e10vq

0000950123-11-076672.txt : 20110812 0000950123-11-076672.hdr.sgml : 20110812 20110812134337 ACCESSION NUMBER: 0000950123-11-076672 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20110630 FILED AS OF DATE: 20110812 DATE AS OF CHANGE: 20110812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Alta Mesa Holdings, LP CENTRAL INDEX KEY: 0001518403 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 203565150 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-173751 FILM NUMBER: 111030550 BUSINESS ADDRESS: STREET 1: 15415 KATY FREEWAY STREET 2: SUITE 800 CITY: HOUSTON STATE: TX ZIP: 77094 BUSINESS PHONE: 281-530-0991 MAIL ADDRESS: STREET 1: 15415 KATY FREEWAY STREET 2: SUITE 800 CITY: HOUSTON STATE: TX ZIP: 77094 10-Q 1 h83108e10vq.htm FORM 10-Q e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2011


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 333-173751

ALTA MESA HOLDINGS, LP

(Exact name of registrant as specified in its charter)


Texas (State or other jurisdiction of incorporation or organization)		20-3565150 (I.R.S. Employer Identification No.)

15021 Katy Freeway, Suite 400, Houston, Texas (Address of principal executive offices)		77094 (Zip Code)

Registrant’s telephone number, including area code: 281-530-0991

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes þ No 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 definition 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 þ (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Table of Contents


	Page Number
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010		5

Consolidated Statements of Income (unaudited) for the Three and Six Months Ended June 30, 2011 and 2010		6

Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2011 and 2010		7

Notes to Consolidated Financial Statements (unaudited)		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3. Quantitative and Qualitative Disclosures about Market Risk		38

Item 4. Controls and Procedures		38

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		38

Item 1A. Risk Factors		38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		38

Item 3. Defaults Upon Senior Securities		39

Item 4. (Removed and Reserved)		39

Item 5. Other Information		39

Item 6. Exhibits		39

Signatures		40
EX-10.1
EX-10.2
EX-10.3
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The information in this report includes “forward-looking statements.” All statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could”, “should”, “will”, “play”, “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included in our Registration Statement on Form S-4 (Commission File No. 333-173751 filed on July 11, 2011, the “Form S-4”) and Part II, Item 1A of this report. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

Forward-looking statements may include statements about our:

	•		business strategy;

	•		reserves;

	•		financial strategy, liquidity and capital required for our development program;

	•		realized oil and natural gas prices;

	•		timing and amount of future production of oil and natural gas;

	•		hedging strategy and results;

	•		future drilling plans;

	•		competition and government regulations;

	•		marketing of oil and natural gas;

	•		leasehold or business acquisitions;

	•		costs of developing our properties;

	•		liquidity and access to capital;

	•		uncertainty regarding our future operating results; and

	•		plans, objectives, expectations and intentions contained in this report that are not historical.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the exploration for and development and production of oil and natural gas. These risks include, but are not limited to volatility of oil and natural gas prices, general economic conditions, credit markets, inflation, the credit rating of U.S. government debt, production timing and volumes, estimates of proved reserves, operating costs and capital expenditures, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating oil and natural gas reserves and in projecting future rates of production, cash flow and access to capital, and the other risks described under “Risk Factors” in our Form S-4.

Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available

data, the interpretation of such data and price and cost assumptions made by reservoir engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered.

Should one or more of the risks or uncertainties described in the Form S-4 or this report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(dollars in thousands)


	June 30,		December 31,
	2011		2010
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	5,523	$	4,836
Accounts receivable, net		41,509		38,081
Other receivables		1,947		6,338
Prepaid expenses and other current assets		4,608		2,292
Derivative financial instruments		11,125		10,436

TOTAL CURRENT ASSETS		64,712		61,983


PROPERTY AND EQUIPMENT
Oil and natural gas properties, successful efforts method, net		527,863		442,880
Other property and equipment, net		15,981		13,384

TOTAL PROPERTY AND EQUIPMENT, NET		543,844		456,264


OTHER ASSETS
Investment in Partnership — cost		9,000		9,000
Deferred financing costs, net		13,447		13,552
Derivative financial instruments		8,668		14,165
Advances to operators		5,980		2,699
Deposits		1,323		576

TOTAL OTHER ASSETS		38,418		39,992


TOTAL ASSETS	$	646,974	$	558,239


LIABILITIES AND PARTNERS’ CAPITAL

CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	74,145	$	87,255
Current portion, asset retirement obligations		1,755		1,617
Derivative financial instruments		3,176		3,092

TOTAL CURRENT LIABILITIES		79,076		91,964


LONG-TERM LIABILITIES
Asset retirement obligations		44,487		41,096
Long-term debt		457,906		371,276
Notes payable to founder		20,309		19,709
Derivative financial instruments		1,704		2,296
Other long-term liabilities		5,440		7,240

TOTAL LONG-TERM LIABILITIES		529,846		441,617


TOTAL LIABILITIES		608,922		533,581

COMMITMENTS AND CONTINGENCIES (NOTE 10)

PARTNERS’ CAPITAL		38,052		24,658


TOTAL LIABILITIES AND PARTNERS’ CAPITAL	$	646,974	$	558,239

See notes to consolidated financial statements.

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
(unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
REVENUES
Natural gas	$	38,731		$	30,120		$	74,112		$	57,935
Oil		39,292			16,278			71,489			25,799
Natural gas liquids		2,847			1,214			5,900			1,943
Other revenues		297			386			766			407

		81,167			47,998			152,267			86,084
Unrealized gain (loss) — oil and natural gas derivative contracts		14,377			2,105			(4,808	)		22,908

TOTAL REVENUES		95,544			50,103			147,459			108,992


EXPENSES
Lease and plant operating expense		15,041			9,354			28,372			17,432
Production and ad valorem taxes		4,069			2,785			9,470			4,398
Workover expense		2,352			1,330			3,978			3,289
Exploration expense		5,690			1,651			8,421			4,572
Depreciation, depletion, and amortization		22,963			13,500			42,431			22,122
Impairment expense		4,929			643			10,755			2,093
Accretion expense		476			270			946			415
General and administrative expenses		8,843			4,679			14,593			6,902

TOTAL EXPENSES		64,363			34,212			118,966			61,223


INCOME FROM OPERATIONS		31,181			15,891			28,493			47,769

OTHER INCOME (EXPENSE)
Interest expense		(6,843	)		(4,530	)		(16,323	)		(8,729	)
Interest income		12			5			14			5
Gain on contract settlement		1,285			—			1,285			—

TOTAL OTHER INCOME (EXPENSE)		(5,546	)		(4,525	)		(15,024	)		(8,724	)


INCOME BEFORE STATE INCOME TAXES		25,635			11,366			13,469			39,045

(PROVISION FOR) STATE INCOME TAXES		(75	)		—			(75	)		—


NET INCOME	$	25,560		$	11,366		$	13,394		$	39,045

See notes to consolidated financial statements.

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)


	Six Months Ended June 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	13,394		$	39,045
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization		42,431			22,122
Impairment expense		10,755			2,093
Accretion expense		946			415
Amortization of loan costs		1,694			629
Amortization of debt discount		130			—
Dry hole expense		5,267			219
Unrealized (gain) loss on derivatives		4,300			(23,311	)
(Gain) on contract settlement		(1,285	)		—
Interest converted into debt		600			590
Settlement of asset retirement obligation		(246	)		(463	)
Changes in assets and liabilities:
Accounts receivable		(3,428	)		619
Other receivables		4,391			148
Prepaid expenses and other non-current assets		(6,344	)		(6,331	)
Accounts payable, accrued liabilities, other long-term liabilities		(1,455	)		(19,669	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		71,150			16,106


CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment		(94,139	)		(32,289	)
Acquisitions		(61,235	)		(101,359	)

NET CASH USED IN INVESTING ACTIVITIES		(155,374	)		(133,648	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt		86,500			95,000
Repayments of long-term debt		—			(167	)
Additions to deferred financing costs		(1,589	)		(7,164	)
Capital contributions		—			50,000
Capital distributions		—			(55	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		84,911			137,614

NET INCREASE IN CASH		687			20,072

CASH AND CASH EQUIVALENTS, beginning of period		4,836			4,274


CASH AND CASH EQUIVALENTS, end of period	$	5,523		$	24,346


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the period for interest	$	16,484		$	8,234
Cash paid during the period for taxes	$	—		$	—
Change in property asset retirement obligations, net	$	2,829		$	326
Change in accruals or liabilities for capital expenditures	$	(12,170	)	$	14,871

See notes to consolidated financial statements.

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. SUMMARY OF ORGANIZATION AND NATURE OF OPERATIONS

The consolidated financial statements reflect the accounts of Alta Mesa Holdings, LP and its subsidiaries (we, us, our, the “Company,” and “Alta Mesa”) after elimination of all significant intercompany transactions and balances. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual consolidated financial statements for the year ended December 31, 2010, which were filed with the Securities and Exchange Commission in our Registration Statement on Form S-4 (Commission File No. 333-173751).

The consolidated financial statements included herein as of June 30, 2011, and for the six month periods ended June 30, 2011 and 2010, are unaudited, and in the opinion of management, the information furnished reflects all material adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of consolidated financial position and of the results of operations for the interim periods presented. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain minor reclassifications of prior period consolidated financial statements have been made to conform to current reporting practices. The consolidated results of operations for interim periods are not necessarily indicative of results to be expected for a full year.

We use accounting policies which reflect industry practices and conform to GAAP. As used herein, the following acronyms have the following meanings: “FASB” means the Financial Accounting Standards Board; the “Codification” refers to the Accounting Standards Codification, the collected accounting and reporting guidance maintained by the FASB; “ASC” means Accounting Standards Codification and is generally followed by a number indicating a particular section of the Codification; and “ASU” means Accounting Standards Update, followed by an identification number, which are the periodic updates made to the Codification by the FASB. “SEC” means the Securities and Exchange Commission.

Organization: The consolidated financial statements presented herein are of Alta Mesa Holdings, LP and its (i) wholly-owned subsidiaries: Alta Mesa Finance Services Corp., Alta Mesa Eagle, LLC, Alta Mesa Acquisition Sub, LLC, and its direct and indirect wholly-owned subsidiaries, Alta Mesa Energy, LLC, Aransas Resources, LP and its wholly-owned subsidiary ARI Development, LLC, Brayton Resources II, LP, Buckeye Production Company, LP, Galveston Bay Resources, LP, Louisiana Exploration & Acquisitions, LP and its wholly-owned subsidiary Louisiana Exploration & Acquisition Partnership, LLC, Navasota Resources, Ltd., LLP, Nueces Resources, LP, Oklahoma Energy Acquisitions, LP, Alta Mesa Drilling, LLC, Petro Acquisitions, LP, Petro Operating Company, LP, Texas Energy Acquisitions, LP, Virginia Oil and Gas, LLC and Alta Mesa Services, LP, and (ii) partially-owned subsidiaries: Brayton Resources, LP, and Orion Operating Company, LP.

Nature of Operations: We are engaged primarily in the acquisition, exploration, development, and production of oil and natural gas properties. Our properties are located primarily in Texas, Oklahoma, Louisiana, Florida and the Appalachian Region.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As of June 30, 2011, our significant accounting policies are consistent with those discussed in Note 2 of the consolidated financial statements for the fiscal year ended December 31, 2010.

Use of Estimates: The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Reserve estimates significantly impact depreciation, depletion and amortization expense and potential impairments of oil and natural gas properties and are subject to change based on changes in oil and natural gas prices and trends and changes in estimated reserve quantities. We analyze estimates, including those related to oil and natural gas reserves, oil and natural gas revenues, the value of oil and natural gas properties, bad debts, asset retirement obligations, derivative contracts, income taxes and contingencies and litigation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Property and Equipment: Oil and natural gas producing activities are accounted for using the successful efforts method of accounting. Under the successful efforts method, lease acquisition costs and all development costs, including unsuccessful development wells, are capitalized.

Unproved Properties — Acquisition costs associated with the acquisition of leases are recorded as unproved leasehold costs and capitalized as incurred. These consist of costs incurred in obtaining a mineral interest or right in a property such as a lease, in addition to options to lease, broker fees, recording fees and other similar costs related to activities in acquiring properties. Leasehold costs are classified as unproved until proved reserves are discovered, at which time related costs are transferred to proved oil and natural gas properties.

Exploration Expense — Exploration expenses, other than exploration drilling costs, are charged to expense as incurred. These costs include seismic expenditures and other geological and geophysical costs, expired leases, and lease rentals. The costs of drilling exploratory wells and exploratory-type stratigraphic wells are initially capitalized pending determination of whether the well has discovered proved commercial reserves. If the exploratory well is determined to be unsuccessful, the cost of the well is transferred to expense. Exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify completion as a producing well and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made. Assessments of such capitalized costs are made quarterly.

Proved Oil and Natural Gas Properties — Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering, and storing oil and natural gas are capitalized. All costs incurred to drill and equip successful exploratory wells, development wells, development-type stratigraphic test wells, and service wells, including unsuccessful development wells, are capitalized.

Impairment — The capitalized costs of proved oil and natural gas properties are reviewed quarterly for impairment in accordance with ASC 360-10-35, “Property, Plant and Equipment, Subsequent Measurement,” or whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset or asset group exceeds its fair market value and is not recoverable. The determination of recoverability is based on comparing the estimated undiscounted future net cash flows at a producing field level to the carrying value of the assets. If the future undiscounted cash flows, based on estimates of anticipated production from proved reserves and future crude oil and natural gas prices and operating costs, are lower than the carrying cost, the carrying cost of the asset or group of assets is reduced to fair value. For our proved oil and natural gas properties, we estimate fair value by discounting the projected future cash flows at an appropriate risk-adjusted discount rate.

Unproved leasehold costs are assessed quarterly to determine whether they have been impaired. Individually significant properties are assessed for impairment on a property-by-property basis, while individually insignificant unproved leasehold costs may be assessed in the aggregate. If unproved leasehold costs are found to be impaired, an impairment allowance is provided and a loss is recognized in the consolidated statement of income.

Depreciation, Depletion, and Amortization — Depreciation, depletion, and amortization (“DD&A”) of capitalized costs of proved oil and natural gas properties is computed using the unit-of-production method based upon estimated proved reserves. Assets are grouped for DD&A on the basis of reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field. The reserve base used to calculate DD&A for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. The reserve base used to calculate DD&A for lease and well equipment costs, which include development costs and successful exploration drilling costs, includes only proved developed reserves.

Accounts Receivable, net: Our receivables arise from the sale of oil and natural gas to third parties and joint interest owner receivables for properties in which we serve as the operator. This concentration of customers may impact our overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions affecting the oil and gas industry. Accounts receivable are generally not collateralized. Accounts receivable are shown net of an allowance for doubtful accounts of $957,000 and $338,000 at June 30, 2011 and December 31, 2010, respectively.

Deferred Financing Costs: Deferred financing costs and the amount of discount at which notes payable have been issued (debt discount) are amortized using the straight-line method, which approximates the interest method, over the term of the related debt. For the three months ended June 30, 2011 and 2010, amortization of deferred financing costs included in interest expense amounted to $790,000 and $506,000, respectively. For the six months ended June 30, 2011 and 2010, amortization of deferred financing costs included in interest expense amounted to $1.7 million and $629,000, respectively. Deferred financing costs are listed among our long-term assets, net of accumulated amortization of $6.4 million and $4.7 million at June 30, 2011 and December 31, 2010, respectively.

Financial Instruments: The fair value of cash, accounts receivable, other current assets, and current liabilities approximate book value due to their short-term nature. The estimate of fair value of long-term debt under our senior secured revolving credit facility (“credit facility”) is not considered to be materially different from carrying value due to market rates of interest. The fair value of the debt to our founder is not practicable to determine. We have estimated the fair value of our senior notes payable at $299.3 million and $291 million on June 30, 2011 and December 31, 2010, respectively. See Note 5 for further information on fair values of financial instruments. See Note 8 for information on long-term debt.

Recent Accounting Pronouncements

On May 12, 2011, the FASB issued ASU No. 2011-04 to Topic 820, Fair Value Measurements, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” The ASU changes certain definitions of terms used its guidance regarding fair value measurements, as well as modifying certain disclosure requirements and other aspects of the guidance. We are reviewing the ASU, which is effective for interim and annual periods beginning after December 15, 2011. We do not expect adoption of the guidance to have a material impact on our consolidated financial position or results of operations.

On June 16, 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Two presentation options remain. Changes in comprehensive income

may be reported in a continuous statement of comprehensive income which presents the components of net income as well as the components of comprehensive income. Alternatively, the components of comprehensive income may be reported in a separate statement of comprehensive income, which must immediately follow the statement of net income. The ASU also creates a new requirement that reclassifications from comprehensive income to net income be presented on a gross basis on the face of the financial statements (previously net presentation and footnoting gross information was permitted). The ASU applies to interim and year end reports and is effective for fiscal years beginning after December 15, 2011, and is to be retrospectively applied to all periods presented in such reports. Early adoption is permitted. We do not expect adoption of the guidance to have a material impact on our consolidated financial position or results of operations.

3. SIGNIFICANT ACQUISITIONS

Meridian Acquisition

On and effective May 13, 2010, Alta Mesa Acquisition Sub, LLC (“AMAS”), a wholly owned subsidiary of Alta Mesa Holdings, LP, acquired 100% of the shares of and merged with The Meridian Resource Corporation (“Meridian”), with AMAS as the surviving entity. Meridian was a publicly traded company engaged in exploration for and production of oil and natural gas. The oil and natural gas properties of Meridian are similar and in some cases proximate to our areas of operation. Meridian shareholders were paid in cash, funded by proceeds of our credit facility as well as a $50 million equity contribution from our private equity partner Alta Mesa Investment Holdings Inc., an affiliate of Denham Commodities Partners Fund IV LP (“AMIH”). The merger increased the oil portion of our reserves portfolio, improving the balance of our reserves between oil and natural gas, and provided significant additions to our library of 3-D seismic data.

Total cost of the acquisition was $158 million. It was recorded using the acquisition method of accounting. The purchase price was allocated to acquired assets and assumed liabilities based on their estimated fair values at date of acquisition. Acquisition-related costs of approximately $532,000 were recorded in general and administrative expense for the year ended December 31, 2010.

Sydson Acquisition

On April 21, 2011, we purchased from Sydson Energy and certain of its related parties (together, “Sydson” and the “Sydson acquisition”) certain oil and natural gas assets primarily located in Texas and South Louisiana in which we had jointly participated with Sydson. The purchase price was $27.5 million in cash (a total cost of $28.4 million including abandonment liabilities we assumed). Total net proved reserves acquired are estimated to be 800 MBOE (5 Bcfe), 45% of which is oil. By virtue of this acquisition, we increased our after payout net revenue interest in the Eagle Ford Shale by over 50%. Funding for the acquisition was provided through our credit facility. In addition, litigation associated with a portion of the assets purchased was resolved as a result of the transaction.

TODD Acquisition

On June 17, 2011, we purchased from Texas Oil Distribution & Development, Inc. and Matrix Petroleum LLC and certain other parties (together, “TODD” and the “TODD acquisition”) certain oil and natural gas assets primarily located in Texas and South Louisiana in which we had jointly participated with TODD. The purchase price was $22.5 million in cash (a total cost of $23.4 million including abandonment liabilities we assumed). Total net proved reserves acquired are estimated to be 700 MBOE (4 Bcfe), 36% of which is oil. By virtue of this acquisition, we increased our after payout net revenue interest in the Eagle Ford Shale by an additional 15%. Funding for the acquisition was provided through our credit facility. In addition, litigation associated with TODD was resolved as a result of the transaction.

