly or willfully permitting the commission of waste or other injury, destruction, or loss of natural resources, or the occurrence of pollution, contamination, or any other condition in, on or about the owned or operated Property involving the Environment that could reasonably be expected to result in Response activities and that could reasonably be expected to cause a Material Adverse Change.

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        Section 5.08    Agreement to Pledge.    The Borrower shall, and shall cause each of its Subsidiaries to, grant to the Administrative Agent an Acceptable Security Interest in any Property of the Borrower and all Subsidiaries of the Borrower now owned or hereafter acquired, including Proven Reserves and Oil and Gas Properties, promptly after receipt of a written request from the Administrative Agent; provided, however, that, unless an Event of Default has occurred and is continuing, the Borrower and its Subsidiaries shall, with respect to their Oil and Gas Properties, only be required to grant an Acceptable Security Interest with respect to Oil and Gas Properties constituting at least eighty percent (80%) of the total value of all such Oil and Gas Properties of the Borrower and its Subsidiaries.

        Section 5.09    Use of Proceeds.    On the date hereof the Borrower shall contribute a portion of the proceeds of the Advances to Bonanza Creek Energy Operating Company, LLC in an amount equal to the outstanding balance owed pursuant to the Existing Credit Agreement, and Bonanza Creek Energy Operating Company, LLC shall use such contribution only to payoff the balance owing pursuant to the Existing Credit Agreement. The Borrower shall otherwise use the proceeds of the Advances and Letters of Credit only (i) to finance the development of Oil and Gas Properties and (ii) for working capital and other general corporate purposes.

        Section 5.10    Title Opinions.    On or before May 29, 2011 (or at such later time as determined by the Administrative Agent in its sole discretion), the Administrative Agent shall be satisfied in its sole discretion with the title to the Oil and Gas Properties included in the initial Borrowing Base and that such Oil and Gas Properties constitute a percentage of such Collateral reasonably satisfactory to the Administrative Agent, including the receipt of title evidence in form and substance satisfactory to the Administrative Agent covering at least 80% of the present value of Proven Reserves set forth on the Initial Engineering Report and at least 80% of the present value of such Proven Reserves which are categorized as "proved, developed and producing" in such report. From and after May 29, 2011 (or from and after such later time as the Administrative Agent determines pursuant to the preceding sentence), the Borrower shall from time to time, upon the reasonable request of the Administrative Agent, take such actions and execute and deliver such documents and instruments as the Administrative Agent shall require to ensure that the Administrative Agent shall have received satisfactory title opinions (including, if requested, supplemental or new title opinions addressed to it) or, to the extent acceptable to the Administrative Agent in its sole discretion, other title evidence, which title opinions or other title evidence (a) shall collectively cover at least 80% of the present value of the Proven Reserves of the Borrower and its Subsidiaries shown on the most recently delivered Engineering Report (and together with any Proven Reserves acquired since the date of such report) and at least 80% of the present value of the Proven Reserves that are categorized as "proved, developed and producing" on the most recently delivered Engineering Report (and together with any Proven Reserves acquired since the date of such report), (b) shall be in form and substance acceptable to the Administrative Agent in its sole discretion, and (c) shall include opinions or, to the extent acceptable to the Administrative Agent in its sole discretion, other title evidence regarding the before payout and after payout ownership interests held by the Borrower and its Subsidiaries for all wells located on the Oil and Gas Properties covered thereby as to the ownership of Oil and Gas Properties of the Borrower and its Subsidiaries.

        Section 5.11    Further Assurances; Cure of Title Defects.    The Borrower shall, and shall cause each of its Subsidiaries to, cure promptly any defects in the creation and issuance of the Notes and the execution and delivery of the Security Instruments and this Agreement. The Borrower hereby authorizes the Lenders or the Administrative Agent to file any financing statements without the signature of the Borrower to the extent permitted by applicable Legal Requirements in order to perfect or maintain the perfection of any security interest granted under any of the Loan Documents. The Borrower at its expense will, and will cause each of its Subsidiaries to, promptly execute and deliver to the Administrative Agent upon request all such other documents, agreements and instruments to comply with or accomplish the covenants and agreements of the Borrower or such Subsidiary, as the

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case may be, in the Security Instruments and this Agreement, or to further evidence and more fully describe the collateral intended as security for the Notes, or to correct any omissions in the Security Instruments, or to state more fully the security obligations set out herein or in any of the Security Instruments, or to perfect, protect or preserve any Liens created pursuant to any of the Security Instruments, or to make any recordings, to file any notices or obtain any consents, all as may be necessary or appropriate in connection therewith or to enable the Administrative Agent to exercise and enforce its rights and remedies with respect to any Collateral. Within 30 days after (a) a request by the Administrative Agent or the Lenders to the Borrower to cure any title defects or exceptions which are not Permitted Liens raised by such information or (b) a notice by the Administrative Agent to the Borrower that the Borrower has failed to comply with Section 5.10 above, the Borrower shall (i) cure such title defects or exceptions which are not Permitted Liens or substitute acceptable Oil and Gas Properties with no title defects or exceptions except for Permitted Liens covering Collateral of an equivalent value and (ii) deliver to the Administrative Agent satisfactory evidence in form and substance acceptable to the Administrative Agent in its reasonable business judgment as to the Borrower's and its Subsidiaries' ownership of such Oil and Gas Properties and the Administrative Agent's Liens and security interests therein as are required to maintain compliance with Section 5.10. In addition, the Borrower shall cause the Administrative Agent to, at all times, have an Acceptable Security Interest in all of the Borrower's and its Subsidiaries' Proven Reserves and Oil and Gas Properties to the extent required by Section 5.08.

ARTICLE VI
NEGATIVE COVENANTS

        So long as any Note or any amount under any Loan Document shall remain unpaid, any Letter of Credit shall remain outstanding or any Letter of Credit Exposure shall exist, or any Lender shall have any Commitment, the Borrower agrees, unless the Required Lenders otherwise consent in writing, to comply with the following covenants.

        Section 6.01    Liens, Etc.    The Borrower shall not create, assume, incur, or suffer to exist, nor permit any of its Subsidiaries to create, assume, incur, or suffer to exist, any Lien on or in respect of any of its Property whether now owned or hereafter acquired, or assign any right to receive income, except that the Borrower and its Subsidiaries may create, incur, assume, or suffer to exist:

        (a)   Liens created by the Security Instruments;

        (b)   purchase money Liens and Liens in connection with Capital Leases, in each case upon or in any equipment acquired or held by the Borrower or any Subsidiary of the Borrower in the ordinary course of business; provided that the Debt secured by such Liens (i) was incurred solely for the purpose of financing the acquisition of such equipment, and does not exceed the aggregate purchase price of such equipment, (ii) is secured only by such equipment and not by any other assets of the Borrower or any Subsidiary of the Borrower, and (iii) is not increased in amount;

        (c)   Liens for taxes, assessments, or other governmental charges or levies not yet due or that (provided that foreclosure, sale, or other similar proceedings shall not have been initiated) are being contested in good faith by appropriate proceedings, and such reserve as may be required by GAAP shall have been made therefor;

        (d)   Liens in favor of vendors, carriers, warehousemen, repairmen, mechanics, workmen, materialmen, construction, or similar Liens arising in the ordinary course of business in respect of obligations that are not yet due or that are being contested in good faith by appropriate proceedings, provided that such reserves as may be required by GAAP shall have been made therefor;

        (e)   Liens to operators and non-operators under joint operating agreements arising in the ordinary course of the business of the Borrower or the relevant Subsidiary of the Borrower to secure amounts

53

owing, which amounts are not yet due or are being contested in good faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made therefor;

        (f)    royalties, overriding royalties, net profits interests, production payments, reversionary interests, calls on production, preferential purchase rights and other burdens on or deductions from the proceeds of production, that do not secure Debt for borrowed money and, with respect to the Oil and Gas Properties covered by an Engineering Report, that are taken into account in computing the net revenue interests and working interests of the Borrower or any of its Subsidiaries warranted under Section 2.02(b)(v) in connection with such Engineering Report or warranted in the Security Instruments;

        (g)   Liens arising in the ordinary course of business (i) out of pledges or deposits under workers' compensation laws, unemployment insurance, old age pensions or other social security or retirement benefits, or similar legislation or to secure public or statutory obligations of the Borrower, (ii) to secure the performance of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (in each case, exclusive of obligations for the payment of Debt) or (iii) arising by virtue of deposits made in the ordinary course of business to secure liability for premiums to insurance carriers;

        (h)   Liens arising under operating agreements, unitization and pooling agreements and orders, farmout agreements, gas balancing agreements and other agreements, in each case that are customary in the oil, gas and mineral production business and that are entered into in the ordinary course of business and that are taken into account in computing the net revenue interests and working interests of the Borrower or any Subsidiary of the Borrower warranted in the Security Instruments, to the extent that such Liens do not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by the Borrower or any Subsidiary of the Borrower;

        (i)    easements, rights-of-way, restrictions, and other similar encumbrances, and minor defects in the chain of title that are customarily accepted in the oil and gas financing industry, none of which interfere with the ordinary conduct of the business of the Borrower or any Subsidiary of the Borrower or materially detract from the value or use of the Property to which they apply;

        (j)    with respect to Oil and Gas Properties, all rights reserved to or vested in any Governmental Authority to control or regulate any of the Oil and Gas Properties in any manner;

        (k)   Liens arising out of judgments, attachments or awards not resulting in an Event of Default and which are being contested in good faith on appeal or proceedings for review and in respect of which there shall be secured a subsisting stay of execution pending such appeal or proceedings;

        (l)    Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by any Obligor in the ordinary course of business, consistent with the past practices of such Obligor and as customary in the oil and gas industry;

        (m)  bankers' Liens, rights of setoff (including netting and setoff provisions of Hedge Contracts permitted under this Agreement) and other similar Liens existing solely with respect to cash and cash equivalents on deposit in one or more accounts maintained by any Obligor, in each case granted in the ordinary course of business in favor of the bank or banks with which such accounts are maintained, securing amounts owing to such bank with respect to cash management and operating account arrangements, including those involving pooled accounts and netting arrangements;

        (n)   licenses of Intellectual Property granted by any Obligor in the ordinary course of business and not interfering in any material respect with the ordinary conduct of business of the Obligors;

        (o)   the filing of UCC financing statements solely as a precautionary measure in connection with operating leases or consignment of goods;

54

        (p)   Liens of a collecting bank arising in the ordinary course of business under Section 4-208 of the UCC covering only the items being collected upon; and

        (q)   Liens not otherwise permitted under this Section 6.01; provided that the aggregate principal amount of the Debt secured by the Liens shall not exceed $500,000 at any time.

        Section 6.02    Debts, Guaranties, and Other Obligations.    The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to, create, assume, suffer to exist, or in any manner become or be liable in respect of, any Debt except:

        (a)   Debt of the Obligors under the Loan Documents;

        (b)   Debt in the form of obligations for the deferred purchase price of Property or services incurred in the ordinary course of business which are not yet due and payable or are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been established;

        (c)   Debt secured by the Liens permitted under paragraph (b) of Section 6.01 in an aggregate amount not to exceed $1,000,000 at any time;

        (d)   Debt under Hydrocarbon Hedge Agreements or Interest Hedge Agreements which are not prohibited by the terms of Section 6.14;

        (e)   Debt consisting of sureties or bonds provided to any Governmental Authority or other Person and assuring payment of contingent liabilities of the Borrower or any Subsidiary of the Borrower in connection with the operation of the Oil and Gas Properties, including with respect to plugging, facility removal and abandonment of its Oil and Gas Properties;

        (f)    Debt owing in connection with the financing of insurance premiums in the ordinary course of business;

        (g)   Bond Debt; provided that, (i) the aggregate outstanding principal amount of all such Bond Debt and Bond Refinancing Debt may not exceed $150,000,000 at any time, and (ii) the Borrowing Base then in effect on funding of any such Bond Debt shall automatically reduce by an amount equal to 30% of the aggregate principal amount (without giving effect to any original issue discount) of such issuance (which reduction shall be effective on the next succeeding Business Day after such funding and such reduced Borrowing Base shall remain in effect until the date the Borrowing Base is otherwise redetermined pursuant to Section 2.02);

        (h)   Bond Refinancing Debt; provided that, the aggregate outstanding principal amount of all Bond Debt and Bond Refinancing Debt may not exceed $150,000,000 at any time;

        (i)    Debt not otherwise permitted under this Section 6.02; provided that the aggregate principal amount of such Debt does not exceed $1,000,000 at any time.

        Section 6.03    Agreements Restricting Liens and Distributions.    The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to, create, incur, assume or permit to exist any contract, agreement or understanding (other than this Agreement and the Security Instruments), which in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of its Property, whether now owned or hereafter acquired, to secure the Obligations or restricts any Subsidiary of the Borrower from paying dividends to the Borrower, or which requires the consent of or notice to other Persons in connection therewith.

        Section 6.04    Merger or Consolidation; Asset Sales.    The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to:

        (a)   merge or consolidate with or into any other Person other than (i) the merger of a Subsidiary with and into the Borrower or another Subsidiary (except that, with respect to any such merger or

55

consolidation involving the Borrower, the Borrower must be the surviving entity) or (ii) the merger of any other Person with the Borrower or with a Subsidiary of the Borrower (except that, with respect to any such merger or consolidation involving the Borrower, the Borrower must be the surviving entity and with respect to any such merger or consolidation involving a Subsidiary, the surviving entity shall be a Subsidiary of the Borrower and a Guarantor); provided that, in each case, at the time thereof and immediately after giving effect thereto, no Default shall have occurred and the Administrative Agent shall continue to have an Acceptable Security Interest in the Collateral to the extent required by Section 5.08; or

        (b)   sell, lease, transfer, assign, farm-out, convey, or otherwise dispose of any of its Property (including, without limitation, any working interest, overriding royalty interest, production payments, net profits interest, royalty interest, or mineral fee interest) other than: (i) the sale of Hydrocarbons in the ordinary course of business; (ii) the sale or transfer of equipment that is (A) obsolete, worn out, depleted or uneconomic and disposed of in the ordinary course of business, (B) no longer necessary for the business of such Person, or (C) contemporaneously replaced by equipment of at least comparable value and use; (iii) farmouts of undeveloped acreage to which no Proven Reserves are attributed and assignments in connection with such farmouts; (iv) sale or other dispositions of any Oil and Gas Property or any interest therein or 100% of the Equity Interests of any Subsidiary owning Oil and Gas Properties; provided that the sum of (1) the aggregate fair market value of Oil and Gas Properties subject to dispositions consummated under this subsection (iv) during the six-month period between scheduled redeterminations of the Borrowing Base plus (2) the aggregate fair market value attributed by the Administrative Agent to all Hydrocarbon Hedge Agreements that have been novated, assigned, amended, modified, replaced or terminated during such six-month period shall not exceed an amount equal to 5% of the Borrowing Base in effect at the beginning of such six-month period; (v) the sale, lease, transfer or other disposition of Property to the Borrower or a Subsidiary of the Borrower; provided that at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing and the Administrative Agent shall continue to have an Acceptable Security Interest in the Collateral; and (vi) other sales, leases, transfers, assignments, farm-outs, conveyance or dispositions of Property to which no Proven Reserves are attributed for fair market value; provided that the aggregate amount of the proceeds of such transaction, taken together with all other such transactions during any fiscal year, may not exceed $500,000 during any 12-month period.

        Section 6.05    Restricted Payments.    The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to, make any Restricted Payments, except to another Obligor.

        Section 6.06    Investments.    The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to, make or permit to exist any loans, advances, or capital contributions to, or make any investment in, or purchase or commit to purchase any stock or other securities or evidences of indebtedness of or interests in any Person or any assets or business of any Person, including without limitation any Oil and Gas Properties or assets related to Oil and Gas Properties, except:

        (a)   Liquid Investments;

        (b)   trade and customer accounts receivable which are for goods furnished or services rendered in the ordinary course of business and are payable in accordance with customary trade terms;

        (c)   creation of any additional Subsidiaries of the Borrower in compliance with Section 6.15 and additional debt or equity investments in any Subsidiary;

        (d)   acquisitions of Oil and Gas Properties and appurtenant facilities (including gas gathering, gas pipeline or oil pipeline and related facilities), whether through farm-out, farm-in, participation agreements, joint operating agreements, joint venture or area of mutual interest agreements or other similar arrangements customary in the industry, so long as the Administrative Agent is granted an Acceptable Security Interest in such Oil and Gas Properties to the extent required by Section 5.08;

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        (e)   debt or equity investments (including, without limitation, capital contributions) in general or limited partnerships or other types of entities (each a "venture") entered into by the Borrower or a Subsidiary with others in the ordinary course of business; provided that (i) any such venture is engaged exclusively in oil and gas exploration and production, (ii) the interest in such venture is acquired in the ordinary course of business and on fair and reasonable terms and (iii) such venture interests acquired and capital contributions made (valued as of the date such interest was acquired or the contribution made) do not exceed, in the aggregate at any time outstanding an amount equal to $500,000;

        (f)    loans and advances to directors, officers and employees permitted by applicable law not to exceed (i) $2,000,000 in the aggregate; provided that, such loans and advances must only be used to pay tax obligations incurred by directors or officers in connection with the restructuring transaction and issuance of equity issuance which occurred in December of 2010, and (ii) $100,000 in the aggregate for all other loans and advances not covered by clause (i) hereof;

        (g)   investments in stock, obligations or securities received in settlement of debts; provided that the aggregate amount of all investments held at any one time under this Section 6.06(g) shall not exceed $250,000; and

        (h)   other debt or equity investments not to exceed $500,000 in the aggregate during any fiscal year of the Obligors.

        Section 6.07    Affiliate Transactions.    The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of transactions (including, but not limited to, the purchase, sale, lease or exchange of Property, the making of any investment, the giving of any guaranty, or the assumption of any obligation or the rendering of any service) with any of their Affiliates unless such transaction or series of transactions is on terms no less favorable to the Borrower or such Subsidiary, as applicable, than those that could be obtained in a comparable arm's length transaction with a Person that is not such an Affiliate.

        Section 6.08    Compliance with ERISA.    The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries or ERISA Affiliates to, directly or indirectly, (a) engage in, or permit any of its Subsidiaries or ERISA Affiliates to engage in, any transaction in connection with which the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of the Borrower could be subjected to either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code; (b) terminate, or permit any of its Subsidiaries or ERISA Affiliates to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could result in any liability to the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of the Borrower to the PBGC; (c) fail to make, or permit any of its Subsidiaries or ERISA Affiliates to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or Legal Requirements, the Borrower, a Subsidiary of the Borrower or any ERISA Affiliate of the Borrower is required to pay as contributions thereto; (d) permit to exist, or allow any of its Subsidiaries or ERISA Affiliates to permit to exist, any accumulated funding deficiency within the meaning of Section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan; (e) permit, or allow any of its Subsidiaries or ERISA Affiliates to permit, the actuarial present value of the benefit liabilities (as "actuarial present value of the benefit liabilities" shall have the meaning specified in Section 4041 of ERISA) under any Plan maintained by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of the Borrower which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities; (f) contribute to or assume an obligation to contribute to, or permit any of its Subsidiaries or ERISA Affiliates to contribute to or assume an obligation to contribute to, any Multiemployer Plan; (g) acquire, or permit any of its Subsidiaries or ERISA Affiliates to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to the Borrower, any Subsidiary of the Borrower or any

57

ERISA Affiliate of the Borrower if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other plan that is subject to Title IV of ERISA under which the actuarial present value of the benefit liabilities under such plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such plan allocable to such benefit liabilities; (h) incur, or permit any of its Subsidiaries or ERISA Affiliates to incur, a liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; (i) contribute to or assume an obligation to contribute to, or permit any of its Subsidiaries or ERISA Affiliates to contribute to or assume an obligation to contribute to, any employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by such entities in their sole discretion at any time without any material liability; (j) amend or permit any of its Subsidiaries or ERISA Affiliates to amend, a Plan resulting in an increase in current liability such that the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of the Borrower is required to provide security to such Plan under Section 401(a)(29) of the Code; or (k) permit to exist any occurrence of any Reportable Event or any other event or condition, which presents a material (in the opinion of the Required Lenders) risk of a termination by the PBGC of any Plan.

        Section 6.09    Sale-and-Leaseback.    The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to, sell or transfer to a Person any Property, whether now owned or hereafter acquired, if at the time or thereafter the Borrower or a Subsidiary of the Borrower shall lease as lessee such Property or any part thereof or other Property which the Borrower or a Subsidiary of the Borrower intends to use for substantially the same purpose as the Property sold or transferred.

        Section 6.10    Change of Business.    The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to, discontinue its usual business or make any material change in the character of its business as an independent oil and gas exploration and production company. The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to, operate or carry on business in any jurisdiction other than the United States.

        Section 6.11    Organizational Documents, Name Change.    The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to, (a) amend or change its name or corporate structure or state of organization without giving the Administrative Agent 10 days' prior written notice of such name change or (b) amend, supplement, modify or restate their articles or certificate of incorporation, bylaws, limited liability company agreements, or other equivalent organizational documents in any manner which could reasonably be expected to cause a Material Adverse Change without prior written notice to, and prior consent of, the Administrative Agent.

        Section 6.12    Use of Proceeds; Letters of Credit.    The Borrower will not permit the proceeds of any Advance or Letters of Credit to be used for any purpose other than those permitted by Section 5.09. The Borrower will not engage in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U). Neither the Borrower nor any Person acting on behalf of the Borrower has taken or shall take, nor permit any Subsidiary of the Borrower to take any action which might cause any of the Loan Documents to violate Regulation T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect, including without limitation, the use of the proceeds of any Advance or Letters of Credit to purchase or carry any margin stock in violation of Regulation T, U or X.

        Section 6.13    Take-or-Pay or Other Prepayments.    The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to, allow gas imbalances (other than those imbalances which (a) occur in the ordinary course of business and (b) do not, in the aggregate, exceed 1% of the value of the Proven

58

Reserves of the Borrower and its Subsidiaries), take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrower or any Subsidiary which would require the Borrower or any Subsidiary to deliver any volumes of their respective Hydrocarbons produced on a monthly basis from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor.

        Section 6.14    Limitation on Speculative Hedging.    The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to, (a) purchase, assume, or hold a speculative position in any commodities market or futures market or enter into any Hedge Contract for speculative purposes, or (b) be party to or otherwise enter into any Hydrocarbon Hedge Agreement, Interest Hedge Agreement or any other Hedge Contract which (i) is entered into for reasons other than as a part of its normal business operations as a risk management strategy and/or hedge against changes resulting from market conditions related to the Borrower's operations, (ii) when aggregated with other Hedge Contracts of the Borrower and each Subsidiary then in effect, covers notional volumes in excess of the Applicable Hedge Percentage (as defined below) of the anticipated production volumes of crude oil or natural gas, calculated separately, attributable to Proven Reserves of the Borrower and its Subsidiaries which are categorized as "proved, developed and producing" during the period such hedge arrangement is in effect, (iii) covers fluctuations in interest rates for notional principal amounts in excess of 75% of the Debt for borrowed money of the Borrower and its Subsidiaries, (iv) is 5 years or longer in duration, (v) requires the Borrower or any Subsidiary to put up money, assets, or other security (other than letters of credit or guaranties permitted by Section 6.02 and liens on cash and securities to the extent permitted under Section 6.01(m)) against the event of its nonperformance prior to actual default by the Borrower or such Subsidiary in performing its obligations thereunder, or (vi) is with a counterparty or has a guarantor of the obligation of the counterparty who (unless such counterparty is a Lender or one of its Affiliates) at the time the contract is made does not have long-term obligations rated BBB- or Baa3 or better, respectively, by either Standard & Poor's Ratings Group or Moody's Investors Service, Inc., or is an investment grade-rated industry participant (or such counterparty's obligations are guaranteed by such a Person); provided that, the resulting new counterparty is acceptable to the Original Swap Counterparty and in accordance with the Original Swap Counterparty's internal credit risk and credit approval procedures. As used in this Section 6.14, "Applicable Hedge Percentage" means, on the date that the Borrower or any Subsidiary enters into any Hedge Contract (the "Measurement Date"), the percentage set forth below for any month during the applicable period of measurement set forth below:

	Percentage Limitation
Calendar Year Hedged (relative to Measurement Date)	Crude Oil			Natural Gas
Months 1 - 24		90	%		90	%
Months 25 - 60		85	%		85	%

Notwithstanding the foregoing, (A) put option contracts that are not related to corresponding calls, collars, swaps or basis swaps shall not be included in calculating such percentage thresholds and (B) with regard to a "costless collar" that involves the purchase of a put and the sale of a call for the same volumes, dates and commodities, only the volumes associated with the call will be included in calculating such percentage thresholds.

        Section 6.15    Additional Subsidiaries.    The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to, create or acquire any additional Subsidiaries without (a) such new Subsidiary executing and delivering to the Administrative Agent a Guaranty and at the Administrative Agent's request to the extent required to be in compliance with Section 5.08, a Pledge Agreement, a Security Agreement and a Mortgage and such other Security Instruments as the Administrative Agent or the Required Lenders may reasonably request, (b) such holders of Equity Interest of such new Subsidiary executing and delivering a Pledge Agreement or a supplement to an existing Pledge Agreement, along

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with the certificates pledged thereby, if any, and appropriately executed stock powers in blank, if applicable, and (c) the delivery by the Borrower of any certificates, opinions of counsel, title opinions or other documents as the Administrative Agent may reasonably request.

        Section 6.16    Accounts Payable.    The Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to, allow any of its trade payables or other accounts payable to be outstanding for more than 90 days past due (except in cases where any such trade payable is being disputed in good faith and adequate reserves under GAAP have been established).

        Section 6.17    Current Ratio.    The Borrower shall not permit, as of the last day of each fiscal quarter, beginning with the fiscal quarter ending March 31, 2011, the ratio of (a) Current Assets to (b) Current Liabilities, to be less than 1.00 to 1.00.

        Section 6.18    Maximum Debt Ratio.    The Borrower shall not permit (a) as of the fiscal quarter ending March 31, 2011, the ratio of (i) the consolidated Debt of the Borrower as of such fiscal quarter end to (ii) the consolidated EBITDAX of the Borrower for the fiscal quarter period then ended multiplied by four, to be greater than 4.00 to 1.00; (b) as of the fiscal quarter ending June 30, 2011, the ratio of (i) the consolidated Debt of the Borrower as of such fiscal quarter end to (ii) the consolidated EBITDAX of the Borrower for the two-fiscal quarter period then ended multiplied by two, to be greater than 4.00 to 1.00; (c) as of the fiscal quarter ending September 30, 2010, the ratio of (i) the consolidated Debt of the Borrower as of such fiscal quarter end to (ii) the consolidated EBITDAX of the Borrower for the three-fiscal quarter period then ended multiplied by ⁴/3, to be greater than 4.00 to 1.00; and (d) as of the end of each fiscal quarter ending on or after December 31, 2011, the ratio of (i) the consolidated Debt of the Borrower as of such fiscal quarter end to (ii) the consolidated EBITDAX of the Borrower for the four-fiscal quarter period then ended, to be greater than 4.00 to 1.00.

        Section 6.19    Sale or Discount of Receivables.    Except for receivables obtained by the Borrower or any Subsidiary of the Borrower out of the ordinary course of business, the settlement of joint interest billing accounts in the ordinary course of business, discounts granted to settle collection of accounts receivable or the sale of defaulted accounts arising in the ordinary course of business in connection with the compromise or collection thereof and not in connection with any financing transaction, the Borrower shall not, nor shall the Borrower permit any of its Subsidiaries to, discount or sell (with or without recourse) any of its notes receivable or accounts receivable.

ARTICLE VII
EVENTS OF DEFAULT; REMEDIES

        Section 7.01    Events of Default.    The occurrence of any of the following events shall constitute an "Event of Default" under any Loan Document:

        (a)    Payment.    The Borrower (i) shall fail to pay when due any principal under the Notes or any other Loan Document or (ii) shall fail to pay any interest, fees, reimbursements, indemnifications, or other amounts due and payable hereunder, under the Notes, or under any other Loan Document, and such failure shall continue for a period of two (2) Business Days after the due date therefor;

        (b)    Representation and Warranties.    Any representation or warranty made or deemed to be made (i) by any Obligor or any Subsidiary of an Obligor (or any of their respective officers) in this Agreement or in any other Loan Document, or (ii) by any Obligor or any Subsidiary of an Obligor (or any of their respective officers) in connection with this Agreement or any other Loan Document, shall prove to have been incorrect in any material respect when made or deemed to be made;

        (c)    Covenant Breaches.    Any Obligor or any Subsidiary of an Obligor shall fail to (i) perform or observe any covenant contained in Section 5.02(a), Section 5.06(f), Section 5.11, or Article VI of this Agreement or (ii) fail to perform or observe any other term or covenant set forth in this Agreement or

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in any other Loan Document which is not covered by clause (i) above or any other provision of this Section 7.01 if such failure shall remain unremedied for 30 days after the earlier of the knowledge of any Responsible Officer of any Obligor of such breach or failure and the date notice thereof is given to the Borrower by the Administrative Agent or any Lender and the date;

        (d)    Cross-Defaults.    (i) Any Obligor or any Subsidiary of an Obligor shall fail to pay any principal of or premium or interest on its Debt which is outstanding in a principal amount of at least $2,000,000 individually or when aggregated with all such Debt of any Obligor or any Subsidiary of an Obligor so in default (but excluding Debt evidenced by the Notes) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; (ii) any other event shall occur or condition shall exist under any agreement or instrument relating to Debt which is outstanding in a principal amount of at least $2,000,000 individually or when aggregated with all such Debt of such Obligor or such Subsidiary so in default, and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or (iii) any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; provided that, for purposes of this Section 7.01(d), the "principal amount" of the obligations in respect of any Hedging Contracts at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that would be required to be paid if such Hedging Contracts were terminated at such time;

        (e)    Insolvency.    Any Obligor or any Subsidiary of an Obligor shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Obligor or any Subsidiary of an Obligor seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its Property and, in the case of any such proceeding instituted against the any Obligor or any Subsidiary of an Obligor either such proceeding shall remain undismissed for a period of 30 days or any of the actions sought in such proceeding shall occur; or any Obligor or any Subsidiary of an Obligor shall take any corporate action to authorize any of the actions set forth above in this paragraph (e);

        (f)    Judgments.    Any judgment or order for the payment of money in excess of $2,000,000 shall be rendered against any Obligor or any Subsidiary of an Obligor and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect;

        (g)    Termination Events.    Any Termination Event with respect to a Plan shall have occurred, and, 30 days after an Obligor has knowledge of such occurrence, (i) such Termination Event shall not have been corrected and (ii) such Termination Event is reasonably likely to result (as determined by the Required Lenders in good faith) in a liability to the Borrower, any Subsidiary of the Borrower or ERISA Affiliate of the Borrower of $2,000,000 or more in the aggregate;

        (h)    Plan Withdrawals.    The Borrower or any member of the Controlled Group as employer under a Multiemployer Plan shall have made a complete or partial withdrawal from such Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have notified such withdrawing employer that such employer has incurred a withdrawal liability in an annual amount exceeding $2,000,000 in the aggregate;

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        (i)    Change in Control.    A Change in Control shall have occurred;

        (j)    Borrowing Base.    Any failure to cure any Borrowing Base deficiency in accordance with Section 2.05;

        (k)    Loan Documents.    Any Loan Document shall for any reason (except to the extent permitted by the terms thereof) cease to be valid and binding on the Obligor or Obligors party thereto in any material respect or any such Obligor shall so state in writing; or

        (l)    Security Instruments.    (i) The Administrative Agent shall fail to have an Acceptable Security Interest in any portion of the Collateral (other than Collateral released in accordance with this Agreement or any other Loan Document) or (ii) any Security Instrument shall at any time and for any reason cease to create the Lien on the Property purported to be subject to such agreement in accordance with the terms of such agreement, or cease to be in full force and effect, or shall be contested by any Obligor or any Subsidiary of an Obligor; provided that, for title defects and exceptions that are not Permitted Liens, the Borrower will have 30 days to cure as provided for by Section 5.11.

        Section 7.02    Optional Acceleration of Maturity.    If any Event of Default (other than an Event of Default pursuant to paragraph (e) of Section 7.01) shall have occurred and be continuing, then, and in any such event,

        (a)   the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the obligation of each Lender and the Issuing Lender to make extensions of credit hereunder, including making Advances and issuing, increasing or extending Letters of Credit, to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare all principal, interest, fees, reimbursements, indemnifications, and all other amounts payable under this Agreement, the Notes, and the other Loan Documents to be forthwith due and payable, whereupon all such amounts shall become and be forthwith due and payable in full, without notice of intent to demand, demand, presentment for payment, notice of nonpayment, protest, notice of protest, grace, notice of dishonor, notice of intent to accelerate, notice of acceleration, and all other notices, all of which are hereby expressly waived by the Borrower;

        (b)   the Borrower shall, on demand made to the Borrower by the Administrative Agent at the request or with the consent of the Required Lenders, deposit with the Administrative Agent into the Cash Collateral Account an amount of cash necessary to cause the amount held in such account to equal the Letter of Credit Exposure as security for the Obligations; and

        (c)   the Administrative Agent shall at the request of, or may with the consent of, the Required Lenders proceed to enforce its rights and remedies under the Security Instruments, the Guaranties, and any other Loan Document for the ratable benefit of itself, the Issuing Lender and the Lenders by appropriate proceedings.

        Section 7.03    Automatic Acceleration of Maturity.    If any Event of Default pursuant to paragraph (e) of Section 7.01 shall occur,

        (a)   (i) the obligation of each Lender and the Issuing Lender to make extensions of credit hereunder, including making Advances and issuing, increasing or extending Letters of Credit, shall terminate, and (ii) all principal, interest, fees, reimbursements, indemnifications, and all other amounts payable under this Agreement, the Notes, and the other Loan Documents shall become and be forthwith due and payable in full, without notice of intent to demand, demand, presentment for payment, notice of nonpayment, protest, notice of protest, grace, notice of dishonor, notice of intent to accelerate, notice of acceleration, and all other notices, all of which are hereby expressly waived by the Borrower;

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        (b)   the Borrower shall deposit with the Administrative Agent into the Cash Collateral Account an amount of cash necessary to cause the amount held in such account to equal the Letter of Credit Exposure as security for the Obligations; and

        (c)   the Administrative Agent shall at the request of, or may with the consent of, the Required Lenders proceed to enforce its rights and remedies under the Security Instruments, the Guaranties, and any other Loan Document for the ratable benefit of itself, the Issuing Lender and the Lenders by appropriate proceedings.

        Section 7.04    Right of Set-off.    Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent, the Issuing Lender, each Lender and each Affiliate of a Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Administrative Agent, the Issuing Lender, such Lender or such Affiliate of a Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower or any other Borrower now or hereafter existing under this Agreement, the Notes held by the Administrative Agent, the Issuing Lender or such Lender, and the other Loan Documents, irrespective of whether or not the Administrative Agent, the Issuing Lender, such Lender or such Affiliate of a Lender shall have made any demand under this Agreement, such Notes, or such other Loan Documents, and although such obligations may be unmatured. The Administrative Agent, the Issuing Lender and each Lender (for itself and its Affiliates) agrees to promptly notify the Borrower after any such set-off and application made by the Administrative Agent, the Issuing Lender, such Lender, or such Affiliate of a Lender; provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Administrative Agent, the Issuing Lender, each Lender and each Affiliate of Lender under this Section 7.04 are in addition to any other rights and remedies (including, without limitation, other rights of set-off) that the Administrative Agent, the Issuing Lender, such Lender or such Affiliate may have under the other Loans Documents or under any applicable Legal Requirement.

        Section 7.05    Non-exclusivity of Remedies.    No remedy conferred upon the Administrative Agent, the Issuing Lender and the Lenders is intended to be exclusive of any other remedy, and each remedy shall be cumulative of all other remedies existing by contract, at law, in equity, by statute or otherwise.

        Section 7.06    Application of Proceeds.    From and during the continuance of any Event of Default, any monies or Property actually received by the Administrative Agent pursuant to this Agreement or any other Loan Document, the exercise of any rights or remedies under any Security Instrument or any other agreement with any Obligor or any Subsidiary of an Obligor which secures any of the Obligations, shall be applied in the following order:

        (a)   First, to the payment of all amounts, including without limitation costs and expenses incurred in connection with the collection of such proceeds and the payment of any part of the Obligations, due to the Administrative Agent under any of the expense reimbursement or indemnity provisions of this Agreement or any other Loan Document, any Security Instrument or other collateral documents;

        (b)   Second, ratably, according to the then unpaid amounts thereof, without preference or priority of any kind among them, to the payment of the Obligations then due and payable, including Obligations with respect to Letters of Credit and including any obligations of any Obligor or any Subsidiary of an Obligor owing to any Swap Counterparty under any Hedge Contract; and

        (c)   Third, the remainder, if any, to the Borrower or its Subsidiaries, or its respective successors or assigns, or such other Person as may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct.

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ARTICLE VIII
[INTENTIONALLY OMITTED]

ARTICLE IX
THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER

        Section 9.01    Authorization and Action.    Each Lender hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof and of the other Loan Documents, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement or any other Loan Document (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement, any other Loan Document, or applicable Legal Requirement.

        Section 9.02    Administrative Agent's Reliance, Etc.    Neither the Administrative Agent nor any of its Related Parties shall be liable for any action taken or omitted to be taken (INCLUDING THE ADMINISTRATIVE AGENT'S OR SUCH RELATED PARTY'S OWN NEGLIGENCE) by it or them under or in connection with this Agreement or the other Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (a) may treat the payee of any Note as the holder thereof until the Administrative Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Administrative Agent; (b) may consult with legal counsel (including counsel for the Borrower), independent public accountants, and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants, or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties, or representations made in or in connection with this Agreement or the other Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document on the part of the Borrower or any Subsidiary of the Borrower or to inspect the Property (including the books and records) of the Borrower or any Subsidiary of the Borrower; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement or any other Loan Document; and (f) shall incur no liability under or in respect of this Agreement or any other Loan Document by acting upon any notice, consent, certificate, or other instrument or writing (which may be by facsimile or telex) believed by it to be genuine and signed or sent by the proper party or parties.

        Section 9.03    The Administrative Agent and Its Affiliates.    With respect to its Commitment, the Advances made by it and the Notes issued to it, the Administrative Agent shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent. The term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include the Administrative Agent in its individual capacity. The Administrative Agent and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower or any Subsidiary of the Borrower, and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if the Administrative Agent were not an agent hereunder and without any duty to account therefor to the Lenders.

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        Section 9.04    Lender Credit Decision.    Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the Initial Financial Statements and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it shall, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.

        Section 9.05    Indemnification.    THE LENDERS SEVERALLY AGREE TO INDEMNIFY THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER AND EACH OF THEIR RESPECTIVE RELATED PARTIES (TO THE EXTENT NOT REIMBURSED BY THE BORROWER AND WITHOUT LIMITING THE CONTINUING REIMBURSEMENT OBLIGATIONS OF THE BORROWER), ACCORDING TO THEIR RESPECTIVE PRO RATA SHARES FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY THE ADMINISTRATIVE AGENT OR THE ISSUING LENDER UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (INCLUDING THE ADMINISTRATIVE AGENT'S, THE ISSUING LENDER'S AND EACH OF THEIR RELATED PARTIES' OWN NEGLIGENCE), AND INCLUDING ENVIRONMENTAL LIABILITIES, PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO PERSON SEEKING INDEMNIFICATION, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON SEEKING INDEMNIFICATION. WITHOUT LIMITATION OF THE FOREGOING, EACH LENDER AGREES TO REIMBURSE THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY OUT OF POCKET EXPENSES (INCLUDING COUNSEL FEES) INCURRED BY THE ADMINISTRATIVE AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT, OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, TO THE EXTENT THAT THE ADMINISTRATIVE AGENT OR THE ISSUING LENDER IS NOT REIMBURSED FOR SUCH BY THE BORROWER.

        Section 9.06    Successor Administrative Agent and Issuing Lender.    The Administrative Agent or the Issuing Lender may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Required Lenders upon receipt of written notice from the Required Lenders to such effect. Upon receipt of notice of any such resignation or removal, the Required Lenders shall have the right to appoint a successor Administrative Agent or Issuing Lender with, if any Event of Default has not occurred and is not continuing, the consent of the Borrower, which consent shall not be unreasonably withheld. If no successor Administrative Agent or Issuing Lender shall have been so appointed by the Required Lenders with the consent of the Borrower, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's or Issuing Lender's giving of notice of resignation or the Required Lenders' removal of the retiring Administrative Agent or Issuing Lender, then the retiring Administrative Agent or Issuing Lender may, on behalf of the Lenders and the Borrower, appoint a successor Administrative Agent or Issuing Lender, which shall be, in the case of a successor agent, a

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commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000.00 and, in the case of the Issuing Lender, a Lender. Upon the acceptance of any appointment as Administrative Agent or Issuing Lender by a successor Administrative Agent or Issuing Lender, such successor Administrative Agent or Issuing Lender shall thereupon succeed to and become vested with all the rights, powers, privileges, and duties of the retiring Administrative Agent or Issuing Lender, and the retiring Administrative Agent or Issuing Lender shall be discharged from its duties and obligations under this Agreement and the other Loan Documents, except that the retiring Issuing Lender shall remain the Issuing Lender with respect to any Letters of Credit outstanding on the effective date of its resignation or removal and the provisions affecting the Issuing Lender with respect to such Letters of Credit shall inure to the benefit of the retiring Issuing Lender until the termination of all such Letters of Credit. After any retiring Administrative Agent's or Issuing Lender's resignation or removal hereunder as Administrative Agent or Issuing Lender, the provisions of this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent or Issuing Lender under this Agreement and the other Loan Documents.

        Section 9.07    Collateral Matters.

        (a)   The Administrative Agent is authorized on behalf of the Secured Parties, without the necessity of any notice to or further consent from such Secured Parties, from time to time, to take any actions with respect to any Collateral or Security Instruments which may be necessary to perfect and maintain Acceptable Security Interests in and Liens upon the Collateral granted pursuant to the Security Instruments. The Administrative Agent is further authorized (but not obligated) on behalf of the Secured Parties, without the necessity of any notice to or further consent from the Secured Parties, from time to time, to take any action in exigent circumstances as may be reasonably necessary to preserve any rights or privileges of the Secured Parties under the Loan Documents or applicable Legal Requirement.

        (b)   The Secured Parties party hereto irrevocably authorize the Administrative Agent to (i) release any Lien granted to or held by the Administrative Agent upon any Collateral (A) upon termination of the Commitments, termination or expiration of all Letters of Credit (other than Letters of Credit with respect to which other arrangements satisfactory to the Issuing Lender and the Borrower have been made), termination of all Hedge Contracts with Swap Counterparties that are secured by the Liens on the Collateral (other than Hedge Contracts with any Swap Counterparty with respect to which other arrangements satisfactory to the Swap Counterparty and the Borrower have been made), and payment in full of all Obligations (other than (1) obligations under any Hedge Contracts with any Swap Counter party with respect to which other arrangements satisfactory to the Swap Counterparty and the Borrower have been made and (2) indemnity obligations and similar obligations that survive the terminations of this Agreement for which no notice of a claim has been received by any Obligor); (B) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted under this Agreement or any other Loan Document; (C) constituting property in which the Borrower or any Subsidiary of the Borrower owned no interest at the time the Lien was granted or at any time thereafter; or (D) constituting property leased to the Borrower or any Subsidiary of the Borrower under a lease which has expired or has been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is not intended by the Borrower or such Subsidiary to be, renewed or extended; and (ii) release a Guarantor from its obligations under a Guaranty and any other applicable Loan Document if such Person ceases to be a Subsidiary as a result of a transaction permitted under Section 6.04(a). Upon the request of the Administrative Agent at any time, the Secured Parties will confirm in writing the Administrative Agent's authority to release particular types or items of Collateral pursuant to this Section 9.07.

        Section 9.08    Additional Agents.    None of the Sole Lead Arranger, the Book Runner, the Documentation Agent or the Syndication Agent shall have any duties, obligations or liabilities in their

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respective capacities as arranger, book runner, documentation agent or syndication agent. Without limiting the foregoing, none of the Sole Lead Arranger, the Book Runner, the Syndication Agent or the Documentation Agents shall have or be deemed to have any fiduciary relationship with any Lender, any Issuing Lender or the Administrative Agent. Each Lender acknowledges that it has not relied, and will not rely, on the Sole Lead Arranger, the Book Runner, the Syndication Agent or the Documentation Agent in deciding to enter into this Agreement or in taking or not taking action hereunder.

ARTICLE X
MISCELLANEOUS

        Section 10.01    Amendments, Etc.    No amendment or waiver of any provision of this Agreement, the Notes, or any other Loan Document (other than the Fee Letter), nor consent to any departure by any Obligor or any Subsidiary of an Obligor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders and the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that:

        (a)   no amendment, waiver, or consent shall, unless in writing and signed by all the Lenders directly affected thereby and the Borrower, do any of the following: (i) increase the Borrowing Base or the aggregate Commitments, (ii) postpone any date fixed for any payment of principal of, or interest on, the Note of such Lender or any fees or other amounts payable hereunder or under any other Loan Document for the account of such Lender, (iii) waive any of the conditions specified in Section 3.01, (iv) reduce the principal of, or interest on, the Note of such Lender or any fees or other amounts payable hereunder or under any other Loan Document for the account of such Lender, (v) extend the Maturity Date or the Commitment Termination Date, (vi) change the percentage of Lenders which shall be required for the Lenders or any of them to take any action hereunder or under any other Loan Document, (vii) amend Section 2.11 or this Section 10.01, (viii) amend the definition of "Required Lenders" or "Obligations", (ix) release any Guarantor from its obligations under any Guaranty, except for the release of the Guaranty of a Subsidiary in connection with the sale or other disposition of the Equity Interests of such Subsidiary so long as such sale or other disposition is not prohibited by this Agreement, (x) amend or waive compliance with Section 6.04(a), or (xi) release a material portion of the Collateral securing the Obligations, except for releases of Collateral sold or otherwise disposed of so long as such sale or other disposition is not prohibited by this Agreement; and

        (b)   no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent or the Issuing Lender in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent or the Issuing Lender, as the case may be, under this Agreement or any other Loan Document;

        (c)   [Reserved]; and

        (d)   no amendment may be made to Section 7.06 which has the effect of subordinating the priority of the obligations owing to any Swap Counterparty from the priority established for such obligations on the date of this Agreement unless such amendment shall have the consent of, in addition to the consent of the Required Lenders, the Swap Counterparty so affected.

        Section 10.02    Notices, Etc.

        (a)    Notices Generally.    Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile as follows: (i) if to the Borrower, to each it at its address set forth in Schedule II, (ii) if to the Administrative Agent, to it

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at its address set forth in Schedule II, (iii) if to the Issuing Lender, to it at its address set forth in Schedule II, and (iv) if to a Lender, to it at its address (or facsimile number) set forth in its administrative questionnaire given to the Administrative Agent. Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient), except that notices and communications to the Administrative Agent or the Issuing Lender pursuant to Article II or IX shall not be effective until received by the Administrative Agent or Issuing Lender. Notices delivered through electronic communications to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).

        (b)    Electronic Communications.    Notices and other communications to the Lenders and the Issuing Lender hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender or the Issuing Lender pursuant to Article II. Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender's receipt of an acknowledgement from the intended recipient (such as by the "return receipt requested" function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

        (c)    Change of Address, Etc.    Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.

        Section 10.03    No Waiver; Remedies.    No failure on the part of any Lender, the Administrative Agent, or the Issuing Lender to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

        Section 10.04    Costs and Expenses.    The Borrower agrees to pay within three (3) Business Days following demand, (a) all reasonable and documented out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, syndication, due diligence and amendment of this Agreement, the Notes, the Guaranties, and the other Loan Documents including, without limitation, the reasonable and documented fees and out-of-pocket expenses of counsel for the Administrative Agent with respect to advising the Administrative Agent as to its rights and responsibilities under this Agreement, and (b) all reasonable and documented out-of-pocket costs and expenses, if any, of the Administrative Agent, the Issuing Lender, and each Lender (including, without limitation, reasonable and documented counsel fees and expenses of the Administrative Agent, the Issuing Lender, and each Lender) in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of this Agreement, the Notes, the Guaranties, and the other Loan Documents.

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        Section 10.05    Binding Effect.    Subject to Section 3.01(a), this Agreement shall become effective when it shall have been executed by the Borrower, the Administrative Agent, and each Lender and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent, the Issuing Lender, and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights or delegate its duties under this Agreement or any interest in this Agreement without the prior written consent of each Lender.

        Section 10.06    Lender Assignments and Participations.

        (a)    Assignments.    Any Lender may assign to one or more banks or other entities all or any portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it, the Notes held by it, and the participation interest in the Letter of Credit Obligations held by it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of such Lender's rights and obligations assigned under this Agreement and shall be an equal percentage with respect to both its obligations owing in respect of the Commitments and the related Advances and Letters of Credit, (ii) the amount of the Commitments and Advances of such Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Assumption with respect to such assignment) shall be, if to an entity other than a Lender, not less than $10,000,000 (or, if less, the amount of its remaining Commitments and Advances in connection with an assignment of all such remaining Commitments and Advances) and, with respect to amounts equal to $10,000,000 or greater, shall be an integral multiple of $1,000,000 in excess thereof, (iii) each such assignment shall be to an Eligible Assignee, (iv) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Assumption, together with the Notes subject to such assignment, and (v) each Eligible Assignee (other than the Eligible Assignee of the Administrative Agent) shall pay to the Administrative Agent a $5,000 administrative fee. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Assumption, which effective date shall be at least three (3) Business Days after the execution thereof, (a) the assignee thereunder shall be a party hereto for all purposes and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Assumption, have the rights and obligations of a Lender hereunder and (b) such Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Assumption, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all or the remaining portion of such Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto).

        (b)    Terms of Assignments.    By executing and delivering an Assignment and Assumption, the Lender thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Assumption, such Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency of value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any Subsidiary of the Borrower or the performance or observance by the Borrower or any Subsidiary of the Borrower of any of their respective obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the Initial Financial Statements referred to in Section 4.05 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Assumption; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such Lender or any other Lender and based on such

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documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender.

        (c)    The Register.    The Administrative Agent shall maintain at its address referred to in Section 10.02 a copy of each Assignment and Assumption delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent, the Issuing Lender, and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.

        (d)    Procedures.    Upon its receipt of an Assignment and Assumption executed by a Lender and an Eligible Assignee, together with the Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Assumption has been completed and is in substantially the form of the attached Exhibit A, (i) accept such Assignment and Assumption, (ii) record the information contained therein in the Register, and (iii) give prompt notice thereof to the Borrower. Within five (5) Business Days after the Borrower's receipt of such notice, the Borrower shall execute and deliver to the Administrative Agent in exchange for the surrendered Notes (i) a new Note to the order of the Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Assumption, and (ii) if the applicable Lender has retained any Commitment hereunder, a new Note to the order of such Lender in an amount equal to the Commitment retained by it hereunder. Such new Notes shall be dated the effective date of such Assignment and Assumption and shall otherwise be in substantially the form of the attached Exhibit E.

        (e)    Participations.

          (i)  Each Lender may, without notice to or the consent of the Borrower, the Administrative Agent or the Issuing Lender, sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it, its participation interest in the Letter of Credit Obligations, if any, and the Notes held by it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitments to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Notes for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent, and the Issuing Lender and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and (v) such Lender shall not require the participant's consent to any matter under this Agreement, except that the participation agreement may provide that the Lender will not, without the consent of the participant, give its consent to any changes in the principal amount of the Notes, reductions in fees or interest, releasing all or substantially all of any Collateral, permitting the Borrower or any Subsidiary of the Borrower to enter into any merger or consolidation with or into any other Person, postponement of any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, or extensions of the Maturity Date or the Commitment Termination Date.

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         (ii)  Subject to paragraph (iii) of this Section 10.06(e), the Borrower agrees that each participant shall be entitled to the benefits of, and subject to the requirements of, Sections 2.12, 2.13 and 2.14 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (a) of this Section. To the extent permitted by law, each participant also shall be entitled to the benefits of Section 7.04 as though it were a Lender, provided such participant agrees to be subject to Section 2.11 as though it were a Lender.

        (iii)  A participant shall not be entitled to receive any greater payment under Section 2.13 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, unless the sale of the participation to such participant is made with the Borrower's prior written consent. A participant that is not organized in the United States shall not be entitled to the benefits of Section 2.14 unless the Borrower is notified of the participation sold to such participant and such participant agrees, for the benefit of the Borrower, to comply with Section 2.14(d), in which case Section 2.14 shall be applied as if such participant had become a Lender and had acquired its interest by assignment pursuant to paragraph (a) of this Section.

        (iv)  Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note(s)) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

        Section 10.07    Indemnification.    THE BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT (AND ANY SUB-AGENT THEREOF), EACH LENDER AND THE ISSUING LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN "INDEMNITEE") AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES (INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE), AND SHALL INDEMNIFY AND HOLD HARMLESS EACH INDEMNITEE FROM ALL FEES AND TIME CHARGES AND DISBURSEMENTS FOR ATTORNEYS WHO MAY BE EMPLOYEES OF ANY INDEMNITEE, INCURRED BY ANY INDEMNITEE OR ASSERTED AGAINST ANY INDEMNITEE BY ANY THIRD PARTY OR BY THE BORROWER OR ANY OTHER OBLIGOR ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (I) THE EXECUTION OR DELIVERY OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, (II) ANY ADVANCE OR LETTER OF CREDIT OR THE USE OR PROPOSED USE OF THE PROCEEDS THEREFROM (INCLUDING ANY REFUSAL BY THE ISSUING LENDER TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT), (III) ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS SUBSTANCES ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR (IV) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY, WHETHER BROUGHT BY A THIRD PARTY OR BY THE BORROWER OR ANY OTHER LOAN PARTY, AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE

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COMPARATIVE, CONTRIBUTORY OR SOLE NEGLIGENCE OF THE INDEMNITEE, PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE. ALL AMOUNTS DUE UNDER THIS SECTION 10.07 SHALL BE PAYABLE WITHIN TEN (10) BUSINESS DAYS AFTER DEMAND THEREFOR. THE AGREEMENTS IN THIS SECTION SHALL SURVIVE THE RESIGNATION OF THE ADMINISTRATIVE AGENT, THE RESIGNATION OF THE ISSUING LENDER, THE REPLACEMENT OF ANY LENDER, THE TERMINATION OF THE COMMITMENTS AND THE REPAYMENT, SATISFACTION OR DISCHARGE OF ALL THE OTHER OBLIGATIONS.

        Section 10.08    No Consequential Damages.    The parties to this Agreement agree not to assert any claim against any other party to this Agreement or any other Loan Document, any Affiliates of the foregoing, or any of their respective directors, officers, employees, attorneys, agents, and advisors, on any theory of liability, for special, indirect, consequential, or punitive damages arising out of or otherwise relating to the Loan Documents.

        Section 10.09    Execution in Counterparts.    This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

        Section 10.10    Survival of Representations, Etc.    All representations and warranties contained in this Agreement or made in writing by or on behalf of the Borrower in connection herewith shall survive the execution and delivery of this Agreement and the Loan Documents, the making of the Advances and any investigation made by or on behalf of the Lenders, none of which investigations shall diminish any Lender's right to rely on such representations and warranties. All obligations of the Borrower provided for in Sections 2.12, 2.13, 2.14(c), 10.04, and 10.07 and all of the obligations of the Lenders in Section 9.05 shall survive any termination of this Agreement and repayment in full of the Obligations.

        Section 10.11    Severability.    In case one or more provisions of this Agreement or the other Loan Documents shall be invalid, illegal or unenforceable in any respect under any applicable Legal Requirement, the validity, legality, and enforceability of the remaining provisions contained herein or therein shall not be affected or impaired thereby.

        Section 10.12    Business Loans.    The Borrower warrants and represents that the Loans evidenced by the Notes are and shall be for business, commercial, investment, or other similar purposes and not primarily for personal, family, household, or agricultural use, as such terms are used in Chapter One ("Chapter One") of the Texas Credit Code. At all such times, if any, as Chapter One shall establish a Maximum Rate, the Maximum Rate shall be the "indicated rate ceiling" (as such term is defined in Chapter One) from time to time in effect.

        Section 10.13    Governing Law.    This Agreement, the Notes and the other Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of Texas. Without limiting the intent of the parties set forth above, (a) Chapter 346 of the Texas Finance Code, as amended (relating to revolving loans and revolving tri-party accounts (formerly Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch. 15)), shall not apply to this Agreement, the Notes, or the transactions contemplated hereby and (b) to the extent that any Lender may be subject to Texas law limiting the amount of interest payable for its account, such Lender shall utilize the indicated (weekly) rate ceiling from time to time in effect. Each Letter of Credit shall be governed by either the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce Publication No. 600 (2007 version) or the International Standby Practices (ISP98), International Chamber of Commerce

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Publication No. 600 (and any subsequent revisions thereof approved by a Congress of the International Chamber of Commerce and adhered to by the Issuing Lender).

        Section 10.14    Submission to Jurisdiction.    The Borrower hereby irrevocably submits to the jurisdiction of any Texas state or federal court sitting in Houston, Texas in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, and the Borrower hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such court. The Borrower hereby unconditionally and irrevocably waives, to the fullest extent it may effectively do so, any right it may have to the defense of an inconvenient forum to the maintenance of such action or proceeding. The Borrower hereby agrees that service of copies of the summons and complaint and any other process which may be served in any such action or proceeding may be made by mailing or delivering a copy of such process to the Borrower at its address set forth in this Agreement. The Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section shall affect the rights of any Lender to serve legal process in any other manner permitted by the law or affect the right of any Lender to bring any action or proceeding against the Borrower or any Property of the Borrower in the courts of any other jurisdiction.

        Section 10.15    Confidentiality.    Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable Legal Requirement or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or participant in, or any prospective assignee of or participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Borrower. For purposes of this Section, "Information" means all information received from the Borrower or any Subsidiary of the Borrower relating to any such Person or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by any such Person. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Notwithstanding anything herein to the contrary, "Information" shall not include, and the Administrative Agent and each Lender may disclose without limitation of any kind, any information with respect to the "tax treatment" and "tax structure" (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to the Administrative Agent or such Lender relating to such tax treatment and tax structure; provided that with respect to any document or similar item that in either case contains information concerning the tax treatment or tax structure of the transaction as well as other information, this sentence shall only apply to such portions

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of the document or similar item that relate to the tax treatment or tax structure of the Loans, Letters of Credit and transactions contemplated hereby.

        Section 10.16    [Reserved].

        Section 10.17WAIVER OF JURY TRIAL.THE BORROWER, THE LENDERS, THE ISSUING LENDER AND THE ADMINISTRATIVE AGENT HEREBY ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED BY AND HAVE CONSULTED WITH COUNSEL OF THEIR CHOICE, AND HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

        Section 10.18    USA PATRIOT ACT Notice.    Each Lender that is subject to the Act (as hereinafter defined) and the Issuing Lender (for itself and not on behalf of any Lender) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law November 26, 2001)) (the "Act"), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender, Issuing Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act.

        Section 10.19ORAL AGREEMENTS.THIS WRITTEN AGREEMENT, THE LOAN DOCUMENTS, AND ANY HEDGE CONTRACTS WITH SWAP COUNTERPARTIES, AS DEFINED IN THIS AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

[Remainder of this page intentionally left blank. Signature page follows.]

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        EXECUTED as of the date first above written.

BORROWER:
BONANZA CREEK ENERGY, INC.
By:	/s/ MICHAEL R. STARZER Michael R. Starzer President & Chief Executive Officer

Signature page to Credit Agreement

ADMINISTRATIVE AGENT & ISSUING LENDER:
BNP PARIBAS as Administrative Agent and as Issuing Lender
By:	/s/ JOHN CLARK
	John Clark Managing Director
By:	/s/ GREG SMOTHERS
	Greg Smothers Director

Signature page to Credit Agreement

LENDERS:
BNP PARIBAS
By:	/s/ JOHN CLARK
	John Clark Managing Director
By:	/s/ GREG SMOTHERS
	Greg Smothers Director

Signature page to Credit Agreement

COMPASS BANK
By:	/s/ DOROTHY MARCHAND
Name: Dorothy Marchand
Title: Senior Vice President

Signature page to Credit Agreement

SOCIÉTÉ GÉNÉRALE
By:	/s/ STEPHEN W. WARFEL
Name: Stephen W. Warfel
Title: Managing Director

Signature page to Credit Agreement

CITIBANK, N.A.
By:	/s/ STEPHEN OGLESBY
Name: Stephen Oglesby
Title: Region Manager

Signature page to Credit Agreement

UBS AG, STAMFORD BRANCH
By:	/s/ MARY E. EVANS
Name: Mary E. Evans
Title: Associate Director
By:	/s/ IRJA R. OTSA
Name: Irja R. Otsa
Title: Associate Director

Signature page to Credit Agreement

SCHEDULE I

PRICING GRID

Applicable Margins

Utilization Level*	Base Rate Advances			Eurodollar Rate Advances			Commitment Fee
Level I		1.00	%		2.00	%		0.50	%
Level II		1.25	%		2.25	%		0.50	%
Level III		1.50	%		2.50	%		0.50	%
Level IV		1.75	%		2.75	%		0.50	%
Level V		2.00	%		3.00	%		0.50	%

*

Utilization Levels are described below and are determined in accordance with the definition of "Utilization Level."

1.

Level I:    If the Utilization Level is less than 25%.

2.

Level II:    If the Utilization Level is equal to or greater than 25% but less than 50%.

3.

Level III:    If the Utilization Level is equal to or greater than 50% but less than 75%.

4.

Level IV:    If the Utilization Level is equal to or greater than 75% but less than 90%.

5.

Level V:    If the Utilization Level is equal to or greater than 90%.

Schedule I
Pricing Grid

SCHEDULE II

BORROWER, ADMINISTRATIVE AGENT, AND LENDER INFORMATION

Borrower:
	Bonanza Creek Energy, Inc. 410 17th Street, Suite 1320 Denver, Colorado 80202 Facsimile: (720) 279-2331 Attention: Chief Executive Officer
Administrative Agent/Issuing Lender:
BNP Paribas	1200 Smith Street, Suite 3100 Houston, Texas 77002 Facsimile: 713-659-6915 Attention: John Clark

Commitments

Lenders:		Commitments:
BNP Paribas		$	75,000,000.00
Compass Bank		$	69,230,769.46
Société Générale		$	75,000,000.00
Citibank, N.A.		$	40,384,615.27
UBS AG, Stamford Branch		$	40,384,615.27
	Total:	$	300,000,000.00

Schedule II
Borrower, Administrative Agent, and Lender Information

QuickLinks

Exhibit 10.1

TABLE OF CONTENTS
CREDIT AGREEMENT
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
ARTICLE II CREDIT FACILITIES
ARTICLE III CONDITIONS PRECEDENT
ARTICLE IV REPRESENTATIONS AND WARRANTIES
ARTICLE V AFFIRMATIVE COVENANTS
ARTICLE VI NEGATIVE COVENANTS
ARTICLE VII EVENTS OF DEFAULT; REMEDIES
ARTICLE VIII [INTENTIONALLY OMITTED]
ARTICLE IX THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER
ARTICLE X MISCELLANEOUS
SCHEDULE I PRICING GRID
Applicable Margins
SCHEDULE II BORROWER, ADMINISTRATIVE AGENT, AND LENDER INFORMATION
Commitments

EX-10.3

Exhibit 10.3

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”) dated as of December 23, 2010, is entered into by and among Bonanza Creek Energy, Inc., a Delaware corporation (the “Company”) and the parties listed on Schedule I hereto (each an “Investor,” and collectively, the “ Investors”).

WITNESSETH:

WHEREAS, certain of the Investors are parties to a Stock Purchase Agreement, dated December 23, 2010 (as amended, modified and supplemented from time to time, the “Stock Purchase Agreement”), pursuant to which such Investors have agreed to purchase from the Company following satisfaction of certain conditions set forth in the Stock Purchase Agreement, shares of Common Stock of the Company; and

WHEREAS, in connection therewith, the Company desires to and has agreed to grant to the Investors certain registration rights set forth herein.

NOW THEREFORE, in consideration of the premises and mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1.

CERTAIN DEFINITIONS;  SECURITIES SUBJECT TO THIS AGREEMENT

1.1           As used in this Agreement, the following terms shall have the following respective meanings.  Any other terms not otherwise defined in this Agreement shall have the meaning ascribed to such terms in the Stock Purchase Agreement.

“Affiliate” means any Person who is an “affiliate” as defined in Rule 12b-2 promulgated under the Exchange Act, and with respect to HMQ means, AIMCo, any corporation managed or controlled by AIMCo, the investment pools managed by AIMCo, any client in respect of whom AIMCo provides investment management services and any Affiliate of the foregoing.

“AIMCo” means Alberta Investment Management Corporation, as established by the Alberta Investment Management Corporation Act.

“Commission” means the Securities and Exchange Commission, or any other Federal agency at the time administering the Securities Act.

“Common Stock” means shares of the Company’s Class A common stock, par value $0.001 per share, or any other capital stock of the Company into which such stock is reclassified or reconstituted and any other common stock of the Company.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued thereunder, as they each may, from time to time, be in effect.

“FINRA” means the Financial Industry Regulatory Authority.

“Free Writing Prospectus” means any “free writing prospectus” as defined in Rule 405 promulgated under the Securities Act.

“HMQ” means Her Majesty the Queen in right of Alberta, in her own capacity and in her capacity as trustee/nominee for certain designated entities.

“Holders” means the WFC Holders and the Other Holders.

“Holders’ Counsel” shall have the meaning set forth in Section 4.1(a).

“Initial Public Offering” means the first offering by the Company of its Common Stock to the public for cash pursuant to an effective Registration Statement.

“Inspectors” has the meaning set forth in Section 4.1(i).

“Liability” has the meaning set forth in Section 6.1.

“Other Holders” means the Other Investors, any Person to which the rights granted to the Other Investors under this Agreement are transferred, in whole or in part, pursuant to Article 8 and any Person entitled to the benefits of this Agreement pursuant to Section 9.2, other than a transferee to whom Registrable Shares have been transferred pursuant to a Registration Statement under the Securities Act or Rule 144 promulgated under the Securities Act.

“Other Investors” means the Investors identified as Other Investors on Schedule I hereto.

“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, limited liability partnership, institution, public benefit corporation, entity or government (whether Federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof).

“Prospectus” means any “prospectus” as defined in Rule 405 promulgated under the Securities Act.

“Records” has the meaning set forth in Section 4.1(i).

“Registrable Class Securities” means the Registrable Shares and any other securities of the Company that are of the same class as the relevant Registrable Shares.

2

“Registrable Shares” means (A) all Common Stock held directly or indirectly by a Holder, including any Common Stock issuable or issued upon exercise, conversion or exchange of other securities of the Company or any of its subsidiaries and (B) any securities of the Company issued in respect of the Common Stock or any other equity securities of the Company, including without limitation, by reason of or in connection with any stock dividend, stock distribution, stock split, spin-off, purchase in any rights offering or in connection with any exchange for or replacement of such shares or any combination of shares, recapitalization, merger or consolidation or other reorganization, or any other equity securities issued pursuant to any other pro rata distribution with respect to the Common Stock.  As to any particular Registrable Shares, once issued such securities shall cease to be Registrable Shares when (x) they are sold pursuant to an effective registration statement under the Act, (y) the entire amount of Registrable Shares held by such Holder thereof have been sold under Rule 144 (or any successor rule or regulation then in effect) or (z) they shall have ceased to be outstanding.  No Registrable Shares may be registered under more than one registration statement at any one time.

“Registration Expenses” means all expenses arising from or incident to the Company’s performance of, or compliance with, this Agreement, (x) including, without limitation: (i) all Commission, stock exchange and FINRA registration and filing fees and exchange listing fees, (ii) all printing, messenger and delivery expenses, (iii) all fees, charges and disbursements of counsel for the Company and the reasonable and documented fees, charges and expenses of one (1) counsel and any necessary counsel with respect to state securities law matters, in each case selected by the selling Holders holding a majority of the Registrable Shares being registered in such registration to represent the selling Holders, (iv) all fees and expenses incurred in complying with securities or state “blue sky” laws (including reasonable fees, charges and disbursements of counsel to any underwriter incurred in connection with “blue sky” qualifications of the Registrable Shares as may be set forth in any underwriting agreement), (v) any other accounting fees, charges or expenses incurred by the Company incident to or required by any such registration (including any expenses arising from any “cold comfort” letters or any special audits incident to or required by any registration or qualification), and (vi) any liability insurance or other premiums for insurance obtained in connection with any demand registration or piggy-back registration thereon, incidental registration or shelf registration pursuant to the terms of this Agreement, regardless of whether such Registration Statement is declared effective, and (y) excluding underwriting discounts, selling commissions and the fees and expenses of selling Holders’ own counsel (other than the counsel selected to represent all selling Holders).

“Registration Statement” means a registration statement filed by the Company with the Commission for a public offering and sale of securities of the Company for cash (other than a registration statement on Form S-8 or Form S-4).

“Securities Act” means the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect.

“Valid Business Reason” shall have the meaning set forth in Section 2.5.

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“WFC” means Project Black Bear LP, a Delaware limited partnership and a WFC Investor.

“WFC Holders” means the WFC Investors, and any Person to which the rights granted to WFC under this Agreement are transferred, in whole or in part, pursuant to Article 8 and any Person entitled to the benefits of this Agreement pursuant to Section 9.2, other than a transferee to whom Registrable Shares have been transferred pursuant to a Registration Statement under the Securities Act or Rule 144 promulgated under the Securities Act.

“WFC Investors” means the Investors identified as WFC Investors on Schedule I hereto.

1.2           Grant of Rights.  The Company hereby grants registration rights to the Holders upon the terms and conditions set forth in this Agreement.

1.3           Holders of Registrable Shares.  A Person is deemed to be a holder of Registrable Shares whenever such Person owns of record Registrable Shares (unless transferred into “street name” for the purpose of effecting a sale), or holds an option to purchase, or a security convertible into, or exercisable or exchangeable for, Registrable Shares whether or not such purchase, conversion, exercise or exchange has actually been effected.  If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Shares, the Company may act upon the basis of the instructions, notice or election received from the registered owner of such Registrable Shares.  Registrable Shares issuable upon exercise of an option or upon conversion, exercise or exchange of another security shall be deemed outstanding for the purposes of this Agreement.

ARTICLE 2.

REQUIRED REGISTRATIONS

2.1           Demand Registration Rights.  Subject to the limitations set forth in  Section 2.4, each of WFC and HMQ shall have the right to request, in writing, that the Company effect a registration on Form S-1 (or any other applicable or successor form) of some or all of the shares of Common Stock then held by the WFC Holders which constitute Registrable Shares; provided, however, that HMQ may not exercise such right until the earlier of (i) WFC’s exercise of all of its demand rights under this Article 2 or (ii) such time as WFC no longer holds any Registrable Shares.  If WFC intends to distribute the Registrable Shares by means of an underwriting, it shall so advise the Company in its request.  Upon receipt of any such request, the Company shall promptly give written notice of such proposed registration to all WFC Holders.  Such other WFC Holders shall have the right, by giving written notice to the Company within thirty (30) days after the Company provides its notice, to elect to have included in such registration such of their Registrable Shares as such WFC Holders may request in such notice of election.  All WFC Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with an underwriter or underwriters selected by the WFC Holders.  Thereupon, the Company shall, at its own expense and as expeditiously as

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possible, subject to Section 2.5, use commercially reasonable efforts to effect the registration of all Registrable Shares that the Company has been requested so to register.

2.2           S-3 Registrations.  At any time after the Company becomes eligible to file a Registration Statement on Form S-3 (or any successor form relating to secondary offerings, hereinafter “Form S-3”), each of WFC and HMQ shall have the right to effect a Registration Statement on Form S-3 with respect to the WFC Holders’ Registrable Shares.  Upon receipt of any such request, the Company shall promptly give written notice of such proposed registration to all WFC Holders.  Such other WFC Holders shall have the right, by giving written notice to the Company within thirty (30) days after the Company provides its notice, to elect to have included in such registration such of their Registrable Shares as such WFC Holders may request in such notice of election.  Thereupon, the Company shall, at its own expense and as expeditiously as possible, subject to Section 2.5, use commercially reasonable efforts to effect the registration of all Registrable Shares that the Company has been requested so to register.

2.3           Participation in Underwritten Offering.  In connection with any offering under this Article 2 involving an underwriting, the Company shall not be required to include any Registrable Shares in such underwriting unless the Holders thereof accept the terms of the underwriting as agreed upon in good faith between the WFC Holder making such demand and the underwriters selected by it, and then only in such quantity as will not, in the good faith opinion of the underwriters, jeopardize the success of the offering by the Company.  If, in the opinion of the managing underwriter, the registration of all, or part of, the Registrable Shares that the Holders have requested to be included would materially and adversely affect such public offering, then the Company shall be required to include in the underwriting only that number of Registrable Shares, if any, that the managing underwriter in good faith believes may be sold without causing such adverse effect allocated, subject to Section 3.2, pro rata among the WFC Holders on the basis of the Registrable Shares held by such WFC Holders.

2.4           Limits on Number of Registrations; Withdrawal from Underwriting.  (a)  The Company shall not be required (i) to effect (A) more than two (2) Registration Statements in total pursuant to demands by WFC in accordance with this Article 2 if, in the Company’s Initial Public Offering, the WFC Holders receive less than $175,000,000 in gross proceeds as selling stockholders or (B) more than one (1) registration pursuant to demands by WFC in accordance with Article 2 if, in the Company’s Initial Public Offering, the WFC Holders receive at least $175,000,000 in gross proceeds as selling stockholders and (ii) to file any Registration Statement during the 180 day period following an Initial Public Offering.  The Company shall not be required to effect more than one (1) Registration Statement in total pursuant to the demand by HMQ in accordance with this Article 2.

(b)           Notwithstanding Section 2.4(a), if the WFC Holders disapprove of the terms of an underwritten offering that is the subject of a Registration Statement filed pursuant to this Article 2, WFC or HMQ may elect to withdraw its demand therefor prior to the effectiveness of the Registration Statement by written notice to the Company and the managing underwriter and such demand shall not count as a Registration Statement for purposes of Section 2.4(a) unless WFC has previously withdrawn its demand pursuant to this Section 2.4(b) twice or unless HMQ has previously withdrawn its demand pursuant to this Section 2.4(b) once, respectively. 

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Notwithstanding the foregoing, the Company may elect to proceed with such underwritten offering, in which case, the provisions of Article 3 hereof shall apply.

2.5           Right to Delay Registrations.  If at the time of any request to register Registrable Shares pursuant to this Article 2, the Company is engaged or has fixed plans to engage, within thirty (30) days of the time of the request, in a registered public offering as to which WFC Holders may include Registrable Shares pursuant to Article 3 or is engaged in any other activity that, in the good faith determination of the Company’s Board of Directors, would be adversely affected by the requested registration to the material detriment of the Company (a “Valid Business Reason”), then the Company, at its option, may direct that such request be delayed for a period not in excess of ninety (90) days from the effective date of such offering or the date of commencement of such other material activity, as the case may be, such right to delay a request to be exercised by the Company not more than once in any one (1) year period.  The Company shall give written notice to all WFC Holders of its determination to postpone or withdraw a Registration Statement and of the fact that the Valid Business Reason for such postponement or withdrawal no longer exists, in each case, promptly after the occurrence thereof.

ARTICLE 3.

PIGGYBACK REGISTRATION

3.1           General.  Subject to Section 3.2, whenever the Company proposes to file a Registration Statement for its own account, other than a Registration Statement on Form S-4 or Form S-8), or for the account of any stockholder of the Company at any time and from time to time, it shall give, prior to such filing, written notice (such notice shall describe the proposed registration, offering price (or reasonable range thereof) and distribution arrangements) to all Holders of its intention to do so and, upon the written request of a Holder or Holders given within twenty (20) days after the Company provides such notice, the Company shall use commercially reasonable efforts to cause all Registrable Shares that the Company has been requested by such Holder or Holders to register to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution; provided that the Company shall have the right to postpone or withdraw any registration effected for the Company’s own account without obligation to any Holder and shall have the rights set forth in Section 2.5 for any registration effected based on a demand under Article 2.  The Company shall bear all Registration Expenses in connection with any incidental registration pursuant to this Article 3, whether or not such incidental registration becomes effective.

3.2           Participation in Underwritten Offering.  In connection with any offering under this Article 3 involving an underwriting, the Company shall not be required to include any Registrable Shares in such underwriting unless the Holders thereof accept the terms of the underwriting as agreed upon in good faith between the Company or WFC, as the case may be, and the underwriters, and then only in such quantity as will not, in the good faith opinion of the underwriters, jeopardize the success of the offering by the Company.  If, in the opinion of the managing underwriter, the registration of all, or part of, the Registrable Shares that the Holders have requested to be included would materially and adversely affect such public offering, then

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the Company shall be required to include in the underwriting only that number of Registrable Shares, if any, that the managing underwriter in good faith believes may be sold without causing such adverse effect; provided that the Company shall include Registrable Shares in the priorities described below with respect to the Registration Statements described below:

(a)                in the Company’s Initial Public Offering, first, all of the securities to be offered for the account of the Company; second, the Registrable Shares to be offered for the account of the WFC Holders pursuant to this Article 3 pro rata based on the number of Registrable Shares owned by each such WFC Holder, up to a maximum of $175,000,000 of gross proceeds attributable to such WFC Holders; third, the Registrable Shares to be offered for the account of the Holders pursuant to this Article 3 pro rata based on the number of Registrable Shares owned by each such Holder (reduced, in the case of WFC Holders, by the number of Registrable Shares included in such registration pursuant to the preceding clause); and fourth, any other securities requested to be included in such offering;

(b)                in the first demand Registration Statement effected pursuant to a demand by WFC in accordance with Article 2, if applying the limitation described in Section 2.4(a)(i)(A), first, the Registrable Shares to be offered for the account of the WFC Holders pro rata based on the number of Registrable Shares owned by each such WFC Holder, up to a maximum of $175,000,000 of gross proceeds attributable to such WFC Holders less any amount of gross proceeds received by the WFC Holders in the Company’s Initial Public Offering; second, the Registrable Shares to be offered for the account of the Holders pursuant to this Article 3 pro rata based on the number of Registrable Shares owned by each such Holder (reduced, in the case of WFC Holders, by the number of Registrable Shares included in such registration pursuant to the preceding clause); and third, any other securities requested to be included in such offering;

(c)                in the second demand Registration Statement effected pursuant to a demand by WFC in accordance with Article 2, if applying the limitation described in Section 2.4(a)(i)(A), first, the Registrable Shares to be offered for the account of all Holders pursuant to this Article 3 pro rata based on the number of Registrable Shares owned by each such Holder; and second, any other securities requested to be included in such offering;

(d)                in the only demand Registration Statement effected pursuant to a demand by WFC in accordance with Article 2, if applying the limitation described in Section 2.4(a)(i)(B), first, the Registrable Shares to be offered for the account of all Holders pursuant to this Article 3 pro rata based on the number of Registrable Shares owned by each such Holder; and second, any other securities requested to be included in such offering;

(e)                in the demand Registration Statement effected pursuant to a demand by HMQ in accordance with Article 2, first, the Registrable Shares to be offered for the account of all Holders pursuant to this Article 3 pro rata based on the number of Registrable Shares

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owned by each such Holder; and second, any other securities requested to be included in such offering; or

(f)                in any other such registration, first, all of the securities to be offered for the account of the Company; second, the Registrable Shares to be offered for the account of the Holders pursuant to this Article 3 pro rata based on the number of Registrable Shares owned by each such Holder; and third, any other securities requested to be included in such offering.

ARTICLE 4.

REGISTRATION PROCEDURES

4.1           Company Obligations.  If and whenever the Company is required by the provisions of this Agreement to effect the registration of any of the Registrable Shares under the Securities Act, the Company shall use commercially reasonable efforts to effect the registration and sale of such Registrable Shares in accordance with the intended method of distribution thereof as promptly as practicable, and in connection with any such request or requirement, the Company shall:

(a)           as expeditiously as possible, prepare and file with the Commission a Registration Statement with respect to such Registrable Shares on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of such Registrable Shares in accordance with the intended method of distribution thereof; provided, however, that (A) before filing a Registration Statement or Prospectus or any amendments or supplements thereto (including any documents incorporated by reference therein), or before using any Free Writing Prospectus, the Company shall provide counsel selected by the selling Holders holding a majority of the Registrable Shares being registered in such registration (“Holders’ Counsel”) and any other Inspector with an adequate and appropriate opportunity to review and comment on such Registration Statement, each Prospectus included therein (and each amendment or supplement thereto) and each Free Writing Prospectus to be filed with the Commission, subject to such documents being under the Company’s control, and (B) the Company shall notify the Holders’ Counsel and each seller of Registrable Shares pursuant to such Registration Statement of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered;

(b)           as expeditiously as possible prepare and file with the Commission any amendments and supplements to the Registration Statement and the Prospectus included in the Registration Statement as may be necessary to keep the Registration Statement effective for the lesser of (A) 120 days and (B) such shorter period which will terminate when all Registrable Shares covered by such Registration Statement have been sold; provided that in the case of a shelf registration, the Company shall keep such Registration Statement effective until all Registrable Shares covered by such Registration Statement shall have been sold, and shall comply with the provisions of the Securities Act with

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respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement;

(c)           as expeditiously as possible furnish to each selling Holder such reasonable numbers of copies of the Registration Statement, each amendment and supplement thereto, Prospectus, including a preliminary Prospectus, any Prospectus filed pursuant to Rule 424 promulgated under the Securities Act and any Free Writing Prospectus in conformity with the requirements of the Securities Act, and such other documents as the selling Holder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Shares owned by the selling Holder;

(d)           as expeditiously as possible use its best efforts to register or qualify the Registrable Shares covered by the Registration Statement under the securities or “blue sky” laws of such states as the selling Holders shall reasonably request, and to continue such registration or qualification in effect in such jurisdiction for as long as permissible pursuant to the laws of such jurisdiction, or for as long as any such seller requests or until all of such Registrable Shares are sold, whichever is shortest, and do any and all other acts and things that may be necessary or desirable to enable the selling Holders to consummate the public sale or other disposition in such states of the Registrable Shares owned by the selling Holder; provided, however, that the Company shall not be required in connection with this subsection (d) to qualify as a foreign corporation or execute a general consent to service of process in any jurisdiction;

(e)           enter into and perform customary agreements (including underwriting and indemnification and contribution agreements in customary form with the approved underwriter for the Holders or the Company’s underwriter, as applicable) and take such other commercially reasonable actions as are required in order to expedite or facilitate each disposition of Registrable Shares and shall provide all reasonable cooperation, including causing appropriate officers to attend and participate in “road shows” and other information meetings organized by the underwriter, and causing counsel to the Company to deliver customary legal opinions in connection with any such underwriting agreements; provided, however, that the Company’s officers shall not be required to participate in road shows in connection with more than two registrations, and such road shows shall not last more than two weeks at a time;

(f)            as expeditiously as possible, notify each seller of Registrable Shares: (1) when a Prospectus, any Prospectus supplement, any Free Writing Prospectus, a Registration Statement or a post-effective amendment to a Registration Statement has been filed with the Commission, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective; (2) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement, related Prospectus or Free Writing Prospectus or for additional information; (3) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation or threatening of any proceedings for that

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purpose; (4) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceedings for such purpose; (5) of the existence of any fact or happening of any event of which the Company has knowledge which makes any statement of a material fact in such Registration Statement, related Prospectus or Free Writing Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue or which would require the making of any changes in the Registration Statement, Prospectus or Free Writing Prospectus in order that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of such Prospectus or Free Writing Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (6) of the determination by counsel of the Company that a post-effective amendment to a Registration Statement is advisable;

(g)           as expeditiously as possible, upon the occurrence of any event contemplated by Section 4.1(f)(5) or, subject to Section 2.5, the existence of a Valid Business Reason, as promptly as practicable, prepare a supplement or amendment to such Registration Statement, related Prospectus or Free Writing Prospectus and furnish to each seller of Registrable Shares a reasonable number of copies of such supplement to or an amendment of such Registration Statement, Prospectus or Free Writing Prospectus as may be necessary so that, after delivery to the purchasers of such Registrable Shares, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of such Prospectus or Free Writing Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

(h)           if the Company has delivered preliminary or final Prospectuses to the selling Holders and after having done so the Prospectus is amended to comply with the requirements of the Securities Act, the Company shall promptly notify the selling Holders and, if requested, the selling Holders immediately shall cease making offers of Registrable Shares and return all Prospectuses in their possession to the Company.  The Company shall promptly provide the selling Holders with revised Prospectuses and, following receipt of the revised Prospectuses, the selling Holders shall be free to resume making offers of the Registrable Shares;

(i)            make available at reasonable times for inspection by any seller of Registrable Shares, any managing underwriter participating in any disposition of such Registrable Shares pursuant to a Registration Statement, Holders’ Counsel and any attorney, accountant or other agent retained by any such seller or any managing underwriter (collectively, the “Inspectors”), all financial and other records, pertinent

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corporate documents and properties of the Company and its subsidiaries (collectively, the “Records”) as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company’s and its subsidiaries’ officers, directors and employees, and the independent public accountants of the Company, to supply all information reasonably requested by any such Inspector in connection with such Registration Statement.  Records that the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors (and the Inspectors shall confirm their agreement in writing in advance to the Company if the Company shall so request) unless (A) the disclosure of such Records is necessary, in the Company’s judgment, to avoid or correct a misstatement or omission in the Registration Statement, (B) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after exhaustion of all appeals therefrom or (C) the information in such Records was known to the Inspectors on a non-confidential basis prior to its disclosure by the Company or has been made generally available to the public.  Each seller of Registrable Shares agrees that it shall, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company’s expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential;

(j)            if such sale is pursuant to an underwritten public offering, obtain a “cold comfort” letter dated the effective date of the Registration Statement and the date of the closing under the underwriting agreement from the Company’s independent public accountants in customary form and covering such matters of the type customarily covered by “cold comfort” letters as Holders’ Counsel or the managing underwriter reasonably requests;

(k)           comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable but no later than 15 months after the effective date of the Registration Statement, an earnings statement covering a period of 12 months beginning after the effective date of the Registration Statement, in a manner which satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder;

(l)            cause all such Registrable Shares to be listed on each securities exchange on which Registrable Class Securities issued by the Company are then listed, provided that the applicable listing requirements are satisfied;

(m)          cooperate with each seller of Registrable Shares and each underwriter participating in the disposition of such Registrable Shares and their respective counsel in connection with any filings required to be made with FINRA;

(n)           if such registration is pursuant to a Registration Statement on Form S-3 or any similar short-form registration, include in such Registration Statement such additional information for marketing purposes as the managing underwriter reasonably requests; and

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(o)           take all other steps reasonably necessary to effect the registration and disposition of the Registrable Shares contemplated hereby.

4.2           Seller Obligations.  In connection with any offering under any Registration Statement under this Agreement, each Holder registering Registrable Shares in connection therewith:

(a)           shall promptly furnish to the Company in writing such information with respect to such Holder and the intended method of disposition of its Registrable Shares as the Company may reasonably request or as may be required by law for use in connection with any related Registration Statement or Prospectus (or amendment or supplement thereto) and all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not contain a material misstatement of fact or necessary to cause such Registration Statement or Prospectus (or amendment or supplement thereto) not to omit a material fact with respect to such Holder necessary in order to make the statements therein not misleading; and

(b)           shall comply with the Securities Act and the Exchange Act and all applicable state securities laws and comply with all applicable regulations in connection with the registration and the disposition of the Registrable Shares.

4.3           Notice to Discontinue.  Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4.1(f)(5), such Holder shall forthwith discontinue disposition of Registrable Shares pursuant to the Registration Statement covering such Registrable Shares until such Holder’s receipt of the copies of the supplemented or amended Prospectus or Free Writing Prospectus contemplated by Section 4.1(g) and, if so directed by the Company, such Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s possession, of the Prospectus or Free Writing Prospectus covering such Registrable Shares which is current at the time of receipt of such notice.  If the Company shall give any such notice, the Company shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement (including the period referred to in Section 4.1(b)) by the number of days during the period from and including the date of the giving of such notice pursuant to Section 4.1(f)(5) to and including the date when sellers of such Registrable Shares under such Registration Statement shall have received the copies of the supplemented or amended Prospectus or Free Writing Prospectus contemplated by and meeting the requirements of Section 4.1(g).

ARTICLE 5.

ALLOCATION OF REGISTRATION EXPENSES

The Company shall pay all Registration Expenses arising from or incident to its performance of, or compliance with, this Agreement, including all registrations under this Agreement, regardless of whether any Registration Statement is declared effective.

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ARTICLE 6.

INDEMNIFICATION AND CONTRIBUTION

6.1           Company Indemnity.  The Company shall defend (at the sole election of the indemnified party and at the Company’s expense), indemnify and hold harmless each Holder and each Affiliate of each Holder and their respective stockholders, partners, members, directors, officers, employees, agents, accountants and attorneys (“Representatives”), each underwriter of such Holder and its Representatives, and each other Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act and its Representatives, against any and all losses, claims, damages, liabilities and expenses, or any action or proceeding in respect thereof (including reasonable costs of investigation and reasonable and documented attorneys’ fees and expenses) (each, a “Liability”) to which such Holder, its Representatives, Affiliates, underwriter or controlling Person and their Representatives may become subject under the Securities Act, the Exchange Act, state securities or “blue sky” laws or otherwise, insofar as such Liabilities (or actions in respect thereof) arise out of or are related to any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary Prospectus or final Prospectus or Free Writing Prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arise out of or are based upon the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading or any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities laws in connection with the offering covered by such registration statement.  Notwithstanding the foregoing, the Company shall not be liable in any such case to the extent that any Liability arises out of or is based upon any untrue statement or omission made in such Registration Statement, preliminary Prospectus or final Prospectus or Free Writing Prospectus, or any amendment or supplement, in reliance upon and in conformity with information furnished to the Company, in writing, by or on behalf of such indemnified party specifically for use in the preparation thereof.

6.2           Seller Indemnity.  In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, each seller of Registrable Shares, severally and not jointly, shall indemnify and hold harmless the Company, each of its Representatives and each underwriter (if any) and each Person, if any, who controls the Company or any such underwriter within the meaning of the Securities Act or the Exchange Act and their Representatives, and any other seller of Registrable Shares or any such seller’s partners, directors, officers or Representatives and each person, if any, who controls such seller within the meaning of the Securities Act and the Exchange Act, against any losses, claims, damages or liabilities, joint or several, to which the Company or its Representatives, an underwriter, selling Holder or controlling Person, or their Representatives, may become subject under the Securities Act, Exchange Act, state securities or “blue sky” laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any

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preliminary Prospectus or final Prospectus or Free Writing Prospectus contained in the Registration Statement, any amendment or supplement to the Registration Statement, or any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case, to the extent such losses, claims, damages or liabilities arise out of or are based upon written information furnished by such seller of Registrable Shares or on such seller’s behalf expressly for inclusion in the Registration Statement, preliminary Prospectus or final Prospectus or Free Writing Prospectus contained in the Registration Statement or any amendment or supplement thereto relating to the Registrable Shares.  Each such seller of Registrable Shares shall reimburse the Company for any legal or any other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action if the statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of such seller, specifically for use in connection with the preparation of such Registration Statement, Prospectus, Free Writing Prospectus, amendment or supplement; provided, however, that the obligations of such Holders under this Section 6.2 shall be limited to an amount equal to the net proceeds (after deducting the underwriters’ discounts and commissions) received by such selling Holder of Registrable Shares sold as contemplated herein.

6.3           Indemnification Conditions.  Each party entitled to indemnification under this Article 6 (the “Indemnified Party”) shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has notice of any claim, suit or proceeding or any alleged claim, suit or proceeding, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, that:  (a) counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld); and (b) the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, except to the extent that the Indemnifying Party’s ability to defend against such claim or litigation is impaired as a result of such failure to give notice.  The Indemnified Party shall have the right to participate in such defense at such party’s expense; provided, however, that the Indemnifying Party shall pay such expense of one counsel if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such proceeding.  No Indemnifying Party in the defense of any such claim or litigation shall consent, except with the written consent of each Indemnified Party, to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party.  Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom.

6.4           Contribution.  If the indemnification provided for in this Article 6 from the Indemnifying Party is unavailable to an Indemnified Party hereunder in respect of any Liabilities referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party,

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shall contribute to the amount paid or payable by such Indemnified Party as a result of such Liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions which resulted in such Liabilities, as well as any other relevant equitable considerations.  The relative faults of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action.  The amount paid or payable by a party as a result of the Liabilities referred to above shall be deemed to include, subject to the limitations set forth in Sections 6.1, 6.2 and 6.3, any legal or other fees, charges or expenses reasonably incurred by such party in connection with any investigation or proceeding; provided, that the total amount to be contributed by such Holder shall be limited to the net proceeds (after deducting the underwriters’ discounts and commissions) received by such Holder in the offering.  The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph.  No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

6.5           Survival.  The provisions set forth in this Article 6 shall survive the termination of this Agreement for a period of time equal to the statute of limitations relating to a claim for a Liability.

ARTICLE 7.

OTHER REGISTRATION REQUIREMENTS AND RESTRICTIONS

7.1           Underwriting Agreement.  In the event that Registrable Shares are sold pursuant to a Registration Statement in an underwritten offering pursuant to Article 2, the Company agrees to enter into an underwriting agreement containing customary representations and warranties with respect to the business and operations of an issuer of the securities being registered and customary covenants and agreements to be performed by such issuer, including without limitation customary provisions with respect to indemnification by the Company of the underwriters of such offering.

7.2           Information by Holder.  Each Holder of Registrable Shares included in any registration shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement.

7.3           “Market Stand-Off” Agreement.  Each Holder, if requested by the Company and an underwriter of Common Stock or other securities of the Company, shall agree not to sell or

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otherwise transfer or dispose of any Registrable Shares for a specified period of time determined by the Company and the underwriters (not to exceed one hundred eighty (180) days) following the effective date of the Company’s Initial Public Offering.  Such agreement shall be in writing in a form reasonably satisfactory to the Company and such underwriter.  The Company may impose stop-transfer instructions with respect to the Registrable Shares or other securities subject to the foregoing restriction until the end of the stand-off period.  No Holder subject to this Section 7.3 shall be released from any obligation under any agreement, arrangement or understanding entered into pursuant to this Section 7.3 unless all other Holders subject to the same obligation are also released.  Notwithstanding the foregoing, if (i) during the last 17 days of the lock-up period above, the Company releases earnings results or announces material news or a material event or (ii) prior to the expiration of the lock-up period above, the Company announces that it will release earnings results during the 15-day period following the last day of the lock-up period above, then in each case the lock-up period above will be automatically extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the announcement of the material news or material event, as applicable, unless the Company or the underwriters, as the case may be, waives, in writing, such extension.

7.4           Rule 144 Requirements.  After the earliest of:  (a) the closing of the sale of securities of the Company pursuant to a Registration Statement and (b) the registration by the Company of a class of securities under Section 12 of the Exchange Act, the Company shall:

(a)           comply with the requirements of Rule 144(c) under the Securities Act with respect to current public information about the Company;

(b)           use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to their reporting requirements); and

(c)           furnish to any Holder upon written request,  a written statement by the Company as to its compliance with the requirements of said Rule 144(c), and the reporting requirements of the Securities Act and the Exchange Act (at any time after it has become subject to their reporting requirements).

7.5           Selection of Underwriter.  WFC shall have the right to designate the managing underwriter in the Company’s Initial Public Offering and in any registration effected pursuant to Article 2.

7.6           Mergers, Etc.  The Company shall not, directly or indirectly, enter into any merger, consolidation, or reorganization in which the Company shall not be the surviving corporation unless the proposed surviving corporation shall, prior to such merger, consolidation, or reorganization, agree in writing to assume the obligations of the Company under this Agreement, and for that purpose references hereunder to “Registrable Shares” shall be deemed to be references to the securities that the Holder would be entitled to receive in exchange for Registrable Shares under any such merger, consolidation, or reorganization; provided, however, that the provisions of this Agreement shall not apply in the event of any merger, consolidation, or

16

reorganization in which the Company is not the surviving corporation if all Holders are entitled to receive in exchange for their Registrable Shares consideration consisting solely of:  (a) cash; (b) securities of the acquiring corporation that may be immediately sold to the public without registration under the Securities Act; or (c) securities of the acquiring corporation that the acquiring corporation has agreed to register within ninety (90) days of completion of the transaction for resale to the public pursuant to the Securities Act.

ARTICLE 8.