A summary of the consideration paid and the allocations of the purchase prices (which are preliminary for

the Sydson and TODD acquisitions) are as follows (dollars in thousands):


Summary of Consideration:	Meridian		Sydson		TODD
Cash	$	30,948	$	27,500	$	22,500
Debt retired		82,000		—		—
Debt assumed		5,346		—		—
Working capital deficit ⁽¹⁾		753		—		—
Other liabilities assumed		7,971		—		—
Fair value of asset retirement obligations assumed		30,920		922		863

Total	$	157,938	$	28,422	$	23,363


Summary of Purchase Price Allocations:
Proved oil and natural gas properties	$	144,325	$	18,330	$	15,223
Unproved oil and natural gas properties		3,113		10,092		8,140
Other tangible assets		10,500		—		—

Total	$	157,938	$	28,422	$	23,363


⁽¹⁾		Meridian working capital deficit included a cash balance of $11,589,000.

The revenue and earnings related to the Meridian, Sydson, and TODD acquisitions are included in our consolidated statement of income for the six months ended June 30, 2011. The revenue and earnings related to the Meridian acquisition are included in our consolidated statement of income for the six months ended June 30, 2010. Revenue and earnings, had the acquisitions occurred on January 1, 2010, are provided below. This unaudited pro forma information has been derived from historical information and is for illustrative purposes only. The unaudited pro forma financial information does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had the companies been combined during these periods.


	(Unaudited)
	Revenue		Income
	(dollars in thousands)
Actual results of Meridian included in our statement of income for the six months ended June 30, 2011	$	64,544	$	32,651

Actual results of Sydson included in our statement of income for the period April 21, 2011 through June 30, 2011	$	1,817	$	588

Actual results of TODD included in our statement of income for the period June 17, 2011 through June 30, 2011	$	724	$	193

Pro forma results for the combined entity for the six months ended June 30, 2011	$	150,653	$	15,347

Pro forma results for the combined entity for the six months ended June 30, 2010	$	142,555	$	41,155

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:


	June 30,			December 31,
	2011			2010
	(unaudited)
	(dollars in thousands)
OIL AND NATURAL GAS PROPERTIES
Unproved properties	$	35,256		$	12,020
Accumulated impairment		(4,679	)		(2,686	)

Unproved properties, net		30,577			9,334

Proved oil and natural gas properties		821,399			707,364
Accumulated depreciation, depletion, amortization and impairment		(324,113	)		(273,818	)

Proved oil and natural gas properties, net		497,286			433,546

TOTAL OIL AND NATURAL GAS PROPERTIES, net		527,863			442,880


LAND		1,185			1,185


DRILLING RIG		10,500			10,500
Accumulated depreciation		(794	)		(444	)


TOTAL DRILLING RIG, net		9,706			10,056


OTHER PROPERTY AND EQUIPMENT
Office furniture and equipment, vehicles		7,251			3,844
Accumulated depreciation		(2,161	)		(1,701	)


OTHER PROPERTY AND EQUIPMENT, net		5,090			2,143


TOTAL PROPERTY AND EQUIPMENT, net	$	543,844		$	456,264

5. FAIR VALUE DISCLOSURES

We follow the guidance of ASC 820, “Fair Value Measurements and Disclosures,” in the estimation of fair values. ASC 820 provides a hierarchy of fair value measurements, based on the inputs to the fair value estimation process. It requires disclosure of fair values classified according to defined “levels,” which are based on the reliability of the evidence used to determine fair value, with Level 1 being the most reliable and Level 3 the least. Level 1 evidence consists of observable inputs, such as quoted prices in an active market. Level 2 inputs typically correlate the fair value of the asset or liability to a similar, but not identical item which is actively traded. Level 3 inputs include at least some unobservable inputs, such as valuation models developed using the best information available in the circumstances.

We utilize the modified Black-Scholes option pricing model to estimate the fair value of oil and natural gas derivative contracts. Inputs to this model include observable inputs from the New York Mercantile Exchange (“NYMEX”) for futures contracts, and inputs derived from NYMEX observable inputs, such as implied volatility of oil and natural gas prices. We have classified the fair values of all our oil and natural gas derivative contracts as Level 2.

The fair value of our interest rate derivative contracts was calculated using the modified Black-Scholes option pricing model and is also considered a Level 2 fair value.

Oil and natural gas properties are subject to impairment testing and potential impairment write down. Oil and gas properties with a carrying amount of $24.4 million were written down to their fair value of $13.6 million, resulting in an impairment charge of $10.8 million for the six months ended June 30, 2011. Oil and gas properties with a carrying amount of $4.4 million were written down to their fair value of $2.3 million, resulting in an impairment charge of $2.1 million for the six months ended June 30, 2010. For the three months ended June 30, 2011, oil and gas properties with a carrying amount of $14.2 million were written down to their fair value of $9.3 million, resulting in an impairment charge of $4.9 million, and for the three months ended June 30, 2010, oil and gas properties with a carrying amount of $1.2 million were written down to their fair value of $0.6 million, resulting in an impairment charge of $0.6 million. Significant Level 3 assumptions used in the calculation of estimated discounted cash flows in the impairment analysis included our estimate of future oil and natural gas prices, production costs, development expenditures, estimated timing of production of proved reserves, appropriate risk-adjusted discount rates, and other relevant data.

In connection with the Meridian acquisition, we recorded oil and natural gas properties with a fair value of $147.4 million in the second quarter of 2010. In connection with the Sydson and TODD acquisitions, we recorded oil and natural gas properties with a fair value of $28.4 million, and $23.4 million, respectively, in the second quarter of 2011. For information on these acquisitions, see Note 3. Significant Level 3 inputs used were the same as those used in determining impairments based on estimated discounted cash flows for the acquired properties.

New additions to asset retirement obligations result from estimations for new properties, and fair values for them are categorized as Level 3. Such estimations are based on present value techniques which utilize company-specific information for such inputs as cost and timing of plug and abandonment of wells and facilities. We recorded $2.8 million and $34.6 million in additions to asset retirement obligations measured at fair value during the six months ended June 30, 2011 and 2010, respectively. The significant additions in 2010 were the result of the purchase of Meridian.

The following table presents information about our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value:


	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
*At June 30, 2011 (unaudited):*
Financial Assets:
Derivative contracts for oil and natural gas	$	—	$	59,898	$	—	$	59,898
Financial Liabilities:
Derivative contracts for oil and natural gas		—		40,105		—		40,105
Derivative contracts for interest rate		—		4,880		—		4,880

*At December 31, 2010:*
Financial Assets:
Derivative contracts for oil and natural gas	$	—	$	61,623	$	—	$	61,623
Financial Liabilities:
Derivative contracts for oil and natural gas		—		37,022		—		37,022
Derivative contracts for interest rate		—		5,388		—		5,388

The amounts above are presented on a gross basis; presentation on our consolidated balance sheets utilizes netting of assets and liabilities with the same counterparty where master netting agreements are in place. For additional information on derivative contracts, see Note 6.

6. DERIVATIVE FINANCIAL INSTRUMENTS

We account for our derivative contracts under the provisions of ASC 815, “Derivatives and Hedging.” We have entered into forward-swap contracts and collar contracts to reduce our exposure to price risk in the spot market for oil and natural gas. We also utilize financial basis swap contracts, which address the price differential between market-wide benchmark prices and other benchmark pricing referenced in certain of our natural gas sales contracts. Substantially all of our hedging agreements are executed by affiliates of the lenders under the credit facility described in Note 8 below, and are collateralized by the security interests of the respective affiliated lenders in certain of our assets under the credit facility. The contracts settle monthly and are scheduled to coincide with either oil production equivalent to barrels (Bbl) per month or gas production equivalent to volumes in millions of British thermal units (MMbtu) per month. The contracts represent agreements between us and the counter-parties to exchange cash based on a designated price. Prices are referenced to the natural gas spot market benchmark price at the Houston Ship Channel or the NYMEX index. Cash settlement occurs monthly based on the specified price benchmark. We have not designated any of our derivative contracts as fair value or cash flow hedges; accordingly we use mark-to-market accounting, recognizing unrealized gains and losses in the statement of operations at each reporting date. Realized gains and losses on commodities hedging contracts are included in oil and natural gas revenues.

We have entered into a series of interest rate swap agreements with several financial institutions to mitigate the risk of loss due to changes in interest rates. The interest rate swaps are not designated as cash flow hedges in accordance with ASC 815. Both realized gains and losses from settlement and unrealized gains and losses from changes in the fair market value of the interest rate swaps are included in interest expense.

The second table below provides information on the location and amounts of realized and unrealized gains and losses on derivatives included in the consolidated statements of income for each of the three month and six month periods ended June 30, 2011 and 2010.

The following table summarizes the fair value (see Note 5 for further discussion of fair value) and classification of our derivative instruments, none of which have been designated as hedging instruments under ASC 815:


Fair Values of Derivative Contracts
	Balance Sheet Location at June 30, 2011
	Current asset			Current liability			Long-term asset			Long-term liability
	portion of			portion of			portion of			portion of
	Derivative			Derivative			Derivative			Derivative
	financial			financial			financial			financial
	instruments			instruments			instruments			instruments
	(unaudited)
	(dollars in thousands)
Fair value of oil and gas commodity contracts, assets	$	25,913		$	—		$	33,985		$	—
Fair value of oil and gas commodity contracts, (liabilities)		(14,788	)		—			(25,317	)		—
Fair value of interest rate contracts, (liabilities)		—			(3,176	)		—			(1,704	)

Total net assets, (liabilities)	$	11,125		$	(3,176	)	$	8,668		$	(1,704	)


Fair Values of Derivative Contracts
	Balance Sheet Location at December 31, 2010
	Current asset			Current liability			Long-term asset			Long-term liability
	portion of			portion of			portion of			portion of
	Derivative			Derivative			Derivative			Derivative
	financial			financial			financial			financial
	instruments			instruments			instruments			instruments
	(dollars in thousands)
Fair value of oil and gas commodity contracts, assets	$	27,118		$	—		$	34,505		$	—
Fair value of oil and gas commodity contracts, (liabilities)		(16,682	)		—			(20,340	)		—
Fair value of interest rate contracts, (liabilities)		—			(3,092	)		—			(2,296	)

Total net assets, (liabilities)	$	10,436		$	(3,092	)	$	14,165		$	(2,296	)

Commodity contracts are subject to master netting arrangements and are presented on a net basis in the consolidated balance sheets. This netting can cause derivative assets to be ultimately presented in a (liability) account on the consolidated balance sheets. Likewise, derivative (liabilities) could be presented in an asset account.

The following table summarizes the effect of our derivative instruments in the consolidated statements of operations:


Derivatives not
designated as hedging			For the three months						For the six months ended
instruments under ASC	Location of Gain	Classification of	ended June 30,						June 30,
815	(Loss)	Gain (Loss)	2011			2010			2011			2010
			(unaudited)
			(dollars in thousands)
Natural gas commodity contracts	Natural gas revenues	Realized	$	5,120		$	6,452		$	10,911		$	9,201
Oil commodity contracts	Oil revenues	Realized		(2,434	)		39			(3,918	)		276

Interest rate contracts	Interest benefit (expense)	Realized		2,298			(1,024	)		1,928			(2,051	)


Total realized gains (losses) from derivatives not designated as hedges			$	4,984		$	5,467		$	8,921		$	7,426


Natural gas commodity contracts	Unrealized gain (loss) — oil and natural gas derivative contracts	Unrealized	$	1,659		$	(5,985	)	$	(1,299	)	$	15,296

Oil commodity contracts	Unrealized gain (loss) — oil and natural gas derivative contracts	Unrealized		12,718			8,090			(3,509	)		7,612

Interest rate contracts	Interest benefit (expense)	Unrealized		465			488			508			403

Total unrealized gains (losses) from derivatives not designated as hedges			$	14,842		$	2,593		$	(4,300	)	$	23,311

Although our counterparties provide no collateral, the master derivative agreements with each counterparty effectively allow us, so long as we are not a defaulting party, after a default or the occurrence of a termination event, to set-off an unpaid hedging agreement receivable against the interest of the counterparty in any outstanding balance under the credit facility.

If a counterparty were to default in payment of an obligation under the master derivative agreements, we could be exposed to commodity price fluctuations, and the protection intended by the hedge could be lost. The value of our derivative financial instruments would be impacted.

We had the following open derivative contracts for natural gas at June 30, 2011 (unaudited):

NATURAL GAS DERIVATIVE CONTRACTS


	Volume in		Weighted		Range
Period and Type of Contract	MMbtu		Average		High		Low
2011
Price Swap Contracts		6,030,000	$	5.60	$	8.83	$	4.44
Collar Contracts
Short Call Options		6,760,000		5.67		7.05		5.40
Long Put Options		3,060,000		6.05		6.30		5.75

Long Call Options		600,000		7.45		7.45		7.45
Short Put Options		2,950,000		3.86		4.00		3.65

2012
Price Swap Contracts		7,525,000		6.17		8.83		5.00
Collar Contracts
Short Call Options		7,560,000		5.76		6.00		5.50
Long Put Options		4,350,000		5.93		6.75		5.50

Long Call Options		3,660,000		5.00		5.00		5.00
Short Put Options		8,730,000		4.11		4.50		4.00

2013
Price Swap Contracts		4,825,000		6.48		9.15		5.35
Collar Contracts
Short Call Options		1,500,000		8.51		8.80		8.31
Long Put Options		1,500,000		6.09		6.15		6.00

Short Put Options		900,000		5.50		5.50		5.50

2014
Price Swap Contracts		3,125,000		6.27		7.50		5.60
Collar Contracts
Short Call Options		1,650,000		8.21		9.00		7.92
Long Put Options		1,650,000		6.73		7.00		6.00

Short Put Options		1,200,000		5.50		5.50		5.50

2015
Price Swap Contracts		1,825,000		5.91		5.91		5.91

2016
Collar Contracts
Short Call Options		455,000		7.50		7.50		7.50
Long Put Options		455,000		5.50		5.50		5.50

Short Put Options		455,000		4.00		4.00		4.00

We had the following open derivative contracts for crude oil at June 30, 2011 (unaudited):

OIL DERIVATIVE CONTRACTS


			Weighted		Range
Period and Type of Contract	Volume in Bbls		Average		High		Low
2011
Price Swap Contracts		230,000	$	83.80	$	103.20	$	67.50
Collar Contracts
Short Call Options		276,000		103.15		110.00		82.25
Long Put Options		317,400		86.67		100.00		75.00

Long Call Options		55,200		75.00		75.00		75.00
Short Put Options		402,592		66.42		89.85		55.00

2012
Price Swap Contracts		228,900		85.69		96.00		67.25
Collar Contracts
Short Call Options		491,172		115.89		123.50		100.00
Long Put Options		522,648		80.75		85.00		80.00

Short Put Options		635,376		62.26		65.00		60.00

2013
Price Swap Contracts		136,500		84.35		94.74		77.00
Collar Contracts
Short Call Options		417,935		110.62		127.00		90.00
Long Put Options		351,500		81.95		90.00		80.00

Long Call Options		82,500		79.00		79.00		79.00
Short Put Options		434,000		61.58		70.00		60.00

2014
Price Swap Contracts		127,300		87.63		91.05		81.00
Collar Contracts
Short Call Options		273,750		125.70		133.50		107.50
Long Put Options		488,450		85.33		90.00		80.00

Short Put Options		488,450		65.33		70.00		60.00

2015
Collar Contracts
Short Call Options		246,350		125.12		135.98		116.40
Long Put Options		319,350		87.57		90.00		85.00

Short Put Options		319,350		66.86		70.00		60.00

2016
Collar Contracts
Short Call Options		36,400		130.00		130.00		130.00
Long Put Options		36,400		95.00		95.00		95.00

Short Put Options		36,400		75.00		75.00		75.00

In those instances where contracts are identical as to time period, volume and strike price, but opposite as to direction (long and short), the volumes and average prices have been netted in the two tables above. In some instances our counterparties in the offsetting contracts are not the same, and may have different credit ratings.

We had the following open financial basis swap contracts at June 30, 2011 (unaudited):


Volume in MMbtu	Reference Price	Period	Spread ($ per MMbtu)
1,200,000	Houston Ship Channel	Jul ’11 — Dec ’11		(0.2000	)
1,200,000	Houston Ship Channel	Jul ’11 — Dec ’11		(0.1600	)
460,000	Houston Ship Channel	Jul ’11 — Dec ’11		(0.0850	)
1,380,000	Houston Ship Channel	Jul ’11 — Dec ’11		(0.1550	)
1,830,000	Houston Ship Channel	Jan ’12 — Dec ’12		(0.1575	)
1,840,000	Houston Ship Channel	Jul ’11 — Dec ’11		(0.1150	)
3,660,000	Houston Ship Channel	Jan ’12 — Dec ’12		(0.1400	)

We had the following open interest rate swap contracts at June 30, 2011 (unaudited):


Interest Rate Swaps
Term	Principal Amount		Interest Rate (1)
	(dollars in thousands)
Floating to Fixed Rate Swaps:
July 2011 — August 2012	$	50,000		4.95	%
July 2011 — October 2011	$	25,000		3.21	%
Fixed to Floating Rate Swaps:
July 2011 — June 2015	$	150,000		9.625	%


(1)		The floating rate is the three-month LIBOR rate, except the swap for $150 million, which is a fixed to floating rate swap using a floating rate of three-month LIBOR plus 8.06%.

7. ASSET RETIREMENT OBLIGATIONS

A summary of the changes in asset retirement obligations is included in the table below (unaudited, dollars in thousands):


Balance, December 31, 2010	$	42,713
Liabilities incurred		332
Liabilities assumed with acquired producing properties		2,504
Liabilities settled		(246	)
Revisions to previous estimates		(7	)
Accretion expense		946

Balance, June 30, 2011		46,242
Less: Current portion		1,755

Long term portion	$	44,487

8. LONG-TERM DEBT AND NOTES PAYABLE TO FOUNDER

Long-term debt consists of the following:


	June 30,		December 31,
	2011		2010
	(unaudited)
	(dollars in thousands)
Senior Debt — On November 13, 2008, we entered into a Fifth Amended and Restated Credit Agreement with a group of banks, which was replaced by the Sixth Amended and Restated Credit Agreement on May 13, 2010, as amended (“credit facility”). The credit facility matures on May 23, 2016 and is secured by substantially all of our oil and gas properties. The credit facility borrowing base is redetermined periodically and, as of June 30, 2011, the borrowing base under the facility was $260 million. The credit facility bears interest at LIBOR plus applicable margins between 2.00% and 2.75% or a “Reference Rate,” which is based on the prime rate of Wells Fargo Bank, N. A., plus a margin ranging from 1.00% to 1.75%, depending on the utilization of our borrowing base. The rate was 2.519% as of June 30, 2011 and 2.875% as of December 31, 2010	$	159,790	$	73,290

Senior Notes Payable — On October 13, 2010, we issued notes due October 15, 2018 with a face value of $300 million, at a discount of $2.1 million. The senior notes carry a face interest rate of 9 5/8%, with an effective rate of 9 3/4%; interest is payable semi-annually each April 15^th and October 15^th. The senior notes are secured by general corporate credit, and effectively rank junior to any of our existing or future secured indebtedness, which includes the credit facility. The senior notes are unconditionally guaranteed on a senior unsecured basis by each of our material subsidiaries. The balance is presented net of unamortized discount of $1.9 million and $2.0 million at June 30, 2011 and December 31, 2010, respectively.		298,116		297,986


Total long-term debt	$	457,906	$	371,276

The senior notes contain an optional redemption provision beginning in October 2013 allowing us to retire up to 35% of the principal outstanding under the senior notes with the proceeds of an equity offering, at 109.625%. Additional optional redemption provisions allow for retirement at 104.813%, 102.406%, and 100.0% beginning on each of October 15, 2014, 2015, and 2016, respectively.

On October 13, 2010, we entered into a registration rights agreement with the initial purchasers of the senior notes. Pursuant to the registration rights agreement, we filed a registration statement with the SEC to allow for registration of “exchange notes” with terms substantially identical to the senior notes. The exchange offer was consummated on August 12, 2011, with the tendered original senior notes exchanged for the exchange notes.

On May 23, 2011, we amended our $500 million senior secured revolving credit facility to, among other

things, increase the borrowing base limit from $220 million to $260 million and reduce applicable interest rates provided thereunder, extend the maturity date from November 13, 2012 to May 23, 2016, and increase the amount of senior debt securities that we are permitted to issue from $500 million to $700 million. The amended credit facility is currently subject to a $260 million borrowing base limit.