TRANSFERS OF CERTAIN RIGHTS

8.1           Amount.  Each Investor shall have the right to transfer the rights granted to such Investor under this Agreement, in whole or in part, only to (a) an Affiliate of such Investor or, in the case of a WFC Investor, to any Affiliate of such WFC Investor or to any other WFC Investor; or (b) any Person to which Registrable Shares are transferred; provided that, with respect to transfers under this clause (b): (x) the associated transfer of such shares, in the opinion of counsel reasonably acceptable to the Company, may be effected without registration under the Securities Act and any applicable state securities laws; (y) transferee reasonably cooperates with the Company to execute and deliver any documents and to take any actions reasonably requested by the Company to comply with the requirements of any such exemption from registration; and (z) following such transfer, the transferee shall hold at least one percent (1%) of the Registrable Class Shares.  For the avoidance of doubt, the transferee of any Registrable Shares, in whole or in part, in accordance with this Article 8 shall be deemed to be a “Holder” for all purposes of this Agreement, and if the transferor of such Registrable Shares is a WFC Investor, then the transferee of such Registrable Shares shall be deemed a “WFC Investor” for all purposes of this Agreement.

8.2           Transferees.  Any transferee to whom rights under this Agreement are transferred shall deliver to the Company, as a condition to such transfer, a written instrument by which such transferee agrees to be bound by the obligations imposed upon the Investor or other Holders, as applicable, under this Agreement to the same extent as if such transferee were an Investor or other Holder under this Agreement.

8.3           Subsequent Transferees.  A transferee to whom rights are transferred pursuant to this Article 8 shall not have the right to again transfer such rights to any other person or entity, other than as provided in Sections 8.1 or 8.2.

ARTICLE 9.

MISCELLANEOUS

9.1           No Inconsistent Agreements.  The Company shall not hereafter enter into any agreement with respect to its securities that is inconsistent with or violates the rights granted to the Holders of Registrable Shares in this Agreement.

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9.2           Successors and Assigns; Third Party Beneficiaries.  Except as provided in Article 8, this Agreement shall not be transferable or assignable by either party hereto without the prior written consent of the other party.  The provisions of this Agreement shall be binding upon, and inure to the benefit of, the respective successors, permitted assigns, heirs, executors and administrators of the parties hereto.  Except as provided in Article 6, no Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement.

9.3           Remedies.  Any person having rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting any bond or other security), to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law.

9.4           Notices.  Any notice, request, instruction or other document or other communication to be given hereunder by a Party hereto shall be in writing and shall be deemed to have been given, (i) when received if given in person or by courier or a courier service, (ii) on the date of transmission if sent by confirmed facsimile, (iii) on the next Business Day if sent by an overnight delivery service, or (iv) five (5) Business Days after being deposited in the U.S. mail, certified or registered mail, postage prepaid:

To the Company:

Bonanza Creek Energy, Inc.

410 17th Street, Suite 1320

Denver, Colorado 80202

Attention: Michael R. Starzer

Telephone:  720-279-2330

Facsimile: 720-279-2331

Email: mrs@bonaznacrk.com

With a copy, which shall not constitute notice, to:

Thompson & Knight LLP

333 Clay Street, Suite 3300

Houston, Texas 77008

Attention: Harry R. Beaudry

Telephone:  713-653-8826

Facsimile:  832-397-8149

Email: harry.beaudtry@tk.com

To WFC:

Project Black Bear LP

c/o Project Black Bear GP LLC

2 Bloor Street East, Suite 810

Toronto, Ontario, Canada M4W 1A8

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Telephone: 647-724-8912

Facsimile: 647-724-8910

Email: blackbear@westfacecapital.com

With a copy, which shall not constitute notice, to:

Mayer Brown LLP

1675 Broadway

New York, NY 10019

Attention: Thomas M. Vitale

Telephone: 212-506-2510

Facsimile: 212-849-5510

Email: tvitale@mayerbrown.com

If to HMQ:

c/o AIMCo

1100 – 10830 Jasper Ave.

Edmonton, Alberta T5J 2B3

Attention:  Brian Gibson, Senior Vice President, Public Equities

Telephone:  780-392-3744

Facsimile:  780-392-3897

Email: brian.gibson@aimco.alberta.ca

With a copy, which shall not constitute notice, to:

c/o AIMCo

1100 – 10830 Jasper Ave.

Edmonton, Alberta T5J 2B3

Attention: Carole Hunt, Chief Legal Counsel and Corporate Secretary

Telephone: 780-392-3777

Facsimile: 780-392-3897

Email: carole.hunt@aimco.alberta.ca

If to any other Investor to the address set forth at the address or telecopy number shown for such Investor on the applicable signature page hereto, to the attention of the person who has signed this Agreement on behalf of such Stockholder or, in any such case, such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any Party may change its address for notice by notice to the other in the manner set forth above.

9.5           Severability.  In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement or any provision of the other Agreements shall not in any way be affected or impaired thereby.

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9.6           Waiver.  Any failure by a party, at any time or times, to require strict performance by the other party of any provisions of this Agreement shall not waive, affect or diminish any right the first party thereafter to demand strict compliance and performance therewith.  None of the undertakings, agreements, warranties, covenants and representations of a party contained in this Agreement shall be deemed to have been suspended or waived by such party, unless such suspension or waiver is by an instrument in writing signed by an officer of such party and directed to the other party specifying such suspension or waiver.

9.7           Titles and Subtitles.  The titles of the articles and sections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

9.8           Mutual Waiver of Jury Trial.  BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT.

9.9           Governing Law; Consent to Jurisdiction.        THIS AGREEMENT AND ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE OF THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN NEW YORK, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS (FOR THE AVOIDANCE OF DOUBT, SECTION 5-1401 OF THE GENERAL OBLIGATION LAW OF THE STATE OF NEW YORK SHALL BE APPLICABLE TO THIS AGREEMENT).  THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE STATE OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE AFFAIRS OF THE COMPANY.  TO THE FULLEST EXTENT THEY MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, THE PARTIES HERETO IRREVOCABLY WAIVE AND AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT THEY ARE NOT SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.  SERVICE OF PROCESS ON ANY PARTY HERETO IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE EFFECTIVE IF MAILED TO THE PARTY AT THE ADDRESS REFERENCED IN SECTION 9.4 HEREOF.

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9.10         Wavier of Immunity.  Each party to this Agreement expressly acknowledges and agrees that this Agreement is being executed as part of a private, commercial transaction.  Solely with respect to this Agreement, each party hereby waives, to the maximum extent permitted by law, for itself and its Affiliates, and for its and their assets and revenues, any and all immunity to the extent that it may at any time exist whether on grounds of sovereignty, state immunity or otherwise, from suit, arbitration, proceeding, jurisdiction of any court, adjudication, enforcement of arbitration award, judgment, service of process upon it or any agent, execution or judgment, set off, attachment or other interim relief prior to judgment or on judgment or other legal process, including, without limitation, the defenses of “sovereign immunity”, and “act of state”, which such party or its assets or revenues may now have or may in the future have under the Laws of any jurisdiction, and each party agrees not to assert any such immunity or defenses in any proceedings with respect to this Agreement, or in the enforcement of any award, judgment or execution resulting therefrom or from any transactions contemplated hereby or hereunder.

9.11         Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one and the same document.

9.12         Entire Agreement; Modifications.  This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter.  Except as otherwise expressly set forth in this Agreement, any term of this Agreement may be amended with the prior written consent of:  (a) the Company, and (b) the WFC Holders only; provided that any amendment to the piggyback rights in Article 3 shall also require the written consent of the holders of a majority of the Registrable Shares held by Other Holders.  Any amendment effected in accordance with this Section 9.12 shall be binding upon each future holder of any Registrable Shares.

9.13         Further Assurances.  Each of the parties shall execute such documents and perform such further acts as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

	THE COMPANY:
	BONANZA CREEK ENERGY, INC.
	By:	/s/ Michael R. Starzer
	Name:	Michael R. Starzer
	Title:	President
	STOCKHOLDERS:
	D.E. SHAW SYNOPTIC PORTFOLIOS 5, L.L.C.
	By:	/s/ Robert T. Ladd
	Name:	Robert T. Ladd
	Title:	Authorized Signatory
	Address:
Signature Page to the Registration Rights Agreement

	BONANZA CREEK ENERGY COMPANY, LLC
	By:	/s/ Michael R. Starzer
	Name:	Michael R. Starzer
	Title:	President
	Address:
	THE FRED S. AND BARBARA J. HOLMES TRUST
	By:	/s/ Fred S. Holmes
	Name:	Fred S. Holmes
	Title:	Trustee
	Address:
Signature Page to the Registration Rights Agreement

	/s/ Michael R. Starzer
	MICHAEL R. STARZER
	Address:
	THE STARZER REVOCABLE LIVING TRUST,
	DATED FEBRUARY 26, 1998
	By:	/s/ Michael R. Starzer
	Name:	Michael R. Starzer
	Title:	Trustee
	Address:
Signature Page to the Registration Rights Agreement

PROJECT BLACK BEAR LP
By:	WEST FACE CAPITAL INC., its Adviser
By:	/s/ Alexander A. Singh
	Name: Alexander A. Singh
	Title:  Counsel & Secretary
HER MAJESTY THE QUEEN IN RIGHT OF ALBERTA, IN HER OWN CAPACITY AND AS TRUSTEE/NOMINEE FOR CERTAIN DESIGNATED ENTITIES
By:	/s/ Brian Gibson
	Name: Brian Gibson
	Title:  Senior Vice President

Signature Page to the Registration Rights Agreement

Schedule I

Investors

West Face Investors:

PROJECT BLACK BEAR LP

HER MAJESTY THE QUEEN IN RIGHT OF ALBERTA, IN HER OWN CAPACITY AND AS TRUSTEE/NOMINEE FOR CERTAIN DESIGNATED ENTITIES

Other Investors:

D.E. SHAW SYNOPTIC PORTFOLIOS 5, L.L.C.

BONANZA CREEK ENERGY COMPANY, LLC

THE FRED S. AND BARBARA J. HOLMES TRUST

MICHAEL R. STARZER

THE STARZER REVOCABLE LIVING TRUST, DATED FEBRUARY 26, 1998

EX-10.4

Exhibit 10.4

FORM OF INDEMNITY AGREEMENT

This Agreement made and entered into as of           , by and between Bonanza Creek Energy, Inc., a Delaware corporation (the “Company”), and            (“Indemnitee”), who is currently serving the Company in the capacity of director and/or executive officer.

WITNESSETH:

WHEREAS, the Company and Indemnitee recognize that the interpretation of ambiguous statutes, regulations and court opinions and of the Amended and Restated Certificate of Incorporation of the Company (the “Certificate of Incorporation”) and the Bylaws of the Company (the “Bylaws”), and the vagaries of public policy, are too uncertain to provide the directors and executive officers of the Company with adequate or reliable advance knowledge or guidance with respect to the legal risks and potential liabilities to which they become personally exposed as a result of performing their duties in good faith for the Company;

WHEREAS, competent and experienced individuals are reluctant to serve as members of the board of directors or executive officers of a corporation unless they are provided with adequate protection through insurance or indemnification against the risks of claims and actions against them arising out of such service;

WHEREAS, Section 145 of the General Corporation Law of the State of Delaware and the Certificate of Incorporation, which set forth certain provisions relating to the mandatory and permissive indemnification of, and advancement of expenses to, officers and directors (among others) of a Delaware corporation by such corporation, are specifically not exclusive of other rights to which those indemnified thereunder may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise;

WHEREAS, after due consideration and investigation of the terms and provisions of this Agreement and the various other options available to the Company and the Indemnitee in lieu thereof, the Board of Directors of the Company (the “Board of Directors”) has determined that the following Agreement is not only reasonable and prudent but necessary to promote and ensure the best interests of the Company and its stockholders; and

WHEREAS, the Company desires to have Indemnitee to serve or continue to serve as a director or executive officer of the Company, free from undue concern for unpredictable, inappropriate or unreasonable legal risks and personal liabilities by reason of his acting in good faith in the performance of his duty to the Company; and Indemnitee desires to serve (provided that he is furnished the indemnity provided for hereinafter), in such capacity;

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Indemnitee, intending to be legally bound, do hereby agree as follows:

1.             Agreement to Serve.  Indemnitee agrees to serve or continue to serve as a director or executive officer of the Company for so long as he is duly appointed and qualified in accordance with the provisions of the General Corporation Law of the State of Delaware and the Certificate of Incorporation and the Bylaws or until such time as he tenders his resignation.  The Company acknowledges that the Indemnitee is relying on this Agreement in so serving as a director or executive officer.

2.             Definitions.  As used in this Agreement:

(a)           “Change in Control” means the occurrence of any of the following:

(i)            the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (A) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”).  For purposes of this Section 2(a), the following acquisitions by a Person will not constitute a Change of Control: (1) any acquisition directly from the Company; (2) any acquisition by the Company; (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (4) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of paragraph (iii) below;

(ii)           the individuals who, as of the later of the date hereof or the last amendment to this Agreement approved by the Board of Directors, constitute the board of directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the board of directors.  Any individual becoming a director subsequent to the later of the date hereof or the last amendment to this Agreement approved by the Board of Directors whose election, or nomination for election by the Company’s stockholders, is approved by a vote of at least a majority of the directors then comprising the Incumbent Board of Directors will be considered a member of the Incumbent Board as of the later of the date hereof or the last amendment to this Agreement approved by the Board of Directors, but any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board of Directors will not be deemed a member of the Incumbent Board as of the later of the date hereof or the last amendment to this Agreement approved by the Board of Directors;

(iii)          the consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), unless following such Business Combination: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business

2

Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or

(iv)          the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

(b)           “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

(c)           “Enterprise” shall mean any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan, organization or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent.

(d)           The term “Expenses” includes, without limitation, all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in, or otherwise involved in, a Proceeding.  Should any payments by the Company under this Agreement be determined to be subject to any federal, state or local income or excise tax, Expenses will also include such amounts as are necessary to place Indemnitee in the same after-tax position, after giving effect to all applicable taxes, Indemnitee would have been in had such tax not have been determined to apply to those payments.  Expenses also shall include (i) Expenses incurred in connection with any appeal resulting from any Proceeding, including, without limitation, the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent and (ii) Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement, by litigation or otherwise, but shall not include the amount of judgments, fines or penalties actually levied against Indemnitee.

(e)           “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder.  Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.  The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

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(f)            “Proceeding” shall mean any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative or investigative, any appeal in such an action, suit, or proceeding, and any inquiry or investigation that could lead to such an action, suit or proceeding irrespective of the initiator thereof.  The final disposition of a Proceeding shall be as determined by a settlement or the judgment of a court or other investigative or administrative body.  The Board of Directors shall not make a determination as to the final disposition of a Proceeding.

(g)           References to “fines” shall include any (i) excise taxes assessed with respect to any employee benefit plan and (ii) penalties; references to “serving at the request of the Company” shall include any service as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent which imposes duties on, or involves services by, such director, officer, trustee, general partner, managing member, fiduciary, employee or agent with respect to an Enterprise; and a person who acts in good faith and in a manner he reasonably believed to be in the interest of the Enterprise shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

3.             Indemnity in Third Party Proceedings.  The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is a party to or is threatened to be made a party to or is otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Company to procure a judgment in its favor) by reason of the fact that Indemnitee is or was a director or executive officer of the Company, or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of an Enterprise, against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee (or on his behalf) in connection with such Proceeding or any claim, issue or matter therein, provided it is determined pursuant to Section 8 of this Agreement or by the court having jurisdiction in the matter, that Indemnitee acted in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful.  The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal Proceeding, had reasonable cause to believe that his conduct was unlawful.

4.             Indemnity in Proceedings By or In the Right of the Company.  The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is a party to or is threatened to be made a party to or otherwise involved in any Proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director or executive officer of the Company, or is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of an Enterprise, against all Expenses actually and reasonably incurred by Indemnitee (or on his behalf) in connection with such Proceeding provided it is determined pursuant to Section 8 of this Agreement or by the court having jurisdiction in the matter, that Indemnitee acted in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company unless and only to the extent that the Delaware Court of Chancery or the court in which such Proceeding was brought or is pending, shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as the Delaware Court of Chancery or such other court shall deem proper.

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5.             Indemnification for Expenses of a Witness.  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of the fact that Indemnitee is or was a director or executive officer of the Company, or is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of an Enterprise, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee (or on his behalf) in connection therewith.

6.             Indemnification for Expenses of Successful Party.  Notwithstanding any other provision of this Agreement to the contrary, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in Sections 3 and/or 4 of this Agreement, or in defense of any claim, issue or matter therein, including dismissal with or without prejudice, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee (or on his behalf) in connection therewith.  If Indemnitee is not wholly successful in any Proceeding referred to in Sections 3 and/or 4 of this Agreement, but is successful on the merits or otherwise (including dismissal with or without prejudice) as to one or more, but less than all claims, issues or matters therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee (or on his behalf) in connection with each successfully resolved claim, issue or matter.  For purposes of this Section 6, and without limitation, the termination of any claim, issue or matter in any Proceeding referred to in Sections 3 and/or 4 of this Agreement by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

7.             Advances of Expenses; Notification and Defense of Claim.

(a)           To the fullest extent permitted by applicable law, the Expenses incurred by Indemnitee pursuant to Sections 3 and/or 4 of this Agreement in connection with any Proceeding or any claim, issue or matter therein shall be paid by the Company currently and in advance of the final disposition of such Proceeding or any claim, issue or matter therein no later than 20 days after receipt by the Company of a request for an Expense advancement with appropriate documentation (which shall include invoices received by Indemnitee in connection with such expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice); provided, however, that Indemnitee shall deliver such request for an Expense advancement to the Company within 60 days after the Indemnitee receives appropriate documentation with regard to such Expense. The undersigned Indemnitee hereby undertakes to repay the advanced Expenses to the Company to the extent that it is ultimately determined pursuant to Section 8, or, in the event the Indemnitee elects to pursue other remedies pursuant to Section 10, that the undersigned Indemnitee is not entitled to be indemnified therefor by the Company.  This agreement of Indemnitee to repay is unsecured and interest free.

(b)           Promptly after receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee shall, if a claim thereof is to be made against the Company hereunder, notify the Company of the commencement thereof.  The failure to promptly notify the Company of the commencement of the Proceeding, or Indemnitee’s request for indemnification, will not relieve the Company from any liability that it may have to Indemnitee hereunder, except to the extent that the Company is prejudiced in its defense of such Proceeding as a result of such failure.

(c)           In the event the Company shall be obligated to pay the expenses of Indemnitee with respect to an action, suit or proceeding, as provided in this Agreement, the Company, if appropriate, shall be entitled to assume the defense of such Proceeding, with counsel reasonably acceptable to Indemnitee, upon the delivery to Indemnitee of written notice of its election to do

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so.  After delivery of such notice, the approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Proceeding, provided that (1) Indemnitee shall have the right to employ Indemnitee’s own counsel in such Proceeding at Indemnitee’s expense and (2) if (i) the employment of counsel by Indemnitee has been previously authorized in writing by the Company, (ii) counsel to the Company or Indemnitee shall have reasonably concluded that there may be a conflict of interest or position, or reasonably believes that a conflict is likely to arise, on any significant issue between the Company and Indemnitee in the conduct of any such defense or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such Proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the expense of the Company, except as otherwise expressly provided by this Agreement.  The Company shall not be entitled, without the consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Company or as to which counsel for the Company or Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above.

8.             Procedure for Determination of Entitlement to Indemnification.

(a)           To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request.

(b)           Upon written request by Indemnitee for indemnification pursuant to Section 8(a) hereof, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case: (i) if a Change in Control shall have occurred, the Disinterested Directors shall direct Independent Counsel to make such determination in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, or (B) by a committee of the Disinterested Directors designated by a majority vote of Disinterested Directors, even though less than a quorum, or (C) if there are no Disinterested Directors or, if the Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within 20 days after such determination.  Any costs or expenses (including attorneys’ fees and disbursements) incurred in connection with successfully establishing Indemnitee’s right to indemnification, in whole or in part, by Indemnitee in cooperating with the person, persons or entity making the determination discussed in this Section 8(b) with respect to Indemnitee’s entitlement to indemnification, shall be borne by the Company and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(c)           In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) hereof, the Independent Counsel shall be selected as provided in this Section 8(c).  If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected.  If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected.  In either event, Indemnitee or the Company, as the case may be, may, within 10 days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection

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to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in this Agreement, and the objection shall set forth with particularity the factual basis of such assertion.  Absent a proper and timely objection, the person so selected shall act as Independent Counsel.  If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit.  If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 8(b) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Delaware Court of Chancery or other court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 8(a) hereof.

(d)           Indemnitee will be deemed a party to a Proceeding for all purposes hereof if Indemnitee is named as a defendant or respondent in a complaint or petition for relief in that Proceeding, regardless of whether Indemnitee is ever served with process or makes an appearance in that Proceeding.

9.             Presumptions and Effect of Certain Provisions.

(a)           In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 8(a) of this Agreement, and the Company shall have the burden of proof in overcoming such presumption by clear and convincing evidence.  Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

(b)           If the person, persons or entity empowered or selected under Section 8 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within 30 days after receipt by the Company therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 30-day period may be extended for a reasonable time, not to exceed an additional 15 days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto.

(c)           For purposes of any determination of whether Indemnitee acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, Indemnitee had no reasonable cause to believe his

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conduct was unlawful (collectively, “Good Faith”), Indemnitee shall be deemed to have acted in Good Faith if Indemnitee’s action is based on the records or books of account of the Company and any other Enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent or information, opinions, reports or statements, including financial statements and other financial information, concerning the Company and any other Enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent or any other person which were prepared or supplied to Indemnitee by: (i) one or more officers or employees of the Company and any Enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent; (ii) appraisers, engineers, investment bankers, legal counsel or other persons as to matters Indemnitee reasonably believed were within the professional or expert competence of those persons; and (iii) any committee of the Board of Directors or equivalent managing body of the Company and any other Enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of which Indemnitee is or was, at the relevant time, not a member.  The provisions of this Section 9(c) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.

(d)           The knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Company and any other Enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

10.          Remedies of Indemnitee.

(a)           In the event that (i) a determination is made pursuant to Section 8(b) of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 8(b) of this Agreement within the time period provided in Section 9(b) after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5, Section 6, the last sentence of Section 8(b), or the last sentence of Section 2(d) of this Agreement within 20 days after receipt by the Company of a written request therefor, or (v) payment of indemnification pursuant to Section 3 or Section 4 of this Agreement is not made within 20 days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Delaware Court of Chancery of his entitlement to such indemnification or advancement of Expenses and appeals therefrom, concluding in a final and unappealable judgment by the Delaware Supreme Court.  The Board of Directors shall not make a determination as to the final disposition of such adjudication.  The Company shall not oppose Indemnitee’s right to seek any such adjudication.

(b)           In the event that a determination shall have been made pursuant to Section 8(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 10 shall be conducted in all respects as a de novo trial on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination.

(c)           If a determination shall have been made pursuant to Section 8(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such

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determination in any judicial proceeding commenced pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d)           In the event that Indemnitee, pursuant to this Section 10, seeks a judicial adjudication of his rights under, or to recover damages for breach of, this Agreement, if such judicial adjudication determines that Indemnitee shall be entitled to recover from the Company, Indemnitee shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 2(d) of this Agreement) actually and reasonably incurred by him in such judicial adjudication.

(e)           The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 10 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement.

11.          Exclusivity; Survival of Rights.  The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall be in addition to and not limited by any other rights to which Indemnitee may be entitled under the Certificate of Incorporation or the Bylaws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware or otherwise; provided this Agreement shall supersede the indemnification and advancement of Expenses provisions of any employment agreement entered into between the Indemnitee and the Company prior to the date of this Agreement.  No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee prior to such amendment, alteration or repeal.  To the extent that a change in the General Corporation Law of the State of Delaware, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Certificate of Incorporation and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

12.          Partial Indemnification.  If Indemnitee is entitled under any provision of this Agreement to indemnification or to receive advancement by the Company for a portion of the Expenses, judgments, fines, penalties or amounts paid in settlement actually and reasonably incurred by Indemnitee (or on his behalf) in connection with such Proceeding, or any claim, issue or matter therein, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.

13.          Rights Continued.  The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall continue as to Indemnitee even though Indemnitee may have ceased to be a director or officer of the Company and shall inure to the benefit of Indemnitee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

14.          No Construction as an Employment Agreement or Any Other Commitment.  Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in

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the employ or as an officer of the Company or any of its subsidiaries, if Indemnitee currently serves as an officer of the Company, or to be renominated or reelected as a director of the Company, if Indemnitee currently serves as a director of the Company.

15.          Liability Insurance.  To the extent the Company maintains an insurance policy or policies providing liability insurance for directors, officers, trustees, general partners, managing members, fiduciaries, employees or agents of the Company or any other Enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms, to the maximum extent of the coverage available for any director, officer, trustee, general partner, managing member, fiduciary, employee or agent under such policy or policies.

16.          No Duplication of Payments.  The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable under this Agreement if, and to the extent that, Indemnitee has otherwise actually received such payment under any contract, agreement or insurance policy, the Certificate of Incorporation or the Bylaws, or otherwise.

17.          Subrogation.  In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including without limitation the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights.

18.          Exceptions.  Notwithstanding any other provision in this Agreement, the Company shall not be obligated pursuant to the terms of this Agreement, to:

(a)           indemnify or advance Expenses to Indemnitee with respect to any Proceeding initiated, brought or made by Indemnitee, including by way of cross-claim, counter claim or the like, except with respect to a Proceeding brought to establish or enforce a right to indemnification, unless Proceeding was authorized or consented to by the Board of Directors;

(b)           indemnify Indemnitee with respect to any Proceeding in which final judgment is rendered against Indemnitee for an accounting of profits made from the purchase and sale or the sale and purchase by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Act; or

(c)           indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any Proceeding instituted by Indemnitee to enforce or interpret this Agreement, unless Indemnitee is successful in establishing Indemnitee’s right to indemnification in such Proceeding, in whole or in part, or unless and to the extent that the court in such Proceeding shall determine that, despite Indemnitee’s failure to establish his right to indemnification, Indemnitee is entitled to indemnity for such expenses; provided, however that nothing in this Section 18(c) is intended to limit the Company’s obligation with respect to the advancement of expenses to Indemnitee in connection with any Proceeding instituted by Indemnitee to enforce or interpret this Agreement, as provided in Section 7 of this Agreement.

Notwithstanding any other provision of this Agreement to the contrary, with respect to any reimbursements hereunder that are taxable as compensation to an Indemnitee, the amount of the Expenses that are eligible for reimbursement during one calendar year may not affect the amount of reimbursements to be provided in any subsequent calendar year, the reimbursement of an eligible expense shall be made on or before the last day of the calendar year following the calendar year in which the expense was

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incurred, and the right to reimbursement of the expenses shall not be subject to liquidation or exchange for any other benefit.

19.          Settlements.  The Company shall not be required to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action or Proceeding effected without its written consent.  The Company shall not settle any action or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent.  Neither the Company nor Indemnitee may unreasonably withhold its consent to any proposed settlement.

20.          Notices.  Any notice or other communication required or permitted to be given or made to the Company or Indemnitee pursuant to this Agreement shall be given if made in writing and deposited in the United States mail, with postage thereon prepaid, addressed to the person to whom such notice or communication is directed at the address of such person on the records of the Company, and such notice or communication shall be deemed given or made at the time when the same shall be so deposited in the United States mail.  Any such notice or communication to the Company shall be addressed to the Secretary of the Company.

21.          Contractual Rights.  The right to be indemnified or to receive advancement of Expenses under this Agreement (i) is a contract right based upon good and valuable consideration, pursuant to which Indemnitee may sue, (ii) is and is intended to be retroactive and shall be available as to events occurring prior to the date of this Agreement and (iii) shall continue after any rescission or restrictive modification of this Agreement as to events occurring prior thereto.

22.          Severability.  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby; to the fullest extent possible, the provisions of this Agreement shall be construed so as to give effect to the intent manifested by the provisions held invalid, illegal or unenforceable; and those provision or provisions held to be invalid, illegal or unenforceable for any reason whatsoever shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto.

23.          Successors; Binding Agreement.  The Company shall require and cause any successor (whether direct or indirect), by purchase, merger, consolidation or otherwise, to all or substantially all of the business or assets of the Company, by written agreement in form and substance reasonably satisfactory to Indemnitee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that executes and delivers the agreement provided for in this Section 23 or that otherwise becomes bound by the terms and provisions of this Agreement by operation of law.  This Agreement shall be binding upon the Company and its successors and assigns (including, without limitation, any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company) and will inure to the benefit of Indemnitee (and Indemnitee’s spouse, if Indemnitee resides in Texas or another community property state), heirs, executors and administrators.

24.          Counterparts, Modification, Headings, Gender.

(a)           This Agreement may be executed in counterparts, each of which shall constitute one and the same instrument, and either party hereto may execute this Agreement by signing any such counterpart.  Any such counterpart delivered by facsimile or other electronic means shall constitute an original signature for all purposes hereunder.

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(b)           No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Indemnitee and an appropriate officer of the Company.  No waiver by any party at any time of any breach by any other party of, or compliance with, any condition or provision of this Agreement to be performed by any other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time.

(c)           Section headings are not to be considered part of this Agreement, are solely for convenience of reference, and shall not affect the meaning or interpretation of this Agreement or any provision set forth herein.

(d)           Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.

25.          Exclusive Jurisdiction; Governing Law.  The Company and Indemnitee agree that all disputes in any way relating to or arising under this Agreement, including, without limitation, any action for advancement of Expenses or indemnification, shall be litigated, if at all, exclusively in the Delaware Court of Chancery, and if necessary, the corresponding appellate courts.  This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws.  The Company and Indemnitee (i) expressly submit themselves to the personal jurisdiction of the Delaware Court of Chancery for purposes of any action or proceeding arising out of or in connection with this Agreement, (ii) irrevocably appoint, to the extent such party is not a resident of the State of Delaware, The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801 as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iii) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court of Chancery, and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court of Chancery has been brought in an improper or otherwise inconvenient forum.

26.          Duration of Agreement.  This Agreement shall continue until and terminate upon the later of: (a) 10 years after the date that Indemnitee shall cease to serve as a director or executive officer of the Company or a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of any other Enterprise which Indemnitee served at the request of the Company; or (b) one year after the final, nonappealable termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 10 of this Agreement relating thereto.

27.          Contribution.  If it is established, under Section 8 or otherwise, that Indemnitee has the right to be indemnified under this Agreement in respect of any claim, but that right is unenforceable by reason of applicable law or public policy, then, to the fullest extent applicable law permits, the Company, in lieu of indemnifying or causing the indemnification of Indemnitee under this Agreement, will contribute to the amount Indemnitee has incurred, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement or for Expenses reasonably incurred, in connection with that Proceeding, in such proportion as is deemed fair and reasonable in light of all the circumstances of that Proceeding in order to reflect:

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(a)           the relative benefits Indemnitee and the Company have received as a result of the event(s) or transactions(s) giving rise to that Proceeding; or

(b)           the relative fault of Indemnitee and of the Company and its other functionaries in connection with those event(s) or transaction(s).

[Signature page to follow]

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IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the date and year first above written.

BONANZA CREEK ENERGY, INC.

By:

Name:

Title:

INDEMNITEE:

Indemnity Agreement – Signature Page

EX-10.11

Exhibit 10.11

STOCK PURCHASE AGREEMENT

BETWEEN

BONANZA CREEK ENERGY, INC.

AS ISSUER,

BONANZA CREEK ENERGY OPERATING COMPANY, LLC,

PROJECT BLACK BEAR LP

AND

HER MAJESTY THE QUEEN IN RIGHT OF ALBERTA

AS PURCHASERS,

Dated as of  December 23, 2010

ARTICLE 1	DEFINITIONS		1
Section 1.1		Certain Definitions	1
ARTICLE 2	PURCHASE AND SALE		8
Section 2.1		Purchase and Sale	8
Section 2.2		Purchase Price	8
ARTICLE 3	REPRESENTATIONS AND WARRANTIES OF COMPANY AND BCEOC		8
Section 3.1		Existence and Qualification	8
Section 3.2		Power and Authorization	9
Section 3.3		Capitalization	9
Section 3.4		Compliance with Law; No Defaults	10
Section 3.5		No Conflicts	10
Section 3.6		No Consents	10
Section 3.7		Governmental Authorizations	10
Section 3.8		Charter Documents	11
Section 3.9		Group Companies	11
Section 3.10		Financial Statements; No Undisclosed Liabilities	11
Section 3.11		Specified Contracts and Commitments	13
Section 3.12		Litigation	14
Section 3.13		Reserve Report	15
Section 3.14		Maps, Geological and Geophysical Libraries and Other Proprietary Information	15
Section 3.15		Defensible Title to Properties	15
Section 3.16		Other Properties	16
Section 3.17		Personalty, Equipment and Fixtures	18
Section 3.18		Wells	19
Section 3.19		Leases	19
Section 3.20		Gas Contracts	19
Section 3.21		Prepayments and Btu Adjustments	20
Section 3.22		Environmental and Health Laws	20
Section 3.23		Employees	21
Section 3.24		Labor Matters	24
Section 3.25		Taxes and Assessments	24
Section 3.26		Intellectual Property and Other Intangible Assets	25
Section 3.27		Insurance	26
Section 3.28		Public Utility Holding Company Act	26
Section 3.29		Investment Company Act	26
Section 3.30		Plugging and Abandonment Obligations	26
Section 3.31		No Restrictions on Affiliates	26
Section 3.32		Liability for Brokers’ Fees	26
Section 3.33		Holmes Acquisition Agreement and Contribution Agreement	27
Section 3.34		Accuracy	27
ARTICLE 4	REPRESENTATIONS AND WARRANTIES OF PURCHASERS		27

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Section 4.1			Existence and Qualification	27
Section 4.2			Power	28
Section 4.3			Authorization and Enforceability	28
Section 4.4			No Conflicts	28
Section 4.5			Litigation	28
Section 4.6			Financing	28
Section 4.7			Liability for Brokers’ Fees	29
Section 4.8			Accredited Investor	29
Section 4.9			Restricted Securities	29
Section 4.10			Investment Intent	29
ARTICLE 5	COVENANTS OF THE PARTIES			29
Section 5.1			Confidentiality	29
Section 5.2			Notification of Breaches	30
Section 5.3			Public Announcements	30
Section 5.4			Operation of Business	30
Section 5.5			Conduct of the Company	31
Section 5.6			Consents	31
Section 5.7			Reorganization and Holmes Acquisition	31
Section 5.8			Exclusivity	32
Section 5.9			Further Assurances	32
Section 5.10			Section 351	32
Section 5.11			Employees	32
Section 5.12			Lease Consents	33
Section 5.13			Use of Proceeds	33
ARTICLE 6	CONDITIONS TO CLOSING			33
Section 6.1			Conditions of the Company to Closing	33
Section 6.2			Conditions of Purchasers to Closing	34
ARTICLE 7	CLOSING			36
Section 7.1			Time and Place of Closing	36
Section 7.2			Obligations of the Company at Closing	36
Section 7.3			Obligations of Purchasers at Closing	37
ARTICLE 8	TERMINATION AND AMENDMENT			38
Section 8.1			Termination	38
Section 8.2			Effect of Termination	38
Section 8.3			Termination Fee	38
ARTICLE 9	INDEMNIFICATION; LIMITATIONS			39
Section 9.1			Indemnification	39
Section 9.2			Indemnification Actions	40
Section 9.3			Limitation on Actions	41
Section 9.4			Exclusion of Materiality	42
Section 9.5			Knowledge	42
ARTICLE 10		MISCELLANEOUS		43

ii

Section 10.1	Counterparts	43
Section 10.2	Notices	43
Section 10.3	Expenses	44
Section 10.4	Governing Law	44
Section 10.5	Arbitration	44
Section 10.6	Interpretation	45
Section 10.7	Waivers	45
Section 10.8	Assignment	46
Section 10.9	Entire Agreement	46
Section 10.10	Amendment	46
Section 10.11	No Third Party Beneficiaries	46
Section 10.12	Construction	46
Section 10.13	Limitation on Damages	46
Section 10.14	Guarantee; WFC Expense Reimbursement	46
Section 10.15	Waiver of Immunity	47
Section 10.16	Survival	47

iii

Index of Defined Terms

Defined Term	Section
AAA	10.5
Agreement	Preamble
AIMCo Act	4.1(b)
Annual Financial Statements	3.10(a)
Balance Sheet Dates	3.10(a)
CERCLA	1.1(s)
Claim	9.2(b)
Claim Notice	9.2(b)
Closing	7.1
Closing Date	7.1
Company	Preamble
Defensible Title	3.15
Evaluation Data	3.14
Financial Statements	3.10(a)
FERC	3.21(b)
GAAP	3.10(a)
HEC Annual Financial Statements	3.10(b)
HEC Financial Statements	3.10(b)
HEC Interim Financial Statements	3.10(b)
HMQ	Preamble
Indemnified Person	9.2(a)
Indemnifying Person	9.2(a)
Information	5.1
Intellectual Property	3.26
Interim Balance Sheet Date	3.10(a)
Interim Financial Statements	3.10(a)
Joint Venture	3.10(e)
Lease Consents	5.12
Leases	3.16(b)
Party; Parties	Preamble
PBGC	3.23(d)(ix)
Plans	3.23(b)(ii)
Pro Forma Financial Statements	3.10(c)
Properties	3.15
Purchase Price	2.2
Purchasers	Preamble
RCRA	1.1(s)
Real Property	3.16(d)
Reports	3.13
Securities Act	3.32
Shares	Recitals
Specified Contracts	3.11(b)
Termination Fee	8.3

iv

Threshold	9.3(c)
Transferred Worker	5.11
WFC	Preamble
Workers	5.11

EXHIBITS

Exhibit A	-	Form of Amended and Restated Certificate of Incorporation
Exhibit B	-	Form of Contribution Agreement
Exhibit C	-	Form of Holmes Acquisition Agreement
Exhibit D	-	Form of Management Incentive Plan
Exhibit E	-	Form of Registration Rights Agreement
Exhibit F	-	Form of Restricted Stock Agreement
Exhibit G	-	Form of Shareholders Agreement
Exhibit H	-	Properties
Exhibit I	-	Form of Employment Agreement
Exhibit J	-	Form of Waiver Agreement

v

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (this “Agreement”), is dated as of December 23, 2010, by and among Bonanza Creek Energy, Inc., a Delaware corporation (the “Company”), Bonanza Creek Energy Operating Company, LLC, a Delaware limited liability company (“BCEOC”), Project Black Bear LP, a Delaware limited partnership (“WFC”), Her Majesty the Queen in Right of Alberta, in her own capacity and as trustee/nominee for certain designated entities (“HMQ” and, together with WFC, the “Purchasers”), and, solely for purposes of Section 10.14, the Seller Guarantors (as defined herein).  Each Purchaser, Company and BCEOC are sometimes referred to collectively as the “Parties” and individually as a “Party.”

RECITALS:

The Company desires to issue to and Purchasers desire to purchase, in the aggregate, 21,166,134 shares (the “Shares”) of the Company’s Class A Common Stock (as defined below).

NOW, THEREFORE, in consideration of the premises and of the mutual promises, representations, warranties, covenants, conditions and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which are  hereby acknowledged, the Parties agree as follows:

ARTICLE 1
DEFINITIONS

Section 1.1             Certain Definitions.  As used herein:

(a)           “Acquisition Proposal” means any (i) proposal or offer with respect to a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, rights offering, share exchange, business combination or similar transaction involving the Company, BCEOC, HEC or any of their respective subsidiary Affiliates or (ii) acquisition by any Person resulting in, or proposal or offer, which, if consummated, would result in any Person becoming the beneficial owner, directly or indirectly, in one or more transactions, of fifteen percent (15%) or more of the total voting power of any class of equity securities of the Company, BCEOC, HEC or any of their subsidiary Affiliates, in each case other than the transactions contemplated by this Agreement.

(b)           “Affiliate” means, with respect to any Person, a Person that directly or indirectly controls, is controlled by or is under common control with such Person, with control in such context meaning the ability to direct the management or policies of a Person through ownership of voting shares or other securities, pursuant to a written agreement, or otherwise, and with respect to HMQ means, AIMCo, any corporation managed or controlled by AIMCo, the investment pools managed by AIMCo, any clients in respect of whom AIMCo provides investment management services and any Affiliate of the foregoing.

(c)           “AIMCo” means Alberta Investment Management Corporation, as established by the Alberta Investment Management Corporation Act.

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(d)           “Amended and Restated Certificate of Incorporation” means that certain Amended and Restated Certificate of Incorporation of the Company, substantially in the form of Exhibit A attached hereto.

(e)           “Assignment and Assumption Agreement” means that certain Assignment and Assumption Agreement, in form and substance reasonably satisfactory to Purchasers, to be entered into at or prior to Closing among BCEOC and the Company, pursuant to which the Company agrees to assume, effective as of the Closing Date, sponsorship of the Plans listed on Schedule 5.11.

(f)            “BCEC” means Bonanza Creek Energy Company, LLC, a Delaware limited liability company.

(g)           “BCER” means Bonanza Creek Energy Resources, LLC, (f/k/a Macquarie Longview Acquisitions LLC) a Delaware limited liability company.

(h)           “BCOC” means Bonanza Creek Oil Company, LLC, a Delaware limited liability company.

(i)            “Bennett Promissory Note” means that certain Amended and Restated Unsecured Subordinated Promissory Note dated November 14, 2008, in the original principal amount of $10,000,000 executed by BCEC and payable to the order of the C.J. Bennett Family Trust of 1987, including any related notes, guaranties, security agreements, pledge agreements, mortgages, collateral documents, instruments and agreements executed in connection therewith, as such agreements and/or documents heretofore have been amended and as they may be further amended, restated, supplemented, renewed, replaced or otherwise modified from time to time.

(j)            “Business Day” means any day other than a Saturday, a Sunday, or a day on which banks are closed for business in Toronto, Canada or Houston, Texas, United States of America.

(k)           “Class A Common Stock” means, after the Reorganization, the Company’s Class A Common Stock, $0.001 par value.

(l)            “Code” means the United States Internal Revenue Code of 1986, as amended.

(m)          “Company Debt” means, collectively, the Company Term Loan Debt and the Revolving Credit Facility Debt.

(n)           “Company Term Loan Agreements” means the Laminar Note Agreement, the Bennett Promissory Note and the Shaw Loan Agreement.

(o)           “Company Term Loan Debt” means the principal of, and interest on, all loans, letters of credit, letter of credit guaranties and other extensions of credit under the Company Term Loan Agreements and all commitment, facility and other fees payable under the Company Term Loan Agreements and all expenses, reimbursements, indemnities and other

2

amounts payable by the Company and/or any Group Company under the Company Term Loan Agreements.

(p)           “Contribution Agreement” means the form of Contribution Agreement among the Company and BCEC attached hereto as Exhibit B.

(q)           “Credit Facility Amendment” means that certain Consent and Amendment No. 3 to the Revolving Credit Facility Agreement, in form and substance reasonably satisfactory to Purchasers, to be entered into at or prior to Closing among BCEOC, BNP Paribas, as administrative agent, and the lenders party thereto, which permits the transactions contemplated by this Agreement and the Transaction Documents.

(r)            “Damages” means the amount of any actual liability, loss, cost, expense, claim, award or judgment incurred or suffered by any Indemnified Person arising out of or resulting from the indemnified matter, whether attributable to personal injury or death, property damage, contract claims, torts or otherwise including reasonable fees and expenses of attorneys, consultants, accountants or other agents and experts reasonably incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity; provided, however, that none of the Company, BCEOC or the Purchasers shall be entitled to indemnification under Section 9.1 for, and “Damages” shall not include any liability, loss, cost, expense, claim, award or judgment to the extent resulting from or increased by the actions or omissions of any Indemnified Person after the Closing Date.

(s)           “Environmental Laws” means any and all applicable laws, statutes, ordinances, rules, regulations, orders or determinations of any Governmental Authority, and all common law, pertaining to health or the environment, including without limitation, the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 (“CERCLA”), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 (“RCRA”), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Hazardous & Solid Waste Amendments Act of 1984, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and any other environmental conservation or protection laws.  For purposes of this Agreement, the terms “hazardous substance” and “release” (or “threatened release”) have the meanings specified in CERCLA, and the terms “solid waste” and “disposal” (or “disposed”) have the meanings specified in RCRA; provided, however, that (i) the term “release” shall apply to any “hazardous substance” as defined herein and shall include, without limitation, any workplace release; (ii) to the extent the applicable laws of a state establish a meaning for “hazardous substance,” “release,” “solid waste” or “disposal” that is broader than that specified in either CERCLA or RCRA, such broader meaning shall be incorporated into the meaning of those terms as used herein; and (iii) the terms “hazardous substance” and “solid waste” shall include all petroleum, crude oil, natural gas, natural gas liquids, and wastes associated with the exploration, development, and production of oil and gas that may present an endangerment to public health or welfare or the environment, even if such wastes are specifically exempt from classification as hazardous substances or solid wastes pursuant to CERCLA or RCRA or the state analogues to those statutes.

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(t)            “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(u)           “Existing Encumbrances” means any of the following matters: (i) any liens for Taxes not yet due and payable; (ii) any obligations or duties to any municipality or public authority with respect to any franchise, grant, license or permit, and all applicable laws, rules, regulations and orders of any governmental authority; (iii) any easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations, pipelines, canals, ditches or the like, and easements for streets, alleys, highways, pipelines, power lines and other similar rights-of-way, on, over or in respect of property owned or leased by the Company or any Group Company, or over which the Company or any Group Company owns rights-of-way, easements, permits or licenses, which do not unreasonably or materially interfere with the operation of any Properties for exploration and production of oil, gas and other minerals; (iv) all lessors’ royalties, overriding royalties, net profits interests, production payments, reversionary interests and other burdens on or deductions from the proceeds of production that do not operate to reduce the net revenue interest of the Company or any Group Company, as described in Section 3.15; (v) production sales contracts; division orders; contracts for sale, purchase, exchange, refining or processing of hydrocarbons; unitization and pooling designations, declarations, orders and agreements; operating agreements; agreements of development; area of mutual interest agreements; gas balancing or deferred production agreements; processing agreements; plant agreements; pipeline, gathering and transportation agreements, injection, repressuring and recycling agreements; salt water or other disposal agreements, seismic or geophysical permits or agreements; and any and all other agreements that are ordinary and customary in the oil, gas and other mineral exploration, development or extraction business, or in the business of processing of gas and gas condensate production for the extraction of products therefrom; insofar and only insofar as such contracts, agreements and arrangements do not operate to reduce the net revenue interest of the Company or any Group Company, as described in Section 3.15, or increase the proportionate share of costs and expenses of leasehold operations attributable to or to be borne by the working interest of the Company or any Group Company, as described in Section 3.15; (vi) all rights to consent by, required notices to, and filings with or other actions by governmental entities, if any, in connection with the change of ownership or control of an interest in federal, state, tribal or other domestic governmental oil and gas leases, if the same are customarily obtained subsequent to such change of ownership or control and the Company has no reason to believe they cannot be obtained (other than reasons based upon deficiencies of the Purchasers, such as its lack of qualification to own such interests); (vii) preferential purchase rights, required third party consents to assignment and similar agreements with respect to which prior to the Closing Date (A) written waivers or consents are obtained from the appropriate party, or (B) the appropriate time period for asserting such rights has expired without an exercise of such rights, (viii) conventional rights of reassignment prior to abandonment requiring less than ninety (90) days notice to the holders of such rights; (ix) the terms and provisions of the oil, gas and mineral leases comprising the Properties; and (x) materialmen’s, mechanics’, repairmen’s, employees’, contractors’, operators’ and other similar liens or charges arising pursuant to operations or work under agreements referred to in this Agreement or the schedules attached hereto or in the ordinary course of business incidental to construction, maintenance or operation of any of the Properties (A) if they have not been filed pursuant to law, (B) if filed, they have not yet become due and payable or payment is being withheld as provided by law, or (C) if their validity is being contested in good faith by

4

appropriate action; (xi) all liens, security interests, deeds of trust or pledges to be released at, or in connection with, the Closing; and (xii) all other minor liens, charges, encumbrances, contracts (including, without limitation, all joint or other operating agreements, farmout agreements and other contracts), agreements, instruments, obligations, defects, and irregularities affecting the Properties that, individually or in the aggregate, are not such as to materially interfere with the operation or use of the Properties (as currently owned and operated) and do not reduce the net revenue interest of the Company and Group Companies below those set forth in Exhibit H-1 and H-2, respectively.

(v)           “Gathering System” means the gas processing facility owned by BCEOC, which is located in Lafayette County, Arkansas, along with the related network of pipelines and compressors that gathers the natural gas produced by BCEOC from the Dorcheat - Macedonia and McKamie Patton fields and transports the natural gas to the gas processing facility for conditioning prior to sales.