The credit facility and senior notes include covenants requiring us to maintain certain financial covenants including a Current Ratio, Leverage Ratio, and Interest Coverage Ratio. At June 30, 2011, we were in compliance with the covenants. The terms of the credit facility also restrict our ability to make distributions and investments.

In addition, we have notes payable to our founder which bear simple interest at 10% with a balance of $20.3 million and $19.7 million at June 30, 2011 and December 31, 2010, respectively. The notes mature December 31, 2018. Interest and principal are payable at maturity. The notes are subordinate to all debt. Interest on the notes payable to our founder amounted to $600,000 and $590,000 for the six months ended June 30, 2011 and 2010, respectively, and $302,000 and $297,000 for the three months ended June 30, 2011 and 2010, respectively. Such amounts have been added to the balance of the notes.

9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The following provides the detail of accounts payable and accrued liabilities:


	June 30,		December 31,
	2011		2010
	(unaudited)
	(dollars in thousands)
Capital expenditures	$	32,815	$	22,743
Revenues and royalties payable		5,287		5,962
Operating expenses/taxes		23,152		18,220
Compensation		4,057		2,591
Liability related to drilling rig		—		9,785
Other		2,513		1,775

Total accrued liabilities		67,824		61,076
Accounts payable		6,321		26,179

Accounts payable and accrued liabilities	$	74,145	$	87,255

The following provides the detail of other long-term liabilities:


	June 30,		December 31,
	2011		2010
	(unaudited)
	(dollars in thousands)
Acquisition obligation	$	985	$	411
Remediation liability		966		943
Other		3,489		5,886

Total other long-term liabilities	$	5,440	$	7,240

10. COMMITMENTS AND CONTINGENCIES

Contingencies

Deep Bossier litigation: On July 23, 2009, we made a payment of $25.5 million and took assignment of substantially all working interests that had been held by Chesapeake Energy Corporation in an approximate 50,000 acre area of Leon and Robertson Counties, Texas in the Deep Bossier play. We had exercised our preferential right to purchase these interests from Gastar Exploration Ltd. in late 2005, but Gastar and Chesapeake had opposed this and Chesapeake took record title until we finally and conclusively prevailed, and in 2008 a Texas court of appeals directed that specific performance take place. In early 2009, the Texas Supreme Court denied the defendants’ request to hear the appeal. As a result, we were able to take working interests in over 30 producing wells and participate in further development of the area, primarily with EnCana, but also with Gastar. A subsequent payment to EnCana of $15.2 million plus purchase accounting adjustments of $3.8 million brought the total cost of the acquisition to $44.5 million. While the ownership of these interests has been decided by the courts, we are pursuing other claims against Chesapeake; Chesapeake is claiming an additional $36.5 million of past expenses from us. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of this matter or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any amount for this matter in our consolidated financial statements at June 30, 2011.

Texas Oil Distribution & Development, Inc. and Matrix Petroleum, LLC v. Alta Mesa Holdings, LP and The Meridian Resource & Exploration, LLC: In November 2010, Texas Oil Distribution & Development, Inc. and Matrix Petroleum LLC (together, “TODD”), filed a petition seeking declaratory relief based on TODD’s employment of Thomas Tourek, a former independent contractor of the Company. TODD subsequently filed an amended petition for declaratory relief, breach of contract and tortious interference related to certain assignments of oil and gas interests and joined Meridian as a defendant. On June 17, 2011, the litigation was settled. See Note 3, “Significant Acquisitions — TODD Acquisition” for further information.

Ted R. Stalder, TRS LP, Richard Hughart, and Richmar Interests, Inc. v. Texas Energy Acquisitions, LP: On May 24, 2011, the plaintiffs brought suit against us for breach of contract, common law fraud, fraud in a real estate transaction, declaratory relief, money had and received, an accounting, and injunctive relief related to two purchase and sales agreements dated December 23, 2008 and a dispute over the interpretation of the payment provisions in those agreements. An ex parte temporary restraining order (“TRO”) was entered against us on May 24, 2011, requiring among other things that we deposit into the registry of the court all payments received from oil, gas and liquids from the properties covered by the agreements. Our motion to dissolve the TRO was denied and the TRO was amended and extended another 14 days on June 2, 2011. We subsequently agreed to amend and extend the TRO until July 8, 2011. On July 7, 2011, during a hearing on the temporary injunction, the court recommended that the parties enter into an agreed temporary injunction. The plaintiffs and us agreed to enter into a temporary injunction whereby, among other things, we would pay directly to the plaintiffs the portion of the payments received from oil, gas, and liquids from the properties covered by the agreements that we contend the plaintiffs are due, less any previous payments. Furthermore, we have agreed to deposit into the registry of the court the amount that the plaintiffs contend they are owed, less any previous payments made to the registry of the court or to the plaintiffs. We are still in the process of negotiating the agreed temporary injunction. On July 28, 2011, we filed a motion for partial summary judgment on the plaintiffs’ fraud claims, which is set for hearing on August 18, 2011. We intend to contest the matter vigorously. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of this matter or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any amount for this matter in our consolidated financial statements at June 30, 2011.

Environmental claims: Management has established a liability for soil contamination in Florida of $966,000 at June 30, 2011 and $943,000 December 31, 2010, based on our undiscounted engineering estimates. The obligations are included in other long-term liabilities in the accompanying consolidated balance sheets.

Various landowners have sued Meridian (along with numerous other oil companies) in lawsuits concerning several fields in which Meridian has had operations. The lawsuits seek injunctive relief and

other relief, including unspecified amounts in both actual and punitive damages for alleged breaches of mineral leases and alleged failure to restore the plaintiffs’ lands from alleged contamination and otherwise from Meridian’s oil and natural gas operations. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of the various environmental claims or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any amount for these claims in our financial statements at June 30, 2011.

Due to the nature of our business, some contamination of the real estate property owned or leased by us is possible. Environmental site assessments of the property would be necessary to adequately determine remediation costs, if any. No accrual has been made other than the balance noted above.

Title/lease disputes: Title and lease disputes may arise in the normal course of our operations. These disputes are usually small but could result in an increase or decrease in reserves once a final resolution to the title dispute is made.

Other contingencies: We are subject to legal proceedings, claims and liabilities arising in the ordinary course of business. The outcome cannot be reasonably estimated; however, in the opinion of management, such litigation and claims will be resolved without material adverse effect on our financial position, results of operations or cash flows. Accruals for losses associated with litigation are made when losses are deemed probable and can be reasonably estimated.

We have contingent commitments to pay an amount up to a maximum of approximately $6.7 million for properties acquired in 2008 and prior years. The additional purchase consideration will be paid only if certain product price conditions are met. We cannot estimate the amounts that will be paid in the future, if any, or the fiscal years in which such amounts could become due.

Drilling rig: Included in our acquisition of Meridian was a contractual obligation for the use of a drilling rig, which expired in February 2011. Meridian and Alta Mesa were not able to fully utilize this rig during the contractual term; however, we were obligated for the dayrate regardless of whether the rig was working or idle. The operator, Orion Drilling, LP (“Orion”), sought other parties to use the rig and agreed to credit Meridian’s and Alta Mesa’s obligation, based on revenues from third parties who utilized the rig when it was not utilized under the contract. We had provided approximately $9.8 million for the liability under this drilling contract and under a similar rig contract which had previously expired and was also underutilized.

On May 19, 2011, we fully settled this liability with a payment of $8.5 million to Orion, and recorded a gain on contact settlement of $1.3 million.

11. SIGNIFICANT RISKS AND UNCERTAINTIES

Our business makes us vulnerable to changes in wellhead prices of crude oil and natural gas. Such prices have been volatile in the past and can be expected to be volatile in the future. By definition, proved reserves are based on analysis of current oil and natural gas prices. Price declines reduce the estimated value of proved reserves and may increase annual amortization expense (which is based on proved reserves). Price declines may also result in impairments, or non-cash write-downs, of the value of our oil and gas properties. We mitigate a portion of this vulnerability by entering into oil and natural gas price derivative contracts. See Note 6.

12. PARTNERS’ CAPITAL

In September 2006, our limited partnership agreement was amended such that the affiliates of Alta Mesa Holdings, LP and certain other parties became Class A limited partners (“Class A Partners”) and AMIH was admitted to the partnership as the sole Class B limited partner (“Class B Partner.”)

Management and Control: Our business and affairs are managed by Alta Mesa Holdings GP, LLC, our general partner (“General Partner”). With certain exceptions, the General Partner may not be removed except for the reasons of “cause,” which are defined in the Alta Mesa Holdings, LP Partnership Agreement (“Partnership Agreement”). The Class B limited partner has certain approval rights, generally over capital plans and significant transactions in the areas of finance, acquisition, and divestiture.

Distribution and Income Allocation: Net cash flow from operations may be distributed to the Class A and Class B Partners based on a variable formula as defined in the Partnership Agreement.

After January 1, 2012, the Class B Partner may require the General Partner to make distributions; however, any distribution must be permitted under the terms of our credit facility and our senior notes.

Distribution of net cash flow from a Liquidity Event (as defined below) is distributed to the Class A and Class B Partners according to a variable formula as defined in the Partnership Agreement. A “Liquidity Event” is any event in which we receive cash proceeds outside the ordinary course of our business. Further, after January 1, 2012, the Class B Partner can, without consent of any other partners, request that the General Partner take action to cause us, or our assets, to be sold to one or more third parties.

13. SUBSIDIARY GUARANTORS

All of our material wholly-owned subsidiaries are guarantors under the terms of both our senior notes and our credit facility.

Our consolidated financial statements reflect the combined financial position of these subsidiary guarantors. Our parent company, Alta Mesa Holdings, LP has no independent operations, assets, or liabilities. The guarantees are full and unconditional and joint and several. Those subsidiaries which are not wholly owned and are not guarantors are minor. There are no restrictions on dividends, distributions, loans, or other transfers of funds from the subsidiary guarantors to our parent company.

14. SUBSEQUENT EVENTS

Management has evaluated all events subsequent to the balance sheet date of June 30, 2011 to August 12, 2011, which is the date the consolidated financial statements were issued, and has determined that no events require disclosure.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this report. In addition, such analysis should be read in conjunction with the financial statements and the related notes included in our Registration Statement on Form S-4 (Commission File No. 333-173751 filed on July 11, 2011, the “Form S-4”). The following discussion and analysis contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. 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, the volatility of oil and natural gas prices, general economic conditions, credit markets, inflation, the credit rating of U.S. government debt, production timing and volumes, estimates of proved reserves, operating costs and capital expenditures, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating oil and natural gas reserves and in projecting future rates of production, cash flow and access to capital and other uncertainties, as well as those factors discussed below and under “Risk Factors” in our Form S-4. As a result of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. The historical financial information discussed below in this Management’s Discussion and Analysis of Financial Conditions and Results of Operations represents Alta Mesa’s financial information for the periods indicated, giving effect to the Meridian acquisition from the acquisition date of May 13, 2010 and the Sydson and TODD asset acquisitions from April 21, 2011 and June 17, 2011, respectively.

Overview

We currently generate significant amounts of our revenue, earnings and cash flow from the production and sale of oil and natural gas from our core properties in the South Louisiana, East Texas, Oklahoma, the Deep Bossier resource play of East Texas and Eagle Ford Shale play in South Texas. We operate in one industry segment, oil and natural gas exploration and development, within one geographical segment, the United States.

The amount of cash we generate from our operations will fluctuate based on, among other things:

	•		the prices at which we will sell our production;

	•		the amount of oil and natural gas we produce; and

	•		the level of our operating and administrative costs.

In order to mitigate the impact of changes in oil and natural gas prices on our cash flows, we are a party to hedging and other price protection contracts, and we intend to enter into such transactions in the future to reduce the effect of oil and natural gas price volatility on our cash flows.

Substantially all of our oil and natural gas activities are conducted jointly with others and, accordingly, amounts presented reflect our proportionate interest in such activities. Inflation has not had a material impact on our results of operations and is not expected to have a material impact on our results of operations in the future.

Significant Acquisitions

Meridian Acquisition

On May 13, 2010, we acquired The Meridian Resource Corporation, a public exploration and production company, with proved reserves of 75 Bcfe as of December 31, 2009, for approximately $158 million. The oil and natural gas properties of Meridian were similar and in some cases proximate to our areas of operation. Meridian shareholders were paid in cash, funded by proceeds of our credit facility as well as a $50 million equity contribution from our private equity partner Alta Mesa Investment Holdings Inc., an affiliate of Denham Commodities Partners Fund IV LP (“AMIH”). The merger increased the oil portion of our reserves portfolio, improving the balance of our reserves between oil and natural gas, and provided significant additions to our library of 3-D seismic data.

Sydson Acquisition

TODD Acquisition

Outlook

The U.S. and other world economies suffered a severe recession lasting well into 2009 and economic conditions remain uncertain. These uncertain economic conditions reduced demand for oil and natural gas, resulting in a decline in oil and natural gas prices received for our production in 2009 compared with years prior to and including 2008. In 2010 and 2011 we have benefitted from increasing prices for oil, but natural gas prices remain at lower levels.

While oil and natural gas prices have strengthened, we expect them to remain volatile in the future. Factors affecting the price of oil include worldwide economic conditions, geopolitical activities, worldwide supply disruptions, weather conditions, actions taken by the Organization of Petroleum Exporting Countries, the credit rating of U.S. goverment debt and the value of the U.S. dollar in international currency markets. Factors affecting the price of natural gas include U.S. economic conditions, North American weather conditions, industrial and consumer demand for natural gas, storage levels of natural gas, the credit rating of U.S. goverment debt and the availability and accessibility of natural gas deposits in North America. If the global economic uncertainty continues, commodity prices may be depressed for an extended period of time, which could alter our development plans and adversely affect our growth strategy and our ability to access additional funding in the capital markets.

We have used, and expect to continue to use, oil and natural gas derivative contracts to reduce our exposure to the risks of changes in the prices of oil and natural gas. Pursuant to our risk management

policy, we engage in these activities as a hedging mechanism against price volatility associated with pre-existing or anticipated sales of oil and natural gas. As of June 30, 2011, we have hedged approximately 63% of our forecasted production from proved developed reserves through 2016 at minimum average annual prices ranging from $5.50 per MMBtu to $6.40 per MMBtu and $82.26 per Bbl to $95.00 per Bbl.

The primary factors affecting our production levels are capital availability, the success of our drilling program and our inventory of drilling prospects. In addition, we face the challenge of natural production declines. As initial reservoir pressures are depleted, production from a given well decreases. We attempt to overcome this natural decline primarily through developing our existing undeveloped reserves. Our future growth will depend on our ability to continue to add reserves in excess of production. Our ability to add reserves through drilling and other development techniques is dependent on our capital resources and can be limited by many factors, including our ability to timely obtain drilling permits and regulatory approvals. Any delays in drilling, completing or connecting our new wells to gathering lines will negatively affect our production, which will have an adverse effect on our revenues and, as a result, cash flow from operations.

Operations Update

Deep Bossier: This remains our largest producing area, contributing an average of about 53 MMcf/d (million cubic feet of gas per day). Since the end of the first quarter of 2011 we have participated in drilling five successful wells in this area, with initial production rates ranging from 20 MMcf/d to 1.5 MMcf per day. Additionally, one well was recompleted resulting in a new production rate of approximately 34 MMcf/d. We have a 33% working interest in this EnCana operated well. Currently one well is drilling and one well is waiting on completion in this field.

Eagle Ford Shale: We are participating with our operating partner, Murphy Oil, in a multi-year drilling effort in the liquids window of Karnes County, where we have 21% to 25% working interests in approximately 19,000 gross acres. Currently we have interests in 14 producing wells. Since the end of the first quarter of 2011, we have participated in the drilling of nine wells. Of those nine wells, four wells have been brought online and five wells are waiting to be fracture stimulated or completed. Two wells are currently drilling, and five locations have been prepared for future drilling. The operator has secured a hydraulic fracturing contractor who will be dedicated to our wells in the area for the next two years.

Weeks Island: We began our multi-well drilling program during the second quarter of 2011, drilling two successful wells, one of which is expected to reach approximately 200 Bbls per day and is currently producing at rates between 60 and 150 Bbls per day. The second well was also productive and is under analysis for optimal reservoir exploitation. We also recently finished two recompletions in Weeks Island, with one producing at approximately 180 Bbls per day and the other reflecting an initial rate of 500 Bbls of oil per day, although it is temporarily off-line for a gravel-packing operation.

Cold Springs Field: We took over as operator of the Cold Springs Field in the second quarter, and are continuing development of multiple stacked pays, primarily in the Wilcox sand. During the quarter, we established production in two previously un-tested Wilcox zones. The shallower of these zones tested at an initial production rate of 300 Bbls of oil per day, and is present in several wells in the field. It will be tested in the next recompletion in early August 2011. We believe there are at least 12 wells to drill in the extension area for this field, the first of which is scheduled to be spudded in the third quarter of 2011. We also made a small acquisition in this field in the second quarter of 2011.

Oklahoma: We are continuing with our infill drilling program in the Lincoln North Unit which is designed to further exploit the unitized Oswego and Big Lime formations and will also target other deeper, prospective formations, including the Mississippi Lime formation. The East Hennessey Unit waterflood expansion is now underway with water injection in the initial pilot area for the flood.

Results of Operations: Three Months Ended June 30, 2011 v. Three Months Ended June 30, 2010


	Three Months Ended June 30,					Increase
	2011			2010		(Decrease)			% Change
				($ in thousands, except average sales price and unit costs)
Summary Operating Information:

Net Production:
Natural gas (MMcf)		7,979			5,701		2,278			40	%
Oil (MBbls)		376			213		163			77	%
Natural gas liquids (MBbls)		50			26		24			92	%
Total natural gas equivalent (MMcfe)		10,535			7,135		3,400			48	%
Average daily gas production (MMcfe per day)		115.8			78.4		37.4			48	%

Average Sales Price:
Natural gas (per Mcf) realized	$	4.85		$	5.28	$	(0.43	)		(8	%)
Natural gas (per Mcf) unhedged		4.21			4.15		0.06			1	%
Oil (per Bbl) realized		104.50			76.38		28.12			37	%
Oil (per Bbl) unhedged		110.97			76.20		34.77			46	%
Natural gas liquids (per Bbl) realized ⁽¹⁾		56.87			46.73		10.14			22	%
Combined (per Mcfe) realized		7.68			6.67		1.01			15	%

Hedging Activities:
Realized natural gas revenue gain	$	5,120		$	6,452	$	(1,332	)		(21	%)
Realized oil revenue gain (loss)		(2,434	)		39		(2,473	)		(6,341	%)

Summary Financial Information
Revenues
Natural gas	$	38,731		$	30,120	$	8,611			29	%
Oil		39,292			16,278		23,014			141	%
Natural gas liquids		2,847			1,214		1,633			135	%
Other revenues		297			386		(89	)		(23	%)
Unrealized gain (loss) — oil and natural gas derivative contracts		14,377			2,105		12,272			583	%

		95,544			50,103		45,441			91	%
Expenses
Lease and plant operating expense		15,041			9,354		5,687			61	%
Production and ad valorem taxes		4,069			2,785		1,284			46	%
Workover expense		2,352			1,330		1,022			77	%
Exploration expense		5,690			1,651		4,039			245	%
Depreciation, depletion, and amortization		22,963			13,500		9,463			70	%
Impairment expense		4,929			643		4,286			667	%
Accretion expense		476			270		206			76	%
General and administrative expenses		8,843			4,679		4,164			89	%
Interest expense, net		6,831			4,525		2,306			51	%
(Gain) on contract settlement		(1,285	)		—		(1,285	)	NA
Provision for state income taxes		75			—		75		NA


Net income	$	25,560		$	11,366	$	14,194			125	%


Average Unit Costs per Mcfe:
Lease and plant operating expense	$	1.43		$	1.31	$	0.12			9	%
Production and ad valorem taxes		0.39			0.39		—			0	%
Workover expense		0.22			0.19		0.03			16	%
Exploration expense		0.54			0.23		0.31			135	%
Depreciation, depletion and amortization		2.18			1.89		0.29			15	%
General and administrative expenses		0.84			0.66		0.18			27	%


(1)		The Company does not utilize hedges for natural gas liquids.