(w)          “Governmental Authority” means any U.S., state, local, county, municipality or foreign governmental, regulatory or administrative body, agency or authority, any court or judicial authority, whether national, Federal, state or local, county, municipality or otherwise, or any Person lawfully empowered by any of the foregoing to enforce or seek compliance with any applicable law, statute, regulation, order or decree (including any governmental division, department, agency, self-regulatory organization, commission, instrumentality, official, organization, unit body or entity).

(x)            “Group Company” or “Group Companies” mean BCEOC and any other entity listed on Schedule 1.1(x).

(y)           “HEC” means Holmes Eastern Company, LLC (f/k/a/ Bonanza Creek Resources Company, LLC), a Delaware limited liability company.

(z)            “HMQ” means Her Majesty the Queen in right of Alberta, in her own capacity and in her capacity as trustee/nominee for certain designated entities.

(aa)         “Holmes Acquisition Agreement” means the form of Contribution Agreement among the Company, BCEC, BCEOC, BCER, and the members of HEC attached hereto as Exhibit C.

(bb)         “knowledge of the Company” or “Company’s knowledge” means the actual knowledge of Michael Starzer, Gary A. Grove, C. Steve Black, and Patrick A. Graham after reasonable inquiry.

(cc)         “Laminar Note Agreement” means that certain Amended & Restated Note Purchase Agreement dated as of April 9, 2008, by and between BCEC and Laminar Direct Capital, L.L.C. in the aggregate principal amount of $100,000,000, including the related (i) Tranche A Senior Subordinated Unsecured Note Due May 17, 2012 in the principal amount of $2,390,000, (ii) Tranche A Senior Subordinated Unsecured Note Due May 17, 2012 in the principal amount of $47,610,000, (iii) Tranche B Senior Subordinated Unsecured Note Due May 17, 2012 in the principal amount of $20,000,000 and (iv) Tranche C Senior Subordinated Unsecured Note Due May 17, 2012 in the principal amount of $30,000,000, in each case,

5

including any related guaranties, security agreements, pledge agreements, mortgages, collateral documents, instruments and agreements executed in connection therewith, as such agreements and/or documents heretofore have been amended and as they may be further amended, restated, supplemented, renewed, replaced or otherwise modified from time to time.

(dd)         “Laws” means all applicable laws, statutes, rules, regulations, ordinances, orders, decrees, requirements, judgments and codes of Governmental Authorities.

(ee)         “Material Adverse Effect” shall mean a change, event, occurrence, or development that individually or in the aggregate, has or would reasonably be expected to have a material adverse effect on the business, financial condition, results of operations or assets of the Company and the Group Companies and HEC, taken as a whole; provided, however, that in determining whether there has been a Material Adverse Effect or whether a Material Adverse Effect could or would reasonably be expected to occur, any change, event or occurrence principally attributable to, arising out of or resulting from any of the following shall be disregarded:  (i) the breach of this Agreement or any Transaction Agreement by Purchasers; (ii) the taking of any action with the prior written approval of Purchasers; (iii) changes or conditions generally affecting the oil and gas exploration, development and/or production industry or industries (including changes in oil, gas or other commodity prices), (iv) any change in Applicable Law, including GAAP or interpretations thereof, or any changes or prospective changes in the interpretation or enforcement of any of the foregoing, or any changes in general legal, regulatory or political conditions; and (v) any adverse change in or effect on the business of the Company and each Group Company and HEC that is cured by or on behalf of the Company and each Group Company or HEC before the earlier of the Closing Date and termination of this Agreement as set forth in Article 8; except to the extent such effects in the cases of clauses (iii), (iv) and (v) above materially and disproportionately affect the Company and the Group Companies and HEC relative to other participants in the industry or industries in which the Company and the Group Companies and HEC operate (in which event the extent of such material and disproportionate effect may be taken into account in determining whether a Material Adverse Effect has occurred).

(ff)           “MIP” means that certain Management Incentive Plan, substantially in the form of Exhibit D attached hereto, pursuant to which certain members of management of the Company will be issued MIP Shares on the terms set forth in the Restricted Stock Agreement.

(gg)         “MIP Shares” means the Company’s Class B Common Shares with such powers, privileges and conversion rights as set forth in the Amended and Restated Certificate of Incorporation.

(hh)         “Person” means any individual, corporation, partnership, limited liability company, trust, estate, Governmental Authority or any other entity.

(ii)           “Registration Rights Agreement” means that certain Registration Rights Agreement to be entered into at Closing among the Company, the Purchasers and the other stockholders of the Company party thereto, substantially in the form of Exhibit E attached hereto.

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(jj)           “Reorganization” means the contribution of all existing equity interests in BCEOC to the Company and the consummation of the transactions contemplated by the Contribution Agreement.

(kk)         “Restricted Stock Agreement” means that certain form of Restricted Stock Agreement, attached hereto as Exhibit F.

(ll)           “Revolving Credit Facility Agreement” means that certain Amended and Restated Credit Agreement dated as of May 7, 2010 among BCEOC, as borrower, the lenders party thereto from time to time, and BNP Paribas, as administrative agent, including any related notes, guaranties, security agreements, pledge agreements, mortgages, collateral documents, instruments and agreements executed in connection therewith, as such agreements and/or documents heretofore have been amended and as they may be further amended, restated, supplemented, renewed, replaced or otherwise modified from time to time.

(mm)       “Revolving Credit Facility Debt” means the principal of, and interest on, all loans, letters of credit, letter of credit guaranties and other extensions of credit under the Revolving Credit Facility Agreement and all commitment, facility and other fees payable under the Revolving Credit Facility Agreement and all expenses, reimbursements, indemnities and other amounts payable by the Company and/or any Group Company under the Revolving Credit Facility Agreement.

(nn)         “Sale Transaction” means (a) a consolidation or merger of the Company with or into any other corporation or other entity or Person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, will own less than 50% of the Company’s voting power immediately after such consolidation, merger or reorganization, or any transaction or series of transactions to which the Company will be a party in which in excess of 50% of the Company’s voting power is transferred; (b) all or substantially all of the assets of the Company being sold, leased or otherwise disposed of in a single transaction or a series of transactions that has been approved by a majority of the Board; or (c) the sale of shares of capital stock of the Company, in a single transaction or series of transactions, representing at least 51% of the voting power of the voting securities of the Company.

(oo)         “Seller Guarantor” means each of D.E. Shaw Synoptic Portfolio 5, L.L.C., BCEC and Michael R. Starzer.

(pp)         “Shares” has the meaning set forth in the Recitals.

(qq)         “Shareholders Agreement” means that certain Shareholders Agreement to be entered into at Closing among the Company, the Purchasers and the other stockholders of the Company, substantially in the form of Exhibit G attached hereto.

(rr)           “Shaw” means D. E. Shaw Synoptic Portfolios 5, L.L.C.

(ss)         “Shaw Loan Agreement” means that certain Term Loan Agreement dated as of May 7, 2010, by and between BCEOC, as borrower, D.E. Shaw Direct Capital Portfolios, L.L.C., as administrative agent and lender, and Wells Fargo Energy Capital, Inc., as lender, in

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the aggregate principal amount of $30,000,000, including any related notes, guaranties, security agreements, pledge agreements, mortgages, collateral documents, instruments and agreements executed in connection therewith, as such agreements and/or documents heretofore have been amended and as they may be further amended, restated, supplemented, renewed, replaced or otherwise modified from time to time.

(tt)           “Tax” or “Taxes” means all taxes, including income tax, surtax, remittance tax, presumptive tax, net worth tax, special contribution tax, production tax, pipeline transportation tax, value added tax, withholding tax, gross receipts tax, windfall profits tax, profits tax, severance tax, personal property tax, real property tax, sales tax, service tax, transfer tax, use tax, excise tax, premium tax, customs duties, stamp tax, motor vehicle tax, entertainment tax, insurance tax, capital stock tax, franchise tax, occupation tax, payroll tax, employment tax, social security, unemployment tax, disability tax, alternative or add-on minimum tax, estimated tax, and any other assessments, duties, fees, levies or other charges imposed by a Governmental Authority together with any interest, fine or penalty thereon, or addition thereto.

(uu)         “Tax Return” means any report, return, document, declaration, payee statement or other information or filing required to be supplied to any Tax authority or any person with respect to Taxes.

(vv)         “Transaction Documents” means the Contribution Agreement, the Holmes Acquisition Agreement, the Shareholders Agreement, the Registration Rights Agreement, the Credit Facility Amendment and the MIP.

ARTICLE 2
PURCHASE AND SALE

Section 2.1             Purchase and Sale.  On the Closing Date, the Company shall sell to each Purchaser, and each Purchaser shall severally purchase from the Company, upon the satisfaction of the conditions set forth in Article 6 hereof (or waiver in writing of such conditions by such Purchaser), the number of Shares set forth opposite such Purchaser’s name on Schedule 2.1 for the purchase price set forth opposite its name.

Section 2.2             Purchase Price.  The purchase price for each Share shall be equal to $12.52 and the aggregate price for the Shares (the “Purchase Price”) shall be Two Hundred Sixty-Five Million Dollars ($265,000,000).

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMPANY AND BCEOC

The Company and BCEOC represent and warrant, jointly and severally, to the Purchasers as follows:

Section 3.1             Existence and Qualification.  (a) The Company is a corporation and BCEOC is a limited liability company, each organized, validly existing and in good standing under the laws of the State of Delaware with corporate or limited liability company power and authority, as applicable, to own, operate and lease its properties and to carry on its business as now conducted and as contemplated to be conducted.  Each of the Company and BCEOC is duly

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qualified to do business and is in good standing as a foreign corporation or foreign limited liability company, as applicable, in each jurisdiction in which failure to so qualify or be in good standing would reasonably be expected to have a Material Adverse Effect, which jurisdictions are disclosed on Schedule 3.1(a).

(b)           Each Group Company and HEC is a limited liability company formed, validly existing and in good standing under the laws of its jurisdiction of formation with limited liability company power and authority to own, operate and lease its properties and to carry on its business as now conducted and as contemplated to be conducted.  Each Group Company and HEC is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which failure to so qualify or be in good standing would reasonably be expected to have a Material Adverse Effect, which jurisdictions are disclosed on Schedule 3.1(b).

Section 3.2             Power and Authorization.  The Company has all requisite power and authority to issue the Shares, and the Company and BCEOC have all requisite power and authority to execute, deliver, and perform this Agreement and the Transaction Documents and to consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement and the Transaction Documents and the consummation of the transactions to be performed by the Company and BCEOC hereunder and thereunder have been duly and validly authorized by all necessary action on the part of the board of directors or managers, as applicable, of the Company and BCEOC, and no other corporate or limited liability company proceedings on the part of the Company and BCEOC are necessary to authorize the execution, delivery and performance of this Agreement and the Transaction Documents by the Company and BCEOC or to consummate the transactions to be performed by the Company and BCEOC hereunder and thereunder. This Agreement and the Transaction Documents when executed and delivered by the Company and BCEOC will constitute the legal, valid and binding obligations of the Company and BCEOC enforceable in accordance with their terms, except insofar as the enforceability thereof may be limited (i) by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) by general principles of equity and public policy (regardless of whether considered at law or in equity).

Section 3.3             Capitalization.  (a) As of the date hereof (i) the authorized capital stock of the Company consists of  1,000 shares of common stock, (ii) there are 100 shares of common stock issued and outstanding, (iii) all of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable and (iv) there are no outstanding subscriptions, options, warrants, rights, conversion rights, rights of first refusal or other agreements or amendments obligating the Company to issue or purchase shares of its capital stock or any security convertible into capital stock or other equity security or obligating the Company to purchase, sell or transfer any its capital stock.

(b)           Immediately after giving effect to the Closing, (i) the authorized capital stock of the Company shall consist of 99,990,000 shares of Class A Common Stock and 10,000 shares of Class B Common Stock, $0.001 par value, which are the MIP Shares; (ii) there shall be 29,122,521 shares of Class A Common Stock and 7,500 MIP Shares issued and outstanding, as more specifically set forth on Schedule 3.3(b); (iii) all of the outstanding shares of capital stock of the Company shall be duly authorized, validly issued, fully paid and nonassessable and (iv)

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there shall be no outstanding subscriptions, warrants, options, calls, commitments or other rights to purchase or acquire (except with respect to rights contemplated by the Transaction Documents), or securities convertible into or exchangeable for, any capital stock of the Company.

Section 3.4             Compliance with Law; No Defaults.  (a) The Company and each Group Company and HEC is in material compliance with all Laws applicable to it or its business, properties or assets.

(b)           Except as disclosed on Schedule 3.4(b), neither the Company nor any Group Company and, to the knowledge of the Company, HEC is in default of (i) any order, judgment, writ, injunction, award or decree applicable to the Company, such Group Company or HEC or to the business, assets or operations of the Company or such Group Company or HEC or by which such business, assets or operations are bound, (ii) any of the provisions of its certificate of incorporation, by-laws or equivalent organizational document, or (iii) any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any Group Company or HEC is a party or by which the Company, such Group Company or HEC or the business, assets or operations of the Company or such Group Company or HEC are bound or affected, except in the case of each of clauses (i) and (iii) for any such conflicts, defaults or violations that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect.

Section 3.5             No Conflicts.  The execution, delivery and performance of this Agreement by the Company and BCEOC, and the consummation of the transactions contemplated by this Agreement, will not (i) violate any provision of the certificate of incorporation or bylaws or other similar organizational documents of the Company or BCEOC, (ii) result in a material default (with or without due notice or lapse of time or both) or the creation of any lien or encumbrance or give rise to any right of termination, cancellation or acceleration under any material note, bond, mortgage, indenture, license or agreement to which the Company or BCEOC is a party or by which it is bound, (iii) violate any judgment, order, ruling, or regulation applicable to the Company or BCEOC as a party in interest,  (iv) violate any Law applicable to the Company or BCEOC or any of their respective assets or (v) require any consent, approval or waiver from any Governmental Authority or other third Person, except any matters described in clauses (ii), (iii) or (iv) above which would not reasonably be expected to have a Material Adverse Effect on the Company or BCEOC or their respective properties and any other matters set forth on Schedule 3.5.

Section 3.6             No Consents.  Except as set forth on Schedule 3.6, no consent, action, approval or authorization of, or registration, declaration or filing with, any governmental department, commission, agency or other instrumentality or any other person or entity is required to authorize, or is otherwise required in connection with, the execution and delivery of this Agreement or the Transactions Documents by the Company or BCEOC or their performance of the terms of this Agreement or the Transaction Documents or the validity or enforceability hereof or thereof against the Company and BCEOC.

Section 3.7             Governmental Authorizations.  Each Group Company and HEC holds, and immediately after the Closing will hold, such licenses, permits, consents, authorizations and

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orders of such governmental or regulatory authorities as are necessary to carry on its respective business as currently being conducted and as anticipated by the Company and BCEOC to be conducted until the Closing, the failure to hold which would reasonably be expected to have a Material Adverse Effect, and such licenses, permits, consents, authorizations and orders are in full force and effect and have been and are being complied with in all material respects by each Group Company and HEC.  Schedule 3.7 briefly describes all such material licenses, permits, consents, authorizations and orders (including environmental) as are now held and are necessary for the ongoing operations of the Company, the Group Companies and HEC, the failure to hold which would reasonably be expected to have a Material Adverse Effect, and describes all renewals or reissuances of any licenses, permits, consents, authorizations and orders (including environmental) required as a result of the transactions contemplated herein.

Section 3.8             Charter Documents.  Each of the Company and BCEOC has delivered to the Purchasers true and complete copies of its charter and by-laws (or equivalent governing instruments), each as amended to the Closing Date, of the Company and BCEOC.  The stock certificates and transfer books, and the minute books of the Company and BCEOC (which have been made available for inspection by the Purchasers prior to the date hereof) are true, complete and current.

Section 3.9             Group Companies.  As of the date hereof, (i) the Company does not own any subsidiaries and the Company does not own, directly or indirectly, any interest or investment in any Person and (ii) BCEOC owns, directly or indirectly, all of the issued and outstanding shares of the capital stock, limited liability company interests or other equity interests in each other Group Company and does not own any such interest in any other Person.  On the Closing Date, after giving effect to the transactions contemplated by this Agreement and the Transaction Documents, including the Reorganization, the Company will own, directly or indirectly, all of the issued and outstanding shares of the capital stock, limited liability interests or other equity interests in each Group Company and in HEC, free and clear of any pledge, lien, charge, encumbrance or other adverse claim, except as set forth on Schedule 3.9.  Except pursuant to the Transaction Documents, there are no outstanding subscriptions, options, warrants, rights, conversion rights, rights of first refusal or other agreements or amendments obligating any Group Company or HEC to issue or purchase shares of its capital stock or any security convertible into capital stock or other equity security or obligating the Company, any Group Company or HEC to purchase, sell or transfer any capital stock of any Group Company or HEC.

Section 3.10           Financial Statements; No Undisclosed Liabilities.  (a) Schedule 3.10(a) sets forth the consolidated balance sheet of BCEC and its subsidiaries as of December 31, 2009 and December 31, 2008 (the “Balance Sheet Dates”) and the related consolidated statement of income of BCEC and its subsidiaries for the respective fiscal years ended on the Balance Sheet Dates, including the notes with respect thereto (the “Annual Financial Statements”), as well as the consolidated balance sheet of BCEC and its subsidiaries as of September 30, 2010 (the “Interim Balance Sheet Date”) and the related consolidated statements of income and cash flow of BCEC and its subsidiaries for the nine months ended on the Interim Balance Sheet Date, including any notes with respect thereto  (the “Interim Financial Statements” and together with the Annual Financial Statements, the “Financial Statements”).  The Financial Statements fairly present, in all material respects, the financial position of BCEC and its subsidiaries as of the Balance Sheet Dates and the Interim Balance Sheet Date, respectively, and the results of their

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operations for the periods indicated therein and, except for footnote disclosures that would otherwise be required, have been prepared in conformity with generally accepted accounting principles (“GAAP”), applied on a consistent basis.

(b)           Schedule 3.10(b) sets forth the balance sheet of HEC as of the Balance Sheet Dates and the related statement of income of HEC for the respective fiscal years ended on the Balance Sheet Dates, including the notes with respect thereto (the “HEC Annual Financial Statements”), as well as the consolidated balance sheet of HEC as of the Interim Balance Sheet Date and the related consolidated statements of income and cash flow of HEC for the nine months ended on the Interim Balance Sheet Date, including any notes with respect thereto  (the “HEC Interim Financial Statements” and together with the HEC Annual Financial Statements, the “HEC Financial Statements”).  The HEC Financial Statements fairly present, in all material respects, the financial position of HEC as of the Balance Sheet Dates and the Interim Balance Sheet Date, respectively, and the results of their operations for the periods indicated therein and, except for footnote disclosures that would otherwise be required, have been prepared in conformity with GAAP, applied on a consistent basis.

(c)           Schedule 3.10(c) sets forth the unaudited pro forma income statement and balance sheet for the Company and the Group Companies and HEC after giving effect to the transactions contemplated by this Agreement and the Transaction Documents, the repayment of the Company Term Loan Debt and the prepayment of the portion of the Revolving Credit Facility Debt set forth on Schedule 5.13 (the “Pro Forma Financial Statements”).  Based on the assumptions set forth in footnotes thereto, the Pro Forma Financial Statements fairly present, in all material respects, the financial position of the Company and the Group Companies and HEC collectively giving effect to the transactions contemplated by this Agreement and the Transaction Documents, the repayment of the Company Term Loan Debt and the prepayment of the portion of the Revolving Credit Facility Debt set forth on Schedule 5.13, as of the dates shown, and the results of their operations for the periods indicated therein and, except for footnote disclosures that would otherwise be required, have been prepared in conformity with GAAP, applied on a consistent basis.

(d)           Except for liabilities incurred in the ordinary course of business and that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Company and the Group Companies do not have any liabilities, direct or contingent (including but not limited to liability with respect to any Plan or any Environmental Law) other than those provided for in the Financial Statements or disclosed on Schedule 3.10(d), which are required under GAAP to be included in the Financial Statements.  Except as would not reasonably be expected to have a Material Adverse Effect or as disclosed on the Financial Statements or as incurred in the ordinary course of business, the Company has no indebtedness other than the Company Debt.

(e)           Except as set forth on the Financial Statements or on Schedule 3.10(e), all amounts required to be paid or credited by the Company or any of the Group Companies in connection with any joint venture or joint operating arrangement (collectively, “Joint Venture”) to which any of such entities is a party or participant have been paid or credited in full in the ordinary course of business.  Except as set forth on Schedule 3.10(e), no other party or participant to each such Joint Venture has indicated an intent to exercise its audit rights with

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respect to such Joint Ventures and there are no claims with respect to Joint Venture audit rights that have been made that remain unresolved.

Section 3.11           Specified Contracts and Commitments.  (a) Except as set forth on Schedule 3.11(a) and except for the Transaction Documents to be entered into pursuant to or in connection with this Agreement, none of the Company, any Group Company or HEC has any (i) agreements containing covenants limiting or restricting the freedom of the Company or a Group Company or HEC to compete in any line of business or territory or with any person or entity; (ii) area of mutual interest agreements binding the Company or a Group Company or HEC other than areas of mutual interest established pursuant to standard form joint operating agreements, or the exhibits or attachments thereto; (iii) indentures, mortgages, promissory notes, loan agreements, guaranties or other agreements or commitments relating to the borrowing of money or the incurrence of any other indebtedness, or any related security agreements; (iv) contracts, commitments, agreements, understandings or arrangements of any kind to which the Company or a Group Company or HEC is a party relating to the issuance of any capital stock or other equity interests of the Company or a Group Company or HEC, other than the Transaction Documents; or (v) agreements with respect to any of its capital stock or other equity interests which grant registration rights to any Person other than the Transaction Documents.

(b)           Except as set forth on Schedule 3.11(b) and except for the Transaction Documents to be entered into pursuant to or in connection with this Agreement, none of the Company or any Group Company or, to the knowledge of the Company, HEC has any (i) employment or consulting contract involving annual payments by the Company or such Group Company or HEC in excess of $250,000 and not cancelable without liability on sixty days’ notice or less; (ii) capital redemption or purchase agreements; (iii) agreements providing for the indemnification of other parties for such parties’ negligence or other fault (except for such obligations incurred in the ordinary course of business as an owner or operator of oil and gas properties, including obligations under master service agreements, drilling contracts, indemnification of the Company’s or a Group Company’s or HEC’s directors or managers and similar agreements) or the sharing of the tax liability of other parties; (iv) collective bargaining agreements; (v) gas sales or purchase contract, gas marketing agreement or transportation agreement under which the Company or any Group Company or HEC is the seller, which agreement is not terminable without penalty on thirty days’ notice or less, and which provides for a price less than fair market value; (vi) agreement for capital expenditures, the acquisition of commodities, equipment or material or the construction of fixed assets that individually are expected to require aggregate future payments by the Company or a Group Company or HEC in excess of $250,000  and all that in the aggregate would be expected to require future payments in excess of $250,000 (excluding future expenditures for drilling and/or completion of oil and gas wells for which specific expenditures are not yet committed); (vii) agreement for, or that contemplates, the sale of any interest in oil or gas leases that involves payment (including property received in exchange or other non-cash consideration) to the Company or a Group Company or HEC in excess of $250,000  in the aggregate; (viii) agreement which requires future payments by the Company or a Group Company or HEC in excess of $250,000 (and not covered by clauses (vi) or (vii)) which is not otherwise specifically disclosed herein; (ix) futures, hedges, swaps, collars, puts, calls, floors, caps, options or other contracts that are intended to benefit from or reduce or eliminate the risk of fluctuations in the price of commodities, including hydrocarbons; (x) voting trust or other agreement or understanding with respect to the voting of

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their capital stock or other equity interests; (xi) confidentiality agreements that would prohibit or restrict the disclosure of any information to the Purchasers (other than agreements that impose confidentiality restrictions involving seismic, geological or geophysical data or similar technical and business matters relating to the exploration for oil and gas and agreements that impose confidentiality restrictions relating to discussions with potential investors or potential parties to business combinations with the Company or BCEOC, provided that such discussions are no longer ongoing) or (xii) any other agreement or instrument involving payment obligations of more than $500,000 (collectively with each of the contracts set forth in Sections 3.11(a)(i) through (v) above, the “Specified Contracts”).

(c)           None of the Specified Contracts have been amended or modified except as set forth on Schedule 3.11(c).

(d)           Except as set forth on Schedule 3.11(d), all of the Specified Contracts are in full force and effect and constitute legal, valid and binding obligations of the Company and/or a Group Company or, to the knowledge of the Company, HEC, as applicable, and, to the knowledge of the Company, the other parties thereto, enforceable in all material respects in accordance with their respective terms, except insofar as the enforceability thereof may be limited (i) by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) by general principles of equity and public policy (regardless of whether considered at law or in equity).  None of the Company, any Group Company or, to the knowledge of the Company, HEC or any other party to any Specified Contract, is in default in complying with any provisions thereof, and no condition or event or fact exists that, with notice, lapse of time or both would constitute a default thereunder on the part of the Company or any Group Company or, to the knowledge of the Company, HEC or any other party thereto, except for any such default, condition, event or fact that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

(e)           Except as set forth on Schedule 3.11(e), neither the Company nor any Group Company or HEC has any contracts or subcontracts whereby the Company or such Group Company or HEC receives payments from the federal government for the sale of products to, or the provision of services to the government.  The Company and BCEOC have provided the Purchasers with a true and complete copy of each contract, agreement and instrument listed on Schedule 3.11(e) or has otherwise made such documents available for the Purchasers to review.

Section 3.12           Litigation.  Except as set forth on Schedule 3.12, there is no action, suit, proceeding or investigation pending or, to the knowledge of the Company, threatened against the Company or any Group Company or HEC or affecting any of the Properties in any court or before or by any federal, state or other governmental department, commission, agency or other instrumentality, or before any arbitrator, in each case with the exception of any action, suit, proceeding or investigation to which neither the Company nor any Group Company or HEC is a party or subject if it relates to the Company or such Group Company or HEC only because of its general effect or potential effect on the oil and gas industry as a whole.  There are no bankruptcy, reorganization or arrangement proceedings pending, being contemplated by or to the knowledge of the Company threatened against the Company or any Group Company or HEC.

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Section 3.13           Reserve Report.  The Company and BCEOC have delivered to the Purchasers a copy of the proved reserves report dated as of January 1, 2010, prepared by Cawley, Gillespie & Associates, Inc. and the proved reserves report dated as of January 1, 2010 prepared by Cawley, Gillespie & Associates, Inc. (the “Reports”), relating to the oil and gas reserves attributable to properties owned by or to which BCEOC and HEC, respectively, have rights under any lease or farm out or other written agreement by the Company and the Group Companies and HEC.  To the knowledge of the Company, the estimates of reserves in the Reports were prepared in accordance with standard geological and engineering methods generally accepted in the oil and gas industry.  The estimates of the lease operating expenses in the Reports reasonably reflect the historical experience of the Company and the Group Companies and HEC, and the historical factual information supplied by or on behalf of the Company and BCEOC to the independent engineering firm in connection with the preparation of the Reports was, at the time of delivery to such firm, true and complete in all material respects.

Section 3.14           Maps, Geological and Geophysical Libraries and Other Proprietary Information.  Except as set forth on Schedule 3.14, the Company, each Group Company and HEC owns, or has the right to use without any limitations or restrictions adversely affecting the use of the same in the ordinary conduct of its respective business, all material technology, know-how, processes, maps, seismic records, interpretations and programs, all seismic, geological and geophysical information and libraries, and other proprietary information necessary to develop the Properties as contemplated in the Reports (collectively, “Evaluation Data”), and the consummation of the transactions contemplated by this Agreement and the Transaction Documents will not alter or impair any such rights or breach any agreements with third party vendors or require payments of additional sums thereto.  Except as set forth on Schedule 3.14, no person has any right to use or obtain access to any such Evaluation Data, no claims have been asserted by any person to use or obtain access to any such Evaluation Data and no person has overtly challenged or questioned the validity or effectiveness of any license or agreement relating to the same in accordance with the terms thereof or the right of the Company or the Group Companies and HEC to copy, modify, use or distribute the same, nor, to the best of the Company’s knowledge, is there any basis for any such claim, challenge or question.  Except as set forth on Schedule 3.14, the manner in which the Company and the Group Companies and, to the knowledge of the Company, HEC have actually used or copied such Evaluation Data does not infringe on the rights of any persons, other than claims, challenges, questions or infringement that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect.

Section 3.15           Defensible Title to Properties.  For purposes of this Agreement, the term “Properties” shall mean all of the right, title and interest of the Company or the Group Companies and HEC, as applicable, in and to all of the oil, gas and mineral leases described or referred to on Exhibit H-1 or H-2, attached hereto and made a part hereof, the leasehold estates created thereby and any other real property interests described in Exhibit H-1 or H-2, together with all the property and rights incident and appurtenant thereto, including without limitation the undivided interests in and to such Properties and the wells or units located thereon or applicable thereto set forth in Exhibit H-1 and H-2.  The Company and the Group Companies and HEC, as applicable, own Defensible Title (as hereinafter defined) in and to each of the Properties.  For purposes of this Agreement, the term “Defensible Title” means that, subject to and except for the Existing Encumbrances:

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(a)           The Company, the Group Companies and HEC, as applicable, (i) are entitled to receive not less than the net revenue interest set forth opposite each well or unit on Exhibit H-1 of all hydrocarbons produced, saved and marketed from each such well or unit, without reduction, suspension or termination of such interest throughout the duration of the life of such well or unit, except as specifically set forth on Exhibit H-1, and subject to (A) the effects of overriding royalty interests and similar payments out of production that burden the leasehold interest in such Property and that were in existence at the time of the acquisition of such Property by the Company or the Group Companies or HEC or that were subsequently created pursuant to the terms of a valid agreement that was in effect prior to the time of acquisition of such Property by the Company or the Group Companies or HEC, and (B) the effects of pooling or unitization, whether voluntary or involuntary, and (ii) is obligated to bear the costs and expenses relating to the maintenance, development and operation of such well or unit not greater than the working interest set forth opposite such well or unit on Exhibit H-1, without increase throughout the duration of the life of such well or unit, except as specifically set forth on Exhibit H-1, and subject to the effects of pooling or unitization, whether voluntary or involuntary;

(b)           All royalties, rentals, shut-in gas payments and other payments due with respect to such Property have been properly and timely paid, except for payments held in suspense for title or other reasons that are customary in the industry and that will not result in grounds for a cancellation of the rights of the Company or any Group Company or HEC in such Property;

(c)           Neither the Company nor any Group Company or HEC is in default under the terms of any leases, farmout agreements or other contracts or agreements respecting such Property that could reasonably be expected to (i) interfere with the operation or use thereof, (ii) result in a material diminution to the value thereof, (iii) prevent the Company or the Group Companies or HEC from receiving the proceeds of production attributable to their interest therein, or (iv) result in cancellation of the interest of the Company or any of the Group Companies or HEC therein;

(d)           The title of the Company and the Group Companies and HEC in such Property is free and clear of all liens, encumbrances and defects of any kind whatsoever, other than Liens arising pursuant to the Revolving Credit Facility Agreement and the Company Term Loan Agreements.

Section 3.16           Other Properties.  (a) The Company and each Group Company and HEC have good and valid title to all of its material properties and assets, real and personal, tangible and intangible (except for the Properties), reflected in the Interim Financial Statements or the HEC Interim Financial Statements, as the case may be, as of the Interim Balance Sheet Date, or purported to have been acquired by the Company or any Group Company or HEC after such date (excepting, however, property and other assets sold or otherwise disposed of in the ordinary course of business or as otherwise contemplated by this Agreement and the Transaction Documents subsequent to such date).  Except as set forth on Schedule 3.16(a), all of such properties are free of any mortgage, pledge, lien, charge, encumbrance or other adverse claim.

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(b)           The Company and each Group Company and HEC enjoys peaceful and undisturbed possession under all leases under which the Company or such Group Company or HEC holds or purports to hold a leasehold estate in real property (other than the Properties) (“Leases”), and all such Leases are valid, subsisting and in full force and effect.  None of the Company or the Group Companies, as applicable, or, to the knowledge of the Company, HEC or the landlord is in default under any Lease.  No landlord has given any written or other notice to the Company or any Group Company or HEC, as applicable, of any intention of instituting litigation with respect to any Lease.  Schedule 3.16(b) contains a list of all Leases currently in effect and true, complete and correct copies of each of the Leases as currently in effect have been made available to Purchasers.  There is no agreement, written, oral or otherwise, affecting the Company’s or any Group Company’s or HEC’s rights with respect to any Lease, the real property subject to such Lease, or the Company’s or any Group Company’s or HEC’s obligations to or for the benefit of the landlord under such Lease, except as fully set forth in such Lease.  None of the Company or the Group Companies or HEC has received notice that any landlord under any Lease has commenced any voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or similar law nor, to the knowledge of the Company, has any involuntary case or proceeding to be adjudicated as bankrupt or insolvent been commenced against such landlord nor, to the knowledge of the Company, has such landlord consented to any entry of any decree or order for relief under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law.

(c)           There is no pending or, to the knowledge of the Company, threatened condemnation or similar proceeding or special assessment affecting any real property, or any part thereof, which proceeding or assessment would reasonably be expected to have a Material Adverse Effect, nor have the Company or any Group Company received notification that any such proceeding or assessment is contemplated by any Governmental Authority.

(d)           Except as set forth in Schedule 3.16(d), the Company and each Group Company and HEC owns good and valid fee title to, or a valid leasehold interest in, or a right-of-way easement through, all real property and all appurtenances thereto used or necessary for the conduct of its businesses as presently conducted and as such businesses are proposed to be conducted as of the date hereof, including all real property and appurtenances required for the operation, use, construction, maintenance, repair and replacement of the Gathering System in accordance with past practices (the “Real Property”).

(e)           None of the interests in Real Property held by the Company and each Group Company or HEC that are not perpetual in nature or do not provide for automatic renewals or extensions at fixed dollar amounts, upon expiration of the term of such interests or upon the renewal or extension of such terms, would reasonably be expected to (i) result in a Material Adverse Effect, or (ii) materially interfere with, detract from, or restrict the operation by the Company and each Group Company or HEC of their businesses, including the Gathering System.

(f)            No improvements to the Real Property and no other tangible assets owned or used by the Company and each Group Company or HEC to conduct their businesses, including any Gathering System, (i) has any material defect, or (ii) requires any capital improvements that would, individually, or in the aggregate, reasonably be expected to have a

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Material Adverse Effect.  The tangible assets owned or used by the Company and each Group Company or HEC in the conduct of its businesses, including the Gathering System, are in good operating condition and repair, ordinary wear and tear excepted.  To the Company’s Knowledge, all improvements to the Real Property owned or used by the Company and each Group Company or HEC do not encroach in any respect on property of others (other than encroachments that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect).

(g)           There is no pending or, to the Company’s knowledge threatened, condemnation of any part of the Real Property by any Governmental Authority that would, individually or in the aggregate, reasonably be expected to materially adversely affect the Company and each Group Company’s or HEC’s current use of such Real Property.

(h)           All of the Real Property has legal and sufficient right of access necessary for the conduct by the Company and each Group Company or HEC of their businesses as presently conducted and as such businesses are proposed to be conducted as of the date hereof, such right of access is to and from a public road, and there are no pending, or to the Company’s knowledge, threatened restrictions or denials, governmental or otherwise, or other existing facts or conditions, that would prohibit or otherwise materially adversely affect the ordinary rights of such access.

(i)            There is no pending, or to the Company’s knowledge threatened, Claim that the operation by the Company and each Group Company or HEC of their businesses, including the Gathering System, on any Real Property, is either illegal or in violation of any agreement or Law, which Claim, if valid and enforced, would reasonably be expected to materially interfere with, detract from, or restrict the operation any such business or that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

(j)            Neither the Company nor any Group Company or HEC has received notice, whether written or oral, of any assessments against any of the assets or properties of the Company and each Group Company or HEC for public improvements.

(k)           During the period of the Company’s and each Group Company’s or HEC’s ownership of their respective interests in the Real Property through the Closing Date, the Company and the Group Companies and, to the knowledge of the Company, HEC have paid or will timely pay all amounts owed with respect thereto under the Real Property instruments or otherwise.

(l)            Neither the Company nor any Group Company or HEC has exercised any power of eminent domain or condemnation with respect to any of the Real Property.

Section 3.17           Personalty, Equipment and Fixtures.  All wells, platforms, fixtures, facilities, personal property and equipment owned or leased by the Company or the Group Companies or HEC (i) are in a good and operable state of repair so as to be adequate for normal operations in accordance with standard industry practice in the areas in which they are operated, (ii) are adequate together with all related assets to comply with the requirements of all applicable contracts, including sales contracts, (iii) are in all respects in good operating condition, with no

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defects, normal wear and tear excepted, and (iv) meet and comply with, in all material respects, all applicable governmental rules and regulations, including without limitation the rules and regulations of the Bureau of Land Management, the Bureau of Indian Affairs and the United States Forest Service, in each case where any such failure would reasonably be expected to have a Material Adverse Effect.

Section 3.18           Wells.  All of the wells in which the Company or any Group Company or HEC has an interest by virtue of its ownership of the Properties and for which a member of the Group Companies is the operator thereof have been drilled and completed within the boundaries of such Property or within the limits otherwise permitted by contract, pooling or unit agreement, and by law; and all drilling and completion of such wells and all development and operations on such Property have been conducted in compliance in all material respects with all applicable Laws of any court or Governmental Authority.  All of the wells in which the Company or any Group Company or HEC has an interest by virtue of its ownership of the Properties and for which a member of the Group Companies is not the operator thereof, to the knowledge of the Company, have been drilled and completed within the boundaries of such Property or within the limits otherwise permitted by contract, pooling or unit agreement, and by law; and, to the knowledge of the Company, all drilling and completion of such wells and all development and operations on such Property have been conducted in compliance in all material respects with all applicable Laws of any court or Governmental Authority.  No such well is subject to penalties on allowables because of any overproduction or any other violation of applicable Laws of any court or Governmental Authority that would prevent such well from being entitled to its full legal and regular allowable from and after the Closing Date as prescribed by any court or Governmental Authority.

Section 3.19           Leases.  Except as set forth on Schedule 3.19 and except with regard to Existing Encumbrances, with respect to the oil, gas and other mineral leases, unit agreements, pooling agreements, communitization agreements and other documents creating interests comprising the Properties, to the extent required: (a) such interests contain no limitations as to depths covered or substances to which such interests purport to apply; (b) the Company and the Group Companies and HEC have fulfilled all requirements for filings, certificates, disclosures of parties in interest, and other similar matters contained in (or otherwise applicable thereto by Law) such leases or other documents that the Company or any Group Company or HEC is required to fulfill and are fully qualified to own and hold all such leases or other interests; (c) there are no obligations to engage in continuous development operations in order to maintain any such lease or other interest in force and effect for the areas and depths covered thereby; (d) there are no provisions applicable to such leases or other documents that increase the royalty share of the lessor thereunder except as such increases are reflected in Exhibit H-1 or H-2; and (e) upon the establishment and maintenance of production in commercial quantities, the leases and other interests, or that portion of the lease covered by unit created under a unit agreement or similar arrangement, are to be in full force and effect over the economic life of the Property involved and do not have terms fixed by a certain number of years.

Section 3.20           Gas Contracts.  (a) The Company and the Group Companies and HEC have made all material filings necessary under the Natural Gas Policy Act of 1978, as amended, or the Natural Gas Act, as amended, to (i) allow the Company and the Group Companies and HEC to collect the price currently being received by the Company or the Group Company or

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HEC for natural gas produced from the Properties, and (ii) authorize or terminate, as the case may be, the sale of such natural gas.  Approvals of such filings have been obtained in the normal course or, with respect to approvals not so obtained, the Company does not know of any reason why such approvals will not be forthcoming.

(b)           The Company is not aware of any Properties with respect to which (i) deliveries of natural gas dedicated to interstate commerce have been terminated or diverted therefrom without there having been obtained appropriate abandonment orders or other required regulatory approvals, or (ii) except for any take-or-pay payments not presently due and owing under the terms of the contract, the Company or the Group Companies or HEC are not receiving on a current basis the payments required under the terms of the gas sales contract, or (iii) the Company or the Group Companies did not (or, solely with respect to any gas sales contracts with a remaining term as of the date hereof of 60 days or more, will not) receive the price (per MMBtu) for natural gas reflected in the calculations contained in the data furnished by the Company to the Purchasers for the periods of time set forth in such data.

(c)           Since January 1, 2009, the purchaser of natural gas produced from or attributable to the Properties under any gas sales contract has not (i) exercised any economic out provision, (ii) curtailed its takes of natural gas in violation of such contract or (iii) given notice (either written or, to the knowledge of the Company, oral) that it desires to amend the gas sales contract with respect to price or quantity of deliveries under take-or-pay provisions or otherwise, in each case to such extent that any such action may materially affect the economic value of the reserves attributable to the Properties affected by such action.

Section 3.21           Prepayments and Btu Adjustments.  Except as set forth on Schedule 3.21, the Properties are not subject to nor is the Company or any Group Company or HEC obligated:

(a)           by any production payment or any other arrangement for the delivery of hydrocarbons produced from any of the Properties to deliver any gas or hydrocarbons at a future time without then or thereafter receiving full payment therefor; or

(b)           to make any refund to any purchaser under any order of the Federal Energy Regulatory Commission (the “FERC”).

Section 3.22           Environmental and Health Laws.  Except as disclosed on Schedule 3.22:

(a)           The business, assets and operations of the Company and each Group Company and HEC for the past five years have been and are in material compliance with all orders and requirements of any court or Governmental Authority and with all Environmental Laws, and to the knowledge of the Company, there are no facts, events, or conditions that would (or could reasonably be expected to) (i) prevent, hinder, or limit such compliance going forward, or (ii) result in the need to make any material capital expenditure to maintain such compliance;

(b)           Neither the Company nor any Group Company or HEC (i) has received in the past five years any written or oral notice, report, order, directive, or other information regarding any actual or alleged material violation of Environmental Laws or liability arising out of Environmental Laws that concerns or relates to the business, assets or

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operations of the Company and/or any Group Company or HEC (including, without limitation, any operations of any prior owners or operators), or (ii) is subject to any existing, pending or, to the knowledge of the Company, threatened action, suit, investigation, inquiry or proceeding arising out of  Environmental Laws;

(c)           All notices, permits, licenses or similar authorizations, if any, required to be obtained or filed in connection with the business, assets and operations of the Company and/or any Group Company or HEC have been duly obtained or filed, the Company and the Group Companies and HEC are in material compliance with the terms and conditions of all such notices, permits, licenses and similar authorizations, and to the knowledge of the Company and BCEOC, there are no conditions or circumstances that would (or could reasonably be expected to) prevent their renewal or re-issuance on substantially the same terms and conditions;

(d)           To the knowledge of the Company, no hazardous substances or solid waste have been disposed of or otherwise released (including without limitation discharges or releases into pits) in a manner that would (or could reasonably be expected to) give rise to any material liability of the Company and/or any Group Company or HEC pursuant to Environmental Laws;

(e)           The Company has not assumed (whether expressly or by operation of law), undertaken, provided an indemnity with respect to, or to the knowledge of the Company and BCEOC, otherwise become subject to, any liability arising out of Environmental Laws (including without limitation any obligation for corrective action, remedial action, or closure) of any other Person; and

(f)            Except for any liability that would not reasonably be expected to have a Material Adverse Effect, whether individually or in the aggregate, there is no liability (contingent or otherwise) in connection with any release or threatened release of any hazardous substance or solid waste into the environment as a result of or with respect to the business, assets or operations of the Company or any Group Company or HEC.

Section 3.23           Employees.  (a) Schedule 3.23(a) sets forth the name and salary, as well as the title or functional position, of each current director and officer of the Company and BCEOC, and each other current employee, consultant, representative, salesman or agent employed or under contract with the Company or BCEOC, in each case for payment of wages or other remuneration of whom the Company or BCEOC is liable, as of the date of this Agreement.  Except for reimbursement of relocation and temporary living expenses, (a) none of the persons listed on such schedule has received any wage or salary increase or bonus since December 1, 2010, nor have any such increases or bonuses been adopted since 2010, and (b) none of the persons set forth on such schedule has had in the last two years any transaction with either the Company or BCEOC involving the receipt or payment by the Company or BCEOC of more than $25,000 in cash, property or services except in the ordinary course of their employment or service relationship.

(b)           Schedule 3.23(b) provides a description of each of the following that is sponsored, maintained or contributed to by the Company or the Group Companies for the benefit

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of the employees of the Company or the Group Companies, or with respect to which any of the Company or Group Companies has any liability (contingent or otherwise):

(i)            each “employee benefit plan”, as such term is defined in Section 3(3) of ERISA;

(ii)           each personnel policy, equity plan (including each stock option, stock purchase and restricted stock plan), bonus plan or arrangement, incentive award plan or arrangement, vacation policy, fringe benefit plan, severance pay plan, policy or agreement, change in control or retention plan, policy or arrangement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, written consulting agreement, written employment agreement and each other employee benefit plan, agreement, arrangement, program, practice or understanding that is not described in Section 3.23(b)(i) (collectively, with each plan described in Section 3.23(b)(i), the “Plans”).

(c)           True, correct and complete copies of each of the Plans, and related trusts, if applicable, including all amendments thereto, have been made available to the Purchasers.  In the case of any Plan which is not maintained in a written form, a complete and correct description of such Plan as in effect on the date hereof has been made available to the Purchasers.  There has also been made available to the Purchasers, with respect to each Plan required to file such report or provide such description, the most recent report on Form 5500 and the summary plan description.

(d)           Except as otherwise set forth on Schedule 3.23(d):

(i)            None of the Company or the Group Companies contributes to or has an obligation to contribute to, or otherwise has any liability (contingent or otherwise) with respect to a multiemployer plan within the meaning of Section 3(37) of ERISA or any Plan subject to Title IV of ERISA;

(ii)           The Company and the Group Companies have  performed all material obligations, whether arising by operation of law or by contract, required to be performed by them in connection with the Plans, and to the knowledge of the Company there have been no material defaults or violations by any other party to the Plans;

(iii)          All reports and disclosures relating to the Plans required to be filed with or furnished to governmental agencies, Plan participants or Plan beneficiaries have been filed or furnished in accordance with applicable law in a timely manner, and each Plan has been administered in substantial compliance with its governing documents and with the requirements of Applicable Law;

(iv)          Each of the Plans intended to be qualified under Section 401(a) of the Code satisfies the requirements of such Section in all material respects and has received a favorable determination or opinion letter from the Internal Revenue Service regarding such qualified status which covers all amendments to such

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Plans for which the remedial amendment period (within the meaning of Section 401(b) of the Code) has expired and has not, since receipt of the most recent favorable determination letter, been amended or operated in a way that will adversely affect such qualified status;

(v)           There are no actions, suits or claims pending (other than routine claims for benefits) or, to the knowledge of the Company or any Group Company, threatened against, or with respect to, any of the Plans  or their assets;

(vi)          All contributions required to be made to the Plans pursuant to their terms and provisions or under the terms of applicable law  have been timely made;

(vii)         None of the assets of any Plan are invested in employer securities or employer real property;

(viii)        None of the Plans nor any trust created thereunder or with respect thereto has engaged in any “prohibited transaction” or “party in interest transaction” as such terms are defined in Section 4975 of the Code and Section 406 of ERISA that will subject the Company or any Group Company to a tax or penalty on prohibited transactions or party in interest transactions pursuant to Section 4975 of the Code or Section 502(i) of ERISA;

(ix)           There is no matter pending (other than routine qualification determination filings) with respect to any of the Plans before the Internal Revenue Service, the Department of Labor or the Pension Benefit Guaranty Corporation (the “PBGC”); and

(x)            There is no trust funding any Plan, which is intended to be exempt from federal income taxation pursuant to Section 501(c)(9) of the Code.

(e)           Except as otherwise set forth in Schedule 3.23(e), neither the Company nor any Group Company is a party to any agreement, nor has the Company nor any Group Company  established any policy or practice, requiring it to make a payment or provide any other form of compensation or benefit to any person performing services for the Company or any Group Company that would not be payable or provided in the absence of the consummation of the transactions contemplated by this Agreement.

(f)            Except as set forth in Schedule 3.23(f), neither the execution of this Agreement nor the consummation of the transactions contemplated hereby shall cause any “parachute payments” within the meaning of Section 280G of the Code to any employee, officer or director of any of the Company or any Group Company.