Revenues

Natural gas revenues for the three months ended June 30, 2011 were $38.7 million, compared to $30.1 million for the same period in 2010, representing an $8.6 million or 29% increase. The increase in revenue was attributable to increased production volumes partially offset by lower realized prices during the three months ended June 30, 2011. The increase in production volumes of 2.3 Bcf resulted in increased revenue of approximately $12.0 million primarily related to production from our Meridian acquisition in May 2010 (.7 Bcf) and new production in the Deep Bossier (1.9 Bcf). The decrease in realized prices (including hedge activity) from $5.28 per Mcf in the second quarter of 2010 to $4.85 per Mcf in the second quarter of 2011 resulted in decreased revenue of approximately $3.4 million. The price of gas before hedging increased from $4.15 per Mcf in the second quarter of 2010 to $4.21 per Mcf in the second quarter of 2011.

Oil revenues for the three months ended June 30, 2011 increased $23 million, or 141%, to $39.3 million from $16.3 million for the three months ended June 30, 2010. The increase in revenue was due to higher production volumes and higher realized prices. Oil production for the second quarter of 2011 increased to 376 MBbls from 213 MBbls for the same period in 2010, an increase of 77%. The increase is primarily related to the full-quarter effect of production from our Meridian acquisition (105 MBbls higher than the second quarter of 2010) and to new production from our Eagle Ford Shale area (52 MBbls). During the three months ended June 30, 2011, our average realized oil price (including hedge activity) increased from $76.38 per Bbl in the second quarter of 2010 to $104.50 per Bbl in the comparable period of 2011. The price of oil before hedging increased from $76.20 per Bbl to $110.97 per Bbl for the comparative periods.

Natural gas liquids revenues increased during the second quarter of 2011 to $2.8 million from $1.2 million for the second quarter of 2010. The increase was due to an increase in volume sold, from 26 MBbls to 50 MBbls, and increased prices, from $46.73 to $56.87 for the three months ended June 30, 2010 and 2011, respectively. The increased production is primarily related to our Meridian acquisition in May 2010.

Other revenues were $297,000 during the three months ended June 30, 2011 as compared to $386,000 during the three months ended June 30, 2010. The decrease is primarily the result of a decrease in income from investments, offset by increased income from rental of our drilling rig.

Unrealized gain (loss) – oil and natural gas derivative contracts was a gain of $14.4 million during the three months ended June 30, 2011 as compared to a gain of $2.1 million during the same period in 2010. The significant fluctuation from period to period is due to the volatility of oil and natural gas prices and changes in our outstanding hedging contracts during these periods.

Expenses

Lease and plant operating expense increased $5.7 million in the second quarter of 2011 as compared to the second quarter of 2010, due partially to the full quarter effect of lease operating expenses related to our Meridian acquisition in May 2010, $2.2 million. In addition, expenditures at Deep Bossier increased $3.3 million, primarily due to an increase in the number of producing wells and increased gas marketing fees. On a unit basis, lease and plant operating expense increased from $1.31 per Mcfe to $1.43 per Mcfe for the three months ended June 30, 2010 and 2011, respectively.

Production and ad valorem taxes increased $1.3 million, or 46%, to $4.1 million for the second quarter of 2011, as compared to $2.8 million for the second quarter of 2010. Ad valorem taxes increased $0.4 million, due to our Meridian acquisition in May 2010 and increased taxable values of our properties. The remaining increase of $0.9 million is attributable to production taxes, which increased 37%, following an increase in our revenue from products of 70%. The change in the mix of our sales toward a higher percentage of revenues from oil impacts the variance in this expense. Tax rates on oil are higher than for gas in Louisiana, where the majority of our oil is produced. Oil as a percentage of product revenues increased from 34% to 49% in the second quarter of 2011 as compared to the same period in 2010.

Workover expense increased from the second quarter of 2010 as compared to the second quarter of 2011, from $1.3 million to $2.4 million, respectively. This expense varies depending on activities in the field.

Exploration expense includes the costs of our geology departments, costs of geological and geophysical data, delay rentals, expired leases, and dry holes. Exploration expense increased from $1.7 million for the second quarter of 2010 to $5.7 million for the second quarter of 2011. The increase is primarily due to dry hole expense recorded in the second quarter of 2011 of approximately $4.5 million.

Depreciation, depletion and amortization increased $9.5 million to $23 million for the second quarter of 2011 as compared to an expense of $13.5 million for the second quarter of 2010. On a per unit basis, this expense increased from $1.89 to $2.18 per Mcfe. The rate is a function of capitalized costs of proved properties, reserves and production by field.

Impairment expense increased from $0.6 million in the second quarter of 2010 to $4.9 million in the second quarter of 2011. This expense varies with the results of exploratory drilling, as well as with price declines which may render some projects uneconomic, resulting in impairment.

Accretion expense is related to our obligation for retirement of oil and natural gas wells and facilities. We record these liabilities when we place the assets in service, using discounted present values of the estimated future obligation. We then record accretion of the liabilities as they approach maturity. Accretion expense was $0.5 million and $0.3 million for the second quarter of 2011 and 2010, respectively. The increase was due to the acquisition of Meridian.

General and administrative expenses increased $4.1 million for the three months ended June 30, 2011 to $8.8 million from $4.7 million for the three months ended June 30, 2010. The increase in general and administrative expenses resulted principally from increased payroll and burden costs of $1.1 million, which are predominately related to increased headcount from our Meridian acquisition and additional personnel. Consulting expenses increased $2.2 million, primarily for legal fees, accounting fees (primarily related to the registration of our bonds), and to other consulting services, including risk management (hedging strategy) and expenses assumed with the Meridian acquisition. Office expenditures increased $0.4 million in the second quarter of 2011 as compared to 2010, primarily due to the assumption of Meridian office space in May 2010. On a per unit basis, general and administrative expenses increased from $0.66 to $0.84 per Mcfe.

Interest expense, net increased $2.3 million for the three months ended June 30, 2011 to $6.8 million from $4.5 million for the three months ended June 30, 2010, primarily due to $7.3 million in interest on our 9 5/8% senior notes issued in October 2010, and increased amortization of deferred loan costs of $0.3 million. This increase is partially offset by decreased interest rate hedge losses of $3.3 million, primarily due to hedge gains of $2.8 million related to interest rate hedge contract modifications and decreased interest on bank debt of $1.9 million due to a decrease in the amount outstanding under our credit facility and to the retirement of our $40 million subordinated debt in October 2010.

Gain on contract settlement is related to the settlement of an obligation the Company assumed upon the purchase of Meridian. The obligation related to underutilization of two contracted drilling rigs, as described in Note 10 of the accompanying notes to our financial statements. We recorded an estimated liability of $9.8 million for the obligation upon purchase of Meridian in 2010. The obligation was subsequently settled in the second quarter of 2011 for $8.5 million, resulting in a gain of $1.3 million.

Results of Operations: Six Months Ended June 30, 2011 v. Six Months Ended June 30, 2010


	Six Months Ended June 30,					Increase
	2011			2010		(Decrease)			% Change
	($ in thousands, except average sales price and unit costs)
Summary Operating Information:

Net Production:
Natural gas (MMcf)		15,345			10,670		4,675			44	%
Oil (MBbls)		724			335		389			116	%
Natural gas liquids (MBbls)		108			39		69			177	%
Total natural gas equivalent (MMcfe)		20,338			12,918		7,420			57	%
Average daily gas production (MMcfe per day)		112.4			71.4		41.0			57	%

Average Sales Price:
Natural gas (per Mcf) realized	$	4.83		$	5.43	$	(0.60	)		(11	%)
Natural gas (per Mcf) unhedged		4.12			4.57		(0.45	)		(10	%)
Oil (per Bbl) realized		98.70			76.96		21.74			28	%
Oil (per Bbl) unhedged		104.11			76.14		27.97			37	%
Natural gas liquids (per Bbl) realized ⁽¹⁾		54.73			49.30		5.43			11	%
Combined (per Mcfe) realized		7.45			6.63		0.82			12	%

Hedging Activities:
Realized natural gas revenue gain	$	10,911		$	9,201	$	1,710			19	%
Realized oil revenue gain (loss)		(3,918	)		276		(4,194	)		(1520	%)

Summary Financial Information
Revenues
Natural gas	$	74,112		$	57,935	$	16,177			28	%
Oil		71,489			25,799		45,690			177	%
Natural gas liquids		5,900			1,943		3,957			204	%
Other revenues		766			407		359			88	%
Unrealized gain (loss) — oil and natural gas derivative contracts		(4,808	)		22,908		(27,716	)		(121	%)

		147,459			108,992		38,467			35	%

Expenses
Lease and plant operating expense		28,372			17,432		10,940			63	%
Production and ad valorem taxes		9,470			4,398		5,072			115	%
Workover expense		3,978			3,289		689			21	%
Exploration expense		8,421			4,572		3,849			84	%
Depreciation, depletion, and amortization		42,431			22,122		20,309			92	%
Impairment expense		10,755			2,093		8,662			414	%
Accretion expense		946			415		531			128	%
General and administrative expenses		14,593			6,902		7,691			111	%
Interest expense, net		16,309			8,724		7,585			87	%
(Gain) on contract settlement		(1,285	)		—		(1,285	)	NA
Provision for state income taxes		75			—		75		NA


Net income	$	13,394		$	39,045	$	(25,651	)		(66	%)


Average Unit Costs per Mcfe:
Lease and plant operating expense	$	1.40		$	1.35	$	0.05			4	%
Production and ad valorem taxes		0.47			0.34		0.13			38	%
Workover expense		0.20			0.25		(0.05	)		(20	%)
Exploration expense		0.41			0.35		0.06			17	%
Depreciation, depletion and amortization		2.09			1.71		0.38			22	%
General and administrative expenses		0.72			0.53		0.19			36	%


(1)		The Company does not utilize hedges for natural gas liquids.

Revenues

Natural gas revenues for the six months ended June 30, 2011 were $74.1 million, compared to $57.9 million for the same period in 2010, representing a $16.2 million or 28% increase. The increase in revenue was attributable to increased production volumes partially offset by lower realized prices during the six months ended June 30, 2011. The increase in production volumes of 4.7 Bcf resulted in increased revenue of approximately $25.4 million primarily related to production from our Meridian acquisition in May 2010 (2.3 Bcf) and new production in the Deep Bossier (2.9 Bcf). The decrease in realized prices (including hedge activity) from $5.43 per Mcf in the first half of 2010 to $4.83 per Mcf in the first half of 2011 resulted in decreased revenue of approximately $9.2 million. The price of gas before hedging decreased from $4.57 per Mcf in the first half of 2010 to $4.12 per Mcf in the first half of 2011.

Oil revenues for the six months ended June 30, 2011 increased $45.7 million, or 177%, to $71.5 million from $25.8 million for the six months ended June 30, 2010. The increase in revenue was due to higher production volumes and higher realized prices. Oil production for the first half of 2011 increased to 724 MBbls from 335 MBbls for the same period in 2010, an increase of 116%. The increase is primarily related to production from our Meridian acquisition in May 2010 (320 MBbls higher than the second quarter of 2010) and to new production from our Eagle Ford Shale area (58 MBbls). During the six months ended June 30, 2011, our average realized oil price (including hedge activity) increased from $76.96 per Bbl in the first half of 2010 to $98.70 per Bbl in the first half of 2011. The price of oil before hedging increased from $76.14 per Bbl to $104.11 per Bbl for the same comparative periods.

Natural gas liquids revenues increased during the first half of 2011 to $5.9 million from $1.9 million for the first half of 2010. The increase was due to an increase in volume sold, from 39 MBbls to 108 MBbls, and increased prices, from $49.30 to $54.73 per Bbl for the six months ended June 30, 2010 and 2011, respectively. The increased production is primarily related to our Meridian acquisition in May 2010.

Other revenues were $766,000 during the six months ended June 30, 2011 as compared to $407,000 during the six months ended June 30, 2010. The increase is primarily the result of increased income from rental of our drilling rig, and from sales of prospects, offset by a decrease in income from investments.

Unrealized gain (loss) – oil and natural gas derivative contracts was a loss of $4.8 million during the six months ended June 30, 2011 as compared to a gain of $22.9 million during the same period in 2010. The significant fluctuation from period to period is due to the volatility of oil and natural gas prices and changes in our outstanding hedging contracts during these periods.

Expenses

Lease and plant operating expense increased $10.9 million in the first half of 2011 as compared to the first half of 2010, due partially to the full six-month effect of lease operating expenses related to our Meridian acquisition in May 2010, $6.3 million. In addition, expenditures in Deep Bossier increased $5.2 million, primarily due to an increase in the number of producing wells and increased gas marketing fees. On a unit basis, lease and plant operating expense increased from $1.35 per Mcfe to $1.40 per Mcfe for the six months ended June 30, 2010 and 2011, respectively.

Production and ad valorem taxes increased $5.1 million, or 115%, to $9.5 million for the first half of 2011, as compared to $4.4 million for the first half of 2010. Ad valorem taxes increased $1.3 million, due to our Meridian acquisition in May 2010 and increased taxable values of our properties. The remaining increase of $3.8 million is attributable to production taxes, which increased 100%, following an increase in our revenue from products of 77%. The change in the mix of our sales toward a higher percentage of revenues from oil impacts the variance in this expense. Tax rates on oil are higher than for gas in Louisiana, where the majority of our oil is produced. Oil as a percentage of product revenues increased from 30% to 47% in the first half of 2011 as compared to 2010.

Workover expense increased from the first half of 2010 as compared to the first half of 2011, from $3.3 million to $4.0 million, respectively. This expense varies depending on activities in the field.

Exploration expense includes the costs of our geology departments, costs of geological and geophysical data, delay rentals, expired leases, and dry holes. Exploration expense increased $3.8 million for the first half of 2011 to $8.4 million from $4.6 million for the first half of 2010. The increase is primarily due to dry hole expense recorded in the first half of 2011 of approximately $5.3 million.

Depreciation, depletion and amortization increased $20.3 million to $42.4 million for the first half of 2011 as compared to an expense of $22.1 million for the first half of 2010. On a per unit basis, this expense increased from $1.71 to $2.09 per Mcfe. The rate is a function of capitalized costs of proved properties, reserves and production by field.

Impairment expense increased from $2.1 million in the first half of 2010 to $10.8 million in the first half of 2011. This expense varies with the results of exploratory drilling, as well as with price declines which may render some projects uneconomic, resulting in impairment.

Accretion expense is related to our obligation for retirement of oil and natural gas wells and facilities. We record these liabilities when we place the assets in service, using discounted present values of the estimated future obligation. We then record accretion of the liabilities as they approach maturity. Accretion expense was $0.9 million and $0.4 million for the first half of 2011 and 2010, respectively. The increase was due to the acquisition of Meridian.

General and administrative expenses increased $7.7 million for the six months ended June 30, 2011 to $14.6 million from $6.9 million for the six months ended June 30, 2010. The increase in general and administrative expenses resulted principally from increased payroll and burden costs of $3.5 million, which are predominately related to increased headcount from our Meridian acquisition and additional personnel. Other general and administrative costs related to the acquisition of Meridian also increased, including office rent, which increased $0.8 million in the first half of 2011 as compared to 2010. Consulting expenses increased $2.8 million, primarily for legal fees, accounting fees,and other consulting services, including risk management (hedging) and expenses assumed in the acquisition of Meridian. On a unit basis, general and administrative expense increased from $0.53 to $0.72 per Mcfe.

Interest expense, net increased $7.6 million for the six months ended June 30, 2011 to $16.3 million from $8.7 million for the six months ended June 30, 2010, primarily due to $14.5 million in interest on our 9 5/8% senior notes issued in October 2010, and increased amortization of deferred loan costs of $1.1 million. This increase is partially offset by decreased interest rate hedge losses of $4.1 million, primarily due to hedge gains of $2.8 million recorded in the first half of 2011 related to interest hedge contract modifications. In addition, interest on bank debt decreased $3.9 million due to a decrease in the amount outstanding under our credit facility and to the retirement of our $40 million subordinated debt in October 2010.

Liquidity and Capital Resources

Our principal requirements for capital are to fund our day-to-day operations, development activities, and to satisfy our contractual obligations, primarily for the repayment of debt and any amounts owed during the period related to our hedging positions.

Our 2011 capital budget is primarily focused on the development of existing core areas through exploitation and development. Currently, we plan to spend a total of approximately $180 million during 2011, of which, approximately $80 million has been expended or accrued through June 30, 2011. Approximately 83% of our 2011 capital budget is allocated to our properties in Deep Bossier, East Texas, Eagle Ford, and South Louisiana. Our future drilling plans, plans of our drilling operators and capital budgets are subject to change based upon various factors, some 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, actions of our operators, gathering system and pipeline transportation constraints and regulatory approvals. Because a large percentage of our acreage is held by production, we have the ability to materially decrease our drilling and recompletion budget in response to market conditions with minimal risk of losing significant acreage.

We expect to fund our 2011 capital budget predominantly with cash flows from operations, supplemented by use of our credit facility. If necessary, we may also access capital through proceeds from potential asset dispositions, and the future issuance of debt and/or equity securities, subject to the distribution of proceeds therefrom as set forth in our partnership agreement. We strive to maintain financial flexibility and may access capital markets as necessary to maintain substantial borrowing capacity under our senior secured revolving credit facility, facilitate drilling on our large undeveloped acreage position and permit us to selectively expand our acreage position. In the event our cash flows are materially less than anticipated and other sources of capital we historically have utilized are not available on acceptable terms, we may curtail our capital spending.

Senior Notes

In October 2010, we adjusted our capital structure by issuing $300 million of 9 5/8% senior notes due 2018 (“senior notes”). The senior notes were issued at a discount of $2.1 million, bringing the effective rate to 9 3/4%.

The senior notes are unsecured senior general corporate obligations, and effectively rank junior to any of our existing or future secured indebtedness, which includes our credit facility. The senior notes are unconditionally guaranteed on a senior unsecured basis by each of our material, wholly owned

subsidiaries. We entered into a registration rights agreement with the purchasers of the senior notes. We filed a registration statement with the SEC to allow for registration of “exchanges notes” substantially identical to the senior notes, which was declared effective by the SEC on July 14, 2011. On August 12, 2011, the exchange notes were exchanged for the original senior notes tendered in connection with the exchange offer.

Credit Facility

We have a senior secured revolving credit facility (“credit facility”) with Wells Fargo Bank, N.A. as the administrative agent. As of June 30, 2011, the credit facility was subject to a $260 million borrowing base limit, and we had $159.8 million outstanding under the credit facility. Our restricted subsidiaries are guarantors of the credit facility.

Our credit facility provides for two alternative interest rate bases and margins. Eurodollar loans accrue interest generally at the one-month London Interbank Offered Rate plus a margin ranging from 2.00% to 2.75%, depending on the utilization of our borrowing base. “Reference rate” loans accrue interest at the prime rate of Wells Fargo Bank, N.A., plus a margin ranging from 1.00% to 1.75%, depending on the utilization of our borrowing base. The total rate on all loans outstanding as of June 30, 2011 under the credit facility was 2.519%, which was based on the Eurodollar option.

The credit facility and senior notes include covenants requiring us to maintain certain financial covenants including a current ratio, leverage ratio, and interest coverage ratio. At June 30, 2011, we were in compliance with the covenants. The terms of the credit facility also restrict our ability to make distributions and investments.

Cash flow provided by operating activities

Operating activities provided cash of $71.2 million during the six months ended June 30, 2011 as compared to $16.1 million during the comparable period in 2010. The $55.1 million increase in operating cash flows was attributable to an increase in the cash-based portions of our earnings, as well as changes in working capital accounts. Cash-based items of net income, including revenues (exclusive of unrealized commodity gains or losses), operating expenses and taxes, general and administrative expenses, and the cash portion of our interest expense, provided a net increase of approximately $36.7 million in earnings and a related positive impact on cash flow. Augmenting this were changes in our working capital accounts, which used $6.8 million of cash flows as compared to having used $25.2 million in cash in 2010. This reversal resulted in a total increase of $18.4 million in cash flow, which as noted above, augments the positive effects of increased cash-based earnings.