(g)           Each Plan that is an “employee welfare benefit plan”, as such term is defined in Section 3(1) of ERISA, may be unilaterally amended or terminated in its entirety without liability except as to benefits accrued thereunder prior to such amendment or termination. Except for the continuation coverage requirements of Section 4980B of the Code and Sections 601 through 608, inclusive, of ERISA or similar state law, none of the Company

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nor any Group Company has any liability or potential liability with respect to benefits for employees, former employees or their respective dependents following termination of employment or retirement under any of the Plans that is an “employee welfare benefit plan”.

(h)           There have been no acts or omissions by the Company or any Group Company under Section 409A or Section 457A of the Code for which the Company or any of the Group Companies may be liable with respect to a nonqualified deferred compensation plan (within the meaning of Section 409A or Section 457A of the Code).

(i)            HEC does not have employees or any Plans.

Section 3.24           Labor Matters.  (a) There are no controversies pending or, to the knowledge of the Company, threatened, between the Company or any Group Company and any of their respective employees, which controversies would reasonably be expected to have a Material Adverse Effect; (b) neither the Company nor any Group Company is a party to any collective bargaining agreement or other labor union contract applicable to persons employed by the Company or the Group Companies, nor does the Company or any Group Company know of any activities or proceedings of any labor union to organize any such employees; and (c) the Company has no knowledge of any strikes, slowdowns, work stoppages, lockouts or threats thereof, by or with respect to any employees of the Company or any Group Company that would reasonably be expected to have a Material Adverse Effect.

Section 3.25           Taxes and Assessments.  Except as set forth on Schedule 3.25:

(a)           The Company, each Group Company and HEC has timely filed with the appropriate governmental authority all federal, state and foreign Tax Returns that it was required to file under applicable laws and regulations.  All such Tax Returns are true, correct and complete in all material respects, and all Taxes due and owing by the Company, each Group Company and HEC (whether or not shown on any Tax Return) have been paid, except any such Taxes that are being contested in good faith by appropriate proceedings and for which adequate reserves have been set aside on the books of the Company, the Group Company or HEC, as applicable, in accordance with GAAP.  All Taxes that the Company and each Group Company and HEC is required by law to withhold or collect, including without limitation, sales and use taxes, and amounts required to be withheld for Taxes of employees, have been duly withheld or collected and, to the extent required, have been paid over to the proper Governmental Authorities or are held in separate bank accounts for such purpose.

(b)           None of the Company, the Group Companies or HEC has requested any extension of time within which to file any Tax Return, which Tax Return has not since been filed.

(c)           There is no action, suit, proceeding, investigation, audit, claim or assessment presently pending or, to the knowledge of the Company, threatened, with regard to any Taxes that relate to the Company or any Group Company or HEC.  No issue has arisen in any examination of the Company or any Group Company or HEC by any taxing authority that if raised with respect to any other period not so examined would

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result in a material deficiency for any other period not so examined, if upheld.  Any adjustment of income Taxes of the Company or any Group Company or HEC made by the Internal Revenue Service in any examination that is required to be reported to the appropriate state, local or foreign taxing authorities has been so reported.

(d)           None of the Company, the Group Companies or HEC (i) has ever been a member of an affiliated group within the meaning of Section 1504(a) of the Code (or any similar or analogous  group defined under a similar or analogous  state, local or foreign Law) other than an  affiliated group the common parent of which is the Company, or (ii) has any  liability under Section 1.1502-6 of the Treasury  Regulations promulgated under the Code  (or any  predecessor or successor thereof or analogous  or similar provision under state, local or foreign Law), as a transferee or successor, by contract or otherwise for Taxes of any affiliated group of which the Company is not the common parent.

(e)           None of the assets of the Company or any Group Company or HEC constitute tax-exempt bond financed property or tax-exempt use property within the meaning of section 168 of the Code, and none of the assets reflected on the balance sheets of the Financial Statements or the HEC Financial Statements as of the Interim Balance Sheet Date is subject to a lease, safe harbor lease or other arrangement as a result of which the Company or any Group Company or HEC is not treated as the owner for U.S. Federal income tax purposes.

(f)            Neither the Company nor any Group Company or HEC has been a party to a transaction that has been reported as a reorganization within the meaning of Section 368 of the Code, or has distributed a corporation (or has been distributed) in a transaction that is reported to qualify under Section 355 of the Code.

(g)           No claim has ever been made by an authority in a jurisdiction where the Company or any Group Company or HEC does not file Tax Returns that it is or may be subject to taxation by that jurisdiction.  Neither the Company nor any Group Company or HEC has, and has never had, a permanent establishment or other taxable presence in any foreign country, as determined pursuant to applicable foreign law and any applicable Tax treaty or convention between the United States and such foreign country.

(h)           Neither the Company nor any Group Company or HEC has participated in any reportable transaction, as defined in Treasury Regulation Section 1.6011-4(b)(1), or a transaction substantially similar to a reportable transaction or any analogous provision of state or local law.

Section 3.26           Intellectual Property and Other Intangible Assets.  Each of the Company and the Group Companies and HEC (i) owns or has the right to use, free and clear of all liens, all patents, trademarks, service marks, trade names and copyrights, and all applications, licenses and rights with respect to the foregoing, and all trade secrets, including know-how, inventions, designs, processes, works of authorship, computer programs, and technical data and information (collectively, “Intellectual Property”) used and sufficient for use in the conduct of its respective business as now conducted without infringing upon or violating any right, lien, or claim of others, and (ii) except as described on Schedule 3.26, is not obligated or under any liability

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whatsoever to make any payments by way of royalties, fees, or otherwise to any owner or licensee of, or other claimant to, any patent, trademark, service mark, trade name, copyright, or other intangible asset, with respect to the use thereof or in connection with the conduct of its business or otherwise, except for such failures to have the right to use such obligations would not reasonably be expected to have a Material Adverse Effect.

Section 3.27           Insurance.  Each of the Company and BCEOC maintains property, casualty, general liability and other insurance policies with coverage limits in amounts and with carriers as in each case are customary in accordance with sound business practices and which the Company and BCEOC believe are adequate in the circumstances.  The Company and BCEOC have previously provided, or made available to the Purchasers true and complete copies of all of the Company’s, BCEOC’s and the other Group Companies’ insurance policies.  The Company and BCEOC have given in a timely manner to their insurers all notices required to be given under such insurance policies with respect to all material claims and actions covered by insurance, and no insurer has denied coverage of any such claims or actions or reserved its rights in respect of or rejected any of such claims.  Neither the Company nor BCEOC has received any notice or other communication from any such insurer canceling or materially amending any of such insurance policies, and no such cancellation is pending or threatened.

Section 3.28           Public Utility Holding Company Act.  Neither the Company nor any Group Company or HEC is a “holding company” or a “subsidiary company” of a “holding company”, or an affiliate of a “holding company” or a “subsidiary company” of a “holding company”, in each case within the meaning of the Public Utility Holding Company Act of 2005, as amended.

Section 3.29           Investment Company Act.  Neither the Company nor any Group Company or HEC is an “investment company” or a company “controlled” by an “investment company”, in each case within the meaning of the Investment Company Act of 1940, as amended.

Section 3.30           Plugging and Abandonment Obligations.  Except as set forth on Schedule 3.30, to the knowledge of the Company, there is no well located upon any Property owned or operated by the Company or any Group Company or HEC that the Company or such Group Company or HEC is currently obligated by law or contract to plug and abandon and that (whether individually or in the aggregate) would reasonably be expected to have a Material Adverse Effect.

Section 3.31           No Restrictions on Affiliates.  The Company is not a party to any agreement that imposes any restrictions or limitations on the ability of the Purchasers or any of their Affiliates to operate their respective businesses as currently operated.

Section 3.32           Liability for Brokers’ Fees.  Except as disclosed on Schedule 3.32, none of the Purchasers, the Company or any Group Company or HEC shall, directly or indirectly, have any responsibility, liability or expense, as a result of undertakings or agreements of the Company or any Group Company or HEC, for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation in connection with this Agreement, any agreement or transaction contemplated hereby or any capital raising transaction attempted by the Company or any Group Company prior to the date hereof, including, without limitation, any offering attempted by the

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Company or any Group Company under the Securities Act of 1933, as amended (the “Securities Act”).

Section 3.33           Holmes Acquisition Agreement and Contribution Agreement.  As of the date hereof, the Company and BCEOC have provided to Purchasers true, complete and correct copies of the final drafts of the Holmes Acquisition Agreement and the Contribution Agreement.  The representations and warranties made by the parties to each of the Holmes Acquisition Agreement and the Contribution Agreement are true and correct.

Section 3.34           Accuracy.  No representation or warranty of the Company or BCEOC in this Agreement or any other written information, statement or certificate with respect to the Company or any Group Company furnished or to be furnished by the Company or BCEOC to the Purchasers or any of their subsidiaries, Affiliates, representatives, employees or consultants pursuant hereto or in connection with the transactions contemplated hereby, when taken as a whole with all other information provided by the Purchasers, intentionally or negligently contains or will contain any untrue statement of a material fact, or intentionally or negligently omits or will omit to state a material fact necessary to make the statements contained therein, under the circumstances in which they are made (which circumstances include, without limitation, those relating to the knowledge, skill and sophistication of the Purchasers and their Affiliates, the Purchasers’ and their Affiliates’ familiarity with the oil business, and nature and amount of all information and independent professional services and consultants otherwise available to the Purchasers and their Affiliates in assisting and evaluating this transaction and the degree of diligence appropriate in investigating the facts in connection with this transaction), not misleading. The foregoing shall not apply to, and no representations are being made in this Section 3.34 with respect to, any materials comprising, in whole or in part, valuations or any projections of financial performance or operations of the Company, the Group Companies and HEC, or any combination thereof, or any offering memorandum or circular or prospectus prepared in connection with (i) any previously attempted sale, merger or other disposition of BCEC and its subsidiaries or the assets of BCEC and its subsidiaries or (ii) any investment in BCEC or an Affiliate of BCEC in an offering made pursuant to Rule 144A, as promulgated under the Securities Act, or otherwise.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASERS

Each Purchaser makes the following representations and warranties to the Company, severally but not jointly, and provided that (i) WFC is solely responsible for the representations and warranties contained in Sections 4.1(a) and 4.8(a) and HMQ is solely responsible for the representations and warranties contained in Sections 4.1(b) and 4.8(b):

Section 4.1             Existence and Qualification.

(a)           WFC is a limited partnership formed, validly existing and in good standing under the laws of the State of Delaware and such Purchaser is duly qualified to do business as a foreign corporation in every jurisdiction in which it is required to qualify in order to conduct its business except where the failure to so qualify would not reasonably be expected to have a material adverse effect on such Purchaser or its properties.

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(b)           AIMCo is a corporation created by the Alberta Investment Management Corporation Act (Alberta) (the “AIMCo Act”).  Section 3 of the AIMCo Act appoints AIMCo as agent for HMQ.  The AIMCo Act authorizes AIMCo, in its capacity as agent of HMQ, to invest monies on behalf of certain designated entities, including HMQ.

Section 4.2             Power.  Such Purchaser has the power to enter into and perform this Agreement and each other Transaction Document which is required to be executed and delivered by such Purchaser at Closing and to consummate the transactions contemplated hereby and thereby.

Section 4.3             Authorization and Enforceability.  The execution, delivery and performance of this Agreement and each other Transaction Document which is required to be executed and delivered by such Purchaser at Closing, and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary limited partnership action on the part of such Purchaser.  This Agreement has been duly executed and delivered by such Purchaser and each other Transaction Document which is required to be executed and delivered by such Purchaser at Closing will be duly executed and delivered by such Purchaser and this Agreement constitutes, and at the Closing such Transaction Documents will constitute, valid and binding obligations of such Purchaser, enforceable in accordance with their terms except as such enforceability may be limited by applicable bankruptcy or other similar laws affecting the rights and remedies of creditors generally as well as to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

Section 4.4             No Conflicts.  The execution, delivery and performance of this Agreement by such Purchaser, and the consummation of the transactions contemplated by this Agreement, will not (i) violate any provision of the certificate of incorporation or bylaws or other similar organizational documents of such Purchaser, (ii) result in a material default (with due notice or lapse of time or both) or the creation of any lien or encumbrance or give rise to any right of termination, cancellation or acceleration under any material note, bond, mortgage, indenture, license or agreement to which such Purchaser is a party or by which it is bound, (iii) violate any judgment, order, ruling, or regulation applicable to such Purchaser as a party in interest,  (iv) violate any Law applicable to such Purchaser or any of its assets or (v) require any consent, approval or waiver from any Governmental Authority or other third Person, except any matters described in clauses (ii), (iii) or (iv) above which would not reasonably be expected to have a material adverse effect on Purchaser or its properties and any other matters set forth on Schedule 4.4.

Section 4.5             Litigation.  There are no actions, suits or proceedings pending, or to such Purchaser’s knowledge, threatened in writing before any Governmental Authority or arbitrator against such Purchaser which are reasonably likely to materially impair such Purchaser’s ability to perform its obligations under this Agreement.

Section 4.6             Financing.  Such Purchaser has sufficient cash, available lines of credit or other sources of immediately available funds (in United States dollars) to enable it to pay the portion of the Purchase Price set forth opposite such Purchaser’s name on Schedule 2.1 to the Company at the Closing.

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Section 4.7             Liability for Brokers’ Fees.  Except as set forth on Schedule 4.7, the Company shall not directly or indirectly have any responsibility, liability or expense, as a result of undertakings or agreements of Purchaser, for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation in connection with this Agreement, the Transaction Agreements or the transactions contemplated hereby or thereby.

Section 4.8             Accredited Investor.

(a)           WFC is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission.

(b)           HMQ is not a “U.S. Person” as defined in Rule 902(k) of Regulation S promulgated under the Securities Act and is a “qualified purchaser” under Section 2(a)(51)(A) of the U.S. Investment Company Act of 1940 and the rules promulgated thereunder.

Section 4.9             Restricted Securities.  Such Purchaser understands that the Shares will not have been registered pursuant to the Securities Act, or any applicable state securities laws, that the Shares will be characterized as “restricted securities” under federal securities laws, and that under such laws and applicable regulations, the Shares cannot be sold or otherwise disposed of without registration under the Securities Act or an exemption therefrom.  In this connection, such Purchaser represents that it is familiar with Rule 144 promulgated under the Securities Act, as currently in effect, and understands the resale limitations imposed thereby and by the Securities Act.  A legend indicating that the Shares have not been registered under applicable federal and state securities laws and referring to the restrictions on transferability and sale of the Shares pursuant to the Shareholders Agreement may be placed on any certificate(s) or other document delivered to such Purchaser or any substitute therefor and any transfer agent of the Company may be instructed to require compliance therewith.

Section 4.10           Investment Intent.  The Shares are being acquired for the own investment portfolio and account of such Purchaser, or in the case of HMQ, for the account of certain designated Affiliates of HMQ, with the intent of holding the Shares for investment and without the intent of participating, directly or indirectly, in a distribution of the Shares and not with a view to, or for resale in connection with, any distribution of the Shares in violation of applicable securities laws or any portion thereof in violation of applicable securities laws.  As of the Closing Date, such Purchaser does not have any binding obligation or fixed or definite plan or intention to transfer any of the Shares on a specified date or to a specified person.

ARTICLE 5
COVENANTS OF THE PARTIES

Section 5.1             Confidentiality.  Each Party will hold, and will cause its respective Affiliates and the directors, officers, employees, agents, consultants and advisors of each, to hold, in strict confidence, unless disclosure to a regulatory authority is necessary or appropriate in connection with any necessary regulatory approval or unless disclosure is required by judicial or administrative process or, in the written opinion of its counsel, by other requirement of law or the applicable requirements of any regulatory agency or relevant stock exchange, all non-public records, books, contracts, instruments, computer data and other data and information

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(collectively, “Information”) concerning the other Parties hereto furnished to it by such other Parties or their representatives pursuant to this Agreement (except to the extent that such Information can be shown to have been (1) previously known by such Party on a non-confidential basis, (2) in the public domain through no fault of such Party or (3) later lawfully acquired from other sources by the party to which it was furnished), and no Party hereto shall release or disclose such Information to any other person, except its auditors, attorneys, financial advisors, other consultants and advisors.

Section 5.2             Notification of Breaches.  Until the Closing:

(a)           Each Purchaser shall notify the Company and the other Parties promptly after such Purchaser obtains actual knowledge that any representation or warranty of the Company contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by the Company prior to or on the Closing Date has not been so performed or observed in any material respect.

(b)           The Company shall notify a Purchaser promptly after the Company obtains actual knowledge that any representation or warranty of such Purchaser contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by such Purchaser prior to or on the Closing Date has not been so performed or observed in a material respect.

Section 5.3             Public Announcements.  No Party shall make any press release or other public announcement regarding the existence of this Agreement, the contents hereof or the transactions contemplated hereby without the prior written consent of the other Parties; provided, however, the foregoing shall not restrict disclosures by a Party (i) that are required by applicable securities or other Laws or the applicable rules of any stock exchange having jurisdiction over the disclosing Party or its Affiliates or (ii) to Governmental Authorities and third Persons holding preferential rights to purchase or rights of consent that may be applicable to the transactions contemplated by this Agreement, as reasonably necessary to obtain waivers of such rights, or such consents; and provided, further, that WFC’s consent shall constitute consent of the Purchasers as a group.

Section 5.4             Operation of Business.  Other than as contemplated by the Contribution Agreement, the Holmes Acquisition Agreement, or as set forth on Schedule 5.4, until the Closing, the Company and BCEOC will, and will cause the members of the Group Company to (i) operate their businesses in the ordinary course and in material compliance with all applicable Laws, (ii) not, without the prior written consent of WFC, commit to any operation reasonably anticipated to require future capital expenditures by the Company or any member of the Group Company in excess of $1,000,000, or terminate, materially amend, execute or extend any material contracts, (iii) maintain insurance coverage in the amounts and of the types presently in force, (iv) use commercially reasonable efforts to maintain in full force and effect the Properties, (v) maintain all material governmental permits and approvals, and (vi) not transfer, sell, hypothecate, encumber or otherwise dispose of any material assets except for sales and

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dispositions of hydrocarbons and equipment made in the ordinary course of business consistent with past practices.

Section 5.5             Conduct of the Company.  Other than as contemplated by the Contribution Agreement or the Holmes Acquisition Agreement, neither the Company nor BCEOC shall do any of the following without the prior written consent of WFC:  (i) amend its charter, by-laws or equivalent governing instruments; (ii) issue, redeem or otherwise acquire any shares of its capital stock or issue any option, warrant or right relating to its capital stock or any securities convertible into or exchangeable for any shares of capital stock or declare or pay any dividend (whether in cash, stock, property, or any combination thereof) or declare or pay any stock-split; (iii) incur or assume any liabilities, obligations or indebtedness for borrowed money or guarantee any such liabilities, obligations or indebtedness, other than accounts payable incurred in the ordinary course of business or payroll obligations; (iv) lend to any Person (other than accounts receivable accrued in the ordinary course of business) or make an equity investment in any other Person (except loans to and investments in other members of the Group Company); (v) make any change in any method of accounting or accounting practice or policy other than those required by GAAP; (vi) acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof; or otherwise acquire any assets (other than in the ordinary course of business) for an amount greater than U.S. $1,000,000, or which are material, individually or in the aggregate, to the Group Company, taken as a whole; (vii) enter into any lease of real property, except any renewals of existing leases in the ordinary course of business; (viii) enter into any settlement of any issue with respect to any assessment or audit or other administrative or judicial proceeding with respect to Taxes; (ix) make any loan (other than (A) accounts receivable in the ordinary course of business, (B) advances or cash call payments to the operator as required under applicable operating agreements or (C) other loans in the ordinary course of business) to any Person; (x) terminate or voluntarily relinquish any permit, license or other authorization from any Governmental Authority necessary for the conduct of the Company’s business or operations or which relates in any way to any material asset; (xi) grant any bonus or increase in salary to any employee of the Company, except as required by existing employment contracts, plans or arrangements, or collective bargaining agreements or labor awards; (xii) establish, amend or terminate any employee benefit plan for employees of the Company (except for any amendments as may be required by applicable Law or existing agreements); or (xiii) agree to do any of the foregoing.

Section 5.6             Consents.  The Company and/or BCEOC shall promptly prepare and send notices to the applicable third parties in connection with the consents that are set forth in Schedule 3.6 and are applicable to the transactions contemplated by this Agreement requesting such consents.  The Company and BCEOC shall use commercially reasonable efforts to cause such consents to be obtained and delivered prior to Closing.  Purchasers shall cooperate with the Company and BCEOC in seeking to obtain such consents; provided, that no Purchaser shall be required to make payments or undertake obligations to or for the benefit of such third parties in order to obtain the required consents and waivers.

Section 5.7             Reorganization and Holmes Acquisition.  (a) Immediately following the date hereof, the Company and BCEOC, as applicable, shall execute and deliver the Contribution Agreement and the Holmes Acquisition Agreement and use their commercially reasonable

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efforts to ensure the counterparties thereto execute and deliver the Contribution Agreement and the Holmes Acquisition Agreement.

(b)           Until the Closing, each of the Company and BCEOC, to the extent each has the right, shall enforce any and all rights they have pursuant to the Holmes Acquisition Agreement and the Contribution Agreement in order to ensure that the transactions contemplated thereby are consummated and in accordance with the terms of the agreements.

Section 5.8             Exclusivity.  From the date of this Agreement until the earlier of the Closing Date or termination of this Agreement in accordance Section 8.1, and except in connection with the transactions contemplated by this Agreement, neither Shaw, BCEOC nor the Company shall, directly or indirectly, through any Affiliate, director, officer, employee, agent, partner, banker, representative or otherwise, solicit, initiate, encourage, assist in or respond to the submission of, any proposal or offer from any person or entity relating, with respect to Acquisition Proposal, except to the extent of notifying such person that it will not so engage in such discussions, or enter into any agreement requiring it to abandon, terminate or fail to consummate the transactions contemplated by this Agreement, or participate in any or continue any ongoing discussions or negotiations regarding, or furnish to any Person any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any Person to pursue or effect an Acquisition Proposal or enter into any agreement with respect to an Acquisition Proposal.  From the date of this Agreement to the earlier of the Closing Date or the termination of this Agreement in accordance with Section 8.1, the Company shall notify the Purchasers immediately in writing if any Person makes any proposal, offer, inquiry or contact with respect to any Acquisition Proposal and shall provide the Purchasers with the terms thereof.

Section 5.9             Further Assurances.  After Closing, each Purchaser and the Company agrees to take such further actions and to execute, acknowledge and deliver all such further documents as are reasonably requested by the other Parties and necessary for carrying out the purposes of this Agreement or of any document delivered pursuant to this Agreement.

Section 5.10           Section 351.  For United States federal income Tax purposes and any applicable state or local income or franchise Tax purposes, the Parties recognize that the purchase described in Article 2, together with the other contributions to the Company described in the Transaction Documents, will be treated as contributions to the Company in exchange for shares of the Company’s common stock to which Section 351(a) of the Code applies. No Party hereto shall file any income Tax Return or otherwise take any position for income Tax purposes that is inconsistent with such treatment unless required to do so pursuant to a “determination” within the meaning of Section 1313(a) of the Code or any corresponding provision of state or local income or franchise Tax Law. Additionally, each Party hereto agrees to take no action that  reasonably could be expected to prevent the transactions from qualifying for nonrecognition of gain or loss under Section 351(a) of the Code.

Section 5.11           Employees.  Before the Closing, the Company shall take action to (i) assume sponsorship of the Plans listed on Schedule 5.11 effective as of the Closing Date and (ii) notify the persons listed on Schedule 3.23(a) (the “Workers”) in writing that, contingent on the Closing, their employment or service relationship is transferring from BCEOC to the Company

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effective on the Closing Date and that their continued employment or service with the Company after the Closing Date shall constitute acceptance of such transfer.  Any Worker that is employed or in a service relationship with the Company after the Closing Date shall be a “Transferred Worker”.  Immediately following the Closing Date, the Company shall employ or maintain the service relationship of the Transferred Workers on the same terms and conditions and provide the Transferred Workers with at least the same compensation and benefits provided to the Transferred Workers by BCEOC immediately prior to the Closing.  The Company shall be responsible for all duties, obligations, and liabilities of BCEOC (whether absolute, contingent, or otherwise) existing as of the Closing under Applicable Laws arising out of or relating to employment or service relationship, employment practices, and the Plans, including without limitation all duties, obligations, and liabilities of BCEOC to the Workers, to former employees and service providers, to applicants, or to persons claiming to be employees or service providers, as well as under and in connection with the Plans.  Nothing in this Section 5.11 shall be construed (i) to give any Person other than the parties to this Agreement any legal or equitable right under or with respect to this Agreement or any provision of this Agreement, (ii) to constitute an amendment to or modification of any Plan or (iii) to limit the Company’s ability to modify or terminate the terms and conditions of any Transferred Worker’s employment or service relationship.

Section 5.12           Lease Consents.  (a) Each of the Company and BCEOC shall use its commercially reasonable efforts to obtain all consents, waivers and approvals that must be obtained from third parties to assign the leases set forth on Schedule 3.16(b) (collectively, the “Lease Consents”) to the Company or BCEOC at or prior to the Closing; provided, however, that if the Company and BCEOC do not obtain the Lease Consents at or prior to the Closing, then the Company and BCEOC shall obtain the Lease Consents within thirty (30) days of the Closing Date, and (b) the Company or BCEOC shall assume, effective as of the Closing Date, all of the rights and obligations of the current tenant under such leases.

Section 5.13           Use of Proceeds.  As more specifically set forth on Schedule 5.13, (i) at Closing, the Company shall use the proceeds from the issuance of the Shares to repay the Company Term Loan Debt in full, to pay the Company’s and the Purchasers’ financial, advisory, legal and other fees and expenses and to complete the acquisition of HEC in accordance with the Holmes Acquisition Agreement and (ii) within thirty (30) days of the Closing Date, the Company shall use the proceeds from the issuance of the Shares, less the amounts set forth in clause (i) above, to prepay a portion of the Revolving Credit Facility Debt.

ARTICLE 6
CONDITIONS TO CLOSING

Section 6.1             Conditions of the Company to Closing.  The obligations of the Company to consummate the transactions contemplated by this Agreement are subject, at the option of the Company, to the satisfaction on or prior to Closing of each of the following conditions:

(a)           Representations.  The representations and warranties of Purchasers set forth in Article 4 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date;

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(b)           Performance.  Each Purchaser shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;

(c)           No Action.  On the Closing Date, no suit, action, or other proceeding (excluding any such matter initiated by Company or any of its Affiliates) shall be pending or threatened before any Governmental Authority or body of competent jurisdiction seeking to enjoin or restrain the consummation of the transactions contemplated by this Agreement or recover substantial damages from the Company or any Affiliate of the Company resulting therefrom;

(d)           Consents.  All consents and approvals of any Governmental Authority or other third party required for the transfer of the Shares from the Company to the Purchasers as contemplated under this Agreement and listed on Schedule 3.6 shall have been granted;

(e)           Purchase Price.  The Company shall have received the full Purchase Price in immediately available same-day funds in U.S. dollars;

(f)            Management Incentive Plan.  The Company shall have established the MIP in accordance with the form of MIP attached hereto as Exhibit D and authorized the MIP Shares pursuant to the Company’s Amended and Restated Certificate of Incorporation, and the MIP Shares shall have been issued to each of the individuals set forth on Schedule 6.1(f) in the amount set forth opposite such individuals name;

(g)           Credit Facility Amendment.  The Credit Facility Amendment, duly authorized, executed and delivered by each of the parties thereto, in accordance with its terms, shall be in full force and effect; and

(h)           Assignment and Assumption Agreement.  The Assignment and Assumption Agreement, duly authorized, executed and delivered by each of the parties thereto, in accordance with its terms, shall be in full force and effect.

Section 6.2             Conditions of Purchasers to Closing.  The obligations of Purchasers to consummate the transactions contemplated by this Agreement are subject to the satisfaction on or prior to Closing of each of the following conditions:

(a)           Representations.  The representations and warranties of Company and BCEOC set forth in Article 3 shall be true and correct in all respects (in the case of the representations and warranties contained in Sections 3.2, 3.3 and 3.32 and any representation or warranty containing any materiality qualification) or in all material respects (in the case of any other representation or warranty without any materiality qualification) at and as of the date of this Agreement and at and as of the Closing Date with the same effect as though made on and as of the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties contained in Sections 3.2, 3.3 and 3.32 and any representations and warranties that are qualified as to materiality shall be true and correct

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in all respects, and such other representations and warranties that are not so qualified shall be true and correct in all material respects, on and as of such earlier date);

(b)           Performance.  The Company and BCEOC shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by them under this Agreement prior to or on the Closing Date;

(c)           No Action.  On the Closing Date, no suit, action, or other proceeding (excluding any such matter initiated by a Purchaser or any of its Affiliates) shall be pending or threatened before any Governmental Authority or body of competent jurisdiction seeking to enjoin or restrain the consummation of the transactions contemplated by this Agreement or recover substantial damages from such Purchaser or any Affiliate of such Purchaser resulting therefrom;

(d)           Consents.  All consents and approvals of any Governmental Authority or other third Person required for the transfer of the Shares from the Company to the Purchasers as contemplated under this Agreement and listed on Schedule 3.6 shall have been granted;

(e)           Reorganization.  The transactions contemplated by the Contribution Agreement shall have been consummated pursuant to the terms and conditions of such agreement;

(f)            Holmes Acquisition.  The transactions contemplated by the Holmes Acquisition Agreement shall close simultaneously with the Closing hereof pursuant to the terms and conditions of such agreement;

(g)           Existing Employment Agreements.  Existing Employment Agreements.  The Company and BCEOC shall have either (i) terminated or amended and restated each of the employment agreements set forth on Schedule 3.23(b) and entered into new or amended and restated employment agreements with the Persons listed on Schedule 6.2(g), in the form of agreement set forth on Exhibit I or (ii) entered into waiver agreements with the Persons listed on Schedule 6.2(g), in the form of agreement set forth on Exhibit J.

(h)           Management Incentive Plan.  The Company shall have established the MIP in accordance with the form of MIP attached hereto as Exhibit D and authorized the MIP Shares pursuant to the Company’s Amended and Restated Certificate of Incorporation, and the MIP Shares shall have been issued to each of the individuals set forth on Schedule 6.1(f) in the amount set forth opposite such individuals name.

(i)            Payoff Letters.  Purchasers shall have received (i) payoff letters, in form and substance reasonably satisfactory to Purchasers, from the administrative lenders under each of the Company Term Loan Agreements, in respect of the Company Term Loan Debt under the Company Term Loan Agreements, (ii) receipts, in form and substance satisfactory to Purchasers, from each of Stifel, Nicolaus & Company, Incorporated and Rivington Capital Advisors, LLC and (iii) UCC financing statement terminations, deed of trust and mortgage lien releases, in form and substance reasonably

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satisfactory to Purchasers, indicating that all liens securing the Company Term Loan Debt have been terminated or released;

(j)            Termination of Certain Agreements.  The Company and BCEOC shall have terminated any and all stockholder agreements, stockholder rights plans, investor agreements, voting trusts, proxies or other similar agreements or understandings with respect to the equity interests of Company and BCEOC and any other member of the Group Company, except for those agreements contemplated by the Transaction Agreements;

(k)           Registration Rights Agreement.  All parties thereto, other than the Purchasers,  shall have executed and delivered the Registration Rights Agreement;

(l)            Shareholders Agreement.  All parties thereto, other than the Purchasers, shall have executed and delivered the Shareholders Agreement;

(m)          Credit Facility Amendment.  The Credit Facility Amendment, duly authorized, executed and delivered by each of the parties thereto, in accordance with its terms, shall be in full force and effect; and

(n)           Assignment and Assumption Agreement.  The Assignment and Assumption Agreement, duly authorized, executed and delivered by each of the parties thereto, in accordance with its terms, shall be in full force and effect.

ARTICLE 7
CLOSING

Section 7.1             Time and Place of Closing.  The consummation of the purchase and sale of the Shares contemplated by this Agreement (the “Closing”) shall, unless otherwise agreed to in writing by Purchasers, the Company and BCEOC, take place at the offices of Mayer Brown LLP located at 1675 Broadway, New York, New York 10019, at 10:00 a.m., local time, on December 23, 2010 or if all conditions in Article 6 to be satisfied prior to Closing have not yet been satisfied or waived, as soon thereafter as such conditions have been satisfied or waived, subject to the provisions of Article 9.  The date on which the Closing occurs is referred to herein as the “Closing Date”.

Section 7.2             Obligations of the Company at Closing.  At the Closing, upon the terms and subject to the conditions of this Agreement, and subject to the simultaneous performance by the Purchasers of their obligations pursuant to Section 7.3, the Company shall deliver or cause to be delivered to the Purchasers the following:

(a)           To each Purchaser, a certificate, registered in such Purchaser’s name, representing the Shares purchased by such Purchaser;

(b)           A certificate duly executed by an authorized officer of the Company, dated as of the Closing, certifying on behalf of the Company that the conditions set forth in Sections 6.2(a) and 6.2(b) have been fulfilled;

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(c)           A certificate duly executed by an authorized officer of BCEOC, dated as of the Closing Date, certifying on behalf of BCEOC that the conditions set forth in Sections 6.2(a) and 6.2(b) have been fulfilled;

(d)           A certificate duly executed by the secretary or any assistant secretary of the Company, dated as of the Closing, (i) attaching and certifying on behalf of the Company complete and correct copies of (A) the certificate of incorporation and the bylaws of the Company, each as in effect as of the Closing, (B) the resolutions of the Board of Directors of the Company authorizing the execution, delivery, and performance by the Company of this Agreement and the transactions contemplated hereby, and (C) any required approval by the stockholders of the Company of this Agreement and the transactions contemplated hereby and (ii) certifying on behalf of the Company the incumbency of each officer of the Company executing this Agreement or any document delivered in connection with the Closing;

(e)           A certificate duly executed by the secretary or any assistant secretary of BCEOC, dated as of the Closing, (i) attaching and certifying on behalf of BCEOC complete and correct copies of (A) the certificate of formation and the operating agreement of BCEOC, each as in effect as of the Closing, (B) the resolutions of the Manager of BCEOC authorizing the execution, delivery, and performance by BCEOC of this Agreement and the transactions contemplated hereby, and (C) any required approval by the members of BCEOC and the transactions contemplated hereby and (ii) certifying on behalf of BCEOC the incumbency of each officer of BCEOC executing this Agreement or any document delivered in connection with the Closing;

(f)            The executed counterpart signature page of the Company to the Shareholders Agreement, other than Purchasers’ signature pages; and

(g)           The executed counterpart signature page of the Company to the Registration Rights Agreement, other than Purchasers’ signature pages.

Section 7.3             Obligations of Purchasers at Closing.  At the Closing, upon the terms and subject to the conditions of this Agreement, and subject to the simultaneous performance by the Company of its obligations pursuant to Section 7.2, each Purchaser shall deliver or cause to be delivered to the Company the following:

(a)           A wire transfer of the portion of the Purchase Price set forth opposite such Purchaser’s name on Schedule 2.1 in immediately available same-day funds in U.S. dollars;

(b)           In the case of WFC, a certificate by duly executed by its general partner or another Person duly authorized by such general partner of WFC, dated as of the Closing, (i) certifying on behalf of WFC that the conditions set forth in Sections 6.1(a) and 6.1(b) have been fulfilled; (ii) attaching and certifying on behalf of WFC complete and correct copies of (A) the Certificate of Limited Partnership and the Agreement of Limited Partnership of WFC, each as in effect as of the Closing, (B) the resolutions of its general partner authorizing the execution, delivery, and performance by WFC of this Agreement

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and the transactions contemplated hereby; and (iii) certifying on behalf of WFC the incumbency of each Person executing this Agreement or any document delivered in connection with the Closing;

(c)           In the case of HMQ, a certificate duly executed by an officer of AIMCo on behalf of HMQ, dated as of the Closing, certifying on behalf of HMQ (i) that AIMCo is a corporation created by the AIMCo Act; (ii) that Section 3 of the AIMCo Act appoints AIMCo as agent for HMQ; (iii) that as of the date of the certificate the AIMCo Act remains in full force and effect; (iv) the incumbency of each officer of AIMCo executing this Agreement or any document delivered in connection with the Closing and (v) the conditions set forth in Sections 6.1(a) and 6.1(b) have been fulfilled.

(d)           Such Purchaser’s executed signature page to the Shareholders Agreement; and

(e)           Such Purchaser’s executed signature page to the Registration Rights Agreement.

ARTICLE 8
TERMINATION AND AMENDMENT

Section 8.1             Termination.  This Agreement may be terminated at any time prior to Closing:  (i) by the mutual prior written consent of the Company and Purchasers or (ii) by either the Company or Purchasers, if Closing has not occurred on or before December 31, 2010; provided, however, that neither the Company, on the one hand, nor the Purchasers, on the other shall be entitled to terminate this Agreement under this Section 8.1(ii) if the Closing has failed to occur because such Part(ies) negligently or willfully failed to perform or observe in any material respect the covenants and agreements to be performed or observed by such Part(ies) hereunder.

Section 8.2             Effect of Termination.  If this Agreement is terminated pursuant to Section 8.1, this Agreement shall become void and of no further force or effect (except for the provisions of Sections 5.1 and 5.3 and Articles 8 and 10).  Notwithstanding anything to the contrary in this Agreement, the termination of this Agreement under Section 8.1(ii) shall not relieve any Party from liability for any willful or negligent failure to perform or observe in any material respect any of its agreements or covenants contained herein that are to be performed or observed at or prior to Closing.  In the event this Agreement terminates under Section 8.1(ii) and any Party has willfully or negligently failed to perform or observe in any material respect any of its agreements or covenants contained herein which are to be performed at or prior to Closing, then the other Party shall be entitled to all remedies available at law or in equity and shall be entitled to recover court costs and attorneys’ fees in addition to any other relief to which such Party may be entitled.

Section 8.3             Termination Fee.  If (i) Closing has not occurred prior to December 31, 2010 and (ii) prior to March 31, 2011, the Company or BCEOC, or any of their respective Affiliates, including any Seller Guarantor, announce, enter into a letter of intent relating to, enter into a definitive agreement providing for, or consummate, a transaction relating to an Acquisition Proposal, then the Company and BCEOC jointly and severally agree to pay WFC and/or its designees an aggregate amount equal to $3,000,000 (the “Termination Fee”) within ten (10)

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Business Days following the earliest event to trigger such obligation pursuant to this Section 8.3.  The Termination Fee shall be paid unconditionally and without offset or counterclaim by the Company or BCEOC to WFC and/or the Persons designated by WFC in the proportions designated by WFC in writing.

ARTICLE 9
INDEMNIFICATION; LIMITATIONS

Section 9.1             Indemnification.

(a)           From and after Closing, each Purchaser, severally and not jointly, shall indemnify, defend and hold harmless, severally but not jointly, the Company and BCEOC from and against all Damages incurred or suffered by the Company or BCEOC:

(i)            caused by or arising out of or resulting from such Purchaser’s breach of any of such Purchaser’s covenants or agreements contained in Article 5, or

(ii)           caused by or arising out of or resulting from any breach of any representation or warranty made by such Purchaser contained in Article 4 of this Agreement or in the certificate delivered by such Purchaser at Closing pursuant to Section 7.3(b),

(b)           From and after Closing, the Company and BCEOC, jointly and severally, shall indemnify, defend and hold harmless each Purchaser against and from all Damages incurred or suffered by such Purchaser

(i)            caused by or arising out of or resulting from the Company’s or BCEOC’s breach of any of their respective covenants or agreements contained in Article 5, or

(ii)           caused by or arising out of or resulting from any breach of any representation or warranty made by the Company and BCEOC contained in Article 3 of  this Agreement, or in the certificate delivered by Company and BCEOC at Closing pursuant to Sections 7.2(b) or 7.2(c), as applicable.

(c)           Except as otherwise expressly provided in this Agreement or in the case of fraud, this Section 9.1 contains the Parties’ exclusive remedy against each other with respect to breaches of the representations, warranties, covenants and agreements of the Parties contained in this Agreement.

(d)           The indemnity to which each Party is entitled under this Section 9.1 shall be for the benefit of and extend to such Party’s respective directors, officers, employees, and agents.  Any claim for indemnity under this Section 9.1 by any such director, officer, employee or agent must be brought and administered by the applicable Party to this Agreement.  No Indemnified Person other than the Company, BCEOC and the Purchasers shall have any rights against any other Party except as may be exercised on its behalf by a Party pursuant to this Section 9.1(d).  Each Party may elect to exercise or not exercise indemnification rights under this

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Section on behalf of the other Indemnified Persons affiliated with it in its sole discretion and shall have no liability to any such other Indemnified Person for any action or inaction under this Section.

Section 9.2             Indemnification Actions.  All claims for indemnification under Section 9.1 shall be asserted and resolved as follows:

(a)           For purposes of this Article 9, the term “Indemnifying Person” when used in connection with particular Damages shall mean the Person having an obligation to indemnify another Person or Persons with respect to such Damages pursuant to this Article 9, and the term “Indemnified Person” when used in connection with particular Damages shall mean a Person having the right to be indemnified with respect to such Damages pursuant to this Article 9.

(b)           To make claim for indemnification under Section 9.1, an Indemnified Person shall notify the Indemnifying Person of its claim, including the specific details of and specific basis under this Agreement for its claim (the “Claim Notice”).  In the event that the claim for indemnification is based upon a claim by a third Person against the Indemnified Person (a “Claim”), the Indemnified Person shall provide its Claim Notice promptly after the Indemnified Person has actual knowledge of the Claim and shall enclose a copy of all papers (if any) served with respect to the Claim; provided, however, that the failure of any Indemnified Person to give notice of a Claim as provided in this Section 9.2 shall not relieve the Indemnifying Person of its obligations under Section 9.1 except to the extent such failure results in insufficient time being available to permit the Indemnifying Person to effectively defend against the Claim or otherwise prejudices the Indemnifying Person’s ability to defend against the Claim.  In the event that the claim for indemnification is based upon an inaccuracy or breach of a representation, warranty, covenant or agreement, the Claim Notice shall specify the representation, warranty, covenant or agreement that was inaccurate or breached.

(c)           In the case of a claim for indemnification based upon a Claim, the Indemnifying Person shall have thirty (30) days from its receipt of the Claim Notice to notify the Indemnified Person whether it admits or denies its liability to defend the Indemnified Person against such Claim under this Article 9.  If the Indemnifying Person does not notify the Indemnified Person within such thirty (30) day period regarding whether the Indemnifying Person admits or denies its liability to defend the Indemnified Person, the Damages for which the Indemnified Person is seeking indemnity shall be conclusively deemed a liability of the Indemnifying Person hereunder.  The Indemnified Person is authorized, prior to and during such thirty (30) day period, to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Person and that is not prejudicial to the Indemnifying Person.

(d)           If the Indemnifying Person admits its liability to indemnify the Indemnified Person, it shall have the right and obligation to diligently defend in a commercially reasonable manner, at its sole cost and expense, the Claim.  The Indemnifying Person shall have full control of such defense and proceedings, including

40

any compromise or settlement thereof.  If requested by the Indemnifying Person, the Indemnified Person agrees to cooperate in contesting any Claim which the Indemnifying Person elects to contest; provided, however, that the Indemnified Person shall not be required to bring any counterclaim or cross-complaint against any Person.  An Indemnifying Person shall not, without the written consent of the Indemnified Person, settle any Claim or consent to the entry of any judgment with respect thereto that (i) does not result in a final resolution of the Indemnified Person’s liability with respect to the Claim (including, in the case of a settlement, an unconditional written release of the Indemnified Person from all liability in respect of such Claim) or (ii) may materially and adversely affect the Indemnified Person (other than as a result of money damages covered by the indemnity).

(e)           If the Indemnifying Person does not admit its liability to indemnify the Indemnified Person or admits its liability but fails to diligently defend in a commercially reasonable manner or settle the Claim, then the Indemnified Person shall have the right to defend against the Claim (at the sole cost and expense of the Indemnifying Person, if the Indemnified Person is entitled to indemnification hereunder), with counsel of the Indemnified Person’s choosing, subject to the right of the Indemnifying Person to admit its liability to indemnify the Indemnified Person and assume the defense of the Claim at any time prior to settlement or final determination thereof.  If the Indemnifying Person has not yet admitted its liability to indemnify the Indemnified Person, the Indemnified Person shall send written notice to the Indemnifying Person of any proposed settlement and the Indemnifying Person shall have the option for ten (10) days following receipt of such notice to (i) admit in writing its liability for indemnification with respect to such Claim and (ii) if liability is so admitted, assume the defense of the Claim, including the power to reject the proposed settlement.  If the Indemnified Person settles any Claim over the objection of the Indemnifying Person after the Indemnifying Person has timely admitted its liability for indemnification in writing and assumed the defense of the Claim, the Indemnified Person shall be deemed to have waived any right to indemnity therefor.

(f)            In the case of a claim for indemnification not based upon a Claim, the Indemnifying Person shall have thirty (30) days from its receipt of the Claim Notice to (i) cure the Damages complained of, (ii) admit its liability for such Damages or (iii) dispute the claim for such Damages.  If the Indemnifying Person does not notify the Indemnified Person within such thirty (30) day period that it has cured the Damages or that it disputes the claim for such Damages, the amount of such Damages shall conclusively be deemed a liability of the Indemnifying Person hereunder.

Section 9.3             Limitation on Actions.(a)    (a) The representations and warranties of the Parties in Articles 3 and 4 and the covenants and agreements of the Parties in Article 5, and the corresponding representations and warranties given in the certificates delivered at Closing pursuant to Sections 7.2(b) and (c) and 7.3(b), as applicable, shall survive the Closing until the earlier of (i) a Sale Transaction or (ii) the expiration of a period ending eighteen months from the Closing Date, except with respect to the representations contained in Sections 3.1, 3.2, 3.3, 3.22, 3.25 and 3.32 which shall survive the Closing until ninety (90) days following the expiration of the applicable statute of limitations.

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(b)           The indemnities in Sections 9.1(a)(i), 9.1(a)(ii), 9.1(b)(i) and 9.1(b)(ii) shall terminate as of the termination date of each respective representation, warranty, covenant or agreement that is subject to indemnification, except in each case as to matters for which a specific written claim for indemnity has been delivered to the Indemnifying Person on or before such termination date.

(c)           Neither the Company nor BCEOC shall have any liability for any indemnification under Section 9.1 until and unless the aggregate amount of the liability for all Damages for which Claim Notices are delivered by the Purchasers exceeds $3,000,000 (“Threshold”) at which point the Company and BCEOC shall be liable for the amount of all Damages, including those below the Threshold, except that the Company and BCEOC shall be liable for the full amount for, and such Threshold shall not apply in any respect to, any indemnification (i) caused by, or arising out of or resulting from any breach of any of the representations or warranties contained in Sections 3.1, 3.2, 3.3 and 3.32 or (ii) caused by, or arising out of or resulting from any breach of any representation of warranty made by the Company or BCEOC contained in Article 3 of this Agreement or, the certificate delivered by the Company and BCEOC at Closing, pursuant to Section 7.2(b) of 7.2(c) or the Company’s or BCEOC’s breach of any of their respective covenants or agreements contained in Article 5,  in which the failure of such representation or warranty to be true and correct or the breach of such covenant or agreement is attributable to fraud or willful misstatement or willful breach by the Company or BCEOC.

(d)           Notwithstanding anything to the contrary in this Agreement, the aggregate liability of each Purchaser under Section 9.1 shall not exceed the portion of the Purchase Price paid by such Purchaser in consideration for the Shares, as set forth on Schedule 2.1.

(e)           The amount of any Damages for which an Indemnified Person is entitled to indemnity under this Article 9 shall be reduced by the amount of insurance proceeds realized by the Indemnified Person or its Affiliates with respect to such Damages (net of any collection costs, and excluding the proceeds of any insurance policy issued or underwritten by the Indemnified Person or its Affiliates).

Section 9.4             Exclusion of Materiality.  Solely for purposes of this Article 9 and notwithstanding any provision to the contrary in this Agreement, in determining the amount of any Damages resulting from a breach of a representation or warranty by any Party contained in this Agreement (but not for purposes of determining whether any such breach has occurred), the provisions of such representations and warranties that are qualified by “material” or Material Adverse Effect shall be read and interpreted as if such qualification was not included therein.