Cash flow used in investing activities

Investing activities used cash of $155.4 million during the six months ended June 30, 2011 as compared to cash used in investing of $133.6 million during the comparable period of 2010. The decrease in cash used in acquisition activities was due to the $101.4 million invested in the Meridian acquisition in the first half of 2010. Acquisitions in the first half of 2011 were $61.2 million, primarily for the additional interest in legacy Meridian properties acquired from Sydson and TODD. The total cash purchase price of these two acquisitions was approximately $50 million. See Note 3 of the accompanying financial statements for further information. Aside from the acquisitions, investment in property and equipment increased by $61.8 million as compared to the prior year period, primarily related to development activities in our Deep Bossier, Eagle Ford Shale, and East Texas area properties. We also invested in development activities in South Louisiana and Oklahoma.

Cash flow provided by financing activities

Financing activities provided cash of $84.9 million during the six months ended June 30, 2011 as compared to cash provided by financing of $137.6 million during the six months ended June 30, 2010. The decrease is due to the large drawdown of funds under our credit agreement ($95 million) and the capital infusion of $50 million in the first half of 2010, which funded the Meridian acquisition. Cash from financing activities in the first half of 2011 included drawdowns of $86.5 million, of which approximately $50 million was directly used for the Sydson and TODD acquisitions.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

For information regarding our exposure to certain market risks, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures about Market Risk,” “—Commodity Price Risk and Hedges” and “—Interest Rates” in the Form S-4. There have been no material changes to the disclosure regarding market risks.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In accordance with Exchange Act Rule 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2011 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the three months ended June 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

See Part I, Item 1, Note 10 to our consolidated financial statements entitled “Commitments and Contingencies,” which is incorporated in this item by reference.

ITEM 1A. Risk Factors

We are subject to certain risks and hazards due to the nature of the business activities we conduct. For a discussion of these risks, see “Risk Factors” in the Form S-4. There have been no material changes with respect to the risk factors disclosed in the Form S-4 during the quarter ended June 30, 2011.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. (Removed and Reserved)

ITEM 5. Other Information

None.

ITEM 6. Exhibits


10.1		Purchase and Sale Agreement between Michael J. Mayell and Alta Mesa Energy, LLC, dated April 21, 2011.

10.2		Purchase and Sale Agreement between Sydson Energy, Inc. and Alta Mesa Energy, LLC, dated April 21, 2011.

10.3		Purchase and Sale Agreement by and among Texas Oil Distribution & Development, Inc., JAR Resource Holdings, L.P., Joseph A. Reeves, Jr., Dianne S. Reeves and Alta Mesa Energy, LLC, dated June 17, 2011.

31.1		Certification of the Company’s Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241).

31.2		Certification of the Company’s Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241).

32.1		Certification of the Company’s Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

32.2		Certification of the Company’s Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

*101		Interactive Data Files.


*		Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	ALTA MESA HOLDINGS, LP (Registrant)
	By:	ALTA MESA HOLDINGS GP, LLC, its general partner

August 12, 2011	By:	/s/ Harlan H. Chappelle
		Harlan H. Chappelle
		President and Chief Executive Officer

August 12, 2011	By:	/s/ Michael A. McCabe
		Michael A. McCabe
		Vice President and Chief Financial Officer

EX-10.1 2 h83108exv10w1.htm EX-10.1 exv10w1

Exhibit 10.1

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (the “Agreement”) is entered into this 21st day of April, 2011 (the “Closing Date”), by and between Michael J. Mayell, whose address is 4600 Post Oak Place, Suite 306, Houston, TX 77027 (“Seller”), and Alta Mesa Energy, LLC, whose address is 15415 Katy Freeway, Suite 800, Houston, Texas 77094 (“Buyer”). Seller and Buyer may be referred to herein individually as a “Party” or collectively as the “Parties”.

WITNESSETH

WHEREAS, Seller desires to sell, assign and convey to Buyer and Buyer desires to purchase and accept all of Seller’s right, title and interest in and to the following (being collectively referred to herein as the “Properties”):

(a)

The entire estates created by the oil, gas and mineral leases and other oil and gas interests described on Exhibit A (the “Leases”), and the lands covered thereby (the “Lands”), together with all property and rights incident thereto including all rights and interests in any unit or pooled area in which the Leases and/or Lands are included, to the extent that such rights and interests arise from and are associated with the Leases and/or Lands, including all rights derived from any unitization, pooling, operating, communitization, area of mutual interest or other agreement or from any declaration or order of any governmental authority having jurisdiction, together with all direct and indirect interests in and rights with respect to oil, gas, mineral and related properties and assets of any kind or nature, including working, royalty and overriding royalty interests, production payments, operating rights, net profits interests, other non-working interests and non-operating interests covering or with respect to the Leases and Lands whether or not specifically described on Exhibit A;

(b)

The oil and gas wells located on the Leases and/or Lands, or other leases and/or lands pooled therewith, including, without limitation, the wells described on Exhibit B (“Wells”);

(c)

All rights, privileges, benefits and powers with respect to the use and occupancy of the surface and subsurface depths in and under the Leases and Lands that are necessary or incidental to possession and enjoyment thereof or any interest therein under the terms of the Leases applicable thereto;

(d)

To the extent transferable at no cost or expense to Seller or that Buyer, at its sole option, agrees to pay any transfer cost or expense, all valid and existing gas purchase and sale contracts, operating agreements, participation agreements, prospect agreements, seismic agreements, and other contracts, and agreements to the extent relating to the Leases, Lands and the Wells, and any and all other agreements, contracts and rights derived therefrom;

(e)

To the extent transferable at no cost or expense to Seller or that Buyer, at its sole option, agrees to pay any transfer cost or expense, all permits, easements, rights-of-way, surface leases, franchises, licenses, approvals, consents, certificates, servitudes, surface use agreements, and other similar interests used or held for use in connection with the ownership or operation of the Leases, Lands and/or Wells or with production or treatment of hydrocarbons produced therefrom, or sale or disposal of water, hydrocarbons or associated substances therefrom or attributable thereto;

(f)

All oil, gas, and related hydrocarbons and other minerals produced from and after the Effective Time attributable to the Leases, Lands and Wells;

(g)

All wellbores, fixtures, equipment, and other property, both movable and immovable, by attachment or otherwise that are used or held for use in connection with the Leases, Lands and/or Wells, appurtenant thereto, or directly used or obtained in connection with the Leases or lands pooled therewith and the Lands and/or Wells or with the production, treatment, sale, or disposal of hydrocarbons or water produced therefrom or attributable thereto, including, without limitation, all gathering systems, pipelines, processing systems, plants, compressors, meters, injection wells, salt water disposal wells and facilities, well equipment, casing, tanks, buildings, tubing, pumps, motors, fixtures, machinery, power lines, roads, field processing plants and all other equipment and improvements to the extent used in the operation of the Wells, Leases and/or Lands (collectively, the “Equipment”); and

(h)

All other properties and interests (real, personal, contractual or mixed) including without limitation, to the extent transferable at no cost or expense to Seller, geological, geophysical and seismic data, owned by Seller in whole or in part, to the extent they are used or held for use in connection with the Leases, Lands and/or Wells.

The Properties shall be conveyed subject to all valid and existing gas purchase and sale contracts, operating agreements, participation agreements, prospect agreements, seismic agreements, and other contracts and agreements to the extent relating to the Leases, Lands and the Wells, and any and all other agreements, contracts and rights derived therefrom (the “Contracts”), and all valid and existing restrictions, exceptions, reservations, conditions, limitations, interests, and other matters, if any, of record, including the presently existing and valid third-party royalties, overriding royalties, payments out of production, and easements and rights-of-way of record.

NOW, THEREFORE, for valuable consideration and the mutual covenants and agreements herein contained, Seller and Buyer agree as follows:

ARTICLE 1

DEFINITIONS

The following terms shall have the following meanings throughout this Agreement:

1.1 “Agreement” has the meaning set forth in the introductory paragraph hereto and includes all Exhibits and Schedules attached hereto or referenced herein.

1.2 “Agreement with Cross Release” means that certain agreement dated December 17, 2009 between Michael J. Mayell, Sydson Energy, Inc. and The Meridian Resource Corporation, et al.

1.3 “Buyer” has the meaning set forth in the introductory paragraph to this Agreement.

1.4 “Claims” means any and all direct or indirect, demands, claims, notices of violation, notices of probable violation, filings, investigations, administrative proceedings, actions, causes of action, suits, and other legal proceedings, judgments, assessments, damages, deficiencies, taxes, penalties, fines, obligations, responsibilities, liabilities, payments, charges, costs, and expenses (including without limitation costs and expenses of operating the Properties) of any kind or character (whether or not asserted prior to the Closing Date, and whether known or unknown, fixed or unfixed, conditional or unconditional, based on negligence, strict liability, breach of representation, warranty or agreement, or otherwise, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent, or otherwise), including without limitation penalties and interest on any amount payable as a result of any of the foregoing, any legal or other costs and expenses incurred in connection with investigating or defending any Claim, and all amounts paid in settlement of Claims. Without limiting the generality of the foregoing, the term “Claims” specifically includes, without limitation, any and all Claims arising from, attributable to or incurred in connection with any (i) breach of contract, (ii) loss or damage to property, injury to or death of persons, and other tortious injury, and (iii) violations of applicable laws, rules, regulations, orders or any other legal right or duty actionable at law or equity.

1.5 “Closing Date” means April 21, 2011.

1.6 “Defensible Title” means, with respect to the Properties, such title and ownership by the Seller that (a) subject to Article 3.3, entitles the Seller to receive and retain, without reduction, suspension or termination, not less than the Seller’s “Net Revenue Interest” of all hydrocarbons produced, saved and marketed from the Properties; (b) subject to Article 3.3, obligates the Seller to bear not greater than the Seller’s “Working Interest” of the costs and expenses relating to the maintenance, development and operation of such Property; and (c)

is free and clear of all liens, claims and encumbrances, except Permitted Encumbrances by, through and under Seller.

1.7 “Effective Time” means 12:01 a.m., Central Standard Time on April 1, 2011.

1.8 “Liens” means encumbrances, liens, claims, easement rights, agreements, instruments, obligations, burdens or defects in title.

1.9 “Mutual Release” means that certain mutual and final release of all claims related to Cause No. 2011-01296 styled Sydson Energy, Inc. v. Alta Mesa Holdings, L.P. and The Meridian Resource & Exploration LLC pending before the 113th Judicial District Court of Harris County, Texas.

1.10 “Net Revenue Interest” means that share of hydrocarbons produced from or allocated to a particular Lease, unit or Well (or the share of revenues received from the sale of hydrocarbons from or allocated to a particular Lease, unit or Well) that a party is entitled to receive by virtue of its ownership of such Lease, unit or Well after deducting any hydrocarbons or proceeds or revenues allocable to any royalty interest, overriding royalty interest, production payment, net profits interest or other similar interest, other than taxes, that constitutes a burden on such interest or is measured by or payable out of the production of hydrocarbons or the proceeds realized from the sale or other disposition thereof.

1.11 “NPI Agreement” means that certain agreement dated June 27, 1995 but effective as of January 1, 1994 between Michael J. Mayell and Texas Meridian Resources Corporation (predecessor to The Meridian Resource Corporation) concerning net profits interests to be earned by Seller thereunder (“Original NPI Agreement”); and a Termination Agreement as of April 29, 2008 relating to the Original NPI Agreement; and an Amendment to Agreement dated June 27, 1995, which amends the Original NPI Agreement and has been filed of record in various jurisdictions.

1.12 “Permitted Encumbrances” means (a) liens for taxes not yet delinquent or which are being contested in good faith by appropriate proceedings, (b) lessors’ royalties, overriding royalties, division orders, reversionary interests and similar burdens that do not operate to reduce the Net Revenue Interest of Seller in any of the Properties, (c) the consents and rights contained in the Contracts or the Leases, and (d) production sale contracts, unitization and pooling declarations and agreements, and any operating agreements insofar as such contracts and agreements do not operate to increase the Working Interest or decrease the Net Revenue Interest of Buyer for any of the Properties; (e) normal and customary liens of co-owners under operating agreements, unitization agreements, and pooling orders relating to the Properties, which obligations are not yet due and pursuant to which Seller is not in default; (f) mechanic’s and materialmen’s liens relating to the Properties, which obligations are not yet due

and pursuant to which Seller is not in default; (g) minor defects and irregularities in title or other restrictions that are of the nature customarily accepted by prudent purchasers of oil and gas properties and do not materially affect the value of any Property encumbered thereby or materially impair the ability of the obligor to use any such Property in its operations; (h) all approvals required to be obtained in connection with the transactions contemplated herein from governmental authorities which are customarily obtained post-closing; (i) preferential rights to purchase and consent to transfer requirements of any person for which the holder(s) thereof have waived their rights with respect to the transfer of the Properties under this Agreement or the period has expired in which the holder may exercise such rights; and (j) liens created or arising by operation of law to secure a Party’s obligations as a purchaser of oil and gas in respect of obligations that are not past-due.

1.13 “Project Areas” means the areas depicted or described in Exhibit C attached to and made a part of this Agreement.

1.14 “Seller” has the meaning set forth in the introductory paragraph to this Agreement.

1.15 “Working Interest” means that share of all costs and expenses associated with the exploration, development or operation of a Lease, unit or Well or related production facilities or equipment that the owner thereof is required to bear and pay.

ARTICLE 2

TRANSFER OF THE PROPERTY

2.1 Sale and Purchase. On the Closing Date, upon the terms and conditions hereinafter set forth, Seller agrees to sell, assign and convey to Buyer all of his right, title and interest in the Properties, including, without limitation, all rights pursuant to the NPI Agreement and the Agreement with Cross Release, effective as of the Effective Time, and Buyer agrees to buy and accept such right, title and interest in the Properties from Seller on the Closing Date, effective as of the Effective Time.

2.2 Purchase Price. Thirteen Million Four Hundred and Fifty-Three Thousand and No/100 Dollars ($13,453,000.00) (the “Mayell Purchase Price”) shall be paid by Buyer to Seller in immediately available funds on or before the Closing Date. The Mayell Purchase Price is to be adjusted on the Closing Date as provided in Article 2.3 below (the Mayell Purchase Price, as so adjusted, is referred to as the “Mayell Net Closing Amount”)

upwards on the Closing Date to allocate to Seller all estimated un-received revenues and unpaid expenses attributable to the Properties with respect to time periods prior to the Effective Time and to allocate to Buyer all revenues and expenses attributable to the Properties with respect to time periods on and after the Effective Time which may have been received by or paid to Seller. This estimated adjustment to the Mayell Purchase Price will be further adjusted following the Closing Date in accordance with Article 2.4 below.

If the Parties cannot agree upon the Mayell Post-Closing Adjustments, the Parties agree that the dispute shall be submitted to a mutually selected third-party accountant, who shall decide all points of disagreement with respect to the Mayell Post-Closing Adjustments. The decision of said third party accountant on all such points shall be binding upon the Parties. The cost and expenses of said third party accountant shall be borne equally by the Parties.

ARTICLE 3

ASSUMPTION AND PARTICIPATION BY BUYER

3.1 On the Closing Date, Buyer shall, and does hereby expressly agree to incur, assume and pay, all of the costs, obligations and liabilities of Seller under the Leases, the Contracts and under all other agreements described in this Agreement or in any Exhibit to this Agreement that relate to the Properties whether they arise from or relate to events occurring before or after the Effective Time, provided, however, all such costs attributable to Seller’s interest in the Properties for all periods prior to the Effective Time shall be accounted for in the Mayell Post-Closing Adjustments. Buyer agrees, if requested by Seller, to execute any documents or instruments reasonably requested by Seller to evidence such assumption by Buyer.

3.2 On the Closing Date, Buyer shall receive all revenues of Seller under the Leases, the Contracts and under all other agreements described in this Agreement or in any Exhibit to this Agreement that relate to the Properties whether they arise from or relate to events occurring before or after the Effective Time, provided, however, all such revenues attributable to Seller’s interest in the Properties for all periods prior to the Effective Time shall be accounted for in the Mayell Post-Closing Adjustments. Buyer agrees, if requested by Seller, to execute any documents or instruments reasonably requested by Seller to evidence such assumption by Buyer.

3.3 Buyer agrees and acknowledges that any Working Interests and Net Revenue Interests stated in this Agreement, or any Exhibit to this Agreement do not constitute representations or warranties as to the quantum of interest actually owned by Seller and that any interests in the Properties conveyed to Buyer shall be subject to its proportionate share, in and to each of the Project Areas, of any and all lease and overriding royalty burdens of record in the real property records of the counties in which the Lands are located.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Buyer as follows:

4.1 Organization. Seller is an individual residing in Texas.

4.2 Authority and Conflicts. Seller has all requisite power and authority to carry on his business as presently conducted, to enter into this Agreement and to perform his obligations hereunder. The consummation of the transactions contemplated by this Agreement will not violate or be in conflict with any provision of any material agreement or instrument to which Seller is a party or by which Seller is bound, or any judgment, decree, order, statute, rule or regulation applicable to Seller, other than the Contracts and any other agreements or instruments to which Buyer is already a party.

4.3 [Reserved].

4.4 Enforceability. This Agreement constitutes, and all documents and instruments required hereunder to be executed and delivered by Seller on the Closing Date will when duly executed and delivered for value constitute, valid, legal and binding obligations of Seller, enforceable against Seller, in accordance with their respective terms, subject to applicable bankruptcy and other similar laws of general application with respect to creditors as well as the general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

4.5 Litigation and Claims. Except as otherwise provided in Exhibit E, attached hereto and made a part hereof, to Seller’s knowledge, there are no demands or suits, actions or other proceedings pending or threatened before any court or governmental agency which, taken as a whole, might result in material impairment or loss of Seller’s title to any part of

the Properties or the value thereof, or which might materially hinder or impede the operation of the Properties taken as a whole.

4.6 Brokers’ Fees. Seller has incurred no liability, contingent or otherwise, for brokers’ or finders’ fees with respect to the transactions contemplated by this Agreement for which Buyer shall have any responsibility whatsoever.

4.7 Preferential Rights and Consent to Assign. Except as otherwise set forth in the Contracts, Seller represents there are no third party preferential rights to purchase, rights of first refusal and/or consents to assign that were created by Seller upon or subsequent to Seller taking title to the Properties.

4.8 Title. Subject to Permitted Encumbrances, there are no claims arising by, through or under Seller which would cause Seller to have less than Defensible Title to the Properties; the Properties are free and clear of all Liens arising by, through or under Seller, except for Permitted Encumbrances; and Seller shall convey title to Buyer with a special warranty, by through and under Seller but not otherwise.

4.9 Contracts. Seller is not delinquent on any invoice it has received for joint interest billing that is not otherwise accounted for in the Estimated Mayell Adjustment Calculations.

4.10 Non-Reliance. Except to the extent of any representations by Buyer herein, Seller acknowledges and agrees that it has not relied upon any statements, analysis or representations by Buyer or its representatives in entering into this Agreement, the transactions contemplated hereby and Seller, and Seller’s spouse, Karen B. Mayell, joining herein each acknowledge that it has access to all information and data it deems necessary to evaluate this transaction, including the Purchase Price to be paid by Buyer and the other terms and conditions herein.

ITS RIGHT TO INSPECT THE PROPERTIES FOR ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING BUT NOT LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN MADE FIBERS, OR NATURALLY OCCURRING RADIOACTIVE MATERIALS (“NORM”). EXCEPT FOR THE REPRESENTATIONS CONTAINED HEREIN IN ARTICLE 4, BUYER IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTIES. BUYER SHALL ACCEPT ALL OF THE SAME IN THEIR “AS IS”, “WHERE IS” CONDITION. ALSO WITHOUT LIMITATION OF THE FOREGOING, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE ACCURACY OF COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES OR THE ABILITY OR POTENTIAL OF THE PROPERTIES TO PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE PROPERTIES OR ANY OTHER MATTERS CONTAINED IN ANY MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER BY SELLER OR BY SELLER’S AGENTS OR REPRESENTATIVES. ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED BY SELLER OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED TO BUYER AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR AGAINST SELLER AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER’S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents to Seller as follows:

5.1 Organization. Buyer is a Delaware limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and authorized to conduct business in the State in which the Properties are located.