Section 9.5             Knowledge.  The right to indemnification, payment, reimbursement or other remedy based upon any such representation, warranty, covenant or obligation contained in this Agreement will not be affected by any investigation (including any environmental investigation or assessment) conducted or any knowledge acquired (or capable of being acquired) by Purchasers at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of, or compliance with, such representation, warranty, covenant or obligation.  The foregoing notwithstanding, the

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Purchasers are required to comply with Section 5.2 hereof in connection with such investigation or gaining of knowledge.

ARTICLE 10
MISCELLANEOUS

Section 10.1           Counterparts.  This Agreement may be executed in counterparts and such counterparts may be delivered in electronic format (including by fax and email).  Such delivery of counterparts shall be conclusive evidence of the intent to be bound hereby and each such counterpart and copies produced therefrom shall have the same effect as an original.  To the extent applicable, the foregoing constitutes the election of the parties to invoke any Law authorizing electronic signatures.

Section 10.2           Notices.  Any notice, request, instruction or other document or other communication to be given hereunder by a party hereto shall be in writing and shall be deemed to have been given, (i) when received if given in person or by courier or a courier service, (ii) on the date of transmission if sent by confirmed facsimile, (iii) on the next Business Day if sent by an overnight delivery service, or (iv) five (5) Business Days after being deposited in the U.S. mail, certified or registered mail, postage prepaid:

If to the Company:	Bonanza Creek Energy, Inc.
	410 17th Street, Suite 1320
	Denver, Colorado 80202
	Attention: Michael R. Starzer
	Telephone: 720-279-2330
	Facsimile: 720-279-2331
	Email: mrs@bonaznacrk.com
With a copy to:	Thompson & Knight LLP
	333 Clay Street, Suite 3300
	Houston, TX  77002
	Attention: Harry R. Beaudry
	Telephone: 713-653-8826
	Facsimile: 832-397-8149
	Email: harry.beaudtry@tk.com
If to WFC:	Project Black Bear LP
	c/o Project Black Bear GP LLC
	2 Bloor Street East, Suite 810
	Toronto, Ontario, Canada M4W 1A8
	Attention: Tony Griffin
	Telephone: 647-724-8912
	Facsimile: 647-724-8910
	Email: blackbear@westfacecapital.com
With a copy to:	Mayer Brown LLP
	1675 Broadway

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With a copy to:	New York, NY 10019
	Attention: Thomas M. Vitale
	Telephone: 212-506-2510
	Facsimile: 212-849-5510
	Email: tvitale@mayerbrown.com
If to HMQ:	c/o AIMCo
	1100 – 10830 Jasper Ave.
	Edmonton, Alberta T5J 2B3
	Attention: Brian Gibson, Senior Vice President, Public Equities
	Telephone: 780-392-3744
	Facsimile: 780-392-3897
	Email: brian.gibson@aimco.alberta.ca
With a copy to:	c/o AIMCo
	1100 – 10830 Jasper Ave.
	Edmonton, Alberta T5J 2B3
	Attention:
	Carole Hunt, Chief Legal Counsel and Corporate Secretary
	Telephone: 780-392-3777
	Facsimile: 780-392-3897
	Email: carole.hunt@aimco.alberta.ca

Either Party may change its address for notice by notice to the other in the manner set forth above.  All notices shall be deemed to have been duly given at the time of receipt by the Party to which such notice is addressed.

Section 10.3           Expenses.  All expenses incurred by the Company or BCEOC in connection with or related to the authorization, preparation or execution of this Agreement, and the Exhibits and Schedules hereto and thereto, and all other matters related to the Closing, including without limitation, all fees and expenses of counsel, accountants and financial advisers employed by the Company or BCEOC, shall be borne solely and entirely by the Company and/or BCEOC.

Section 10.4           Governing Law.  This Agreement and the legal relations between the Parties shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws that would direct the application of the laws of another jurisdiction (for the avoidance of doubt, Section 5-1401 of the General Obligation Law of the State of New York shall be applicable to this Agreement).

Section 10.5           Arbitration.  It is agreed, as a severable and independent arbitration agreement separately enforceable from the remainder of this Agreement, that any dispute, controversy or claim arising out of or in relation to or in connection with this Agreement, including, without limitation, any dispute as to the construction, validity, interpretation, enforceability, or breach of this Agreement, shall be exclusively and finally settled by arbitration in accordance with this Section 10.5.  Either Party may submit such a dispute, controversy, or

44

claim to arbitration by notice to the other Party and the administrator for the American Arbitration Association (“AAA”).  The arbitration proceedings shall be conducted in Houston, Texas, United States of America in accordance with the Commercial Arbitration Rules of the American Arbitration Association as in effect on the date hereof.  The arbitration shall be heard and determined by three (3) arbitrators.  Each Party shall appoint an arbitrator of its choice within twenty (20) days of the submission of the notice of arbitration.  The Party-appointed arbitrators shall in turn appoint a presiding arbitrator for the tribunal within twenty (20) days following the appointment of the second Party-appointed arbitrator.  If the Party-appointed arbitrators cannot reach agreement on a presiding arbitrator for the tribunal and/or one Party fails to appoint its Party-appointed arbitrator within the applicable period, the AAA shall act as appointing authority to appoint an independent arbitrator with at least ten (10) years’ experience in the legal and/or commercial aspects of the petroleum industry.  None of the arbitrators shall have been an employee of or consultant to either Party to this Agreement or any of its Affiliates within the five (5) year period preceding the arbitration, or have any financial interest in the dispute, controversy, or claim.  All decisions of the arbitral tribunal shall be by majority vote.  The arbitration shall be conducted in the English language.  The arbitrators may not award special punitive damages except those claimed by Persons other than Indemnified Persons under this Agreement for which responsibility is being allocated between the Parties.  Each Party shall pay its own expenses in connection with the arbitration, but the compensation and expenses of the arbitrators shall be borne in such manner as may be specified in the arbitral award.  Privileges protecting attorney-client communications and attorney work product from compelled disclosure or use in evidence, as recognized by the courts of the State of Texas, United States of America, shall apply to and be binding in any arbitration proceeding conducted under this Section 10.5.  Judgment upon the award may be entered into any court having jurisdiction, or application may be made to such court for a judicial recognition of the award or an order of enforcement thereof, as the case may be.

Section 10.6           Interpretation.  The headings preceding the text of Articles and Sections included in this Agreement and the headings to Sections of the Disclosure Schedule are for convenience only and shall not be deemed part of this Agreement or the Disclosure Schedule or be given any effect in interpreting this Agreement or the Disclosure Schedule.  The use of the masculine, feminine or neuter gender herein shall not limit any provision of this Agreement.  The use of the terms “including” or “include” shall in all cases herein mean “including, without limitation” or “include, without limitation,” respectively.  Underscored references to Articles, Sections, Exhibits or Schedules shall refer to those portions of this Agreement.  Time is of the essence of each and every covenant, agreement and obligation in this Agreement.  Neither the Company, on the one hand, nor Purchasers, on the other hand, shall be deemed to be in breach of any covenant contained in this Agreement if such Party’s deemed breach is the result of any action or inaction on the part of the other.

Section 10.7           Waivers.  Any failure by any Party to comply with any of its obligations, agreements or conditions herein contained may be waived by the Party to whom such compliance is owed by an instrument signed by the Party to whom compliance is owed and expressly identified as a waiver, but not in any other manner.  No waiver of, or consent to a change in, any of the provisions of this Agreement shall be deemed or shall constitute a waiver of, or consent to a change in, other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

45

Section 10.8           Assignment.  Neither the Company nor BCEOC, on the one hand, nor any Purchaser, on the other, shall assign or otherwise transfer all or any part of this Agreement, nor shall any such Party delegate any of its rights or duties hereunder, without the prior written consent of the other Parties and any transfer or delegation made without such consent shall be void; provided, however, that any Purchaser may assign or otherwise transfer all or any part of its rights and duties hereunder to an Affiliate of such Purchaser without any such prior written consent as long as such Affiliate executes a joinder to this Agreement or otherwise delivers the representations and warranties set forth in Article 4 to the Company and BCEOC and as long as such Affiliate remains an Affiliate of the Purchaser through the Closing Date and executes and delivers the Shareholders Agreement in accordance with Section 7.3(d).  Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties  hereto and their respective successors and assigns.

Section 10.9           Entire Agreement.  This Agreement, the Transaction Agreements and the documents to be executed hereunder and the Exhibits and Schedules attached hereto constitute the entire agreement among the Parties pertaining to the subject matter hereof, and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties pertaining to the subject matter hereof.

Section 10.10         Amendment.  This Agreement may be amended or modified only by an agreement in writing signed by all the Parties and expressly identified as an amendment or modification.

Section 10.11         No Third Party Beneficiaries.  Nothing in this Agreement shall entitle any Person other than the Purchasers and the Company to any claim, cause of action, remedy or right of any kind, except the rights expressly provided to the Persons described in Section 9.1(d).

Section 10.12         Construction.  The Parties have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, the language shall be construed as mutually chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party.  Any reference to any federal, state, local, or foreign statute or Law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.

Section 10.13         Limitation on Damages.  NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, NONE OF PURCHASERS, THE COMPANY, BCEOC NOR ANY OF THEIR RESPECTIVE AFFILIATES SHALL BE ENTITLED TO SPECIAL REMOTE, CONSEQUENTIAL OR SPECULATIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND EACH OF PURCHASER, THE COMPANY AND BCEOC, FOR ITSELF AND ON BEHALF OF ITS AFFILIATES, HEREBY EXPRESSLY WAIVES ANY RIGHT TO SPECIAL REMOTE, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 10.14         Guarantee; WFC Expense Reimbursement.  Each Seller Guarantor (other than Shaw) jointly and severally hereby guarantees to the Purchasers the performance by the Company and BCEOC of their obligations under Section 5.8; and each Seller Guarantor jointly

46

and severally guarantees to the Purchasers the payment of the Termination Fee to WFC pursuant to Section 8.3.  The obligations of each Seller Guarantor under this Section 10.14 constitute a present and continuing guarantee of payment and performance.  The foregoing guaranty obligations shall not be affected or impaired in any way by reason of any amendment, waiver, change, modification, limitation or discharge of any obligation of the Purchasers under this Agreement in general or arising out of any bankruptcy, reorganization or similar proceeding for relief of debtors under federal or state law hereafter initiated by or against Purchasers.  In addition, each of the Company and BCEOC jointly and severally hereby agrees to reimburse to WFC its reasonable and documented expenses, including financial advice and legal expenses, incurred in connection with WFC’s due diligence investigation of the Company and each Group Company and HEC, the negotiation of this Agreement and the transactions contemplated hereby, including, without limitation, the negotiation of that certain Memorandum of Understanding dated as of November 1, 2010 by and among Purchaser and the Seller Guarantors; provided, however, in the event that Closing does not occur by December 31, 2010 and this Agreement is terminated, then the obligation to reimburse WFC shall be limited to an aggregate amount of three hundred thousand dollars ($300,000) and such obligation shall be guaranteed by the Seller Guarantors.  The reimbursement contemplated by the foregoing sentence shall be made unconditionally and without any right of offset or counterclaim within ten (10) Business Days following the receipt of WFC’s invoices therefor by BCEOC.  The Parties further agree that nothing herein shall preclude any Seller Guarantor who is required to pay the Termination Fee or the WFC expenses pursuant to this Section 10.14 from pursuing its legal remedies against the other Seller Guarantors to collect funds based on the Seller Guarantors’ proportionate obligations hereunder.

Section 10.15         Waiver of Immunity.  Each Party to this Agreement expressly acknowledges and agrees that this Agreement is being executed as part of a private, commercial transaction.  Solely with respect to this Agreement, each Party hereby waives, to the maximum extent permitted by law, for itself and its Affiliates, and for its and their assets and revenues, any and all immunity to the extent that it may at any time exist whether on grounds of sovereignty, state immunity or otherwise, from suit, arbitration, proceeding, jurisdiction of any court, adjudication, enforcement of arbitration award, judgment, service of process upon it or any agent, execution or judgment, set off, attachment or other interim relief prior to judgment or on judgment or other legal process, including, without limitation, the defenses of “sovereign immunity”, and “act of state”, which such Party or its assets or revenues may now have or may in the future have under the Laws of any jurisdiction, and each Party agrees not to assert any such immunity or defenses in any proceedings with respect to this Agreement, or in the enforcement of any award, judgment or execution resulting therefrom or from any transactions contemplated hereby or hereunder.

Section 10.16         Survival.  The provisions of this Agreement shall survive the Closing hereunder, except as may otherwise be expressly provided herein.

[Signature pages follow]

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IN WITNESS WHEREOF, this Agreement has been signed by each of the Parties as of  the date first above written.

BONANZA CREEK ENERGY, INC.
By:	/s/ Michael R. Starzer
Name: Michael R. Starzer
Title: President
BONANZA CREEK ENERGY OPERATING COMPANY, LLC
By:	/s/ Michael R. Starzer
Name: Michael R. Starzer
Title: Manager
PROJECT BLACK BEAR LP
By: WEST FACE CAPITAL INC., its Adviser
By:	/s/ Alexander A. Singh
Name: Alexander A. Singh
Title: Counsel & Secretary
HER MAJESTY THE QUEEN IN RIGHT OF ALBERTA, IN HER OWN CAPACITY AND AS TRUSTEE/NOMINEE FOR CERTAIN DESIGNATED ENTITIES
By:	/s/ Brian Gibson
Name: Brian Gibson
Title: Senior Vice President

Signature Page to the Stock Purchase Agreement

D.E. SHAW SYNOPTIC PORTFOLIO 5, L.L.C.
By:	/s/ Robert T. Ladd
Name: Robert T. Ladd
Title: Authorized Signatory
BONANZA CREEK ENERGY COMPANY, LLC
By:	/s/ Michael R. Starzer
Name: Michael R. Starzer
Title: President
/s/ Michael R. Starzer
MICHAEL R. STARZER

Signature Page to the Stock Purchase Agreement

EX-10.12

Exhibit 10.12

CONTRIBUTION AGREEMENT

by and among

BONANZA CREEK ENERGY, INC.;

and

BONANZA CREEK ENERGY COMPANY, LLC;

and

BONANZA CREEK ENERGY OPERATING COMPANY, LLC;

and

BONANZA CREEK ENERGY RESOURCES, LLC;

and

THE MEMBERS OF
HOLMES EASTERN COMPANY, LLC

DECEMBER 23, 2010

TABLE OF CONTENTS

		Page
ARTICLE I. DEFINITIONS		2
ARTICLE II. CONTRIBUTION TRANSACTION; PURCHASE PRICE		7
2.1	Purchase Price	7
2.2	Contribution of HEC Membership Interests to NEWCO	7
2.3	Payment of Cash Consideration	7
2.4	Issuance of New Certificates	7
2.5	Certificate Legends	7
2.6	Fractional Shares	8
2.7	Post Closing Payment	8
ARTICLE III. CLOSING		10
3.1	Time and Place	10
3.2	Deliveries at Closing	10
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE HEC MEMBERS		10
4.1	Organization and Good Standing	10
4.2	Authority and Enforceability	10
4.3	No Conflict; Required Filings and Consents	11
4.4	Ownership	11
4.5	Accredited Investor	11
4.6	Sophistication	11
4.7	Access to Information	11
4.8	Restricted Securities	11
4.9	Investment Intent	12
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF NEWCO		12
5.1	Organization and Power	12
5.2	Authorization; Execution and Validity	12
5.3	Capitalization	13
5.4	Consents	13
5.5	No Defaults or Conflicts	13
5.6	Additional Agreements	14
5.7	Contract Operator	14
5.8	Financial Capacity	14
5.9	Ongoing Operations	14
ARTICLE VI. COVENANTS		14
6.1	Ordinary Course of Business	14
6.2	Operation Agreement	15
6.3	Commercially Reasonable Efforts	15
6.4	Notices and Consents	15

i

TABLE OF CONTENTS

		Page
6.5	Access to Information	15
6.6	Negotiations	15
6.7	Contract Extensions	16
6.8	Authorization	16
6.9	Related Parties	16
6.10	Section 351	17
6.11	Notification Of Certain Matters	17
6.12	Further Assurances; Release	17
6.13	Agreements Regarding Tax Matters	18
6.14	HEC Member Expenses	20
6.15	Sellers’ Representative	20
6.16	No Outside Reliance	21
ARTICLE VII. CONDITIONS		22
7.1	Conditions to Obligations of Each Party	22
7.2	Conditions to Obligations of NEWCO	22
7.3	Conditions to Obligations of each of the HEC Members	22
ARTICLE VIII. TERMINATION		23
8.1	Termination	23
8.2	Effect of Termination	23
8.3	Fees and Expenses	23
ARTICLE IX. INDEMNIFICATION		24
9.1	Indemnification by the HEC Members	24
9.2	Indemnification by NEWCO, BCEC and BCEOC	25
9.3	Exclusive Remedy	26
9.4	Mitigation	26
9.5	Treatment of Indemnity Payments	26
ARTICLE X. MISCELLANEOUS		26
10.1	Waiver and Amendment	26
10.2	Assignment	26
10.3	Notices	26
10.4	Governing Law	27
10.5	Severability	27
10.6	Counterparts	28
10.7	Headings	28
10.8	Enforcement of this Contribution Agreement	28
10.9	Entire Agreement; Third Party Beneficiaries	28

ii

EXHIBITS

Exhibit A	—	Form of Amended and Restated Certificate of Incorporation
Exhibit B	—	Form of Amended and Restated Bylaws
Exhibit C	—	Form of BCEOC Contribution Agreement
Exhibit D	—	Form of NEWCO Investment Agreement
Exhibit E	—	Form of Registration Rights Agreement
Exhibit F	—	Form of Stockholders Agreement
Exhibit G	—	Form of HEC Membership Interest Assignment

SCHEDULES

Schedule 2.1	—	Allocation of Cash Purchase Price and Aggregate Share Purchase Price Among the HEC Members
Schedule 4.4(a)	—	HEC Ownership
Schedule 5.3(a)(i)	—	NEWCO Capitalization – pre-close
Schedule 5.3(a)(ii)	—	NEWCO Capitalization – pre-close options, warrants, etc.
Schedule 5.4	—	Required Consents and Regulatory Approvals

iii

CONTRIBUTION AGREEMENT

THIS CONTRIBUTION AGREEMENT, dated as of December 23, 2010 (this “Contribution Agreement”), is by and among Bonanza Creek Energy, Inc., a Delaware corporation (“NEWCO”), Bonanza Creek Energy Company, LLC, a Delaware limited liability Company (“BCEC”), Bonanza Creek Energy Operating Company, LLC, a Delaware limited liability Company (“BCEOC”), Bonanza Creek Energy Resources, LLC, a Delaware limited liability company (“BCER”), the members of Holmes Eastern Company, LLC, a Delaware limited liability company (“HEC”) listed on the signature pages hereto (collectively, the “HEC Members” and each individually a “HEC Member”) and Fred S. Holmes, solely in his capacity as the representative of the HEC Members and only with respect to the provisions of this Contribution Agreement that relate to such rights and obligations (the “Sellers’ Representative”).  NEWCO, BCEC, BCEOC, BCER and the HEC Members are referred to individually as a “Party” and collectively as the “Parties.”

W I T N E S S E T H:

WHEREAS, the Parties previously entered into that certain Contribution Agreement, dated as of July 9, 2010 (the “Prior Contribution Agreement”), in connection with a proposed offering of preferred stock of Bonanza Creek Energy, Inc., a Delaware corporation (“BCEI”) Rule 144A and Regulation S of the Securities Act of 1933, as amended (the “144A Offering”);

WHEREAS, BCEI abandoned the 144A Offering and BCEI and NEWCO terminated the Prior Contribution Agreement;

WHEREAS, the HEC Members currently own all of the outstanding HEC Membership Interests (defined herein) and have agreed to transfer to NEWCO all of the outstanding HEC Membership Interests owned by them in exchange for (i) cash and/or (ii) shares of NEWCO Common Stock (defined herein) upon the terms and conditions set forth herein;

WHEREAS, in addition to and simultaneous with the foregoing contributions, NEWCO also will acquire all beneficial equity interests, including any derivative securities, of BCEOC from BCEC (“BCEOC Contribution”);

WHEREAS, the transactions contemplated by this Contribution Agreement shall be effective immediately prior to, and conditioned upon the immediately successive consummation of the NEWCO Investment (defined herein);

WHEREAS, the Parties intend for the foregoing transfers to qualify under Section 351(a) of the Internal Revenue Code of 1986, as amended (the “Code”); and

WHEREAS, in connection with the closing of the transactions set forth in this Contribution Agreement and the closing of the NEWCO Investment, NEWCO also will enter into the Stockholders Agreement and Registration Rights Agreement (each as defined herein) with, among other parties, the HEC Members receiving NEWCO Common Stock pursuant to this Contribution Agreement.

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements herein contained, the Parties agree as follows:

ARTICLE I.

DEFINITIONS

The terms set forth below in this Article I shall have the meanings ascribed to them below or in the part of this Contribution Agreement referred to below:

“144A Offering” has the meaning set forth in the recitals hereto.

“2010 Tax Payment” means, for any HEC Member, such HEC Member’s Base Amount fully grossed-up, after-tax, by an assumed twenty percent (20%) Tax rate for such HEC Member.  By way of example and not by way of expansion or limitation, if such HEC Member’s Base Amount was $1,000, such HEC Member’s 2010 Tax Payment would equal $1,000/(1-.2) or $1,250.

“Acquisition Proposal” means with respect to any Person (i) any proposal for a merger, consolidation or other business combination involving such Person, (ii) any proposal or offer to acquire in any manner a substantial equity interest in such Person, (iii) any proposal or offer to acquire in any manner a substantial portion of the assets and properties of such Person, (iv) any proposal or offer with respect to any recapitalization or restructuring (whether of equity or debt or a combination thereof) with respect to such Person, or (v) any proposal or offer with respect to any other transaction similar to any of the foregoing with respect to such Person.

“Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the general rules and regulations under the Securities Exchange Act of 1934, as in effect on the date of this Contribution Agreement.

“Aggregate Share Purchase Price” has the meaning set forth in Section 2.1 hereof.

“Allocation” has the meaning set forth in Section 6.13(a) hereof.

“Amended and Restated Bylaws” means the Amended and Restated Bylaws of NEWCO substantially in the form set forth on Exhibit B.

“Amended and Restated Certificate of Incorporation” means the Amended and Restated Certificate of Incorporation of NEWCO substantially in the form set forth on Exhibit A.

“Base Amount” means, with respect to any HEC Member, an amount equal to twenty percent (20%) of the taxable income allocated to such HEC Member for the period from, and including, April 1, 2010 to, and including, the Closing Date.

“BCEC” has the meaning set forth in the introductory paragraph hereto.

“BCEI” has the meaning set forth in the recitals hereto.

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“BCEOC Contribution” had the meaning set forth in the recitals hereto.

“BCEOC Contribution Agreement” means that certain contribution agreement between NEWCO and BCEC substantially in the form set forth on Exhibit C.

“BCEOC” has the meaning set forth in the introductory paragraph hereto.

“BCER” has the meaning set forth in the introductory paragraph hereto.

“Business Day” means any day other than a Saturday, a Sunday or any other day when banks are not open for business generally in the State of New York.

“Cap” has the meaning set forth in Section 9.1(b)(iii).

“Cash Purchase Price” has the meaning set forth in Section 2.1 hereof.

“Closing” has the meaning set forth in Section 3.1 hereof.

“Closing Date” has the meaning set forth in Section 3.1 hereof.

“Code” has the meaning set forth in the recitals hereto.

“Commission” means the U.S. Securities and Exchange Commission.

“Common Share Price” means, for each share of NEWCO Common Stock to be delivered to any HEC Member in consideration for the contribution by such HEC Member of such HEC Member’s HEC Membership Interests in accordance with the terms hereof, an amount equal to $12.52.

“Company Agreement” means that certain Operating Agreement of HEC, dated April 24, 2009, as amended by that certain First Amendment to Operating Agreement of HEC, dated as of May 14, 2009.

“Confidential Information” means any confidential or proprietary information concerning the business and affairs of HEC.

“Contribution Agreement” has the meaning set forth in the introductory paragraph hereto.

“Crossover Parties” has the meaning set forth in Section 6.9(a).

“Deductible” has the meaning set forth in Section 9.1(b)(iv).

“Determination Time” means 12:01 a.m. (Pacific Time) on April 1, 2010.

“Distribution Amount” means, with respect to each HEC Member, an amount equal to the cash and fair market value of in-kind distributions made by HEC to such HEC Member for the period from, and including, April 1, 2010 to, and including, the Closing Date.

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“Effective Time” means the date and time of the closing under the NEWCO Investment.

“Governmental Authorities” means the federal, state, county, city and political subdivisions in which any property of NEWCO or HEC, respectively, is located or which exercises jurisdiction over any such property or entity, and any agency, department, commission, board, bureau or instrumentality of any of them which exercises jurisdiction over any such property or entity.

“HEC” has the meaning set forth in the introductory paragraph hereto.

“HEC Board” means the managers of HEC.

“HEC Claims” has the meaning set forth in Section 9.2(a).

“HEC Indemnified Party” and “HEC Indemnified Parties” have the meaning set forth in Section 9.2(a).

“HEC Member” and “HEC Members” have the meanings set forth in the introductory paragraph hereto.

“HEC Membership Interests” means the membership interests of HEC as set forth in the Company Agreement.

“HEC Tax Return” means any Tax Return with respect to Taxes of HEC or required by applicable Law to be filed by or on behalf of HEC.

“Law” means any federal, state, local or foreign law, statute, rule, ordinance, code or regulation.

“Lien” means any of the following: mortgage; lien (statutory or other); other security agreement, arrangement or interest; hypothecation, pledge or other deposit arrangement; assignment; charge; levy; executory seizure; attachment; garnishment; encumbrance (including any easement, exception, reservation or limitation, right of way, and the like); conditional sale, title retention, voting agreement or other similar agreement, arrangement, device or restriction; preemptive or similar right; the filing of any financing statement under the Uniform Commercial Code or comparable Law of any jurisdiction; restriction on disposition; or any option, equity, claim or right of or obligation to any other Person of whatever kind and character.

“Losses” has the meaning set forth in Section 9.1(a) hereof.

“Management Fee Agreement” means that certain Management Fee Agreement, effective as of October 1, 2009, among HEC, BCER and BCEOC, as amended.

“Material Adverse Effect” means a material adverse effect on the business, operations, prospects, properties (including intangible properties), assets, operating results or condition (financial or otherwise) liabilities or reserves of NEWCO, BCEC, BCEOC and/or HEC, as applicable, taken as a whole; provided, however, that a general deterioration in the economy or

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changes in oil and gas prices or other changes affecting the oil and gas industry generally shall not be deemed to be a Material Adverse Effect.

“NEWCO” has the meaning set forth in the introductory paragraph hereto.

“NEWCO Claims” has the meaning set forth in Section 9.1(a) hereof.

“NEWCO Common Stock” means the common stock of NEWCO, par value $0.001 per share.

“NEWCO Indemnified Party” and “NEWCO Indemnified Parties” have the meanings set forth in Section 9.1(a) hereof.

“NEWCO Investment” means the purchase of NEWCO Common Stock by WFC and certain co-investors thereof as described in the NEWCO Investment Agreement.

“NEWCO Investment Agreement” means the agreement among NEWCO and the purchasers signatory thereto substantially in the form set forth on Exhibit D.

“Objection Notice” has the meaning set forth in Section 2.7(a) hereof.

“Operation Agreement” means that certain Contract Field Operation Agreement, effective as of October 1, 2009 among HEC, BCER and BCEOC, as amended.

“Order” means any order, judgment, injunction, ruling, writ, award, decree, statute, Law, ordinance, rule or regulation.

“Party” and “Parties” have the meanings set forth in the introductory paragraph hereof.

“Person” means an individual, corporation, partnership (limited or general), limited liability company, trust, joint stock company, Governmental Authority, unincorporated association or other legal entity.

“Post Closing Payment” means (a) with respect to each HEC Member, an amount (which may be positive or negative) equal to the amount of such HEC Member’s 2010 Tax Payment minus such HEC’s Member’s Distribution Amount or (b) with respect to NEWCO, an amount (which may be positive or negative) equal to the aggregate of the Distribution Amount for each HEC Member minus the aggregate 2010 Tax Payment for each HEC Member.

“Pre-Closing Tax Returns” has the meaning set forth in Section 6.13(b) hereof.

“Prior Contribution Agreement” has the meaning set forth in the recitals hereto.

“Purchase Price” has the meaning set forth in Section 2.1 hereof.

“Registration Rights Agreement” means an agreement among NEWCO and certain investors of NEWCO substantially in the form set forth on Exhibit E.

“Referee” has the meaning set forth in Section 2.7(a) hereof.

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“Releasors” has the meaning set forth in Section 6.12(b) hereof.

“Securities Act” means the Securities Act of 1933, as amended.

“Sellers’ Representative” has the meaning set forth in the introductory paragraph hereto.

“Statement” has the meaning set forth in Section 2.7(a) hereof.

“Stockholders Agreement” means an agreement among the stockholders of NEWCO substantially in the form set forth on Exhibit F.

“Straddle Period” has the meaning set forth in Section 6.13(c) hereof.

“Straddle Returns” has the meaning set forth in Section 6.13(c) hereof.

“Subsidiary” or “Subsidiaries” means, with respect to any Person, each entity as to which such Person (either alone or through or together with any other Subsidiary) (i) owns beneficially or of record or has the power to vote or control, 50% or more of the voting securities of such entity or of any class of equity interests of such entity the holders of which are ordinarily entitled to vote for the election of the members of the board of directors or other persons performing similar functions, (ii) in the case of partnerships, serves as a general partner, (iii) in the case of a limited liability company, serves as a managing member or owns a majority of the equity interests or (iv) otherwise has the ability to elect a majority of the directors, trustees or managing members thereof.

“Tax Controversy” has the meaning set forth in Section 6.13(e) hereof.

“Tax Returns” means any returns, forms, declarations, elections, reports, claims for refund, information returns, amended returns or other documents (including any related or supporting schedules, statements or information) filed or required to be filed in connection with the determination, assessment, collection, payment or refund of any Taxes or the administration of any Laws relating to any Taxes.

“Taxes” means (a) all federal, national, state, provincial, municipal, local or foreign taxes, including, without limitation, income, gross income, gross receipts, production, excise, employment, sales, use, transfer, ad valorem, value added, profits, license, capital stock, franchise, severance, stamp, withholding, social security, social insurance, employment, unemployment, occupational, disability, worker’s compensation, payroll, utility, windfall profit, custom duties, personal property, real property, registration, alternative or add-on minimum, estimated and other taxes, duties, levies, fees or like charges of any kind whatsoever, including any interest, penalties or additions thereto, whether disputed or not; (b) any liability to pay amounts due pursuant to clause (a) on behalf of another Person, including any predecessor, under any contract, reimbursement or indemnity agreement, as transferee, successor or otherwise (excluding, in all cases, any liability as a tenant or other user of property to pay property taxes under a lease or similar agreement); (c) any liability of any Person, including any predecessor, to pay amounts described in clause (a) by reason of liability imposed under Treasury Regulations § 1.1502-6 or similar provision imposing liability by reason of participation in a consolidated,

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combined, unitary or similar Tax Return or similar filing; and (d) any obligation under any unclaimed property or escheat statute; and “Tax” means any one of them.

“Transfer Taxes” has the meaning set forth in Section 6.13(d).

“Treasury Regulations” means all final, temporary and proposed treasury regulations promulgated under the Code.

“WFC” means West Face Capital, Inc.

ARTICLE II.

CONTRIBUTION TRANSACTION; PURCHASE PRICE

2.1           Purchase Price.  On the Closing Date, NEWCO shall deliver aggregate consideration to the HEC Members with a value equal to Seventy-Two Million Two Hundred Eight Thousand Fifty-Three Dollars ($72,208,053.00) (the “Purchase Price”) in consideration of the HEC Membership Interests.  The Purchase Price shall consist of (a) cash in an aggregate amount equal to $51,130,182.28 (the “Cash Purchase Price”) and (b) shares of NEWCO Common Stock having an aggregate dollar value equal to $21,077,870.72 (the “Aggregate Share Purchase Price”) and shall be delivered to the HEC Members in the amounts and percentages set forth opposite each HEC Member’s name on Schedule 2.1 hereof.

2.2           Contribution of HEC Membership Interests to NEWCO.  Immediately prior to the Effective Time, each HEC Member shall contribute all of such HEC Member’s HEC Membership Interests to NEWCO in exchange for such HEC Member’s (a) share of the Cash Purchase Price and/or (b) share of the Aggregate Share Purchase Price, each as set forth opposite the name of each such HEC Member on Schedule 2.1 hereof, which respective shares are based on a deemed liquidation sale of HEC determined by the HEC Board by using the enterprise value of HEC set by the transactions contemplated by this Contribution Agreement, including the NEWCO Investment, and applying the applicable provisions of the Company Agreement.

2.3           Payment of Cash Consideration.  At the Effective Time, NEWCO shall pay to each HEC Member receiving cash consideration in accordance with the provisions of this Contribution Agreement the amount of cash to be paid to such HEC Member pursuant to Section 2.2 by wire transfer of immediately available funds to an account designated by such HEC Member at least two (2) Business Days prior to the Closing.

2.4           Issuance of New Certificates.  At the Effective Time, NEWCO shall issue to each HEC Member a certificate or certificates representing the number of shares of NEWCO Common Stock to be issued to such HEC Member pursuant to Section 2.2.  Each such certificate shall be registered in the name of the Person or Persons specified by the recipient thereof to NEWCO in writing at least two (2) Business Days prior to the Closing.

2.5           Certificate Legends.  The certificates evidencing the NEWCO Common Stock delivered pursuant to Section 2.3 shall bear a legend substantially in the form set forth below and containing such other information as NEWCO may deem necessary or appropriate:

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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS OR PURSUANT TO AN EXEMPTION THEREFROM WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER OF RECORD OF THIS CERTIFICATE, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.

THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF A STOCKHOLDERS AGREEMENT BETWEEN THIS CORPORATION AND ITS STOCKHOLDERS.  ANY PERSON ACCEPTING ANY INTEREST IN SUCH SECURITIES SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT.  A COPY OF SUCH STOCKHOLDERS AGREEMENT WILL BE FURNISHED TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THIS CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS.

2.6           Fractional Shares.  No fractional shares of NEWCO Common Stock or scrip shall be issued as a result of the transactions contemplated herein.  Any fractional share of NEWCO Common Stock which would otherwise be issuable as a result of such transactions shall be rounded up to the nearest whole share.

2.7           Post Closing Payment.

(a)           As soon as practical and, in any event, no later than March 31, 2011, NEWCO shall prepare and deliver to the Sellers’ Representative a statement (the “Statement”) setting forth NEWCO’s calculation of each HEC Member’s Base Amount, 2010 Tax Payment and Distribution Amount and the corresponding Post Closing Payment.  NEWCO shall certify that the Statement and the calculation of each HEC Member’s Base Amount, 2010 Tax Payment and Distribution Amount and the corresponding Post Closing Payment contained therein have been prepared in accordance with this Contribution Agreement.  Following the delivery of the Statement, NEWCO shall afford the Sellers’ Representative the opportunity to examine the Statement and NEWCO’s calculation of each HEC Member’s Base Amount, 2010 Tax Payment and Distribution Amount and the corresponding Post Closing Payment contained therein, and such supporting schedules, analyses, workpapers, including the audit workpapers and other underlying records or documentation, as are reasonably necessary and appropriate in connection with such review.  NEWCO shall cooperate fully and promptly with the Sellers’ Representative in such examination of the Statement, including responding to questions asked by the Sellers’ Representative and its agents and designees, and NEWCO shall make available to the Sellers’ Representative and its agents and designees any records under NEWCO’s reasonable control that are requested by the Sellers’ Representative and its agents and designees in connection with such

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review.  If, within thirty (30) calendar days following delivery of the Statement to the Sellers’ Representative, the Sellers’ Representative has not delivered to NEWCO written notice (the “Objection Notice”) of the Sellers’ Representative’s objections to the Statement or NEWCO’s calculation of the items contained therein (which Objection Notice must contain a statement described in reasonable detail the basis of such objections), then the Statement and the calculation of each HEC Member’s Base Amount, 2010 Tax Payment and Distribution Amount and the corresponding Post Closing Payment contained therein shall be deemed final and conclusive.  If the Sellers’ Representative delivers the Objection Notice within such thirty (30) calendar day period, then the Sellers’ Representative and NEWCO shall endeavor in good faith to resolve the objections set forth in the Objection Notice for a period not to exceed fifteen (15) calendar days from the date of delivery of the Objection Notice.  If at the end of the fifteen (15) calendar day period there are any objections that remain in dispute, then the remaining objections in dispute shall be submitted for resolution to an independent accounting firm to be selected jointly by the Sellers’ Representative and NEWCO within the following five (5) calendar days (the “Referee”).  In connection with the engagement of the Referee, each of NEWCO and the Sellers’ Representative shall execute any engagement, indemnity, and other agreement as the Referee shall require as a condition to such engagement.  The Referee shall determine the elements of the Statement as are disputed within thirty (30) calendar days after the objections that remain in dispute are submitted to it.  If any objections are submitted to the Referee for resolution, (i) each of NEWCO and the Sellers’ Representative shall furnish to the Referee such workpapers and other documents and information relating to such objections as the Referee may request and are available to that Party or its Affiliates (or its independent public accountants) and will be afforded the opportunity to present to the Referee any material relating to the determination of the matters in dispute and to discuss such determination with the Referee prior to any written notice of determination hereunder being delivered by the Referee; (ii) to the extent that a value has been assigned by NEWCO or the Sellers’ Representative to any item that is submitted to the Referee, the Referee shall not assign a value to such objection that is greater than the greatest value for such objection claimed by either such Party or less than the smallest value for such objection claimed by either such Party; (iii) the determination by the Referee of the calculation of each HEC Member’s Base Amount, 2010 Tax Payment and Distribution Amount and the corresponding Post Closing Payment as set forth in a written notice delivered to NEWCO and the Sellers’ Representative by the Referee, shall be binding and conclusive on the Parties and shall constitute an arbitral award that is final, binding and unappealable and upon which a judgment may be entered by a court having jurisdiction thereof; (iv) the fees and expenses of the Referee shall be paid by NEWCO in the event that NEWCO’s assertions regarding each HEC Member’s Base Amount, 2010 Tax Payment and Distribution Amount and the corresponding Post Closing Payment differ by a greater amount from the amount determined by Referee, or by the HEC Members in the event that the Sellers’ Representative’s assertions regarding each HEC Member’s Base Amount, 2010 Tax Payment and Distribution Amount and the corresponding Post Closing Payment differ by the greater amount from the amount determined by the Referee; and (v) notwithstanding anything in this Contribution Agreement to the contrary, each such Party shall bear its own costs and expenses in connection with the resolution of any objections to the calculations set forth in the Statement except for the fees and expenses of the Referee as set forth in Section 2.7(a)(iv).  If the Post Closing Payment with respect to an HEC Member as finally determined pursuant to this Section 2.7(a) is positive, the positive amount of such Post Closing Payment will be payable to the HEC Member in

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accordance with Section 2.7(b).  If the Post Closing Payment with respect to Newco as finally determined pursuant to this Section 2.7(a) is positive, the positive amount of such Post Closing Payment will be payable to Newco in accordance with Section 2.7(b).  Any Post Closing Payment that is a negative amount will not be payable to any Party.

(b)           If a Post Closing Payment is due to the HEC Members as finally determined pursuant to Section 2.7(a), then NEWCO shall pay to each HEC Member such HEC Member’s Post Closing Payment, in cash, within ten (10) calendar days of the final determination thereof in accordance with Section 2.7(a).  If a Post Closing Payment is due to NEWCO as finally determined pursuant to Section 2.7(a), then the HEC Members shall pay, in cash, to NEWCO such HEC Member’s proportional share of such Post Closing Payment within ten (10) calendar days of the final determination thereof in accordance with Section 2.7(a).  No matter that gives rise to a Post Closing Payment in accordance with this Section 2.7 shall be the subject of or eligible for a claim by any NEWCO Indemnified Party or HEC Indemnified Party for indemnification under Article IX.

ARTICLE III.

CLOSING

3.1           Time and Place.  The closing of the transactions contemplated hereby (the “Closing”) shall be held at the offices of Mayer Brown LLP located at 1675 Broadway, New York, New York 10019 immediately prior to the Effective Time; provided that all of the conditions contained in Article VII have been satisfied or waived, or at such other place or time as the Parties hereto may mutually agree.  The date of the Closing is referred to herein as the “Closing Date.”

3.2           Deliveries at Closing.  Subject to the provisions of Article VII hereof, at the Closing, (a) the Cash Purchase Price and the Aggregate Share Purchase Price shall be delivered to the HEC Members in accordance with Schedule 2.1, and (b) each of the Parties shall deliver the certificates and other documents required to be delivered pursuant to Article VII hereof.

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES OF THE HEC MEMBERS

Each of the HEC Members severally, and not jointly, represents and warrants to NEWCO that the statements contained in this Article IV are true, correct and complete as of the date hereof and will be true, correct and complete as of the Closing Date.

4.1           Organization and Good Standing.  Each such HEC Member (if such HEC Member is not a natural Person) is duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is organized, as the case may be, and has all requisite power and authority to execute, deliver and perform such HEC Member’s obligations under this Contribution Agreement and to consummate the transactions contemplated hereby.

4.2           Authority and Enforceability.  The execution and delivery by each such HEC Member of this Contribution Agreement and the consummation of the transactions contemplated

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hereby (if such HEC Member is not a natural Person) have been duly and validly authorized by all necessary corporate or other action and no other corporate or other proceedings are necessary to consummate the transactions contemplated hereby.  This Contribution Agreement has been duly and validly executed and delivered and constitutes a valid and binding obligation of each such HEC Member, enforceable against each such HEC Member in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization and similar Laws affecting creditors generally and by the availability of equitable remedies.

4.3           No Conflict; Required Filings and Consents.  The execution and delivery of this Contribution Agreement by each such HEC Member do not, and the performance by each such HEC Member of the transactions contemplated hereby or thereby will not violate, conflict with, require any consent under or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under, the provisions of any organizational document (for non-natural Persons), contract or other instrument or obligation to which each such HEC Member is a party or by which it may be bound or the Company Agreement, or violate any Law or Order of any Governmental Authority binding upon each such HEC Member.

4.4           Ownership.  Such HEC Member is the holder of record of and owns beneficially the HEC Membership Interests identified as being owned by such HEC Member in Schedule 4.4(a) and to be acquired by NEWCO in accordance with Section 2.2, and, as of the Closing Date, such HEC Member will be the holder of record and will own beneficially the HEC Membership Interests, free and clear of all Liens.  On the Closing Date, NEWCO will receive good and valid title to the HEC Membership Interests owned by such HEC Member, free and clear of all Liens.

4.5           Accredited Investor.  Each HEC Member receiving shares of NEWCO Common Stock is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Commission.

4.6           Sophistication.  Each HEC Member receiving shares of NEWCO Common Stock has such knowledge and experience in financial and business matters such that such HEC Member is capable of evaluating the merits and risks of the investment in such shares of NEWCO Common Stock, and is able to bear the economic risk of such investment.

4.7           Access to Information.  Each HEC Member receiving shares of NEWCO Common Stock has had access to NEWCO’s management and the opportunity to ask questions of, and receive answers satisfactory to such HEC Member from, such individuals concerning such NEWCO Common Stock and NEWCO generally.  Each HEC Member receiving shares of NEWCO Common Stock has obtained all additional information requested by such HEC Member to verify the accuracy of all information furnished by NEWCO in connection therewith.

4.8           Restricted Securities.  Each HEC Member receiving shares of NEWCO Common Stock understands that such shares of NEWCO Common Stock (a) will not have been registered pursuant to the Securities Act or any applicable state securities Laws, (b) will be characterized as “restricted securities” under federal securities Laws, and (c) cannot be sold or otherwise disposed of without registration under the Securities Act or an exemption therefrom under such Laws and applicable regulations.  Each HEC Member receiving shares of NEWCO Common Stock

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represents that such HEC Member is familiar with Rule 144 promulgated under the Securities Act, as currently in effect, and understands the resale limitations imposed thereby and by the Securities Act.  A legend indicating that such shares of NEWCO Common Stock have not been registered under applicable federal and state securities Laws and referring to the restrictions on transferability and sale of such shares of NEWCO Common Stock pursuant to this Contribution Agreement or otherwise may be placed on any certificate(s) or other document delivered to each such HEC Member or any substitute therefor and any transfer agent of NEWCO may be instructed to require compliance therewith.

4.9           Investment Intent.  The shares of NEWCO Common Stock are being acquired for the own investment portfolio and account (and not on behalf of, and without the participation of, any other Person) of each HEC Member receiving such shares of NEWCO Common Stock with the intent of holding such shares of NEWCO Common Stock for investment and without the intent of participating, directly or indirectly, in a distribution of such shares of NEWCO Common Stock and not with a view to, or for resale in connection with, any distribution of such shares of NEWCO Common Stock or any portion thereof in violation of applicable securities Laws.  Each HEC Member receiving shares of NEWCO Common Stock represents that, at the Closing Date, such HEC Member will have no binding obligation, or fixed or definite plan or intention to transfer any of such shares of NEWCO Common Stock.

ARTICLE V.

REPRESENTATIONS AND WARRANTIES OF NEWCO

NEWCO represents and warrants to the HEC Members that the statements contained in this Article V are true, correct and complete as of the date hereof and will be true, correct and complete as of the Closing Date.

5.1           Organization and Power.  NEWCO is a corporation, validly existing and in good standing under the Laws of the State of Delaware, and is qualified and in good standing to transact business in each jurisdiction in which such qualification is required by Law, except where the failure to be so qualified would not have a Material Adverse Effect.  NEWCO has all requisite corporate power and authority to execute, deliver and perform its obligations under this Contribution Agreement and to consummate the transactions contemplated hereby.  NEWCO has heretofore delivered or made available to the HEC Members complete and correct copies of its certificate of incorporation and bylaws, each as amended to date.

5.2           Authorization; Execution and Validity.  The execution and delivery of this Contribution Agreement and the Stockholders Agreement by NEWCO, the performance by NEWCO of its obligations under this Contribution Agreement and the Stockholders Agreement and the consummation of the transactions contemplated hereby and thereby to be consummated by it, have been duly authorized by all necessary corporate action and no other corporate action on the part of NEWCO is necessary with respect thereto.  This Contribution Agreement has been, and the Stockholders Agreement will be, duly executed and delivered by NEWCO and constitutes a valid and binding obligation of NEWCO and is enforceable against NEWCO in accordance with their respective terms, except as such enforceability may be limited by

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bankruptcy, insolvency, reorganization and similar Laws affecting creditors generally and by the availability of equitable remedies.

5.3           Capitalization.

(a)           As of the date hereof, the authorized capital stock of NEWCO consists solely of 1,000 shares of NEWCO Common Stock.  As of the date hereof, there are an aggregate of 100 shares of NEWCO Common Stock issued and outstanding, all of which shares are owned of record and beneficially, by the Persons set forth on Schedule 5.3(a)(i).  Except as set forth on Schedule 5.3(a)(ii), as of the Closing Date, there shall be no outstanding options, subscriptions, warrants, calls, commitments, pre-emptive rights or other rights obligating NEWCO to issue or sell any shares of its capital stock or any securities convertible into or exercisable for any shares of its capital stock, or otherwise requiring NEWCO to give any Person the right to receive any benefits or rights similar to any rights enjoyed by or accruing to the holders of shares of capital stock of NEWCO or any rights to participate in the equity or net income of NEWCO.  All of the issued shares of NEWCO’s capital stock were issued, and to the extent purchased or transferred, have been so purchased or transferred, in compliance with all applicable Laws, including federal and state securities Laws, and any preemptive rights and any other statutory or contractual rights of any NEWCO stockholder.

(b)           As of the date hereof, and as of immediately prior to the BCEOC Contribution, NEWCO has no Subsidiaries.  NEWCO does not own, directly or indirectly, any capital of or other equity interest in nor has any other investment in any other Person.

(c)           The Common Share Price is the same price per share of NEWCO Common Stock being paid by the purchasers thereof, including WFC, pursuant to the NEWCO Investment Agreement.

5.4           Consents.  Except as set forth on Schedule 5.4, neither the execution and delivery by NEWCO of this Contribution Agreement nor the consummation or performance by NEWCO of the transactions contemplated by this Contribution Agreement to be consummated or performed by NEWCO will require prior to the Closing (on the part of NEWCO) any consent from, authorization or approval or other action by, notice to or declaration, filing or a registration with, any Governmental Authority or any other third party.