5.2 Authority and Conflicts. Buyer has all requisite company powers and authority to carry on its business as presently conducted, to enter into this Agreement, to purchase the Properties on the terms and conditions described in this Agreement, and to perform its other obligations under this Agreement. The consummation of the transactions contemplated by this Agreement will not violate nor be in conflict with any provision of Buyer’s company agreement and any other governing documents or any material agreement or instrument to which Buyer is a party or by which Buyer is bound, or any judgment, decree, order, statute, rule or regulation applicable to Buyer.

5.3 Authorization. The execution, delivery and performance of this Agreement and the transactions contemplated hereunder have been duly and validly authorized by all requisite partnership action on the part of Buyer.

5.4 Enforceability. This Agreement and all documents and instruments required or contemplated hereunder to be executed and delivered by Buyer on the Closing Date will, when duly executed and delivered for value, constitute valid, legal and binding obligations of Buyer, enforceable against Buyer, in accordance with their respective terms, subject only to applicable bankruptcy and other similar laws of general application with respect to creditors.

5.5 Litigation and Claims. Buyer has no knowledge of any suit, action, claim, investigation or inquiry by any person or entity or by any administrative agency or governmental body and no legal, administrative or arbitration proceeding pending or, to Buyer’s knowledge, threatened against Buyer or any affiliate of Buyer which has or will materially and adversely affect Buyer’s ability to consummate the transactions contemplated herein.

5.6 Brokers’ Fees. Buyer has incurred no liability contingent or otherwise, for brokers’ or finders’ fees with respect to the transactions contemplated by this Agreement for which Seller shall have any responsibility whatsoever.

5.7 Non-Reliance. Except to the extent of any representations by Seller herein, Buyer acknowledges and agrees that it has not relied upon any statements, analysis or representations by Seller or his representatives in entering into this Agreement, the transactions contemplated hereby and Buyer acknowledges that it has access to all information and data it deems necessary to evaluate this transaction, including the Mayell Purchase Price to be paid to Seller and the other terms and conditions herein.

ARTICLE 6

DUE DILIGENCE REVIEW BY BUYER

6.1 Due Diligence. Seller acknowledges that prior to the Closing Date, Buyer, or Buyer’s authorized representatives, have been given access to Seller’s records pertaining to the ownership and/or operation of the Properties (including, without limitation, title files, division order files, and production, severance and ad valorem tax records), for the purpose of conducting due diligence reviews. Buyer has conducted, at its sole cost, such title examination or investigation, and other examinations and investigations, as it has in its sole discretion chosen to conduct with respect to the Properties.

6.2 Due Diligence Indemnity. Buyer hereby INDEMNIFIES and SHALL DEFEND AND HOLD HARMLESS Seller and his respective employees, agents, representatives, contractors, successors, and assigns) from and against any and all Claims arising from or relating to Buyer’s physical inspection of the Properties. THE FOREGOING INDEMNITY INCLUDES, AND THE PARTIES INTEND IT TO INCLUDE, AN INDEMNIFICATION OF THE INDEMNIFIED PARTIES FROM AND AGAINST CLAIMS ARISING OUT OF OR RESULTING, IN WHOLE OR PART, FROM THE

CONDITION OF THE PROPERTY OR THE SOLE, JOINT, COMPARATIVE, OR CONCURRENT NEGLIGENCE OR
STRICT LIABILITY OF ANY OF THE INDEMNIFIED PARTIES.

ARTICLE 7

THE CLOSING AND FINAL SETTLEMENT DATE

7.1 Closing. The closing (the “Closing”) of the transaction contemplated by this Agreement shall be on the Closing Date at the offices of Buyer, whose address is 15415 Katy Freeway, Suite 800, Houston, Texas 77094.

7.2 Deliveries by Seller at Closing. The obligations of the Buyer under this Agreement shall not become effective until, Seller shall have executed and delivered to Buyer at the Closing:

(a)

An Assignment and Bill of Sale assigning the Properties to Buyer, substantially the form of the assignment attached hereto as Exhibit F, in sufficient counterparts to facilitate recording;

(b)

Letters-in-Lieu of Division Orders or Transfer Orders or such other documents necessary to provide notice to each purchaser of production from the Properties of the change in ownership of the Properties and instructing each such purchaser to make all future payments directly to Buyer;

(c)

A certificate pursuant to Internal Revenue Code Section 1445, in the form of Exhibit G, certifying that Seller is not a foreign person;

(d)

A fully executed and recordable Release of Lien in sufficient counterparts for any and all mortgages or other similar liens affecting Seller’s interest in the Properties; and

(e)

The Mutual Release.

7.3 Deliveries by Buyer at Closing. The obligations of the Seller under this Agreement shall not become effective until Buyer shall have executed and/or delivered to Seller at the Closing:

(a)

The Assignment and Bill of Sale;

(b)

The Mayell Purchase Price (as prescribed to be adjusted under the terms of this Agreement) by wire transfer in immediately available funds to an account designated by Seller; and

(c)

The Mutual Release.

7.4 Deliveries by Seller at Mayell Final Settlement Date. At the Mayell Final Settlement Date, and pursuant to Article 2.4, if the Mayell Final Purchase Price is less than the Mayell Net Closing Amount, Seller shall pay to Buyer the balance of such difference by wire transfer of immediately available funds.

7.5 Deliveries by Buyer at Final Settlement Date. At Final Settlement Date, and pursuant to Article 2.4, if the Mayell Final Purchase Price is greater than the Mayell Net Closing Amount, Buyer shall pay to Seller the balance of such difference by wire transfer of immediately available funds.

ARTICLE 8

NON-COMPETE

For a period of five (5) years from the Effective Time Seller, agrees not to acquire directly or indirectly any oil and gas lease, royalty, overriding royalty, farmout, option, exploration agreement or mineral interest of any kind within the Project Areas without the prior written consent of Buyer.

ARTICLE 9

SURVIVAL, INDEMNIFICATION AND RELEASE

9.1 Survival. Except as set forth in this Article 9, all representations and warranties contained in this Agreement shall terminate on the Closing Date. All other agreements and covenants of the Parties shall survive the execution and delivery of the assignments of the Properties to Buyer by Seller.

9.2 Indemnification by Seller. From and after the Closing Date, except for the Assumed Environmental Obligations and the matters for which Buyer indemnifies Seller under Article 9.4, Seller shall indemnify, defend and hold Buyer harmless from and against any and all Claims suffered by Buyer as a result of (a) any brokers’ or finders’ fees or commissions arising with respect to brokers or finders retained or engaged by Seller and resulting from or relating to the transactions contemplated in this Agreement; (b) the breach of, or failure to perform or satisfy, any of the covenants of Seller set forth in this Agreement which are to be performed after the Closing Date; and (c) breach of any representation or warranty of Seller set forth in this Agreement, except for a breach of Article 4.8. Seller’s indemnity obligations under this Article 9.2 shall expire as to any claim for indemnification not asserted by Buyer within twelve (12) months after the Closing Date. In no event shall Seller’s indemnity obligation under this Article 9.2 exceed ten (10) percent of the Mayell Net Closing Amount. The terms and provisions of this Article 9.2 shall be the sole and exclusive remedy of each of the persons indemnified hereunder with respect to the indemnified matters, regardless of whether such Claims are based on contract, tort, strict liability, or other principles.

9.3 Buyer’s Assumed Environmental Obligations. On and after the Closing Date, Buyer shall assume, bear and pay all costs of the following with respect to the interests of Seller in the Properties assigned to Buyer (collectively, the “Assumed Environmental Obligations”) for:

(a)

any plugging and abandonment and surface restoration obligations related to the Wells whether arising before, on or after the Effective Time;

(b)

the following occurrences, events, conditions and activities on, or related or attributable to the ownership or operation of, the Properties, regardless of whether arising from the ownership or operation of the Properties before, on, or after the Effective Time, and regardless of whether resulting from any negligent acts or omissions or strict liability of Seller, his partners, officers, directors, agents, and contractors:

(i)

Environmental pollution or contamination, including pollution or contamination of the soil, groundwater or air by oil and gas, brine, NORM or otherwise;

(ii)

Underground injection activities and waste disposal;

(iii)

Clean-up responses, and the cost of remediation, control, assessment or compliance with respect to surface and subsurface pollution caused by spills, pits, ponds, lagoons or subsurface storage tanks;

(iv)

Disposal on the Properties of any hazardous substances, wastes, materials and products generated by or used in connection with the ownership or operation of the Properties; and

(v)

Contractual liability for items of the type described under subsections (i) through (iv) above.

9.4 Indemnification by Buyer. To the extent permitted by law and in addition to the indemnifications provided in the Assignment and Bill of Sale, Buyer, from and after the Closing Date, shall release, indemnify, defend and hold Seller and his spouse, representatives and affiliates and any of their officers, directors and employees (the “Seller Group”) harmless from and against any and all Claims suffered by Seller Group as a result of or relating to any of the following: (a) any liability or obligation relating to or arising from the ownership or operation of the Properties on and after the Effective Time; (b) any brokers’ or finders’ fees or commissions arising with respect to brokers or finders retained or engaged by Buyer and resulting from or relating to the transactions contemplated in this Agreement; (c) the breach of any representation or warranty of Buyer set forth in this Agreement; (d) the breach of, or failure to perform or satisfy any of the covenants of Buyer set forth in this Agreement; (e) the Assumed Environmental Obligations, regardless of whether the Assumed Environmental Obligations relate to conditions arising before or after the Effective Time; and (f) any liability to Murphy Exploration & Production Company—USA (“Murphy”) due to Seller’s

failure to obtain a waiver of any preferential right of Murphy to purchase the Properties or any consent to assign the Properties not obtained from Murphy prior to the Closing Date.

9.5 Indemnity Threshold. Neither Seller nor Buyer shall have any liability for Claims under the indemnity provided in this Article 9 until the aggregate of all Claims suffered by Seller or Buyer, respectively, exceeds TWENTY-FIVE THOUSAND DOLLARS ($25,000.00), and then only to the extent of such excess.

9.6 Express Negligence Disclosure. UNLESS THIS AGREEMENT EXPRESSLY PROVIDES TO THE CONTRARY, THE INDEMNITY, RELEASE, WAIVER AND ASSUMPTION PROVISIONS SET FORTH IN THIS AGREEMENT APPLY REGARDLESS OF WHETHER THE INDEMNIFIED PARTY (OR ITS EMPLOYEES, PARTNERS, AGENTS, CONTRACTORS, SUCCESSORS OR ASSIGNS) CAUSES, IN WHOLE OR PART, AN INDEMNIFIED CLAIM, INCLUDING WITHOUT LIMITATION INDEMNIFIED CLAIMS ARISING OUT OF OR RESULTING, IN WHOLE OR IN PART, FROM, OUT OF OR IN CONNECTION WITH THE CONDITION OF THE PROPERTY OR THE INDEMNIFIED PARTY’S (OR ITS EMPLOYEES’, PARTNERS’, AGENTS’, REPRESENTATIVES’, CONTRACTORS’, SUCCESSORS’ OR ASSIGNS’) SOLE, JOINT, COMPARATIVE OR CONCURRENT NEGLIGENCE, BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, STRICT LIABILITY, BREACH OF REPRESENTATION, WARRANTY OR AGREEMENT, OR FAULT. THE PARTIES ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.

ARTICLE 10

ADDITIONAL PROVISIONS

10.1 Further Assurances. After the Closing Date, each of the Parties will execute, acknowledge and deliver to the other such further instruments, and take such other action as may be reasonably requested in order to more effectively assure said Party all of the respective properties, rights, titles, interests, estates, and privileges intended to be assigned, delivered or inuring to the benefit of such Party in consummation of the transactions contemplated hereby.

10.2 Notices. All communications required or permitted under this Agreement shall be in writing and any communication or delivery hereunder shall be deemed to have been duly given and received when actually delivered to the address set forth below of the party to be notified, addressed as follows:


		If to Seller:		Michael J. Mayell
				4600 Post Oak Place, Suite 306
				Houston, TX 77027
				Phone: 713-820-6300
				Facsimile: 713-715-1573
				E-Mail: mmayell@sydson.com


		If to Buyer:		Alta Mesa Energy, LLC
				c/o Alta Mesa Holdings, L.P.
				15415 Katy Freeway, Suite 800
				Houston, Texas 77094
				Attn: F. David Murrell
				Vice President Land
				Phone: 281.530.0991
				Facsimile: 281.530.5278
				E-Mail: dmurrell@altamesa.net

Any party may, by written notice so delivered to the other, change the address to which delivery shall thereafter be made.

10.3 Expenses. Buyer shall bear and pay all filing, recording or registration fees for any assignment or conveyance delivered hereunder. Each Party shall bear its own respective expenses incurred in connection with the closing of this transaction, including its own consultants’ fees, attorneys’ fees, accountants’ fees and other similar costs and expenses.

10.4 No Partnership. This Agreement is not intended to create and shall not be construed as creating a partnership, joint venture or other association between Seller and Buyer. The respective rights and obligations of the parties hereto shall in all respects be several and be governed by the express provisions of this Agreement and the Contracts.

10.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS.

10.6 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by reason of any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as neither the economic nor legal substance of the transactions contemplated hereby is materially affected in any adverse manner to either Buyer or Seller. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforce, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transaction contemplated hereby are fulfilled to the extent possible.

10.7 Assignment. Neither Seller nor Buyer may assign their respective rights or delegate their respective duties or obligations arising under this Agreement without the prior written consent of the other Party.

understanding of the Parties in respect of the transactions contemplated hereby and supersede all prior agreements, prior arrangements and prior understandings relating to the subject matter hereof. No representation, promise, inducement or statement of intention has been made by Seller or Buyer that is not embodied in this Agreement or in the documents referred to herein, and neither Seller nor Buyer shall be bound by or liable for any alleged representation, promise, inducement or statement of intention not so set forth.

10.9 Waiver or Modification. This Agreement may be amended, modified, superseded or canceled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by Seller and Buyer, or, in the case of a waiver or consent, by or on behalf of the Party or Parties waiving compliance or giving such consent. The failure of any Party at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same. No waiver by any Party of any condition, or of any breach of any covenant, agreement, representation or warranty contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or waiver of any other condition or of any breach of any other covenant, agreement, representation or warranty.

10.10 Heading. The section headings contained in this Agreement are for convenient reference only and shall not in any way affect the meaning or interpretation of this Agreement. All references to a “section” or “Exhibit” shall refer to a section contained in this Agreement or an Exhibit attached to this Agreement.

10.11 Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future Laws effective during the term hereof, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement.

10.12 Public Announcements. No Party may make press releases or other public announcements concerning this transaction without the other’s prior written approval and agreement to the form of the announcement, except as may be required by applicable laws or rules and regulation of any governmental agency or stock exchange.

10.13 Interpretation. The Parties stipulate and agree that this Agreement shall be deemed and considered for all purposes to have been jointly prepared by the Parties, and shall not be construed against any one Party (nor shall any inference or presumption be made) on the basis of who drafted this Agreement or any particular provision hereof, who supplied the form of Agreement, or any other event of the negotiation, drafting or execution of this Agreement. Each Party agrees that this Agreement has been purposefully drawn and correctly reflects its understanding of the transaction that it contemplates. In construing this Agreement, the following principles will apply.

(a)

Defined terms in this Agreement are denoted by quotation marks. A defined term has its defined meaning throughout this Agreement and each Exhibit and Schedule to this Agreement, regardless of whether it appears before or after the place where it is defined.

(b)

If there is any conflict or inconsistency between the provisions of the main body of this Agreement and the provisions of any Exhibit or Schedule hereto, the provisions of this Agreement shall take precedence. If there is any conflict between the provisions of any pro forma assignment document or other transaction documents attached to this Agreement as an Exhibit or Schedule and the provisions of any assignment documents and other transaction documents actually executed by the Parties, the provisions of the executed assignment documents and other executed transaction documents shall take precedence.

(c)

To the fullest extent permitted by law, all provisions of this Agreement are hereby deemed incorporated into the Assignments by reference.

(d)

The Article, Section, Exhibit and Schedule references in this Agreement refer to the Articles, Sections, Exhibits and Schedules of this Agreement. The headings and titles in this Agreement are for convenience only and shall have no significance in interpreting or otherwise affect the meaning of this Agreement.

(e)

The term “knowledge,” as applied to each Party, shall mean the actual knowledge of such Party or such Party’s officers, managers, partners and directors.

(f)

The plural shall be deemed to include the singular, and vice versa.

(g)

The term “including” means “including, without limitation.”

(h)

The term “Person” (whether or not capitalized) means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, enterprise, unincorporated organization, or governmental entity.

10.14 Third-Party Beneficiaries. It is understood and agreed that there shall be no third-party beneficiary of this Agreement, and that the provisions hereof do not impart enforceable rights, benefits, or remedies in anyone who is not a Party or a successor of a Party hereto.

10.15 Waiver of Deceptive Trade Practices Act. As partial consideration for this Agreement, each Party hereby expressly waives the provisions of the Texas Deceptive Trade Practices Consumer Protection Act, Articles 17.41 et seq. of the Texas Business & Commerce Code, other than Article 17.555 which is not waived, and all other consumer protection laws of the State of Texas that may be waived by the Parties to the extent permitted by applicable law. Each Party represents to the other that such Party has had an

adequate opportunity to submit this waiver to legal counsel for review and comment, and understands the rights being waived herein.

10.16 Multiple Counterparts. This Agreement may be executed in a number of identical counterparts, each of which for all purposes is to be deemed as original, and all of which constitute, collectively, one agreement; but in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.

10.17 Confidentiality. Buyer and Seller agree to keep this Agreement and the terms hereof confidential, except as it may be required to be disclosed by law or by the rules of any stock exchange.

[signature page follows]

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written.


	SELLER: MICHAEL J. MAYELL
	/s/Michael J. Mayell
	Michael J. Mayell


	BUYER: ALTA MESA ENERGY, LLC
	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	President

Spousal Consent. Karen B. Mayell, wife of Michael J. Mayell, joins in the execution of this Agreement to acknowledge that the Properties are community property under the sole management and control of Michael J. Mayell and consents to the sale and transfer of the Properties in accordance with the terms of this Agreement. Karen B. Mayell is NOT a Party to this Agreement.


	KAREN B. MAYELL
	/s/ Karen B. Mayell
	Karen B. Mayell

EX-10.2 3 h83108exv10w2.htm EX-10.2 exv10w2

Exhibit 10.2

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (the “Agreement”) is entered into this 21st day of April, 2011 (the “Closing Date”), by and between Sydson Energy, Inc., whose address is 4600 Post Oak Place, Suite 306, Houston, TX 77027 (“Seller”), and Alta Mesa Energy, LLC, whose address is 15415 Katy Freeway, Suite 800, Houston, Texas 77094 (“Buyer”). Seller and Buyer may be referred to herein individually as a “Party” or collectively as the “Parties”.

WITNESSETH

	(a)		The entire estates created by the oil, gas and mineral leases and other oil and gas interests described on Exhibit A (the “Leases”), and the lands covered thereby (the “Lands”), together with all property and rights incident thereto including all rights and interests in any unit or pooled area in which the Leases and/or Lands are included, to the extent that such rights and interests arise from and are associated with the Leases and/or Lands, including all rights derived from any unitization, pooling, operating, communitization, area of mutual interest or other agreement or from any declaration or order of any governmental authority having jurisdiction, together with all direct and indirect interests in and rights with respect to oil, gas, mineral and related properties and assets of any kind or nature, including working, royalty and overriding royalty interests, production payments, operating rights, net profits interests, other non-working interests and non-operating interests covering or with respect to the Leases and Lands whether or not specifically described on Exhibit A;

	(b)		The oil and gas wells located on the Leases and/or Lands, or other leases and/or lands pooled therewith, including, without limitation, the wells described on Exhibit B (“Wells”);

	(c)		All rights, privileges, benefits and powers with respect to the use and occupancy of the surface and subsurface depths in and under the Leases and Lands that are necessary or incidental to possession and enjoyment thereof or any interest therein under the terms of the Leases applicable thereto;

	(d)		To the extent transferable at no cost or expense to Seller or that Buyer, at its sole option, agrees to pay any transfer cost or expense, all valid and existing gas purchase and sale contracts, operating agreements, participation agreements, prospect agreements, seismic agreements, and other contracts and agreements to the extent relating to the Leases, Lands and the Wells, and any and all other agreements, contracts and rights derived therefrom;

	(e)		To the extent transferable at no cost or expense to Seller or that Buyer, at its sole option, agrees to pay any transfer cost or expense, all permits, easements, rights-of-way, surface leases, franchises, licenses, approvals, consents, certificates, servitudes, surface use agreements, and other similar interests used or held for use in connection with the ownership or operation of the Leases, Lands and/or Wells or with production or treatment of hydrocarbons produced therefrom, or sale or disposal of water, hydrocarbons or associated substances therefrom or attributable thereto;

	(f)		All oil, gas, and related hydrocarbons and other minerals produced from and after the Effective Time attributable to the Leases, Lands and Wells;

	(g)		All wellbores, fixtures, equipment, and other property, both movable and immovable, by attachment or otherwise that are used or held for use in connection with the Leases, Lands and/or Wells, appurtenant thereto, or directly used or obtained in connection with the Leases or lands pooled therewith and the Lands and/or Wells or with the production, treatment, sale, or disposal of hydrocarbons or water produced therefrom or attributable thereto, including, without limitation, all gathering systems, pipelines, processing systems, plants, compressors, meters, injection wells, salt water disposal wells and facilities, well equipment, casing, tanks, buildings, tubing, pumps, motors, fixtures, machinery, power lines, roads, field processing plants and all other equipment and improvements to the extent used in the operation of the Wells, Leases and/or Lands (collectively, the “Equipment”); and

	(h)		All other properties and interests (real, personal, contractual or mixed) including without limitation, to the extent transferable at no cost or expense to Seller, geological, geophysical and seismic data, owned by Seller in whole or in part, to the extent they are used or held for use in connection with the Leases, Lands and/or Wells.

NOW, THEREFORE, for valuable consideration and the mutual covenants and agreements herein contained, Seller and Buyer agree as follows:

ARTICLE 1

DEFINITIONS

The following terms shall have the following meanings throughout this Agreement:

1.1 “Agreement” has the meaning set forth in the introductory paragraph hereto and includes all Exhibits and Schedules attached hereto or referenced herein.

1.2 “Agreement with Cross Release” means that certain agreement dated December 17, 2009 between Michael J. Mayell, Sydson Energy, Inc. and The Meridian Resource Corporation, et al.

1.3 “Buyer” has the meaning set forth in the introductory paragraph to this Agreement.

1.5 “Closing Date” means April 17, 2011.

is free and clear of all liens, claims and encumbrances, except Permitted Encumbrances by, through and under Seller.

1.7 “Effective Time” means 12:01 a.m., Central Standard Time on April 1, 2011.

1.8 “Liens” means encumbrances, liens, claims, easement rights, agreements, instruments, obligations, burdens or defects in title.

1.9 “Master Participation Agreement” means that certain agreement dated July 15, 1996, but effective July 1, 1994, between Sydson Energy, Inc. and Texas Meridian Resources Exploration, Inc. (predecessor to The Meridian Resources Corporation).

1.10 “Mutual Release” means that certain mutual and final release of all claims related to Cause No. 2011-01296 styled Sydson Energy, Inc. v. Alta Mesa Holdings, L.P. and The Meridian Resource & Exploration LLC pending before the 113^th Judicial District Court of Harris County, Texas.

1.11 “Net Revenue Interest” means that share of hydrocarbons produced from or allocated to a particular Lease, unit or Well (or the share of revenues received from the sale of hydrocarbons from or allocated to a particular Lease, unit or Well) that a party is entitled to receive by virtue of its ownership of such Lease, unit or Well after deducting any hydrocarbons or proceeds or revenues allocable to any royalty interest, overriding royalty interest, production payment, net profits interest or other similar interest, other than taxes, that constitutes a burden on such interest or is measured by or payable out of the production of hydrocarbons or the proceeds realized from the sale or other disposition thereof.

any such Property in its operations; (h) all approvals required to be obtained in connection with the transactions contemplated herein from governmental authorities which are customarily obtained post-closing; (i) preferential rights to purchase and consent to transfer requirements of any person for which the holder(s) thereof have waived their rights with respect to the transfer of the Properties under this Agreement or the period has expired in which the holder may exercise such rights; and (j) liens created or arising by operation of law to secure a Party’s obligations as a purchaser of oil and gas in respect of obligations that are not past-due.

1.13 “Project Areas” means the areas depicted or described in Exhibit C attached to and made a part of this Agreement.

1.14 “Seller” has the meaning set forth in the introductory paragraph to this Agreement.

ARTICLE 2

TRANSFER OF THE PROPERTY

2.1 Sale and Purchase. On the Closing Date, upon the terms and conditions hereinafter set forth, Seller agrees to sell, assign and convey to Buyer all of its right, title and interest in the Properties, including, without limitation, all rights pursuant to the Master Participation Agreement and the Agreement with Cross Release, effective as of the Effective Time, and Buyer agrees to buy and accept such right, title and interest in the Properties from Seller on the Closing Date, effective as of the Effective Time.

2.2 Purchase Price. Fourteen Million Forty-Seven Thousand and No/100 Dollars ($14,047,000.00) (the “Sydson Purchase Price”) shall be paid by Buyer to Seller in immediately available funds on or before the Closing Date. The Sydson Purchase Price is to be adjusted on the Closing Date as provided in Article 2.3 below (the Sydson Purchase Price, as so adjusted, is referred to as the “Sydson Net Closing Amount”)

2.3 Accounting for Expenses and Proceeds of Production and Sales, etc. Prior to the Closing Date, Seller and Buyer have, based on the schedule of calculations attached as Exhibit D he “Estimated Sydson Adjustment Calculations”), arrived at an estimated net amount of One Million One Hundred Thousand and No/100 Dollars ($1,100,000.00) (the “Estimated Sydson Adjustment”) by which the Sydson Purchase Price is to be adjusted downwards on the Closing Date to allocate to Seller all estimated un-received revenues and unpaid expenses attributable to the Properties with respect to time periods prior to the Effective Time and to allocate to Buyer all revenues and expenses attributable to the Properties with respect to time periods on and after the Effective Time which may have been

received by or paid to Seller. This estimated adjustment to the Sydson Purchase Price will be further adjusted following the Closing Date in accordance with Article 2.4 below.

2.4 Post-Closing Adjustments. Within sixty (60) days after the Closing Date, Buyer shall prepare and deliver to Seller, in accordance with generally accepted accounting principles, a statement (the “Sydson Final Settlement Statement”) setting forth each adjustment or payment that was not finally determined by the Estimated Sydson Adjustment and showing the calculation of such adjustments together with a copy of all data used in arriving at such calculations (the “Sydson Post-Closing Adjustment(s)”) and the resulting final purchase price (the “Sydson Final Purchase Price”). As soon as practicable after receipt of the Sydson Final Settlement Statement, Seller shall deliver to Buyer a written report containing any changes that Seller proposes to be made to the preliminary Sydson Final Settlement Statement. The Parties undertake to agree with respect to the amount due pursuant to such Sydson Post-Closing Adjustments no later than ninety (90) days after the Closing Date. The date upon which such agreement is reached, and upon which the Sydson Final Purchase Price is established, shall be herein called the “Sydson Final Settlement Date”. In the event that (a) the Sydson Final Purchase Price is more than the Sydson Net Closing Amount paid by the Buyer on the Closing Date, Buyer shall pay to Seller the balance of such difference by wire transfer of immediately available funds, or (b) the Sydson Final Purchase Price is less than the Sydson Net Closing Amount paid by the Buyer on the Closing Date, Seller shall pay to Buyer the balance of such difference by wire transfer of immediately available funds. The Parties agree as follows regarding the accounting for the Sydson Post-Closing Adjustment calculations: (a) that the Schendel and Crow Leases shall be included in the Sydson Post-Closing Adjustment calculations to determine the costs and revenues attributable to Sydson’s interest in the properties; provided, however, the fractional working interests of Seller for purposes of such calculations in respect of the Schendel Lease will be 2% of 8/8ths and in respect of the Crow Lease will be 0.44% of 8/8ths, and (b) the costs of any lease acquisition, renewal, extension or top leases (“Lease Costs”) shall be included in the Sydson Post-Closing Adjustment calculations to the extent, and only to the extent that prior to the Closing Date (i) Seller received an election notice for such Lease Costs from Buyer pursuant to Buyer’s receipt of a proposal for a unit and corresponding initial well from Murphy Exploration & Production Company—USA (“Murphy”), (ii) Seller has approved and elected to incur the Lease Costs and (iii) Seller has received an assignment of the subject leases, renewals, extensions or top leases all in accordance with the provisions of that certain letter from F. David Murrell to Michael Mayell dated November 12, 2010 Captioned “Re: Revised Noticed date October 19, 2010 covering Additional Oil and Gas Interests, Karnes County, Texas.”

If the Parties cannot agree upon the Sydson Post-Closing Adjustments, the Parties agree that the dispute shall be submitted to a mutually selected third-party accountant, who shall decide all points of disagreement with respect to the Sydson Post-Closing Adjustments. The decision of said third party accountant on all such points shall be binding upon the Parties. The cost and expenses of said third party accountant shall be borne equally by the Parties.

ARTICLE 3

ASSUMPTION AND PARTICIPATION BY BUYER

3.1 On the Closing Date, Buyer shall, and does hereby expressly agree to incur, assume and pay, all of the costs, obligations and liabilities of Seller under the Leases, the Contracts and under all other agreements described in this Agreement or in any Exhibit to this Agreement that relate to the Properties whether they arise from or relate to events occurring before or after the Effective Time, provided, however, all such costs attributable to Seller’s interest in the Properties for all periods prior to the Effective Time shall be accounted for in the Sydson Post-Closing Adjustments. Buyer agrees, if requested by Seller, to execute any documents or instruments reasonably requested by Seller to evidence such assumption by Buyer.

3.2 On the Closing Date, Buyer shall receive all revenues of Seller under the Leases, the Contracts and under all other agreements described in this Agreement or in any Exhibit to this Agreement that relate to the Properties whether they arise from or relate to events occurring before or after the Effective Time, provided, however, all such revenues attributable to Seller’s interest in the Properties for all periods prior to the Effective Time shall be accounted for in the Sydson Post-Closing Adjustments. Buyer agrees, if requested by Seller, to execute any documents or instruments reasonably requested by Seller to evidence such assumption by Buyer.

3.3 Buyer agrees and acknowledges that any Working Interests and Net Revenue Interests stated in this Agreement, or any Exhibit to this Agreement, do not constitute representations or warranties as to the quantum of interest actually owned by Seller and that any interests in the Properties conveyed to Buyer shall be subject to its proportionate share, in and to each of the Project Areas, of any and all lease and overriding royalty burdens of record in the real property records of the counties in which the Lands are located.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Buyer as follows:

4.1 Organization. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and is qualified to do business in and is in good standing under the laws of the State of Louisiana.

4.2 Authority and Conflicts. Seller has all requisite company powers and authority to carry on its business as presently conducted, to enter into this Agreement and to perform its obligations hereunder. The consummation of the transactions contemplated by this Agreement will not violate or be in conflict with any provision of Seller’s articles of incorporation or bylaws, other governing documents or any material agreement or instrument to which Seller is a party or by which Seller is bound, or any judgment, decree, order, statute,

rule or regulation applicable to Seller, other than the Contracts and any other agreements or instruments to which Buyer is already a party.

4.3 Authorization. The execution, delivery and performance of this Agreement and the transactions contemplated hereunder have been duly and validly authorized by all requisite company action on the part of Seller.

4.5 Litigation and Claims. Except as otherwise provided in Exhibit E attached hereto and made a part hereof, to Seller’s knowledge, there are no demands or suits, actions or other proceedings pending or threatened before any court or governmental agency which, taken as a whole, might result in material impairment or loss of Seller’s title to any part of the Properties or the value thereof, or which might materially hinder or impede the operation of the Properties taken as a whole.

4.9 Contracts. Seller is not delinquent on any invoice it has received for joint interest billing that is not otherwise accounted for in the Estimated Sydson Adjustment Calculations.

4.10 Non-Reliance. Except to the extent of any representations by Buyer herein, Seller acknowledges and agrees that it has not relied upon any statements, analysis or representations by Buyer or its representatives in entering into this Agreement, the transactions contemplated hereby and Seller acknowledges that it has access to all information and data it deems necessary to evaluate this transaction, including the Purchase Price to be paid by Buyer and the other terms and conditions herein.

4.11 Disclaimers. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS ARTICLE 4 ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND SELLER EXPRESSLY DISCLAIMS ANY AND ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES, WITHOUT LIMITATION OF THE FOREGOING. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS ARTICLE 4, THE PROPERTIES SHALL BE CONVEYED TO BUYER WITHOUT ANY WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, RELATING TO TITLE TO THE PROPERTIES OR RELATING TO THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS FOR ANY PURPOSE, AND, EXCEPT AS PROVIDED OTHERWISE IN THE FIRST SENTENCE OF THIS PARAGRAPH, WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER. BUYER SHALL HAVE INSPECTED, OR WAIVED (AND ON THE CLOSING DATE SHALL BE DEEMED TO HAVE WAIVED) ITS RIGHT TO INSPECT THE PROPERTIES FOR ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING BUT NOT LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN MADE FIBERS, OR NATURALLY OCCURRING RADIOACTIVE MATERIALS (“NORM”). EXCEPT FOR THE REPRESENTATIONS CONTAINED HEREIN IN ARTICLE 4, BUYER IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTIES. BUYER SHALL ACCEPT ALL OF THE SAME IN THEIR “AS IS”, “WHERE IS” CONDITION. ALSO WITHOUT LIMITATION OF THE FOREGOING, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE ACCURACY OF COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES OR THE ABILITY OR POTENTIAL OF THE PROPERTIES TO PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE PROPERTIES OR ANY OTHER MATTERS CONTAINED IN ANY MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER BY SELLER OR BY SELLER’S AGENTS OR REPRESENTATIVES. ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED BY SELLER OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED TO BUYER AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR AGAINST SELLER AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER’S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents to Seller as follows:

5.7 Non-Reliance. Except to the extent of any representations by Seller herein, Buyer acknowledges and agrees that it has not relied upon any statements, analysis or representations by Seller or its representatives in entering into this Agreement, the transactions contemplated hereby and Buyer acknowledges that it has access to all information and data it deems necessary to evaluate this transaction, including the Sydson Purchase Price to be paid to Seller and the other terms and conditions herein.

ARTICLE 6

DUE DILIGENCE REVIEW BY BUYER

6.2 Due Diligence Indemnity. Buyer hereby INDEMNIFIES and SHALL DEFEND AND HOLD HARMLESS Seller and its respective employees, agents, representatives, contractors, successors, and assigns from and against any and all Claims arising from or relating to Buyer’s physical inspection of the Properties. THE FOREGOING INDEMNITY INCLUDES, AND THE PARTIES INTEND IT TO INCLUDE, AN INDEMNIFICATION OF THE INDEMNIFIED PARTIES FROM AND AGAINST CLAIMS ARISING OUT OF OR RESULTING, IN WHOLE OR PART, FROM THE CONDITION OF THE PROPERTY OR THE SOLE, JOINT, COMPARATIVE, OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY OF THE INDEMNIFIED PARTIES.

ARTICLE 7

THE CLOSING AND FINAL SETTLEMENT DATE

7.2 Deliveries by Seller at Closing. The obligations of the Buyer under this Agreement shall not become effective until, Seller shall have executed and delivered to Buyer at the Closing:

	(a)		An Assignment and Bill of Sale assigning the Properties to Buyer, substantially the form of the assignment attached hereto as Exhibit F in sufficient counterparts to facilitate recording;

	(b)		Letters-in-Lieu of Division Orders or Transfer Orders or such other documents necessary to provide notice to each purchaser of production from the Properties of the change in ownership of the Properties and instructing each such purchaser to make all future payments directly to Buyer;

	(c)		A certificate pursuant to Internal Revenue Code Section 1445, in the form of Exhibit G certifying that Seller is not a foreign person;

	(d)		A fully executed and recordable Release of Lien in sufficient counterparts for any and all mortgages or other similar liens affecting Seller’s interest in the Properties; and

	(e)		The Mutual Release.

7.3 Deliveries by Buyer at Closing. The obligations of the Seller under this Agreement shall not become effective until Buyer shall have executed and/or delivered to Seller at the Closing:

	(a)		The Assignment and Bill of Sale;

	(b)		The Sydson Purchase Price (as prescribed to be adjusted under the terms of this Agreement) by wire transfer in immediately available funds to an account designated by Seller; and

	(c)		The Mutual Release.

7.4 Deliveries by Seller at Sydson Final Settlement Date. At the Sydson Final Settlement Date, and pursuant to Article 2.4, if the Sydson Final Purchase Price is less than the Sydson Net Closing Amount, Seller shall pay to Buyer the balance of such difference by wire transfer of immediately available funds.

7.5 Deliveries by Buyer at Sydson Final Settlement Date. At the Sydson Final Settlement Date, pursuant to Article 2.4, if the Sydson Final Purchase Price is greater than the Sydson Net Closing Amount, Buyer shall pay to Seller the balance of such difference by wire transfer of immediately available funds.

ARTICLE 8

NON-COMPETE

For a period of five (5) years from the Effective Time, Seller agrees not to acquire directly or indirectly any oil and gas lease, royalty, overriding royalty, farmout, option, exploration agreement or mineral interest of any kind within the Project Areas without the prior written consent of Buyer.

ARTICLE 9

SURVIVAL, INDEMNIFICATION AND RELEASE

9.2 Indemnification by Seller. From and after the Closing Date, except for the Assumed Environmental Obligations and the matters for which Buyer indemnifies Seller

under Article 9.4, Seller shall indemnify, defend and hold Buyer harmless from and against any and all Claims suffered by Buyer as a result of (a) any brokers’ or finders’ fees or commissions arising with respect to brokers or finders retained or engaged by Seller and resulting from or relating to the transactions contemplated in this Agreement; (b) the breach of, or failure to perform or satisfy, any of the covenants of Seller set forth in this Agreement which are to be performed after the Closing Date; and (c) breach of any representation or warranty of Seller set forth in this Agreement, except for a breach of Article 4.8. Seller’s indemnity obligations under this Article 9.2 shall expire as to any claim for indemnification not asserted by Buyer within twelve (12) months after the Closing Date. In no event shall Seller’s indemnity obligation under this Article 9.2 exceed ten (10) percent of the Sydson Net Closing Amount. The terms and provisions of this Article 9.2 shall be the sole and exclusive remedy of each of the persons indemnified hereunder with respect to the indemnified matters, regardless of whether such Claims are based on contract, tort, strict liability, or other principles.

	(a)		any plugging and abandonment and surface restoration obligations related to the Wells whether arising before, on or after the Effective Time;

	(b)		the following occurrences, events, conditions and activities on, or related or attributable to the ownership or operation of, the Properties, regardless of whether arising from the ownership or operation of the Properties before, on, or after the Effective Time, and regardless of whether resulting from any negligent acts or omissions or strict liability of Seller, its partners, officers, directors, agents, and contractors:

	(i)		Environmental pollution or contamination, including pollution or contamination of the soil, groundwater or air by oil and gas, brine, NORM or otherwise;

	(ii)		Underground injection activities and waste disposal;

	(iii)		Clean-up responses, and the cost of remediation, control, assessment or compliance with respect to surface and subsurface pollution caused by spills, pits, ponds, lagoons or subsurface storage tanks;

	(iv)		Disposal on the Properties of any hazardous substances, wastes, materials and products generated by or used in connection with the ownership or operation of the Properties; and

	(v)		Contractual liability for items of the type described under subsections (i) through (iv) above.