5.5           No Defaults or Conflicts.  Neither the execution and delivery by NEWCO of this Contribution Agreement nor the consummation or performance by NEWCO of the transactions contemplated by this Contribution Agreement to be consummated or performed by it (a) results or will result in any violation of the certificate of incorporation or bylaws of NEWCO; or (b) violates or conflicts with, or constitutes a breach of any of the terms or provisions of or a default under, or results in the creation or imposition of any Lien upon any property or asset of NEWCO, triggers any charge, payment or requirement of consent, or the acceleration or increase of the maturity of any payment date under, any material contract to which NEWCO is a party or any applicable Law or Order to which NEWCO or any of its respective properties is subject, other than, in each case, where such failure, conflict or breach would not have a Material Adverse Effect.

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5.6           Additional Agreements.  NEWCO has executed and delivered the NEWCO Investment Agreement and the BCEOC Contribution Agreement and is bound by the terms thereof.

5.7           Contract Operator.Both of BCER and BCEOC are in material compliance with the Operation Agreement and, to the extent required therein, have operated the assets of HEC in the ordinary course of business of HEC consistent with past practice.

5.8           Financial Capacity.  NEWCO has or will have at the Closing the financial capacity to consummate the transactions contemplated by this Contribution Agreement, including payment of the Cash Purchase Price.

5.9           Ongoing Operations.  Following the Closing, NEWCO will own all of the issued and outstanding equity of BCEOC and BCEOC will own substantially all of the assets BCEOC owned prior to the Closing.

ARTICLE VI.

COVENANTS

6.1           Ordinary Course of Business.  Except as otherwise contemplated herein or with the prior written consent of NEWCO or the Sellers’ Representative, as applicable, between the date of this Contribution Agreement and the earlier to occur of the Closing Date or the termination of this Contribution Agreement, each of BCEC, BCEOC and BCER, on the one hand, and the HEC Members, on the other hand, shall cause HEC’s business to be conducted in the ordinary course of business, consistent with past practice and will use all commercially reasonable efforts consistent therewith to preserve intact HEC’s properties, assets and business organization and to maintain satisfactory relationships with customers, suppliers, distributors and others having commercially beneficial business relationships with HEC, in each case, in the ordinary course of business.  Without limiting the generality of the foregoing, and except as provided in this Contribution Agreement, neither BCEOC and BCER, on the one hand, or the HEC Members, on the other hand, shall take, or allow HEC to take, any of the following actions, prior to the Closing, without the prior written consent of NEWCO or the Sellers’ Representative, as applicable:

(a)           (i) sell, transfer, lease or otherwise dispose of any of HEC’s assets, (ii) mortgage or encumber any of HEC’s assets, (iii) acquire any material assets or properties other than in the ordinary course of business, or (iv) enter into any leases or subleases;

(b)           enter into, terminate, modify or fail to comply in all material respects with any material contract to which HEC is a party;

(c)           create, incur or guaranty any indebtedness;

(d)           fail to comply in all material respects with applicable Laws; and

(e)           agree to take any of the foregoing actions.

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6.2           Operation Agreement.  Except as contemplated by this Contribution Agreement, the Operation Agreement or the Management Fee Agreement or with the prior written consent of the Sellers’ Representative, between the date of this Contribution Agreement and the earlier to occur of the Closing Date or the termination of this Contribution Agreement, BCEC, BCEOC and BCER covenant and agree with the HEC Members to (a) operate HEC’s assets in the ordinary course of business pursuant to the Operation Agreement and the Management Fee Agreement, (b) use all commercially reasonable efforts consistent therewith to preserve intact HEC’s properties, assets and business organization and to maintain satisfactory relationships with customers, suppliers, distributors and others having commercially beneficial business relationships with HEC and (c) not take any of the actions set forth in Section 6.1(a) through (e).

6.3           Commercially Reasonable Efforts.  Subject to the terms and conditions of this Contribution Agreement, each of the Parties will use commercially reasonable efforts to take all actions and do all things necessary, proper or advisable to perform such Party’s respective obligations under this Contribution Agreement that are required to be performed on or prior to the Closing, and use such Party’s commercially reasonable efforts to consummate and make effective the transactions contemplated by this Contribution Agreement as promptly as reasonably practical.  The HEC Members, on the one hand, and NEWCO, on the other hand, will not, without the prior written consent of the other such Party, take or fail to take, or permit such Party’s respective Affiliates to take or fail to take, any action that would reasonably be expected to prevent or materially impede, interfere with or delay the prompt consummation of the transactions contemplated by this Contribution Agreement.  Notwithstanding the foregoing, BCEC and NEWCO shall have no obligation to close the NEWCO Investment or the BCEOC Contribution.

6.4           Notices and Consents.  NEWCO and the HEC Members will cooperate with one another and use their respective commercially reasonable efforts to (a) obtain the third party and governmental consents and approvals set forth on Schedule 5.4 and (b) prevent any preliminary or permanent injunction or other order by a Governmental Authority that seeks to modify, delay or prohibit the consummation of the transactions contemplated by this Contribution Agreement, and, if issued, to appeal any such injunction or order through the appellate court or body for the relevant jurisdiction.  The cost of obtaining any such consents and giving any such notice shall be borne equally by NEWCO on the one hand and HEC Members on the other hand.

6.5           Access to Information.  The HEC Members shall permit representatives of NEWCO, upon reasonable prior written notice to the Sellers’ Representative, to have access during normal business hours and under reasonable circumstances to the premises, properties, assets, books, records and contracts of HEC.  The HEC Members shall furnish NEWCO with all financial and other material information in their possession with respect to HEC as NEWCO may from time to time reasonably request.

6.6           Negotiations.  Except as permitted by this Contribution Agreement, between the date of this Contribution Agreement and the earlier to occur of the Closing Date or the termination of this Contribution Agreement, the HEC Members shall not, and shall cause HEC not to, through any representative, directly or indirectly, encourage or solicit any proposal that constitutes an Acquisition Proposal with respect to HEC, engage in any discussions or

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negotiations or provide any information to any Person relating thereto or in furtherance thereof or accept such Acquisition Proposal.

6.7           Contract Extensions.

(a)           HEC, BCEOC and BCER, each hereby agree that the term of the Operation Agreement is extended until March 31, 2011, and that no other amendments or modifications to the Operation Agreement are being made pursuant hereto.

(b)           HEC, BCEOC and BCER, each hereby agree that the term of the Management Fee Agreement is extended until March 31, 2011, and that no other amendments or modifications to the Management Fee Agreement are being made pursuant hereto.

6.8           Authorization.The HEC Members hereby authorize NEWCO to share Confidential Information in NEWCO’s marketing or disclosure materials in connection with the NEWCO Investment; provided, that, (a) no HEC Member nor HEC shall have any obligation to make any representation or warranty with respect to such Confidential Information in connection with any such marketing or disclosure materials, either to NEWCO, NEWCO’s Affiliates, agents, representatives or any other Person whatsoever, including any party participating in any way in the NEWCO Investment, (b) NEWCO shall provide the Sellers’ Representative with a draft of the BCEOC Contribution Agreement and the NEWCO Investment Agreement prior to each such agreement’s execution in connection with BCEOC Contribution and the NEWCO Investment; and (c) NEWCO, BCEOC and BCER each hereby agree, jointly and severally, to fully indemnify and hold the HEC Members and HEC harmless from any Losses arising out of or relating to such marketing or disclosure materials or the marketing and disclosure processes related to the NEWCO Investment or the 144A Offering, including any disclosure based claims or causes of action.

6.9           Related Parties.

(a)           Each of NEWCO, BCEOC and BCER, on their own respective behalves, and on behalf of each of their respective Affiliates, including D.E. Shaw Synoptic Portfolios 5, L.L.C., hereby acknowledges that such Party is aware, and approves of the fact, that certain HEC Members, including, Michael Starzer, Frank Bennett, Gary Grove, Ralph McPhetridge and Pat Graham (collectively, the “Crossover Parties”), also hold management positions with NEWCO, BCEOC, BCER and/or their respective Affiliates  and as such, may be considered “interested” parties within the meaning of the Delaware General Corporation Law.  Consequently, each of NEWCO, BCEOC and BCER, on their own respective behalves, and on behalf of each of the respective Affiliates, including D.E. Shaw Synoptic Portfolios 5, L.L.C., hereby agrees, acknowledges and covenants that such Person will not complain, initiate or otherwise pursue any remedies of any type against, any HEC Member who is not one of the Crossover Parties as a result of, or in any way arising out of, the fact of the Crossover Parties’ involvement in the transactions contemplated by this Contribution Agreement, including the contribution by any Crossover Party of their HEC Membership Interests to NEWCO.

(b)           Each HEC Member, on such HEC Member’s own behalf, and on behalf of each of such HEC Member’s Affiliates, hereby acknowledges that such HEC Member is aware,

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and approves of the fact, that certain of the HEC Members, including the Crossover Parties, also hold management positions with NEWCO, BCEOC, BCER and/or their respective Affiliates and as such, may be considered “interested” parties within the meaning of the Delaware General Corporation Law.  Consequently, each HEC Member who is not also a Crossover Party, on such HEC Member’s own behalf, and on behalf of such HEC Member’s Affiliates, hereby agrees, acknowledges and covenants that such Person will not complain, initiate or otherwise pursue any remedies of any type against, NEWCO, BCEOC or BCER, or any of their respective Affiliates, including D.E. Shaw Synoptic Portfolios 5, L.L.C., as a result of, or in any way arising out of, the fact of the Crossover Parties’ involvement in the transactions contemplated by this Contribution Agreement.

6.10         Section 351.  For United States federal income Tax purposes and any applicable state or local income or franchise Tax purposes, the Parties recognize that the contributions described in Section 2.2(b) will be treated as contributions by such HEC Members to NEWCO in exchange for shares of NEWCO Common Stock to which Section 351(a) of the Code applies.  No Party hereto shall file any income Tax Return or otherwise take any position for income Tax purposes that is inconsistent with such treatment unless required to do so pursuant to a “determination” within the meaning of Section 1313(a) of the Code or any corresponding provision of state or local income or franchise Tax Law.  Additionally, each Party hereto agrees to take no action which, alone or in combination with the actions of others, reasonably could be expected to prevent the transactions from qualifying for nonrecognition of gain or loss under Section 351(a) of the Code, including, without limitation, any sale or other disposition of NEWCO Common Stock pursuant to any binding obligation or fixed or definite plan or intention.

6.11         Notification Of Certain Matters.  Each Party will give prompt notice of (a) the occurrence or non-occurrence of any event, the occurrence or nonoccurrence of which would be likely to cause any representation or warranty of such Person contained herein to be untrue or inaccurate in any material respect at or prior to the Effective Time and (b) any material failure of any such Person to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such Person hereunder.  The delivery or deemed delivery of any notice pursuant to this Section 6.11 shall not be deemed to (i) modify the representations or warranties hereunder of the Party delivering such notice, (ii) modify the conditions set forth in Article VII, or (iii) limit or otherwise affect the remedies available hereunder to the Party receiving such notice.

6.12         Further Assurances; Release.

(a)           The Parties agree to execute and deliver, or cause to be executed and delivered, such further instruments or documents or take such other action as may be reasonably necessary or convenient to carry out the transactions contemplated hereby.

(b)           Effective as of the Closing, each HEC Member, on behalf of such HEC Member and each of such HEC Member’s Affiliates, representatives, successors, heirs and assigns (collectively, the “Releasors”) hereby irrevocably releases and forever discharges and holds harmless the Sellers’ Representative, HEC and each other HEC Member and such HEC Member’s Affiliates and representatives, from and against any and all liabilities or actions, suits,

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investigations or proceedings (including any arbitration or mediation or similar proceedings), of any nature whatsoever in law or in equity, whether currently known or unknown, suspected or claimed, whether pursuant to contract, statute or otherwise, in each case, arising out of or relating to this Contribution Agreement and the transactions contemplated hereby.

6.13         Agreements Regarding Tax Matters.

(a)           Prior to the Closing Date, the Sellers’ Representative and NEWCO shall agree on an allocation of the total Purchase Price among HEC’s assets (the “Allocation”).  The Allocation will consider the principles of applicable Internal Revenue Service guidance, including the possibility of asymmetric treatment of the Parties.  If the Sellers’ Representative and NEWCO are unable to reach agreement on the Allocation by the Closing Date, the Allocation shall be submitted to and determined by the Referee.  The Referee shall determine the elements of the Allocation as are disputed within thirty (30) days after the issues are submitted to the Referee, but in each case in accordance with applicable legal principles.  If any objections are submitted to the Referee for resolution, (i) each of NEWCO and the Sellers’ Representative shall furnish to the Referee such workpapers and other documents and information relating to such objections as the Referee may request and are available to that Party or its Affiliates (or its independent public accountants) and will be afforded the opportunity to present to the Referee any material relating to the determination of the matters in dispute and to discuss such determination with the Referee prior to any written notice of determination hereunder being delivered by the Referee; (ii) to the extent that a value has been assigned by NEWCO or the Sellers’ Representative to any item that is submitted to the Referee, the Referee shall not assign a value to such objection that is greater than the greatest value for such objection claimed by either such Party or less than the smallest value for such objection claimed by either such Party; (iii) the determination by the Referee of the calculation of the Allocation as set forth in a written notice delivered to NEWCO and the Sellers’ Representative by the Referee, shall be binding and conclusive on the Parties and shall constitute an arbitral award that is final, binding and unappealable and upon which a judgment may be entered by a court having jurisdiction thereof; (iv) the fees and expenses of the Referee shall be paid by NEWCO in the event that NEWCO’s assertions regarding the Allocation differ by a greater amount from the amount determined by Referee, or by the HEC Members in the event that the Sellers’ Representative’s assertions regarding the Allocation differ by the greater amount from the amount determined by the Referee.  Once finalized, the Allocation shall be binding upon all Parties to this Contribution Agreement and NEWCO and the HEC Members shall report, act and file all Tax Returns, including any amended Tax Returns, in all respects and for all purposes consistent with the Allocation.  No Party shall take any position (whether in audits, on Tax Returns or otherwise) that is inconsistent with the Allocation unless required to do so by Law or, following good faith consultation with the other Parties, in connection with the settlement of a Tax Controversy; provided that each Party shall be entitled to apply such statutory or regulatory allocation provisions as are applicable to such Party.

(b)           For any HEC Tax period ending on or before the Closing Date, the Sellers’ Representative shall prepare or cause to be prepared (in a manner consistent with past practice to the extent consistent with applicable Law), and file or cause to be filed (including causing NEWCO to file) with the appropriate taxing authorities all Tax Returns required to be filed with respect to HEC on or prior to the Closing Date (taking into account extensions) and all

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Tax Returns for income Taxes or franchise Taxes for any HEC Tax period ending on or before the Closing Date for which the HEC Members are responsible, regardless of when required to be filed (collectively, “Pre-Closing Tax Returns”).  At NEWCO’s request, HEC shall make or cause to be made an election under Section 754 of the Code with respect to the Tax period ended on the Closing Date.  Any amounts payable by HEC in connection with such Pre-Closing Tax Returns shall be paid by HEC.  Any amounts payable by the HEC Members in connection with any such Pre-Closing Tax Returns for income or franchise Taxes shall be paid by such HEC Members.  NEWCO shall have the right to review all Pre-Closing Tax Returns at least fifteen (15) days (or, in the case of Tax Returns other than Tax Returns for income or franchise Taxes for which the HEC Members are responsible, as many days as reasonably practical) prior to the timely filing thereof, and the Parties agree to consult and resolve in good faith any issue arising as a result of the review of such Pre-Closing Tax Returns; provided that the Sellers’ Representative shall have final control in the case of Pre-Closing Tax Returns for income or franchise Taxes for which the HEC Members are responsible, except to the extent the positions taken therein are contrary to Law or to the provisions of this Contribution Agreement; and provided, further, that the Sellers’ Representative shall make any changes to a Pre-Closing Tax Return that are reasonably requested by NEWCO and will have no material adverse effect upon any HEC Member.

(c)           For any HEC Tax period that begins on or before and ends after the Closing Date (“Straddle Period”), NEWCO shall timely prepare or cause to be prepared, and file or cause to be filed (in a manner consistent with past practices to the extent consistent with applicable Law) with the appropriate taxing authorities all Tax Returns required to be filed with respect to HEC (“Straddle Returns”) and shall pay all Taxes due with respect to such Straddle Returns.  The Sellers’ Representative shall have the right to review any such Straddle Returns at least fifteen (15) days (or, in the case of Tax Returns other than Tax Returns for income or franchise Taxes for which the HEC Members are responsible, as many days as reasonably practical) prior to the timely filing of such Straddle Returns, and the Parties agree to consult and resolve in good faith any issue arising as a result of the review of any such Straddle Returns.

(d)           All transfer, documentary, sales, use, registration, value-added and other similar Taxes (including all applicable real estate transfer Taxes) and related fees (including any penalties, interest and additions to Tax) (collectively, “Transfer Taxes”) incurred in connection with the transactions expressly contemplated hereby shall be paid one-half by NEWCO and one-half by the HEC Members.  The Parties agree to cooperate and utilize their commercially reasonable efforts to minimize the Transfer Taxes associated with the transactions contemplated by this Contribution Agreement.

(e)           NEWCO and the HEC Members will cooperate fully, as and to the extent reasonably requested by the other such Party, in connection with any audit, litigation or other proceeding with respect to Taxes in relation to the transactions contemplated hereby (each a “Tax Controversy”), and in connection with the preparation and filing of any Tax Return, or amendment thereto.  Such cooperation will include the retention and (upon the other such Party’s written request) the provision of records and information reasonably relevant to any such audit, litigation or other proceeding, or any such Tax Return or amendment thereto, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder; provided, however, that no such Party shall be

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required to retain any Tax Returns, supporting workpapers, or other records beyond a time that is thirty (30) days after the expiration of the applicable statute of limitations with respect to a Tax.  NEWCO and the HEC Members further agree, upon request, to use their reasonable efforts to obtain any certificate, including any resale or similar certificate, or other document from any Person as may be reasonably necessary to mitigate, reduce or eliminate any Tax that could be imposed (including with respect to the transactions contemplated by this Contribution Agreement).  Without limiting the foregoing, the Sellers’ Representative shall control any Tax Controversy with respect to Pre-Closing Tax Returns or Straddle Returns relating to income or franchise Taxes that are payable by the HEC Members, provided that NEWCO shall be entitled to participate in such Tax Controversy (at NEWCO’s own expense) and shall be afforded current access to all correspondence and information in connection  therewith, and provided further that the Sellers’ Representative shall not be entitled to settle any such Tax Controversy in a manner that would materially and adversely impact NEWCO without the prior written consent of NEWCO, which consent shall not be unreasonably withheld.

6.14         HEC Member Expenses.  NEWCO, BCEC and BCEOC, jointly and severally, agree to pay and reimburse the HEC Members for all reasonably documented out-of-pocket fees and expenses incurred by them since June 30, 2010 in connection with the transactions contemplated hereby, the 144A Offering or any other matter reasonably related thereto (including, without limitation, all fees and expenses of its legal counsel, financial advisors, accountants, consultants, agents or other representatives).

6.15         Sellers’ Representative.

(a)           The HEC Members hereby irrevocably nominate, constitute and appoint the Sellers’ Representative as the agent and true and lawful attorney-in-fact of the HEC Members, with full power of substitution, to act in the name, place and stead of the HEC Members for purposes of executing any documents and taking any actions that the Sellers’ Representative may, in its sole discretion, determine to be appropriate in connection with this Contribution Agreement or the transactions contemplated hereby.  The Sellers’ Representative hereby accepts such appointment.

(b)           The HEC Members hereby grant to the Sellers’ Representative full authority to execute, deliver, acknowledge, certify, file and record any and all documents and to settle any disputes or claims for indemnification arising hereunder (all on behalf and in the name of the HEC Members) that the Sellers’ Representative may, in its sole discretion, determine to be appropriate, in such forms and containing such provisions as the Sellers’ Representative may, in its sole discretion, determine to be appropriate (including any amendment to or waiver of rights under this Contribution Agreement or any of the documents contemplated hereby).  Notwithstanding anything to the contrary contained in this Contribution Agreement or any of the documents contemplated hereby:

(i)            NEWCO, BCEC and BCEOC and their respective Affiliates shall be entitled to deal exclusively with the Sellers’ Representative on all matters relating to this Contribution Agreement and the transactions contemplated hereby (including all matters relating to any notice to, or any consent to be given or action to be taken by, the HEC Members); and

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(ii)           each NEWCO Indemnified Party shall be entitled to rely conclusively (without further evidence of any kind whatsoever) on any document executed or purported to be executed on behalf of the HEC Members by the Sellers’ Representative, and on any other action taken or purported to be taken on behalf of the HEC Members by the Sellers’ Representative, as fully binding upon the HEC Members.

(c)           The HEC Members recognize and intend that the power of attorney granted in Section 6.15(a): (i) is coupled with an interest and is irrevocable; and (ii) may be delegated by the Sellers’ Representative.

(d)           The Parties agree (i) that the Sellers’ Representative is a party to this Contribution Agreement only for purposes of this Section 6.15 and is acting in an administrative capacity only, (ii) that the Sellers’ Representative, in such capacity, is not making any representations, warranties or covenants under or in connection with this Contribution Agreement or any of the documents contemplated hereby, (iii) that the Sellers’ Representative, in such capacity, is not subject to any of the liabilities contained in this Contribution Agreement or any of the documents contemplated hereby, and (iv) to unconditionally waive any and all current or future claims that any such Party may have against the Sellers’ Representative in connection with his service as the Sellers’ Representative.

(e)           The HEC Members, severally, but not jointly, shall pay the Sellers’ Representative for all reasonable fees and expenses incurred by the Sellers’ Representative in rendering its services in connection with this Contribution Agreement, including, without limitation, a reasonable hourly fee for the time spent by the Sellers’ Representative, attorney’s fees incurred by the Sellers’ Representative and other related fees and expenses.

6.16         No Outside Reliance.  NEWCO ACKNOWLEDGES THAT IT WILL, SUBJECT ONLY TO THE REPRESENTATIONS, WARRANTIES, COVENANTS AND OBLIGATIONS OF THE HEC MEMBERS HEREUNDER AND UNDER THE AGREEMENTS CONTEMPLATED HEREBY, ACQUIRE THE HEC MEMBERSHIP INTERESTS ON AN “AS IS” BASIS WITH ALL FAULTS IN RELIANCE UPON NEWCO’S INSPECTION THEREOF.  EXCEPT AS OTHERWISE SET FORTH IN THIS CONTRIBUTION AGREEMENT, AND WITHOUT LIMITING THE REPRESENTATIONS AND WARRANTIES OF THE HEC MEMBERS MADE HEREIN, THE HEC MEMBERS MAKE NO OTHER REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER WITH RESPECT TO ANY OF THE HEC MEMBERSHIP INTERESTS, HEC’S ASSETS OR BUSINESS, WHETHER EXPRESS OR IMPLIED, INCLUDING ANY REPRESENTATIONS OR WARRANTIES CONCERNING OR WITH RESPECT TO (a) THE VALUE, NATURE, QUALITY OF CONDITION, OR STATE OF REPAIR OF ANY OF HEC’S ASSETS, (b) THE COMPLIANCE OF HEC, OR ANY REAL PROPERTY OWNED OR LEASED BY IT, OR THE OPERATION OF ANY FACILITIES OF HEC, WITH APPLICABLE LAW, OR (c) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY PERSONAL OR REAL PROPERTY OWNED OR LEASED BY HEC.  NEWCO HEREBY EXPRESSLY DISCLAIMS THE IMPLIED WARRANTY OF HABITABILITY, THE IMPLIED WARRANTY OF MERCHANTABILITY AND THE IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.

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ARTICLE VII.

CONDITIONS

7.1           Conditions to Obligations of Each Party.  Notwithstanding any other provision of this Contribution Agreement, the respective obligations of each Party to effect the transactions contemplated by this Contribution Agreement shall be subject to the fulfillment at or prior to the Closing Date of the following conditions:

(a)           no Order shall have been entered and remained in effect in any action or proceeding before any federal, foreign, state or provincial court or Governmental Authority or other federal, foreign, state or provincial regulatory or administrative agency or commission that would prevent or make illegal the consummation of the transactions contemplated herein;

(b)           the NEWCO Investment and BCEOC Contribution shall be closing simultaneously with the Closing of the transactions contemplated by this Contribution Agreement; and

(c)           the consents, waivers, authorizations and approvals set forth on Schedule 5.4 shall have been duly obtained and shall be in full force and effect on the Closing Date.

7.2           Conditions to Obligations of NEWCO.  Notwithstanding any other provision of this Contribution Agreement, the obligations of NEWCO to effect the transactions contemplated by this Contribution Agreement shall be subject to the fulfillment at or prior to the Closing Date of the following conditions:

(a)           the conditions set forth in Section 7.1;

(b)           the representations and warranties of each of the HEC Members contained in this Contribution Agreement shall be true and correct as of the Closing Date (or, if given as of a specific date, at and as of such date);

(c)           the covenants of each of the HEC Members to be complied with or performed on or before the Closing Date pursuant to the terms hereof shall have been duly complied with or performed;

(d)           each HEC Member shall have delivered to NEWCO a duly executed certificate of non-foreign status in the form and manner that complies with Section 1445 of the Code and the Treasury Regulations thereunder; and

(e)           assignment agreements and unit powers in the form attached hereto as Exhibit G shall have been executed and delivered to NEWCO by each of the HEC Members.

7.3           Conditions to Obligations of each of the HEC Members.  Notwithstanding any other provision of this Contribution Agreement, the obligations of each of the HEC Members to effect the transactions contemplated by this Contribution Agreement shall be subject to the fulfillment at or prior to the Closing Date of the following conditions:

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(a)           the conditions set forth in Section 7.1;

(b)           the representations and warranties of NEWCO contained in this Contribution Agreement shall be true and correct as of the Closing Date (or, if given as of a specific date, at and as of such date);

(c)           the covenants of each of the Parties (other than the HEC Members and the Sellers’ Representative) to be complied with or performed on or before the Closing Date pursuant to the terms hereof shall have been duly complied with or performed;

(d)           the Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws shall have been adopted by NEWCO; and

(e)           the Stockholders Agreement and the Registration Rights Agreement shall have been executed and delivered by NEWCO.

ARTICLE VIII.

TERMINATION

8.1           Termination.  This Contribution Agreement may be terminated and the transactions contemplated herein may be abandoned at any time prior to the Effective Time:

(a)           by either NEWCO or the Sellers’ Representative if the Effective Time shall not have occurred on or before January 31, 2011 (unless the Effective Time has not occurred as the result of a breach of the terms hereof by the Party desiring to exercise the termination right, which date may be extended by mutual agreement of the Parties);

(b)           by either NEWCO or the Sellers’ Representative if a final unappealable Order to restrain, enjoin or otherwise prevent, or awarding substantial damages in connection with, consummation of this Contribution Agreement or the transactions contemplated in connection herewith shall have been entered; or

(c)           with the written consent of all the Parties hereto.

8.2           Effect of Termination.  In the event of any termination of this Contribution Agreement pursuant to Section 8.1, the Parties shall have no obligation or liability to any other Party except the provisions of this Section 8.2 and Sections 8.3, 10.4, 10.5, 10.7, 10.8, and 10.9, hereof shall survive any such termination and, except as provided in this Section 8.2, all documents executed in connection with this Contribution Agreement shall be null and void.

8.3           Fees and Expenses.  Except as set forth in Section 6.14, NEWCO, BCEC and BCEOC on the one hand and the HEC Members on the other hand shall bear their own costs and expenses incurred by such Party in connection with this Contribution Agreement and the transactions contemplated hereby.

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ARTICLE IX.

INDEMNIFICATION

9.1           Indemnification by the HEC Members.

(a)           Subject to the terms and conditions of this Article IX, notwithstanding the Closing, the HEC Members each agree, severally, but not jointly, to indemnify, defend and hold NEWCO and its Affiliates, agents, officers, directors and representatives (each, a “NEWCO Indemnified Party” and collectively, the “NEWCO Indemnified Parties”) harmless from, against and in respect of all damages, losses, liabilities, claims, proceedings, demands, assessments, fines, judgments, costs or expenses (including reasonable attorneys’ fees and expenses) (collectively, “Losses”) resulting from, arising out of or relating to, any of the following (collectively, “NEWCO Claims”):

(i)            any breach of the representations and warranties made by the HEC Members in this Contribution Agreement;

(ii)           the breach of any covenant or agreement of the HEC Members pursuant to this Contribution Agreement; and

(iii)          any fraud, misrepresentation or similar circumstance.

(b)           The obligations of the HEC Members pursuant to this Section 9.1 are subject to the following:

(i)            NEWCO Claims under Section 9.1(a)(i) will terminate twelve (12) months following the Closing Date;

(ii)           NEWCO Claims under Sections 9.1(a)(ii) and 9.1(a)(iii) will survive indefinitely;

(iii)          the maximum aggregate amount of Losses for which indemnity may be recovered from the HEC Members as a group pursuant to Sections 9.1(a)(i) and 9.1(a)(ii) shall be an amount equal to 10% of the Cash Purchase Price (the “Cap”);

(iv)          the NEWCO Indemnified Parties shall not be entitled to seek indemnification for Losses pursuant to Sections 9.1(a)(i) or 9.1(a)(ii), until the aggregate of all Losses actually incurred by all Purchaser Indemnified Parties thereunder exceed an amount equal to 1% of the Cash Purchase Price in the aggregate (the “Deductible”) and thereafter, the HEC Members shall, severally, but not jointly, indemnify the full amount of such NEWCO Claims and all resolved claims thereafter in excess of the Deductible, subject to any other applicable limitations under this Article IX;

(v)           the amount of any Losses claimed by any NEWCO Indemnified Party hereunder shall be net of any insurance, indemnity, contribution or other payments or recoveries of a like nature with respect thereto; promptly after the realization of any such reductions of Losses pursuant hereto, such NEWCO Indemnified Party shall

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reimburse the HEC Members, as the case may be, for such reduction in Losses for which such NEWCO Indemnified Party was indemnified prior to the realization of such reductions of Losses; and NEWCO shall use its commercially reasonable efforts to (A) cause the NEWCO Indemnified Parties to seek the benefits of any insurance, indemnity, contribution or other payments or recoveries of a like nature applicable to such Losses and (B) otherwise mitigate the amount of Losses;

(vi)          in the event that any HEC Member can prove that a NEWCO Indemnified Party had actual knowledge of a breach of a representation or warranty made by the HEC Members before the date on which such representation or warranty was made, then no NEWCO Indemnified Party will have any right to indemnification under this Contribution Agreement regarding such breach;

(vii)         a NEWCO Indemnified Party shall not be entitled to multiple recovery for the same Losses; and

(viii)        in determining the amount of indemnification due hereunder, all payments shall be reduced by any tax benefit actually and currently realized by the NEWCO Indemnified Party on account of the underlying claim.

9.2           Indemnification by NEWCO, BCEC and BCEOC.

(a)           Subject to the terms and conditions of this Article IX, notwithstanding the Closing, each of NEWCO, BCEC and BCEOC agree, jointly and severally, to indemnify, defend and hold the HEC Members and their agents, representatives and Affiliates (each, a “HEC Indemnified Party” and collectively, the “HEC Indemnified Parties”) harmless from, against and in respect of any and all Losses resulting from, arising out of or relating to, any of the following (collectively “HEC Claims”):

(i)            any breach of the representations and warranties made by NEWCO in this Contribution Agreement;

(ii)           the breach of any covenant or agreement of NEWCO, BCEC and/or BCEOC pursuant to this Contribution Agreement;

(iii)          any fraud, misrepresentation or similar circumstance; and

(iv)          the ownership and operation of HEC and its business following the Closing Date.

(b)           The obligations of NEWCO, BCEC and BCEOC pursuant to this Section 9.2 are subject to the following:

(i)            HEC Claims under Section 9.2(a)(i) will terminate twelve (12) months following the Closing Date;

(ii)           HEC Claims under Sections 9.2(a)(ii), 9.2(a)(iii) and 9.2(a)(iv) will survive indefinitely;

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(iii)          a HEC Indemnified Party shall not be entitled to multiple recovery for the same Losses; and

(iv)          in determining the amount of indemnification due hereunder, all payments shall be reduced by any tax benefit actually and currently realized by the HEC Indemnified Party on account of the underlying claim.

9.3           Exclusive Remedy.  Each of NEWCO, on behalf of the NEWCO Indemnified Parties, on the one hand and the Sellers’ Representative, on behalf of the HEC Indemnified Parties, on the other hand hereby acknowledges and agrees that, from and after the Closing, such Party’s sole remedy resulting from, arising out of or relating to any breach of any representation, warranty, covenant or agreement contained in this Contribution Agreement shall be pursuant to the indemnification provisions of this Article IX.  In furtherance of the foregoing, each such Party’s hereby waives, from and after the Closing, to the fullest extent permitted by applicable Law, any and all other rights, claims and causes of action such Party may have against such other Party or their respective representatives and Affiliates resulting from, arising out of or relating to any breach of any representation, warranty, covenant or agreement contained in this Contribution Agreement.

9.4           Mitigation.  Each Party entitled to indemnity hereunder shall use reasonable efforts to mitigate any Losses for which it may claim indemnification under this Article IX.  To the extent any Party shall have been determined to have failed to use reasonable efforts to mitigate such Losses, such Party’s right to indemnification hereunder shall be reduced by the portion of such Losses attributable to such failure.

9.5           Treatment of Indemnity Payments.  All indemnification payments made pursuant to this Contribution Agreement will be treated by the Parties as adjustments to the Purchase Price.

ARTICLE X.

MISCELLANEOUS

10.1         Waiver and Amendment.  Any provision of this Contribution Agreement may be waived in writing at any time by the Party that is entitled to the benefits thereof.  This Contribution Agreement may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of NEWCO and the Sellers’ Representative.

10.2         Assignment.  This Contribution Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs, devisees and assigns.  Except as set forth in this Contribution Agreement, this Contribution Agreement shall not be assignable until after the Closing Date (except by inheritance or devise) by the Parties, except with the prior written consent of the other Parties.

10.3         Notices.  All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered if delivered in person or by facsimile or electronic mail, receipt confirmed, (b) one (1) Business Day if sent by reputable national express overnight courier (shipping cost prepaid) or (c) three

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(3) Business Days after deposit with a United States post office if delivered by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties as follows:

If to the HEC Members:

c/o Holmes Western Oil Corp.

4300 Midway Road

P.O. Box 1405

Taft, California 93268

Fax: 661-763-5737

Attn: Fred Holmes and Paul Hancock

with a copy to:

Munger, Tolles & Olson LLP

355 S. Grand Avenue, 35th Floor

Los Angeles, CA 90071

Fax: 213-687-3702

Attn: J. Martin Willhite

If to NEWCO, BCEC and/or BCEOC:

c/o Bonanza Creek Energy Operating Company, LLC

410 17th Street, Suite 1380

Denver, CO 80202

Fax: 720-279-2331

Attn: Michael R. Starzer

With a copy (which shall not constitute notice) to:

Kendall, Koenig & Oelsner PC

999 Eighteenth Street, Suite 1825

Denver, CO 80202

Fax: 303-672-0101

Attn:  Christopher I. Humber

or to such other address as any Party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt.

10.4         Governing Law.  This Contribution Agreement shall be governed by and construed in accordance with the substantive Law of the State of Delaware without giving effect to the principles of conflicts of law thereof.

10.5         Severability.  If any term or other provisions of this Contribution Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Contribution Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is

27

not affected in any manner material to any Party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Contribution Agreement so as to effect the original intent of the Parties as closely as possible.

10.6         Counterparts.  This Contribution Agreement may be executed in counterparts, each of which shall be an original document, but all of which together shall constitute one and the same agreement.  This Contribution Agreement may be executed by delivery of a facsimile or other electronic transmission of a manually executed counterpart each of which shall constitute an original for all purposes hereunder.

10.7         Headings.  The section headings herein are for convenience only and are not intended to be part of or to affect the meaning or interpretation of the Contribution Agreement.

10.8         Enforcement of this Contribution Agreement.  The Parties agree that irreparable damage would occur in the event that any of the provisions of this Contribution Agreement were not performed in accordance with their specific terms or otherwise breached.  It is accordingly agreed that the Parties shall be entitled to any injunction or injunctions to prevent breaches of this Contribution Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedies to which they are entitled at law or in equity.  Notwithstanding the foregoing, BCEC and NEWCO shall have no obligation to close the NEWCO Investment or the BCEOC Contribution.

10.9         Entire Agreement; Third Party Beneficiaries.  This Contribution Agreement, including the documents and information supplied in writing, and instruments referred to herein and the exhibits hereto, constitute the entire agreement and supersedes all other prior agreements and understandings, both oral and written, among the Parties or any of them, with respect to the subject matter hereof, including, without limitation, the Prior Contribution Agreement.  This Contribution Agreement shall be binding upon and inure solely to the benefit of the Parties, and, nothing in this Contribution Agreement, including the documents and information supplied in writing, and instruments referred to herein, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Contribution Agreement, except that (a) the HEC Indemnified Parties and the NEWCO Indemnified Parties shall have the rights and remedies set forth in Article IX hereof and (b) NEWCO and its Affiliates are express and intended third-party beneficiaries of the (i) representations and warranties made by the applicable HEC Members in Section 4.9 (Investment Intent) hereof and (ii) covenants made by the Parties in Section 6.10 (Section 351) hereof.

[Signature pages follow]

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IN WITNESS WHEREOF, the Parties to this Contribution Agreement have caused it to be duly executed as of the date first above written.

NEWCO:
BONANZA CREEK ENERGY, INC.
By:	/s/ Michael R. Starzer
Name: Michael R. Starzer
Title: President
BONANZA CREEK ENERGY COMPANY, LLC
By:	/s/ Michael R. Starzer
Name: Michael R. Starzer
Title: President and Secretary
BONANZA CREEK ENERGY OPERATING COMPANY, LLC
By:	/s/ Michael R. Starzer
Name: Michael R. Starzer
Title: Manager
BONANZA CREEK ENERGY RESOURCES, LLC
By:	/s/ Michael R. Starzer
Name: Michael R. Starzer
Title: CEO & Secretary/Manager

HEC MEMBERS:
THE FRED S. AND BARBARA J. HOLMES TRUST, DATED JANUARY 10, 1983
By:	/s/ Fred S. Holmes
Name: Fred S. Holmes
Title: Trustee
THE HANCOCK FAMILY TRUST, DATED MARCH 16, 1988
By:	/s/ Paul C. Hanock
Name: Paul C. Hancock
Title: Trustee
THE STARZER REVOCABLE LIVING TRUST, DATED FEBRUARY 26, 1998
By:	/s/ Michael R. Starzer
Name: Michael R. Starzer
Title: Member
THE FRANK H. BENNETT LIVING TRUST
U/T/D JUNE 3, 1994
By:	/s/ Frank H. Bennett
Name: Frank H. Bennett
Title: Sole Trustee
SCOTT F. BENNETT LIVING TRUST U/T/D MARCH 3, 2004
By:	/s/ Scott F. Bennett
Name: Scott F. Bennett
Title: Owner/Trustee

THE RALPH & JUDITH GOEHRING FAMILY TRUST DATED JULY 5, 2007
By:	/s/ Ralph J. Goehring
Name: Ralph J. Goehring
Title: Trustee
GARY AND SONIA GROVE FAMILY TRUST, DATED APRIL 7, 2009
By:	/s/ Gary A. Grove
Name: Gary A. Grove
Title: Trustee
/s/ Joseph M. Eller
JOSEPH M. ELLER
/s/ Denise Boshers
DENISE BOSHERS
/s/ Ralph McPhetridge
RALPH MCPHETRIDGE
/s/ Michael McPhetridge
MICHAEL MCPHETRIDGE
/s/ Pat Graham
PAT GRAHAM
/s/ Patricia Morrison
PATRICIA MORRISON

SELLERS’ REPRESENTATIVE

(Solely in his capacity as the Sellers’ Representative and only with respect to the provisions of this Contribution Agreement that relate to the rights and obligations of the Sellers’ Representative):

/s/ Fred S. Holmes

Fred S. Holmes

Holmes Eastern Company, LLC, a Delaware limited liability company, hereby joins this Contribution Agreement as if a party hereto with respect only the covenants and obligations set forth in Section 6.7.

HOLMES EASTERN COMPANY, LLC
By:	/s/ Fred S. Holmes
Name: Fred S. Holmes
Title: Member

EX-10.13

Exhibit 10.13

CONTRIBUTION AGREEMENT

by and between

BONANZA CREEK ENERGY COMPANY, LLC,

and

BONANZA CREEK ENERGY, INC.

December 23, 2010

TABLE OF CONTENTS

		Page
ARTICLE I. DEFINITIONS		1
ARTICLE II. CONTRIBUTION TRANSACTION		4
2.1	Contribution of BCEOC Membership Interests to NEWCO	4
2.2	Issuance of New Certificates	4
2.3	Certificate Legends	4
2.4	Fractional Shares	4
2.5	Transfer Taxes	4
2.6	Compliance with Provisions in LLC Agreement	4
ARTICLE III. CLOSING		5
3.1	Time and Place	5
3.2	Deliveries at Closing	5
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BCEC		5
4.1	Organization and Good Standing	5
4.2	Authority and Enforceability	5
4.3	No Conflict; Required Filings and Consents	5
4.4	Ownership	6
4.5	Accredited Investor	6
4.6	Restricted Securities	6
4.7	Investment Intent	6
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF NEWCO		6
5.1	Organization and Power	6
5.2	Authorizations; Execution and Validity	7
5.3	Capitalization	7
5.4	Consents	7
5.5	No Defaults or Conflicts	8
5.6	Holmes Contribution Agreement	8
ARTICLE VI. COVENANTS		8
6.1	Ordinary Course of Business	8
6.2	Regulatory Matters	8
6.3	Commercially Reasonable Efforts	8
6.4	Officers and Directors	9
6.5	Access to Information	9
6.6	Section 351	9
6.7	Management Incentive Plan	9
6.8	Amended and Restated Certificate of Incorporation and Bylaws	9
6.9	Further Assurances	10

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TABLE OF CONTENTS

		Page
ARTICLE VII. CONDITIONS		10
7.1	Conditions to Obligations of Each Party	10
7.2	Conditions to Obligations of NEWCO	10
7.3	Conditions to Obligations of BCEC	10
ARTICLE VIII. TERMINATION		11
8.1	Termination	11
8.2	Effect of Termination	12
8.3	Fees and Expenses	12
ARTICLE IX. MISCELLANEOUS		12
9.1	Waiver and Amendment	12
9.2	Nonsurvival of Representations and Warranties	12
9.3	Assignment	12
9.4	Notices	12
9.5	Governing Law	13
9.6	Severability	13
9.7	Counterparts	14
9.8	Headings	14
9.9	Enforcement of the Contribution Agreement	14
9.10	Entire Agreement; Third Party Beneficiaries	14

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EXHIBITS
Exhibit A	—	Amended and Restated Certificate of Incorporation
Exhibit B	—	Amended and Restated Bylaws
Exhibit C	—	Form of Holmes Contribution Agreement
Exhibit D	—	Shareholders Agreement
Exhibit E	—	Management Incentive Plan
DISCLOSURE SCHEDULES
Schedule 6.4		—	Officers and Directors

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CONTRIBUTION AGREEMENT

THIS CONTRIBUTION AGREEMENT, dated as of December 23, 2010 (this “Contribution Agreement”), is by and between Bonanza Creek Energy Company, LLC, a Delaware limited liability company (“BCEC”) and Bonanza Creek Energy, Inc., a Delaware corporation (“NEWCO”).

W I T N E S S E T H:

WHEREAS, BCEC currently owns 100% of the outstanding membership interests (“BCEOC Membership Interests”) of Bonanza Creek Energy Operating Company, LLC (“BCEOC”);

WHEREAS, BCEC has agreed to transfer and contribute to NEWCO all of the outstanding BCEOC Membership Interests in exchange for shares of NEWCO Class A Common Stock (defined herein);

WHEREAS, prior to the BCEC’s contribution of the BCEOC Membership Interests, BCEC will assign to BCEOC, and BCEOC will assume primarily liability for, certain indebtedness of BCEC;

WHEREAS, pursuant to that certain WFC Investment Agreement (defined herein) of even date herewith between NEWCO and certain investors set forth on the signature pages thereof, the investors will invest $265 million into NEWCO in exchange for NEWCO Class A Common Stock (“WFC Contribution”);

WHEREAS, in addition to and simultaneous with the foregoing contributions, NEWCO also will acquire the outstanding equity of Holmes Eastern Company, LLC from its equity owners (“Holmes Contribution”);

WHEREAS, the parties intend for the foregoing transfers to qualify under Section 351(a) of the Internal Revenue Code of 1986, as amended (the “Code”); and

WHEREAS, in connection with the closing of the transactions set forth in this Contribution Agreement, NEWCO also will (i) adopt the Management Incentive Plan (defined herein), and (ii) the holders of NEWCO Class A Common Stock will enter into the Shareholders Agreement (defined herein).

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements herein contained, the parties hereto agree as follows:

ARTICLE I.
DEFINITIONS

The terms set forth below in this Article I shall have the meanings ascribed to them below or in the part of this Contribution Agreement referred to below:

“Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the general rules and regulations under the Securities Exchange Act of 1934, as in effect on the date of this Contribution Agreement.

“Amended and Restated Bylaws” means that certain form of Amended and Restated Bylaws of NEWCO set forth on Exhibit B.

“Amended and Restated Certificate of Incorporation” means that certain form of Amended and Restated Certificate of Incorporation of NEWCO set forth on Exhibit A.

“BCEC” has the meaning set forth in the introductory paragraph hereto.

“BCEC Board” means the board of managers of BCEC.

“BCEOC” has the meaning set forth in the recitals hereto.

“BCEOC Membership Interests” has the meaning set forth in the recitals hereto.

“Business Day” means any day other than a Saturday, a Sunday or any other day when banks are not open for business generally in the State of New York.

“Closing” has the meaning set forth in Section 3.1 hereto.

“Closing Date” has the meaning set forth in Section 3.1 hereto.

“Code” has the meaning set forth in the recitals hereto.

“Commission” means the U.S. Securities and Exchange Commission.

“Contribution Agreement” has the meaning set forth in the introductory paragraph hereto.

“Effective Time” means the date and time of the closing of the WFC Contribution.

“Governmental Authorities” means the federal, state, county, city and political subdivisions in which any property of NEWCO or BCEC, respectively, is located or which exercises jurisdiction over any such property or entity, and any agency, department, commission, board, bureau or instrumentality of any of them which exercises jurisdiction over any such property or entity.

“Holmes Contribution” has the meaning set forth in the recitals hereto.

“Holmes Contribution Agreement” means that certain acquisition agreement between NEWCO and the equity owners of Holmes Eastern Company, LLC dated December 23, 2010, the form of which is attached as Exhibit C hereto.

“Law” means any federal, state, local or foreign law, statute, rule, ordinance, code or regulation.

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“LLC Agreement” means that certain Bonanza Creek Energy Operating Company, LLC Operating Agreement dated May 4, 2006.

“Management Incentive Plan” has the meaning set forth in Section 6.7.

“Material Adverse Effect” means a material adverse effect on the business, operations, prospects, properties (including intangible properties), assets, operating results or condition (financial or otherwise) liabilities or reserves of NEWCO and BCEC, taken as a whole; provided, however, that a general deterioration in the economy or changes in oil and gas prices or other changes affecting the oil and gas industry generally shall not be deemed to be a Material Adverse Effect.

“NEWCO” has the meaning set forth in the introductory paragraph hereto.

“NEWCO Board” means the board of directors of NEWCO.

“NEWCO Class A Common Stock” means the Class A common stock of NEWCO, par value $0.001 per share.

“NEWCO Class B Common Stock” means the Class B common stock of NEWCO, par value $0.001 per share.

“Order” means any order, judgment, injunction, ruling, writ, award, decree, statute, Law, ordinance, rule or regulation.

“Person” means an individual, corporation, partnership (limited or general), limited liability company, trust, joint stock company, Governmental Authority, unincorporated association or other legal entity.

“Securities Act” means the Securities Act of 1933, as amended.

“Shareholders Agreement” means that certain shareholders agreement, in substantially the form as Exhibit D, to be executed and delivered by the holders of Class A Common Stock.

“Subsidiary” or “Subsidiaries” means, with respect to any Person, each entity as to which such Person (either alone or through or together with any other Subsidiary) (i) owns beneficially or of record or has the power to vote or control, 50% or more of the voting securities of such entity or of any class of equity interests of such entity the holders of which are ordinarily entitled to vote for the election of the members of the board of directors or other persons performing similar functions, (ii) in the case of partnerships, serves as a general partner, (iii) in the case of a limited liability company, serves as a managing member or owns a majority of the equity interests or (iv) otherwise has the ability to elect a majority of the directors, trustees or managing members thereof.

“WFC Contribution” has the meaning set forth in the recitals hereto.

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“WFC Investment Agreement” means that certain agreement of even date herewith by and among NEWCO and the Purchasers defined therein and executing the signature pages thereto and covering the WFC Contribution.

ARTICLE II.
CONTRIBUTION TRANSACTION

2.1Contribution of BCEOC Membership Interests to NEWCO.  Immediately prior to the Effective Time, BCEC shall contribute all of the BCEOC Membership Interests to NEWCO in exchange for 6,272,851 shares of NEWCO Class A Common Stock.

2.2Issuance of New Certificates.  At the Effective Time, NEWCO shall issue to BCEC a certificate or certificates representing the number of shares of NEWCO Class A Common Stock to be issued to such Person pursuant to Sections 2.1.

2.3Certificate Legends.  The certificates evidencing the NEWCO Class A Common Stock delivered pursuant to Section 2.2 shall bear a legend substantially in the form set forth below and containing such other information as NEWCO may deem necessary or appropriate:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER.  THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO A SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 23, 2010, AS MAY BE AMENDED FROM TIME TO TIME, BY AND AMONG THE ISSUER AND CERTAIN OF THE ISSUER’S STOCKHOLDERS.  A COPY OF SUCH SHAREHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN REQUEST.

2.4Fractional Shares.  No fractional shares of NEWCO Class A Common Stock or scrip shall be issued as a result of the transactions contemplated herein.  Any fractional share of NEWCO Class A Common Stock which would otherwise be issuable as a result of such transactions shall be rounded up to the nearest whole share.

2.5Transfer Taxes.  All transfer, documentary, sales, use, stamp, registration and other such taxes and fees incurred in connection with the contribution transaction contemplated by Article II of this Contribution Agreement shall be borne by NEWCO.

2.6Compliance with Provisions in LLC Agreement.  Pursuant to Section 18 of the LLC Agreement, no member of BCEOC may sell, assign or transfer its membership interest unless such sale, assignment or transfer is in compliance with applicable federal and state securities laws and is consented to unanimously by all other members of BCEOC.  Because BCEC is the sole member of BCEOC and based on the representations set forth herein, the

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parties hereto agree that the contribution described in Section 2.1 is in compliance with Section 18 of the LLC Agreement.

ARTICLE III.
CLOSING

3.1Time and Place.  The closing of the transactions contemplated hereby (the “Closing”) shall be held at the offices of Mayer Brown LLP located 1675 Broadway, New York, New York 10019 at 10:00 a.m., local time, immediately prior to the Effective Time; provided that all of the conditions contained in Article VII have been satisfied or waived, or at such other place or time as the parties hereto may mutually agree.  The date of the Closing is referred to herein as the “Closing Date.”

3.2Deliveries at Closing.  Subject to the provisions of Article VII hereof, at the Closing there shall be delivered the certificates and other documents required to be delivered pursuant to Article VII hereof.

ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BCEC

BCEC represents and warrants to NEWCO that the statements contained in this Article IV are correct and complete as of the date hereof.

4.1Organization and Good Standing.  BCEC is a limited liability company, validly existing and in good standing under the Laws of the State of Delaware, and has all requisite power and authority to execute, deliver and perform its obligations under this Contribution Agreement and to consummate the transactions contemplated hereby.

4.2Authority and Enforceability.  The execution and delivery by BCEC of this Contribution Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary company action and no other company proceedings are necessary to consummate the transactions contemplated hereby.  This Contribution Agreement has been duly and validly executed and delivered and constitutes a valid and binding obligation on BCEC, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization and similar Laws affecting creditors generally and by the availability of equitable remedies.

4.3No Conflict; Required Filings and Consents.  The execution and delivery of this Contribution Agreement by BCEC, and the performance by BCEC of the transactions contemplated hereby or thereby will not violate, conflict with, require any consent under or result in a violation or breach of, or constitute a default (with or without due notice or lapse of time or both) under any organizational document of BCEC or BCEOC, contract or other instrument or obligation to which BCEC or BCEOC is a party or violate any Law or Order of any Governmental Authority binding upon BCEC or BCEOC other than, in each case, where such failure, conflict, violation or breach would not have a material adverse effect on the ability of BCEC to consummate the transactions contemplated hereby.  No consent of or registration, declaration, or filing with any Governmental Authority is required by or with respect to BCEC in

5

connection with the execution and delivery of this Contribution Agreement by BCEC or the consummation of the transactions contemplated hereby.

4.4Ownership.  BCEC is the sole holder of record of and beneficial owner of all the BCEOC Membership Interests.  On the Closing Date, NEWCO will receive good and valid title to the BCEOC Membership Interests owned by BCEC, free and clear of all liens.

4.5Accredited Investor.  BCEC is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Commission.

4.6Restricted Securities.  BCEC understands that the shares of NEWCO Class A Common Stock will not have been registered pursuant to the Securities Act or any applicable state securities laws, that the shares of NEWCO Class A Common Stock will be characterized as “restricted securities” under federal securities laws, and that under such laws and applicable regulations the shares of NEWCO Class A Common Stock cannot be sold or otherwise disposed of without registration under the Securities Act or an exemption therefrom.  In this connection, BCEC represents that it is familiar with Rule 144 promulgated under the Securities Act, as currently in effect, and understands the resale limitations imposed thereby and by the Securities Act.  A legend indicating that the shares of NEWCO Class A Common Stock have not been registered under applicable federal and state securities laws and referring to the restrictions on transferability and sale of the NEWCO Class A Common Stock pursuant to this Contribution Agreement or otherwise may be placed on any certificate(s) or other document delivered to BCEC or any substitute therefor, and any transfer agent of NEWCO may be instructed to require compliance therewith.

4.7Investment Intent.  The NEWCO Class A Common Stock is being acquired for the own investment portfolio and account (and not on behalf of, and without the participation of, any other Person) of BCEC with the intent of holding the NEWCO Class A Common Stock for investment and without the intent of participating, directly or indirectly, in a distribution of the NEWCO Class A Common Stock and not with a view to, or for resale in connection with, any distribution of the NEWCO Class A Common Stock in violation of applicable securities laws or any portion thereof in violation of applicable securities laws; provided, however, nothing in the foregoing shall prevent BCEC from causing a distribution to its owners as approved by the BCEC Board in its discretion at any time after the Closing Date.  As of the Closing Date, BCEC does not have plans to transfer any of the NEWCO Class A Common Stock on a specified date or to a specified person.

ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF NEWCO

NEWCO represents and warrants to BCEC that the statements contained in this Article V are correct and complete as of the date hereof.

5.1Organization and Power.  NEWCO is a corporation, validly existing and in good standing under the Laws of the State of Delaware, and is qualified and in good standing to transact business in each jurisdiction in which such qualification is required by Law, except where the failure to be so qualified would not have a Material Adverse Effect.  NEWCO has all

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requisite corporate power and authority to execute, deliver and perform its obligations under this Contribution Agreement and to consummate the transactions contemplated hereby.  NEWCO has heretofore delivered or made available to BCEC complete and correct copies of its certificate of incorporation and bylaws, each as amended to date.

5.2Authorizations; Execution and Validity.  The execution and delivery of this Contribution Agreement by NEWCO, the performance of this Contribution Agreement by NEWCO and the consummation by NEWCO of the transactions contemplated hereby and thereby to be consummated by it, have been duly authorized by all necessary corporate action and no other corporate action on the part of NEWCO is necessary with respect thereto.  This Contribution Agreement has been duly executed and delivered by NEWCO and, when duly and validly executed and delivered, will constitute a valid and binding obligation of NEWCO and is enforceable against NEWCO in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization and similar Laws affecting creditors generally and by the availability of equitable remedies.

5.3Capitalization.

(a)As of the date hereof, the authorized capital stock of NEWCO consists solely of 1,000 shares of NEWCO common stock.  As of the date hereof, there are an aggregate of 100 shares of Common Stock issued and outstanding, all of which shares are owned of record and beneficially, by Bonanza Creek Energy Company, LLC.  Except as contemplated by the WFC Investment Agreement and in the Holmes’ Contribution Agreement, future issuances of equity or convertible debt in connection with financing transactions or acquisitions that the NEWCO Board reasonably determines to be in the best interests of NEWCO and its stockholders, and with respect to options, warrants, rights or other equity based awards issued as part of reasonable compensation plans approved by the NEWCO Board, as of the Closing Date, there shall be no outstanding options, subscriptions, warrants, calls, commitments, pre-emptive rights or other rights obligating NEWCO to issue or sell any shares of its capital stock or any securities convertible into or exercisable for any shares of its capital stock, or otherwise requiring NEWCO to give any Person the right to receive any benefits or rights similar to any rights enjoyed by or accruing to the holders of shares of capital stock of NEWCO or any rights to participate in the equity or net income of NEWCO.  All of the issued shares of NEWCO’s capital stock were issued, and to the extent purchased or transferred, have been so purchased or transferred, in compliance with all applicable Laws, including federal and state securities Laws, and any preemptive rights and any other statutory or contractual rights of any NEWCO Stockholder.

(b)NEWCO has no Subsidiaries.  NEWCO does not own, directly or indirectly, any capital of or other equity interest in or has any other investment in any other Person.

5.4Consents.  Neither the execution and delivery by NEWCO of this Contribution Agreement nor the consummation or performance by NEWCO of the transactions contemplated by this Contribution Agreement to be consummated or performed by it will require prior to the Closing (on the part of NEWCO) any consent from, authorization or approval or other action by,

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notice to or declaration, filing or a registration with, any Governmental Authority or any other third party.

5.5No Defaults or Conflicts.  Neither the execution and delivery by NEWCO of this Contribution Agreement nor the consummation or performance by NEWCO of the transactions contemplated by this Contribution Agreement to be consummated or performed by it (i) results or will result in any violation of the certificate of formation or company agreement of NEWCO; or (ii) subject to obtaining the required consent, if any, from NEWCO’s senior lender, if any, violates or conflicts with, or constitutes a breach of any of the terms or provisions of or a default under, or results in the creation or imposition of any lien upon any property or asset of NEWCO, the trigger of any charge, payment or requirement of consent, or the acceleration or increase of the maturity of any payment date under: any material contract to which NEWCO is a party or any applicable Law or Order to which NEWCO or any of its respective properties is subject, other than, in each case, where such failure, conflict or breach would not have a Material Adverse Effect.

5.6Holmes Contribution Agreement.  NEWCO has executed and delivered the Holmes Contribution Agreement in substantially the same form as set forth on Exhibit C and is bound by the terms thereof.

ARTICLE VI.
COVENANTS

6.1Ordinary Course of Business.  Except as otherwise contemplated herein or in connection with the WFC Investment Agreement, between the date of this Contribution Agreement and the earlier to occur of the Closing Date or the termination of this Contribution Agreement, BCEC will cause BCEOC to carry on its business diligently and in the ordinary and usual course and consistent with past practice, and, without limiting the generality of the foregoing, and will use commercially reasonable efforts to preserve its business organizations, keep available the services of their respective present executive officers and employees and preserve their respective present relationships with persons having business dealings with it.  Notwithstanding the foregoing, the parties agree that prior to the Closing, BCEC will assign to BCEOC certain of its indebtedness pursuant to a form of assignment mutually satisfactory to BCEC, BCEOC, and the lenders of such indebtedness.

6.2Regulatory Matters.  Notwithstanding anything in this Contribution Agreement to the contrary, if any party hereto or any Affiliate thereof is required to make a filing under any such acts in connection with the transactions contemplated by this Contribution Agreement, such party agrees to make any filing in a timely manner and to use its commercially reasonable efforts to obtain any other regulatory approvals which may be required to consummate the transactions contemplated herein.  Additionally, the filing fees of such Person shall be borne by the party whose equity ownership gave rise to such filing obligation.

6.3Commercially Reasonable Efforts.  Upon the terms and subject to the conditions hereof, each of the parties hereto agrees to use its commercially reasonable efforts to take, or cause to be taken, all appropriate action, and to do or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions as contemplated by this

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Contribution Agreement and to cooperate with NEWCO in connection with the foregoing, including NEWCO’s commercially reasonable efforts:

(a)to obtain any necessary waivers, consents and approvals from other parties to material notes, licenses, agreements and other instruments and obligations;

(b)to obtain any material consents, approvals, authorizations and permits required to be obtained under any Law or Order;

(c)to defend all lawsuits or other legal proceedings challenging this Contribution Agreement or the consummation of the transactions as contemplated hereby; and

(d)to effect promptly all necessary filings and notifications and prompt submissions of information requested by Governmental Authorities.

6.4Officers and Directors.  Immediately prior to the Effective Time, NEWCO and its sole owner shall cause the officers and directors set forth on Schedule 6.4 to be appointed and elected, as applicable, to hold the positions set forth opposite their names until their successors have been duly elected or appointed and qualified.

6.5Access to Information.  From the date hereof to the Effective Time, each of BCEC and NEWCO shall afford the officers, employees and representatives of each, complete access at all reasonable times to its respective officers, employees, agents, properties, books and records, as applicable, and shall furnish the others all financial, operating and other data and information as may be reasonably requested.

6.6Section 351.  For United States federal income tax purposes and any applicable state or local income tax purposes, the parties hereto recognize that the contributions described in Section 2.1, as well as the WFC Contribution and the Holmes Contribution, will be treated as contributions to NEWCO in exchange for shares of NEWCO Class A Common Stock to which Section 351(a) of the Code applies.  No party shall file any income tax return or otherwise take any position for income tax purposes that is inconsistent with such treatment unless required to do so pursuant to a “determination” within the meaning of Section 1313(a) of the Code or the corresponding provision of state or local income tax Law.  Additionally, each party agrees to take no action which, alone or in combination with the actions of others, reasonably could prevent the transactions from qualifying for nonrecognition of gain or loss under Section 351(a) of the Code, including, without limitation, any prearranged sale or other disposition of NEWCO Class A Common Stock.

6.7Management Incentive Plan.  The parties hereto agree to cause NEWCO to adopt a Management Incentive Plan, which will reserve for issuance a certain number of shares of NEWCO Class B Common Stock (the “Management Incentive Plan”), which form will be substantially in the same form as set forth as Exhibit E.

6.8Amended and Restated Certificate of Incorporation and Bylaws.  Immediately prior to the Effective Time, NEWCO shall adopt an Amended and Restated Certificate of Incorporation substantially similar to the form attached as Exhibit A, and Amended and Restated Bylaws, substantially similar to the form attached as Exhibit B.

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6.9Further Assurances.  The parties hereto agree to execute and deliver, or cause to be executed and delivered, such further instruments or documents or take such other action as may be reasonably necessary or convenient to carry out the transactions contemplated hereby.

ARTICLE VII.
CONDITIONS

7.1Conditions to Obligations of Each Party.  Notwithstanding any other provision of this Contribution Agreement, the respective obligations of each party to effect the transactions contemplated by this Contribution Agreement shall be subject to the fulfillment at or prior to the Closing Date of the following conditions:

(a)no Order shall have been entered and remained in effect in any action or proceeding before any federal, foreign, state or provincial court or Governmental Authority or other federal, foreign, state or provincial regulatory or administrative agency or commission that would prevent or make illegal the consummation of the transactions contemplated herein; and

(b)all other approvals of Governmental Authorities and of non-governmental persons or entities shall have been obtained (i) the granting of which is necessary for the consummation of the transactions contemplated herein and (ii) the non-receipt of which will have a Material Adverse Effect.

7.2Conditions to Obligations of NEWCO.  Notwithstanding any other provision of this Contribution Agreement, the obligations of NEWCO to effect the transactions contemplated by this Contribution Agreement shall be subject to the fulfillment at or prior to the Closing Date of the following conditions:

(a)the conditions set forth in Section 7.1;

(b)the representations and warranties of BCEC contained in this Contribution Agreement shall be true and correct as of the Closing Date (or, if given as of a specific date, at and as of such date), except for such failures to be true which (i) have been cured prior to the Closing Date or (ii) do not, in the aggregate, constitute a Material Adverse Effect;

(c)the contributions of BCEC pursuant to Section 2.1 and covenants of each of the parties hereto (other than NEWCO) to be complied with or performed on or before the Closing Date pursuant to the terms hereof shall have been duly complied with or performed, except for such failures to comply or perform which do not, in the aggregate, constitute a Material Adverse Effect; and

(d)assignment agreements and unit powers in form and substance reasonably acceptable to NEWCO evidencing the transfer of the BCEOC Membership Interests shall have been executed and delivered by BCEC.

7.3Conditions to Obligations of BCEC.  Notwithstanding any other provision of this Contribution Agreement, the obligations of BCEC to effect the transactions contemplated by this Contribution Agreement shall be subject to the fulfillment at or prior to the Closing Date of the following conditions:

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(a)the conditions set forth in Section 7.1;

(b)the representations and warranties of NEWCO contained in this Contribution Agreement shall be true and correct as of the Closing Date (or, if given as of a specific date, at and as of such date), except for such failures to be true which (i) have been cured prior to the Closing Date or (ii) do not, in the aggregate, constitute a Material Adverse Effect;

(c)the covenants of each of the parties hereto (other than BCEC) to be complied with or performed on or before the Closing Date pursuant to the terms hereof shall have been duly complied with or performed, except for such failures to comply or perform which do not, in the aggregate, constitute a Material Adverse Effect;

(d)NEWCO shall have entered into the WFC Investment Agreement and the transaction described therein shall be closing contemporaneously with the transaction described herein (subject to the statement of timing in Section 2.1);

(e)the Amended and Restated Certificate of Incorporation and the Amended and Restated Bylaws, in substantially the same forms as set forth on Exhibits A and B, have been adopted by NEWCO;

(f)the Management Incentive Plan has been adopted by NEWCO, and all NEWCO Class B Common Stock reserved thereunder shall have been issued or further reserved for further issuance by the NEWCO Board acting on recommendation from the chief executive officer of NEWCO;

(g)the Holmes Contribution, pursuant to the Holmes Contribution Agreement, shall be closing contemporaneously with the Closing of the contribution described herein (subject to the statement of timing in Section 2.1);

(h)the lenders of the BCEC indebtedness shall have consented to the assignment of such indebtedness to BCEOC and shall have agreed to the form of assignment and such assignments shall have been executed and delivered and the indebtedness shall have been effectively assigned to and assumed by BCEOC; and

(i)the Shareholders Agreement, in substantially the same form as set forth on Exhibit D, has been executed and delivered by the other parties thereto.

ARTICLE VIII.
TERMINATION

8.1Termination.  This Contribution Agreement may be terminated and the transactions contemplated herein may be abandoned at any time prior to the Effective Time:

(a)by any party if the conditions applicable to that party under Article VII have not been satisfied;

(b)by any party hereto if the Closing shall not have occurred on or before December 31, 2010 (unless the Closing has not occurred as the result of a breach of the terms

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hereof by the party desiring to exercise the termination right), which date may be extended by mutual agreement of the parties hereto;

(c)by any party hereto if a final unappealable Order to restrain, enjoin or otherwise prevent, or awarding substantial damages in connection with, consummation of this Contribution Agreement or the transactions contemplated in connection herewith shall have been entered;

(d)with the written consent of all the parties hereto;

(e)automatically following the termination or withdrawal of the WFC Contribution or the termination of the WFC Investment Agreement; or

(f)by BCEC if (i) the NEWCO Board fails to approve the terms of the WFC Contribution or (ii) the BCEC Board fails to determine that the consummation of the WFC Contribution is in the best interests of BCEC.

8.2Effect of Termination.  In the event of any termination of this Contribution Agreement pursuant to Section 8.1, the parties hereto shall have no obligation or liability to any other party hereto except the provisions of this Section 8.2 and Sections 8.3, 9.5, 9.6, 9.8, 9.9, and 9.10, hereof shall survive any such termination and, except as provided in this Section 8.2, all documents executed in connection with this Contribution Agreement shall be null and void.

8.3Fees and Expenses.  All costs and expenses incurred by either party hereto in connection with this Contribution Agreement and the transactions contemplated hereby shall be borne and paid by NEWCO upon presentation of such costs and expenses.

ARTICLE IX.
MISCELLANEOUS

9.1Waiver and Amendment.  Any provision of this Contribution Agreement may be waived at any time by the party that is entitled to the benefits thereof.  This Contribution Agreement may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of each party hereto.

9.2Nonsurvival of Representations and Warranties.  No representation and warranty made in this Contribution Agreement shall survive the Effective Time.  This Section 9.2 shall not limit the term of any covenant or agreement which by its terms contemplates performance after the Closing Date.

9.3Assignment.  This Contribution Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, devisees and assigns.  Except as set forth in this Contribution Agreement, this Contribution Agreement shall not be assignable until after the Closing Date (except by inheritance or devise) by the parties hereto, except with the prior written consent of the other parties.

9.4Notices.  All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered if

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delivered in person or by facsimile or electronic mail, receipt confirmed and  shall be deemed to have been duly given three (3) Business Days after deposit with a United States post office if delivered by registered or certified mail (postage prepaid, return receipt requested) to the respective parties as follows:

If to BCEC:

Bonanza Creek Energy Company, LLC

410 17th Street, Suite 1380

Denver, CO 80202

Fax:  720-279-2331

Attn:  Chief Executive Officer

with a copy to:

Thompson & Knight LLP

333 Clay Street, Suite 3300

Houston, TX  77002

Fax:  713-654-1871

Attn:  Harry R. Beaudry

if to NEWCO:

410 17th Street, Suite 1380

Denver, CO 80202

Fax:  720-279-2331

Attn:  Chief Executive Officer

or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt.

9.5Governing Law.  This Contribution Agreement shall be governed by and construed in accordance with the substantive law of the State of Delaware without giving effect to the principles of conflicts of law thereof.

9.6Severability.  If any term or other provisions of this Contribution Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Contribution Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner material to any party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Contribution Agreement so as to effect the original intent of the parties as closely as possible.

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9.7Counterparts.  This Contribution Agreement may be executed in counterparts and by facsimile, each of which shall be an original document and all of which together shall constitute one and the same agreement.

9.8Headings.  The section headings herein are for convenience only and are not intended to be part of or to affect the meaning or interpretation of the Contribution Agreement.

9.9Enforcement of the Contribution Agreement.  The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Contribution Agreement were not performed in accordance with their specific terms or otherwise breached.  It is accordingly agreed that the parties hereto shall be entitled to any injunction or injunctions to prevent breaches of this Contribution Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedies to which they are entitled at law or in equity.

9.10Entire Agreement; Third Party Beneficiaries.  This Contribution Agreement, including the documents and information supplied in writing, and instruments referred to herein and the exhibits hereto, constitute the entire agreement and supersedes all other prior agreements, and understandings, both oral and written, among the parties or any of them, with respect to the subject matter hereof.  This Contribution Agreement shall be binding upon and inure solely to the benefit of the parties hereto, and nothing in this Contribution Agreement, including the documents and information supplied in writing, and instruments referred to herein, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Contribution Agreement, except that each of the Holmes Members (as that term is defined in the Holmes Contribution Agreement attached hereto as Exhibit C) are express and intended third-party beneficiaries of the (x) representations and warranties made by BCEC in Section 4.7 (Investment Intent) hereof and (y) covenants made by the parties hereto in Section 6.6 (Section 351) hereof.

[Signature pages follow]

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IN WITNESS WHEREOF, the parties to this Contribution Agreement have caused it to be duly executed as of the date first above written.

NEWCO:
BONANZA CREEK ENERGY, INC.
By:	/s/ Michael R. Starzer
	Michael R. Starzer, President
BCEC:
BONANZA CREEK ENERGY COMPANY, LLC
By:	/s/ Michael R. Starzer
	Michael R. Starzer, President

Signature Page to Contribution Agreement

EX-23.2

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Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

        We hereby consent to the inclusion in this Form S-1 Registration Statement Amendment Number 1 of:

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Our report dated July 21, 2011, relating to our audit of the consolidated financial statements of Bonanza Creek Energy, Inc. as of December 31, 2010 and for the period from Inception (December 23, 2010) to December 31, 2010.

•

Our report dated July 21, 2011, relating to the consolidated financial statements of Bonanza Creek Energy Company, LLC as of December 23, 2010 and December 31, 2009 and for the period January 1, 2010 to December 23, 2010 and for the years ended December 31, 2009 and 2008.

•

Our report dated July 21, 2011 relating to the financial statements of Holmes Eastern Company, LLC as of December 23, 2010 and December 31, 2009 and for the period January 1, 2010 to December 23, 2010 and for the period from Inception (May 1, 2009) to December 31, 2009.

        We also consent to the reference to our Firm under the caption "Experts" appearing in the Prospectus.

HEIN & ASSOCIATES LLP

Denver, Colorado
July 21, 2011

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Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

EX-23.3

Exhibit 23.3

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS

Board of Directors
Bonanza Creek Energy, Inc.
Denver, Colorado

We hereby consent to the references to Cawley, Gillespie & Associates, to the inclusion of our estimates of reserves contained in our reports entitled “Evaluation, Bonanza Creek Energy, Inc. Interests, Various States, Proved Reserves, As of January 1, 2011” and “Evaluation, Bonanza Creek Energy Operating Company Interests, Various States, Proved Reserves, As of January 1, 2010” and to the specific references to Cawley, Gillespie & Associates as the independent petroleum engineering firm in the Registration Statement on Form S-1 (the Registration Statement) to be filed with the United States Securities and Exchange Commission in June 2011. We further consent to the inclusion of our letter reports dated February 10, 2011 and June 29, 2010 as appendices to the Registration Statement.

Yours truly,

CAWLEY, GILLESPIE & ASSOCIATES

J. Zane Meekins, P.E.

Senior Vice President

Fort Worth, Texas

July 22, 2011

EX-23.4

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Exhibit 23.4

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS

Board of Directors
Bonanza Creek Energy, Inc.
Denver, Colorado

        We hereby consent to the references to MHA Petroleum Consultants LLC, to the inclusion of our estimates of reserves contained in our report entitled "SEC Evaluation of the Oil and Gas Reserves of Bonanza Creek Energy Operating Company in Arkansas, California, Colorado and Wyoming, Effective December 31, 2008" and to the specific references to MHA Petroleum Consultants LLC as the independent petroleum engineering firm in the Registration Statement on Form S-1 (the Registration Statement) to be filed with the United States Securities and Exchange Commission in June 2011. We further consent to the inclusion of our letter reports dated June 22, 2010 as an appendix to the Registration Statement.

Yours truly,

MHA PETROLEUM CONSULTANTS LLC

/s/ John W. Arsenault
John W. Arsenault
Vice President

July 22, 2011

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Exhibit 23.4

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS

EX-99.1

Exhibit 99.1

February 10, 2011

Mr. Gary A. Grove

Executive VP – Engineering & Planning

Bonanza Creek Energy, Inc.

4900 California Avenue, Suite 350B

Bakersfield, CA  93390

Re:	Evaluation Summary
	Bonanza Creek Energy, Inc. Interests
	Proved Reserves
	Various States
	As of January 1, 2011

Dear Mr. Grove:

As requested, we are submitting our estimates of proved reserves and our forecasts of the resulting economics attributable to the captioned interests.  It is our understanding that the proved reserves estimates in this report constitute 100 percent of all proved hydrocarbon reserves owned by Bonanza Creek Energy, Inc. (“Bonanza Creek”).

Composite reserve estimates and economic forecasts for the proved reserves are presented in the attached tables and are summarized below:

			Proved
		Proved	Developed
		Developed	Non-	Proved	Total
		Producing	Producing	Undeveloped	Proved
Net Reserves
Oil/Condensate	- Mbbl	4,840.4	2,594.1	11,166.9	18,601.4
Gas	- MMcf	12,699.1	7,375.0	42,810.0	62,884.1
NGL	- Mbbl	520.7	224.4	3,032.7	3,777.8
Revenue
Oil/Condensate	- M$	359,228.2	191,429.1	843,119.9	1,393,777.0
Gas	- M$	63,056.5	37,612.1	201,686.1	302,354.7
NGL	- M$	27,298.0	11,762.3	158,985.1	198,045.4
Severance and Ad Valorem Taxes	- M$	23,498.6	13,693.9	54,453.4	91,645.8
Operating Expenses	- M$	157,614.9	43,756.2	279,536.3	480,907.6
Investments	- M$	1,597.0	23,268.4	326,526.1	351,391.5
Operating Income (BFIT)	- M$	266,872.2	160,085.1	543,275.4	970,232.8
Discounted at 10.0%	- M$	156,717.8	80,643.4	224,223.0	461,584.1

The discounted value shown above should not be construed to represent an estimate of the fair market value by Cawley, Gillespie & Associates, Inc.

The detailed forecasts of reserves and economics are presented in the attached tables.  Tables I-Proved, I-PDP, I-PDNP and I-PUD are summaries of the reserves and associated economics by reserve category.  Under tabs by reserve category, these tables are then presented along with corresponding Table II’s, which are summaries of the ultimate recovery, gross and net reserves, ownership, revenue, expenses, investments, net income and discounted cash flows for the individual wells in each Table I.  These tables are sorted by region, then area and then lease/well name.  Page 1 of the Appendix explains the type of data in these tables.  The methods employed in estimating reserves are described in page 2 of the Appendix.

Annual average hydrocarbon prices for 2010 were utilized for the evaluation.  The averages were calculated using the first-day-of-the-month prices for each month.  The resulting hydrocarbon pricing of $4.376 per MMBtu of gas and $79.43 per barrel of oil/condensate was applied without escalation.  Adjustments to these prices for basis differentials, hydrocarbon quality, and transportation/processing/gathering fees were supplied by Bonanza Creek and applied by producing area.  Deductions were applied to the net gas volumes for fuel and shrinkage.

Operating expenses were supplied by Bonanza Creek and were accepted as furnished.  The expenses were based on historical costs over the past six months to one year.  Severance and ad valorem rates were specified by state/county.  Neither expenses nor investments were escalated.  The cost of plugging and the salvage value of equipment have not been considered.

The proved reserve classifications conform to criteria of the Securities and Exchange Commission as defined in pages 3-4 of the Appendix.  The estimates of reserves have been prepared in accordance with the definitions and disclosure guidelines set forth in the U.S. Securities and Exchange Commission Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in the Federal Register.  The reserves and economics are predicated on the regulatory agency classifications, rules, policies, laws, taxes and royalties in effect on the effective date except as noted herein.  The possible effects of changes in legislation or other Federal or State restrictive actions have not been considered.  All reserve estimates represent our best judgment based on data available at the time of preparation and assumptions as to future economic and regulatory conditions.  It should be realized that the reserves actually recovered, the revenue derived therefrom and the actual cost incurred could be more or less than the estimated amounts.

The reserve estimates were based on interpretations of factual data furnished by Bonanza Creek.  We have used all methods and procedures as we considered necessary under the circumstances to prepare the report.  Ownership interests were supplied by Bonanza Creek and were accepted as furnished.  To some extent, information from public records has been used to check and/or supplement these data. The basic engineering and geological data were utilized subject to third party reservations and qualifications.  Nothing has come to our attention, however, that would cause us to believe that we are not justified in relying on such data.  An on-site inspection of these properties has not been made nor have the wells been tested by Cawley, Gillespie & Associates, Inc.

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Our work-papers and related data are available for inspection and review by authorized parties.

Respectfully submitted,

CAWLEY, GILLESPIE & ASSOCIATES, INC.

Texas Registered Engineering Firm F-693

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EX-99.2

Exhibit 99.2

June 29, 2010

Mr. Gary A. Grove

Executive VP—Engineering & Planning

Bonanza Creek Energy Operating Co., LLC

4900 California Avenue, Suite 350B

Bakersfield, CA 93390

Re:Evaluation Summary

Bonanza Creek Energy Operating Company Interests

Proved Reserves

Various States

As of January 1, 2010

Dear Mr. Grove:

As requested, we are submitting our estimates of proved reserves and our forecasts of the resulting economics attributable to the captioned interests. It is our understanding that the proved reserves estimates in this report constitute 100 percent of all proved hydrocarbon reserves owned by Bonanza Creek Energy Operating Company (“Bonanza Creek”).

Composite reserve estimates and economic forecasts for the proved reserves are presented in the attached tables and are summarized below:

		Proved Developed Producing	Proved Developed Non-Producing	Proved Undeveloped	Total Proved
Net Reserves
Oil/Condensate	- Mbbl	2,990.7	932.3	8,421.7	12,344.7
Gas	- MMcf	5,386.4	1,634.4	20,589.6	27,610.4
NGL	- Mbbl	319.8	65.8	1,970.9	2,356.5
Revenue
Oil/Condensate	- M$	169,625.6	53,034.0	490,783.1	713,442.8
Gas	- M$	18,210.8	5,422.1	70,888.9	94,521.7
NGL	- M$	12,913.1	2,657.5	79,583.2	95,153.8
Severance and Ad Valorem Taxes	- M$	9,888.0	3,125.4	28,079.6	41,093.0
Operating Expenses	- M$	93,334.1	12,327.0	185,286.9	290,947.9
Investments	- M$	755.2	9,099.5	165,349.0	175,203.7
Operating Income (BFIT)	- M$	96,772.3	36,561.6	262,539.8	395,873.6
Discounted at 10.0%	- M$	61,824.3	18,639.0	119,891.1	200,354.3

The discounted value shown above should not be construed to represent an estimate of the fair market value by Cawley, Gillespie & Associates, Inc.

The detailed forecasts of reserves and economics are presented in the attached tables. Tables I-Proved, I-PDP, I-PDNP and I-PUD are summaries of the reserves and associated economics by reserve category. Under tabs by reserve category, these tables are then presented along with corresponding Table II’s, which are summaries of the ultimate recovery, gross and net reserves, ownership, revenue, expenses, investments, net income and discounted cash flows for the individual wells in each Table I. These tables are sorted by region, then area and then lease/well name. Page 1 of the Appendix explains the type of data in these tables. The methods employed in estimating reserves are described in page 2 of the Appendix.

Annual average hydrocarbon prices for 2009 were utilized for the evaluation. The averages were calculated using the first-day-of-the-month prices for each month. The resulting hydrocarbon pricing of $3.866 per MMBtu of gas and $61.18 per barrel of oil/condensate was applied without escalation. Adjustments to these prices for basis differentials, hydrocarbon quality, and transportation/processing/gathering fees were supplied by Bonanza Creek and applied by producing area. Deductions were applied to the net gas volumes for fuel and shrinkage.

Operating expenses were supplied by Bonanza Creek and were accepted as furnished. The expenses were based on historical costs over the past six months to one year. Severance and ad valorem rates were specified by state/county. Neither expenses nor investments were escalated. The cost of plugging and the salvage value of equipment have not been considered.

The proved reserve classifications conform to criteria of the Securities and Exchange Commission as defined in pages 3-4 of the Appendix. The estimates of reserves have been prepared in accordance with the definitions and disclosure guidelines set forth in the U.S. Securities and Exchange Commission Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in the Federal Register. The reserves and economics are predicated on the regulatory agency classifications, rules, policies, laws, taxes and royalties in effect on the effective date except as noted herein. The possible effects of changes in legislation or other Federal or State restrictive actions have not been considered. All reserve estimates represent our best judgment based on data available at the time of preparation and assumptions as to future economic and regulatory conditions. It should be realized that the reserves actually recovered, the revenue derived therefrom and the actual cost incurred could be more or less than the estimated amounts.

The reserve estimates were based on interpretations of factual data furnished by Bonanza Creek. We have used all methods and procedures as we considered necessary under the circumstances to prepare the report. Ownership interests were supplied by Bonanza Creek and were accepted as furnished. To some extent, information from public records has been used to check and/or supplement these data. The basic engineering and geological data were utilized subject to third party reservations and qualifications. Nothing has come to our attention, however, that would cause us to believe that we are not justified in relying on such data. An on-site inspection of these properties has not been made nor have the wells been tested by Cawley, Gillespie & Associates, Inc.

Our work-papers and related data are available for inspection and review by authorized parties.

Respectfully submitted,

CAWLEY, GILLESPIE & ASSOCIATES, INC.

Texas Registered Engineering Firm F-693

EX-99.3

Exhibit 99.3

June 22, 2010

Mr. Gary Grove
Chief Operating Officer
Bonanza Creek Energy Operating Company
4900 California Avenue, Suite 350 B
Bakersfield, CA 93309

Dear Mr. Grove:

        Pursuant to your request, MHA Petroleum Consultants (MHA) has prepared an estimate of the reserves and income attributable to certain oil and gas properties owned by Bonanza Creek Energy Operating Company (BCEOC) as of December 31, 2008. The subject properties are located in Arkansas, California, Colorado and Wyoming.

        The reserve and income data have been estimated using Securities and Exchange Commission (SEC) guidelines in effect as of the year-end 2008. All prices and costs were held constant through the life of the economic runs. Reserve estimates and cash flow estimates are dependent on the pricing and cost parameters used in the report. Future variations in the pricing and cost parameters will cause variations in the reserve and cash flow estimates reported in the evaluation. The results of this study are summarized below.

Bonanza Creek Energy Operating Company
Reserves and Economics—All Properties—As of December 31, 2008

Reserve Category	Gross Oil MBBLS		Gross Gas MMCF		Gross NGL MBBLS		Gross CO2 MMCF		Net Oil MBBLS		Net Gas MMCF		Net NGL MBBLS		Net CO2 MMCF		BFIT Net Income M$		Disc Net Income M$ @10%
Proved Developed Producing		6,062.7		12,511.6		257.2		0.0		3,557.2		4,438.0		253.1		0.0		84,072.6		51,621.3
Proved Developed Non-Producing		318.5		0.0		0.0		0.0		128.1		818.9		0.0		0.0		2,591.6		1,349.9
Proved Behind Pipe		1,219.6		3,762.4		53.1		0.0		913.5		1,907.1		53.1		0.0		26,014.5		12,069.7
Proved Undeveloped		14,686.5		61,314.6		901.0		0.0		6,695.0		12,742.1		855.8		0.0		102,295.8		19,652.4
Total Proved		22,287.3		77,588.6		1,211.3		0.0		11,293.8		19,906.1		1,162.0		0.0		214,974.5		84,693.3

Numbers in the above table may not exactly match economic output due to rounding.

        Note that there is a gas processing plant in the Mid-Continent area (McKamie-Patton Field) in which BCEOC owns 100%. This plant generates significant revenue from field gas which is owned both by BCEOC and by various third parties. This report includes those volumes and revenues for only that gas which specifically belongs to BCEOC. The inlet volumes for the plant have been adjusted to reflect only net owned gas (excluding all third-party working interest gas, and excluding all royalty gas).

        A one line summary of the results by property is included under the tab labeled "One Line Summary". The tab labeled "Summary Economics" contains 15 year detailed summaries by reserve category and by area. Also provided are individual economic run details by property for all areas; these are presented under the tab labeled "Individual Economics".

        The future net revenue in this report was based on net hydrocarbon volume sold multiplied by the appropriate price. Expenses include severance and ad valorem taxes, and the normal cost of operating the wells. Future net cash flow is future net revenue minus expenses and any development costs. Abandonment costs have not been included in the economics shown in this report. The future net cash flow has not been adjusted for outstanding loans, which may exist, nor does it include any adjustment for cash on hand or undistributed income. No attempt has been made to quantify or otherwise account for any accumulated gas production imbalances that may exist.

Reserve Estimates

        Reserve estimates included in this study were assigned on the basis of the Securities and Exchange Commission—Definitions for Oil and Gas Reserves, included under the tab labeled "Reserve Definitions". All reserve categories assigned in this report follow the guidelines of the SEC definitions.

        The reserve estimates included in this study were estimated by performance methods, volumetric methods and comparisons with analogous wells and fields, where applicable. The reserves estimated by the performance method utilized extrapolations of historical production data. Reserves were estimated by the volumetric method in cases where the historical production data were insufficient to establish a definitive trend. The life of the wells was cut off at a maximum of 50 years.

        Following are brief descriptions of each of the areas included in this study.

Mid Continent (Arkansas)

        BCEOC owns various working interests in several fields in Arkansas, primarily the Dorcheat-Macedonia Field and the McKamie-Patton Field. The main productive reservoir targets are the Smackover, Haynesville, Cotton Valley, Travis Peak, Gloyd, James Lime, Pettet and Rodessa Formations. Recent downspacing in the field has opened up many new potential well locations, which BCEOC plans to drill over the next three to four years. Additionally, the Haynesville and Cotton Valley Formations consist of large vertical sequences of reservoir rock, which result in significant volumes of behind pipe reserves.

        BCEOC also owns a gas plant located in the McKamie-Patton Field. This plant processes all the gas coming from both the Dorcheat-Macedonia and McKamie-Patton Fields, along with gas from third party producers in the area. Currently the plant has significant capacity available, which should be utilized by future wells drilled in the area, as well as potential additional third party producers. The reserves and revenues from this plant have been included in the report in a separate "area" termed "MKP Gas Proc.". Note that only net gas specifically owned by BCEOC has been included in the products reported for this "area". By contract, BCEOC retains certain portions of third-party gas which

Mr. Gary Grove
July 6, 2010

runs through the owned plant, but neither these volumes nor the associated revenues have been included in this report.

Midway Sunset Area (California)

        BCEOC owns 100% of two leases in the far southeastern part of the Midway Sunset Field in Kern County, California. The productive reservoir targets are the Etchegoin, Tulare, Metson and San Joaquin Formations, which all produce heavy oil from shallow, highly permeable sands with steep dips. Cyclic steam injection has been implemented on the leases, but is currently halted due to low product pricing. Well spacing is small, as is typical for these types of fields, and BCEOC has plans to drill several more wells on the property.

Edison Field (California)

        BCEOC owns 60% of a lease in the Edison Field, which is located in Kern County, California. The productive reservoir targets are the Pyramid Hills, Vedder and Jewett Formations, which all contain high gravity oil. BCEOC currently does not have plans to add new wells in this area.

Greeley Field (California)

        BCEOC owns 60% of a lease in the Greeley Field, which is located in Kern County, California. The Stevens zone is the primary target. Current plans include returning several wells to production which have been shut-in and adding some behind pipe zones.

Kern River Field (California)

        BCEOC owns 100% of a 240 acre lease in the Kern River Field, which is located in Kern County, California. The reservoir targets are the shallow "K" and "R" sands, which produce heavy oil from shallow, highly permeable sands. Plans are drill up to 36 horizontal wells and to initiate cyclic steam injection in these wells.

Jasmin Field (California)

        BCEOC owns 50% of Jasmin Field, which is located in Kern County, California. The main reservoir target is the Cantleberry Sand, which produces relatively heavy oil, with large quantities of water. Currently the producing wells are being fitted with PCP pumps to increase fluid production and to keep the wells pumped off. There are also plans to drill approximately 20 new wells, including several horizontal wells.

Sargent Field (California)

        BCEOC owns 50% of the Sargent Field, which is located in Santa Clara County, California, near the town of Gilroy. The main productive reservoir is the Purisma sand, a zone several hundred feet thick with steep dips. Wells completed in the field produce low gravity oil, with a very small amount of gas. BCEOC has plans to drill at least ten more wells on the property. In addition, there are other zones with potential in the field, including a heavy oil diatomite.

McCallum Field (Colorado)

        BCEOC owns 100% of the McCallum Field, which is located in the North Park Basin, in Jackson County, Colorado. The primary productive intervals in the field are the Pierre "B" sand and the

Mr. Gary Grove
July 6, 2010

Dakota/Lakota sand. There is also a small amount of production from the Muddy and Morrison Formations. The Pierre B sand produces oil under waterflood, and the Dakota/Lakota produces oil and high volumes of CO₂^. Four new oil wells are planned in the Pierre B and the Dakota/Lakota. Several other opportunities exist in the field, both in the existing formations and in the Niobrara and Sudduth Coal.

"Rex" and Hambert Areas (Wattenberg Field, Colorado)

        BCEOC owns 100% in most wells in these areas (with the exception of the Codell/Niobrara "Rule 318A" locations, discussed below), which are located in the DJ Basin, in Weld County, Colorado. The primary productive intervals for these areas are the Codell, Niobrara, and J Sand. There is also a small amount of production from the Dakota and Sussex Formations.

        The Codell and Niobrara are tight formations that produce gas and oil with proper hydraulic fracture stimulation. These formations also respond well to a second hydraulic fracture treatment several years after the initial completion, and these reserves have been included in this study. Additionally, rulings by the Colorado Oil and Gas Commission now permit 20 acre Codell/Niobrara locations to be drilled on "5 spots" (the center of a standard 160 acre tract) and on lease lines (per Rule 318A). The regulations governing the lease line locations are such that offsetting operators may protest the well locations proposed. As such, this report does not include any locations which would involve a notification to an offset operator. Rather, only those lease line locations which are completely under control by BCEOC are included. The J Sand produces a dry gas, and is typically commingled with the Codell and Niobrara Formations.

        Approximately 100 new wells (gross) are planned in the area, targeting the three main formations (Codell, Niobrara, J Sand).

North Riverside Field (Colorado)

        BCEOC owns 100% of several leases in this area, which is located in the eastern portion of the DJ Basin, in Weld County, Colorado. The primary producing formations in this area are the Niobrara and the "D" Sand. The Niobrara Formation in this area is similar to that in the Wattenberg Field, and requires stimulation to produce economically. The D Sand is more localized in nature, and is only economically productive in a fraction of wells penetrating the zone; however, those few wells that do encounter good quality D Sand often produce very high volumes of gas. No new wells are planned in the near future for this area, pending more long term results of currently producing wells. Two wells do have behind pipe Niobrara reserves.

Red Springs Field (Wyoming)

        BCEOC owns 100% of this field, which is located in Hot Springs County, Wyoming, near the town of Thermopolis. The primary target formation in the field is the Tensleep, which is expected to produce heavy oil from relatively shallow depths. The zone has undergone a pilot steam injection program, and future plans are to develop the zone with large scale steam injection.

Prices and Costs

        Table 1 shows a summary by area of the economic parameters used in this study.

        The oil and gas price forecasts were based on the December 31, 2008 prices per SEC regulations. The oil price (before adjustments) was set at $44.60 per STB and the gas price (before adjustments)

Mr. Gary Grove
July 6, 2010

was set at $5.71 per MMBTU. The NGL price was set at $34.34 per STB. These prices were held constant throughout the life of the project. Adjustments were made at a lease level based on differentials to the posted prices due to hydrocarbon quality, transportation fees, shrinkage, contractual agreements, and regional price variations. These adjustments were based on recent historical data

        Operating costs used in the report were provided by BCEOC and were based on historical field costs over the past six months to one year. Operating costs were held constant for the life of the properties. MHA reviewed the operating costs to insure that they appeared reasonable.

        Development costs used in the report were provided by BCEOC, and were based on internal expenditure estimates. MHA reviewed these development costs to insure that they appeared reasonable.

        No deductions were made for estimated abandonment costs for the properties using the assumption that equipment salvage values would largely offset abandonment costs. MHA has not performed a detailed study of the abandonment costs and salvage values of the leases. No deductions were made for indirect costs such as loan repayments, interest expenses, and exploration and development prepayments.

Statement of Risk

        The accuracy of reserve and economic evaluations is always subject to uncertainty. The magnitude of this uncertainty is generally proportional to the quantity and quality of data available for analysis. As a well matures and new information becomes available, revisions may be required which may either increase or decrease the previous reserve assignments. Sometimes these revisions may result not only in a significant change to the reserves and value assigned to a property, but also may impact the total company reserve and economic status. The reserves and forecasts contained in this report were based upon a technical analysis of the available data using accepted engineering principles. However, they must be accepted with the understanding that further information and future reservoir performance subsequent to the date of the estimate may justify their revision. It is MHA's opinion that the estimated proven reserves and other reserve information as specified in this report are reasonable, and have been prepared in accordance with generally accepted petroleum engineering and evaluation principles, as set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserve Information, promulgated by the Society of Petroleum Engineers. Notwithstanding the aforementioned opinion, MHA makes no warranties concerning the data and interpretations of such data. In no event shall MHA be liable for any special or consequential damages arising from BCEOC's use of MHA's interpretation, reports, or services produced as a result of its work for BCEOC.

        Neither MHA, nor any of our employees have any interest in the subject properties and neither the employment to do this work, nor the compensation, is contingent on our estimates of reserves for the properties in this report.

        The data and work papers used in the preparation of this report are available for examination by authorized parties in our offices.

Mr. Gary Grove
July 6, 2010

        It was a pleasure performing this work for BCEOC. If you have any questions regarding this evaluation or if additional information is needed, please contact me at this office.

Sincerely,

John W. Arsenault
Vice President

Mr. Gary Grove
July 6, 2010