9.4 Indemnification by Buyer. To the extent permitted by law and in addition to the indemnifications provided in the Assignment and Bill of Sale, Buyer, from and after the Closing Date, shall release, indemnify, defend and hold Seller and its owners, affiliates, officers, directors and employees (the “Seller Group”) harmless from and against any and all Claims suffered by Seller Group as a result of or relating to any of the following: (a) any liability or obligation relating to or arising from the ownership or operation of the Properties on and after the Effective Time; (b) any brokers’ or finders’ fees or commissions arising with respect to brokers or finders retained or engaged by Buyer and resulting from or relating to the transactions contemplated in this Agreement; (c) the breach of any representation or warranty of Buyer set forth in this Agreement; (d) the breach of, or failure to perform or satisfy any of the covenants of Buyer set forth in this Agreement; (e) the Assumed Environmental Obligations, regardless of whether the Assumed Environmental Obligations relate to conditions arising before or after the Effective Time; and (f) any liability to Murphy due to Seller’s failure to obtain a waiver of any preferential right of Murphy to purchase the Properties or any consent to assign the Properties not obtained from Murphy prior to the Closing Date.

ARTICLE 10

ADDITIONAL PROVISIONS

delivered or inuring to the benefit of such Party in consummation of the transactions contemplated hereby.


If to Seller:	Sydson Energy, Inc.
	4600 Post Oak Place, Suite 306
	Houston, TX 77027
	Attn:	Michael J. Mayell
	Phone:	713-820-6300
	Facsimile:	713-715-1573
	E-Mail:	mmayell@sydson.com

If to Buyer:	Alta Mesa Energy, LLC
	c/o Alta Mesa Holdings, L.P.
	15415 Katy Freeway, Suite 800
	Houston, Texas 77094
	Attn:	F. David Murrell
		Vice President Land
	Phone:	281.530.0991
	Facsimile:	281.530.5278
	E-Mail:	dmurrell@altamesa.net

Any party may, by written notice so delivered to the other, change the address to which delivery shall thereafter be made.

10.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS.

10.6 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by reason of any rule of law or public policy, all other

conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as neither the economic nor legal substance of the transactions contemplated hereby is materially affected in any adverse manner to either Buyer or Seller. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforce, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transaction contemplated hereby are fulfilled to the extent possible.

10.8 Integration. This Agreement, the Exhibits and Schedules hereto, the confidentiality agreement in Article 10.17 and the other agreements to be entered into by the Parties under the provisions of this Agreement set forth the entire agreement and understanding of the Parties in respect of the transactions contemplated hereby and supersede all prior agreements, prior arrangements and prior understandings relating to the subject matter hereof. No representation, promise, inducement or statement of intention has been made by Seller or Buyer that is not embodied in this Agreement or in the documents referred to herein, and neither Seller nor Buyer shall be bound by or liable for any alleged representation, promise, inducement or statement of intention not so set forth.

	(a)		Defined terms in this Agreement are denoted by quotation marks. A defined term has its defined meaning throughout this Agreement and each Exhibit and Schedule to this Agreement, regardless of whether it appears before or after the place where it is defined.

	(b)		If there is any conflict or inconsistency between the provisions of the main body of this Agreement and the provisions of any Exhibit or Schedule hereto, the provisions of this Agreement shall take precedence. If there is any conflict between the provisions of any pro forma assignment document or other transaction documents attached to this Agreement as an Exhibit or Schedule and the provisions of any assignment documents and other transaction documents actually executed by the Parties, the provisions of the executed assignment documents and other executed transaction documents shall take precedence.

	(c)		To the fullest extent permitted by law, all provisions of this Agreement are hereby deemed incorporated into the Assignments by reference.

	(d)		The Article, Section, Exhibit and Schedule references in this Agreement refer to the Articles, Sections, Exhibits and Schedules of this Agreement. The headings and titles in this Agreement are for convenience only and shall have no significance in interpreting or otherwise affect the meaning of this Agreement.

	(e)		The term “knowledge,” as applied to each Party, shall mean the actual knowledge of such Party or such Party’s officers, managers, partners and directors.

	(f)		The plural shall be deemed to include the singular, and vice versa.

	(g)		The term “including” means “including, without limitation.”

	(h)		The term “Person” (whether or not capitalized) means any individual, corporation, partnership, limited liability company, joint venture,

association, joint-stock company, trust, enterprise, unincorporated organization, or governmental entity.

10.17 Confidentiality. Buyer and Seller agree to keep this Agreement and the terms hereof confidential, except as it may be required to be disclosed by law or by the rules of any stock exchange.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written.


	SELLER: SYDSON ENERGY, INC.
	/s/ Michael J. Mayell
	Michael J. Mayell
	President

	BUYER: ALTA MESA ENERGY, LLC
	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	President

EX-10.3 4 h83108exv10w3.htm EX-10.3 exv10w3

Exhibit 10.3

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (the “Agreement”) is entered into this 17^th day of June, 2011 (the “Closing Date”), by and among Texas Oil Distribution & Development, Inc., whose address is 1401 Enclave Parkway, Suite 400, Houston, Texas 77077 (“TODD” ), JAR Resource Holdings, L.P. whose address is 1401 Enclave Parkway, Suite 300, Houston, Texas 77077 (“JAR”), Joseph A. Reeves, Jr. whose address is 11211 Wilding Lane, Houston, Texas 77024 (“J. Reeves”), Dianne S. Reeves whose address is 11211 Wilding Lane, Houston, Texas 77024 (“D. Reeves”, and together with TODD, JAR, and J. Reeves, the “Seller” or the “Reeves Parties”) and Alta Mesa Energy, LLC, whose address is 15415 Katy Freeway, Suite 800, Houston, Texas 77094 (“Alta Mesa” or “Buyer”). Seller and Buyer may be referred to herein individually as a “Party” or collectively as the “Parties”.

WITNESSETH

WHEREAS, Seller represents that it is the owner of certain leasehold interests and net profits overriding royalty interests in the Conveyed Properties and Retained Properties that Seller earned and acquired from The Meridian Resource Corporation (“TMR”); TMR subsidiary TMRX (formerly known as Texas Meridian Resources Exploration, Inc.); Louisiana Onshore Properties LLC (“LOPI”), (formerly known as Louisiana Onshore Properties Inc.); and Cairn Energy USA, Inc. (“Cairn”, and together with TMR, TMRX, LOPI, the “Meridian Parties”), pursuant to the Reeves/Meridian Agreements (each as hereinafter defined); and

WHEREAS, Seller desires to sell, assign and convey to Buyer and Buyer desires to purchase and accept all of Seller’s right, title and interest in and to the Conveyed Properties, as defined and described in Article 1.6, LESS AND EXCEPT, and EXPRESSLY EXCLUDING Seller’s Retained Interest, as hereinafter defined and described in Article 1.18.

NOW, THEREFORE, for valuable consideration and the mutual covenants and agreements herein contained, Seller and Buyer agree as follows:

ARTICLE 1

DEFINITIONS

The following terms shall have the following meanings throughout this Agreement:

1.1 “Alta Mesa” has the meaning set forth in the introductory paragraph to this Agreement.

1.2 “Agreement” has the meaning set forth in the introductory paragraph hereto and includes all Exhibits and Schedules attached hereto and/or referenced herein.

1.3 “Buyer” has the meaning set forth in the introductory paragraph to this Agreement.

1.4 “Claims” means any and all direct or indirect, demands, claims, notices of violation, notices of probable violation, filings, investigations, administrative proceedings, actions, causes of action, suits, and other legal proceedings, judgments, assessments, damages, deficiencies, taxes, penalties, fines, obligations, responsibilities, liabilities, payments, charges, costs, and expenses (including without limitation costs and expenses of operating the Conveyed Properties or Retained Properties) of any kind or character (whether or not asserted prior to the Closing Date, and whether known or unknown, fixed or unfixed, conditional or unconditional, based on negligence, strict liability, breach of representation, warranty or agreement, or otherwise, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent, or otherwise), including without limitation penalties and interest on any amount payable as a result of any of the foregoing, any legal or other costs and expenses incurred in connection with investigating or defending any Claim, and all amounts paid in settlement of Claims. Without limiting the generality of the foregoing, the term “Claims” specifically includes, without limitation, any and all Claims arising from, attributable to or incurred in connection with any (i) breach of contract, (ii) loss or damage to property, injury to or death of persons, and other tortious injury, and (iii) violations of applicable laws, rules, regulations, orders or any other legal right or duty actionable at law or equity.

1.5 “Closing Date” means June 17, 2011.

1.6 “Conveyed Properties” means all right, title and interest of Seller, as of the Closing Date, in and to the following; less and except and specifically excluding Seller’s Retained Interest (as more particularly described and defined in Article 1.18 hereinbelow):

(a) To the extent acquired from, through and under the Meridian Parties (whether or not pursuant to the Reeves/Meridian Agreements), the estates created by the oil, gas and mineral leases and other oil and gas interests described on Exhibit A (the “Conveyed Leases”), and the lands covered thereby (the “Conveyed Lands”), and any and all oil and gas interests located in the Project Areas described on Exhibit A, together with all property and rights incident thereto including all rights and interests in any unit or pooled area in which the Conveyed Leases and/or Conveyed Lands are included, to the extent that such rights and interests arise from and are associated with the Conveyed Leases and/or Conveyed Lands, including all rights derived from any unitization, pooling, operating, communitization, area of mutual interest or other agreement or from any declaration or order of any governmental authority having jurisdiction, together with all direct and indirect interests in and rights with respect to oil, gas, mineral and related properties and assets of any kind or nature, including working, royalty and overriding royalty

interests, production payments, operating rights, net profits interests, other non-working interests and non-operating interests covering or with respect to the Conveyed Leases and Conveyed Lands whether or not specifically described on Exhibit A;

(b) The oil and gas wells located on the Conveyed Leases and/or Conveyed Lands, or other leases and/or lands pooled therewith, including, without limitation, the wells described on Exhibit B (“Conveyed Wells”);

(c) All rights, privileges, benefits and powers with respect to the use and occupancy of the surface and subsurface depths in and under the Conveyed Leases and Conveyed Lands that are necessary or incidental to possession and enjoyment thereof or any interest therein under the terms of the Conveyed Leases applicable thereto;

(d) To the extent transferable at no cost or expense to Seller or that Buyer, at its sole option, agrees to pay any transfer cost or expense, all valid and existing gas purchase and sale contracts, operating agreements, participation agreements, prospect agreements, seismic agreements, and other contracts and agreements to the extent relating to the Conveyed Leases, Conveyed Lands and the Conveyed Wells, and any and all other agreements, contracts and rights derived therefrom or acquired by, through, or under the Meridian Parties and/or their predecessors, subsidiaries, parents or affiliates, expressly excluding from this Agreement, the rights and interests of Seller in, to and under the Reeves/Meridian Agreements as defined and described in Article 1.18;

(e) To the extent transferable at no cost or expense to Seller or that Buyer, at its sole option, agrees to pay any transfer cost or expense, all permits, easements, rights-of-way, surface leases, franchises, licenses, approvals, consents, certificates, servitudes, surface use agreements, and other similar interests used or held for use in connection with the ownership or operation of the Conveyed Leases, Conveyed Lands and/or Conveyed Wells or with production or treatment of hydrocarbons produced therefrom, or sale or disposal of water, hydrocarbons or associated substances therefrom or attributable thereto;

(f) All oil, gas, and related hydrocarbons and other minerals produced from and after the Effective Time (subject to the 2011 Split) attributable to the Conveyed Leases, Conveyed Lands and Conveyed Wells;

(g) All wellbores, fixtures, equipment, and other property, both movable and immovable, by attachment or otherwise that are used or held for use in connection with the Conveyed Leases, Conveyed Lands and/or Conveyed Wells, appurtenant thereto, or directly used or obtained in

connection with the Conveyed Leases or lands pooled therewith and the Conveyed Lands and/or Conveyed Wells or with the production, treatment, sale, or disposal of hydrocarbons or water produced therefrom or attributable thereto, including, without limitation, all gathering systems, pipelines, processing systems, plants, compressors, meters, injection wells, salt water disposal wells and facilities, well equipment, casing, tanks, buildings, tubing, pumps, motors, fixtures, machinery, power lines, roads, field processing plants and all other equipment and improvements to the extent used in the operation of the Conveyed Wells, Conveyed Leases and/or Conveyed Lands (collectively, the “Conveyed Equipment”); and,

(h) To the extent Seller is not prohibited from such transfer by any licensing or use agreement between Seller and a 3^rd party, and to the extent Buyer does not already possess, geological, geophysical and seismic data, owned by Seller in whole or in part, to the extent they are used or held for use in connection with the Conveyed Leases, Conveyed Lands and/or Conveyed Wells.

The Conveyed Properties shall be conveyed subject to all valid and existing gas purchase and sale contracts, operating agreements, participation agreements, prospect agreements, seismic agreements, and other contracts and agreements to the extent relating to the Conveyed Leases, Conveyed Lands and the Conveyed Well Interest, and any and all other agreements, contracts and rights derived therefrom or acquired by, through, or under the Meridian Parties and/or their predecessors, subsidiaries, parents or affiliates (the “Contracts”), and all valid and existing restrictions, exceptions, reservations, conditions, limitations, interests, and other matters, if any, of record, including the presently existing and valid third-party royalties, overriding royalties, net profits interests, payments out of production, and easements and rights-of-way of record.

1.7 “Effective Time” means 12:01 a.m., Central Standard Time on June 1, 2011.

1.8 “Liens” means encumbrances, liens, claims, easement rights, agreements, instruments, obligations, burdens or defects in title.

1.9 “Master Participation Agreement” means that certain agreement dated July 15, 1996, but effective July 1, 1994, between Texas Oil Distribution & Development, Inc. and Texas Meridian Resources Exploration, Inc. (predecessor to The Meridian Resources Corporation), together with all joint operating agreements, attachments, exhibits and/or other agreements, if any, attached thereto, arising therefrom or related thereto.

1.10 “Mutual Release” means that certain mutual and final release of all claims related to Cause No. 2010-78217 styled Texas Oil Distribution & Development, Inc. and Matrix Petroleum, LLC v. Alta Mesa Holdings, L.P. and The Meridian Resource & Exploration LLC pending before the 333^rd Judicial

District Court of Harris County, Texas, as set forth in that certain 2011 Settlement and Release Agreement as defined and described in Article 1.21 and executed contemporaneously with this Agreement.

1.11 “NPI Agreement” means that certain agreement dated June 27, 1995 but effective as of January 1, 1994 between Joseph A. Reeves, Jr. and Texas Meridian Resources Corporation (predecessor to The Meridian Resource Corporation) concerning net profits interests to be earned by J. Reeves thereunder (“Original NPI Agreement”); and an Amendment to Agreement dated June 27, 1995, which amends the Original NPI Agreement and has been filed of record in various jurisdictions, and a Termination Agreement as of April 29, 2008 relating to the Original NPI Agreement; , together with all joint operating agreements, attachments, exhibits and/or other agreements, if any, attached thereto, arising therefrom or related thereto.

1.12 “Omnibus Agreement” means that certain agreement dated December 22, 2009, by and among Joseph A. Reeves, Jr., Texas Oil Distribution & Development, Inc., JAR Resource Holdings, L.P., The Meridian Resources & Exploration LLC, Louisiana Onshore Properties LLC, and Cairn Energy USA, Inc, together with all joint operating agreements, attachments, exhibits and/or other agreements, if any, attached thereto, arising therefrom or related thereto.

1.13 “Permitted Encumbrances” means (a) liens for taxes not yet delinquent or which are being contested in good faith by appropriate proceedings; (b) lessors’ royalties, overriding royalties, division orders, reversionary interests and similar burdens existing as of the Closing Date, except to the extent created by, through or under Seller; (c) the consents and rights contained in the Contracts or the Conveyed Leases; and (d) production sale contracts, unitization and pooling declarations and agreements, and any operating agreements existing as of the Closing Date; (e) normal and customary liens of co-owners under operating agreements, unitization agreements, and pooling orders relating to the Conveyed Properties, which obligations are not yet due and pursuant to which Seller is not in default; (f) mechanic’s and materialmen’s liens relating to the Conveyed Properties, which obligations are not yet due and pursuant to which Seller is not in default; (g) minor defects and irregularities in title or other restrictions that are of the nature customarily accepted by prudent purchasers of oil and gas properties and do not materially affect the value of any Conveyed Property encumbered thereby or materially impair the ability of the obligor to use any such Conveyed Property in its operations; (h) all approvals required to be obtained in connection with the transactions contemplated herein from governmental authorities which are customarily obtained post-closing; (i) preferential rights to purchase and consent to transfer requirements of any person for which the holder(s) thereof have waived their rights with respect to the transfer of the Conveyed Properties under this Agreement or the period has expired in which the holder may exercise such rights, including, but not limited to, the waiver of rights by the Meridian Parties as set forth in Article 7.3(d), hereinbelow; and (j) liens created or arising

by operation of law to secure a Party’s obligations as a purchaser of oil and gas in respect of obligations that are not past-due.

1.14 “Project Areas” means the areas depicted or described in Exhibit A attached to and made a part of this Agreement.

1.15 “Reeves/Meridian Agreements” means, collectively, the Master Participation Agreement (see Article 1.9); the NPI Agreement (see Article 1.11); the Omnibus Agreement (see Article 1.12); and the 2009 Settlement and Release Agreement (see Article 1.20).

1.16 “Reeves Parties” has the meaning set forth in the introductory paragraph to this Agreement.

1.17 “Seller” has the meaning set forth in the introductory paragraph to this Agreement.

1.18 “Seller’s Retained Interest” means any property, right, title or other interest of Seller not specifically described in Article 1.6 (the Conveyed Properties); including, but not limited to, the following specifically described interests of Seller which are conspicuously and expressly EXCEPTED, RESERVED and EXCLUDED from assignment, conveyance or transfer to Buyer and are fully retained by Seller:

(a) An undivided four percent of eight-eighths (4% of 8/8ths) working interest in and to the oil and gas leases, leasehold rights and/or interests, or other leases and/or lands pooled therewith, and the lands covered thereby, more particularly set forth and described on Exhibit C (“Retained Properties”), together with all property and rights incident thereto including all rights and interests in any unit or pooled area in which the Retained Properties are included, to the extent that such rights and interests arise from and are associated with the Retained Properties, including all rights derived from any unitization, pooling, operating, communitization, area of mutual interest or other agreement or from any declaration or order of any governmental authority having jurisdiction, together with all direct and indirect interests in and rights with respect to oil, gas, mineral and related properties and assets of any kind or nature, and the oil and gas wells located on the Retained Properties, or other leases and/or lands pooled therewith, including, without limitation, the oil and gas wells located on the Retained Properties and described on Exhibit D (“Retained Interest Wells”), attached hereto and incorporated herein by reference, together with all rights, titles and interests arising out of the pooling, unitization or communitization of the Retained Properties and/or Retained Interest Wells;

(b) Equal and concurrent rights in all wellbores, fixtures, equipment, and other property, both movable and immovable, by

attachment or otherwise that are used or held for use in connection with the Retained Properties and/or Retained Interest Wells, appurtenant thereto, or directly used or obtained in connection with the Retained Properties or lands pooled therewith and the Retained Properties and/or Retained Interest Wells or with the production, treatment, sale, or disposal of hydrocarbons or water produced therefrom or attributable thereto, including, without limitation, all gathering systems, pipelines, processing systems, plants, compressors, meters, injection wells, salt water disposal wells and facilities, well equipment, casing, tanks, buildings, tubing, pumps, motors, fixtures, machinery, power lines, roads, field processing plants and all other equipment and improvements to the extent used in the operation of the Retained Interest Wells and Retained Properties (collectively, the “Retained Equipment”) in and to all surface and subsurface facilities and equipment; fixtures; personal property and improvements that are held or used in connection with the Retained Properties or Retained Interest Wells at any time;

(c) All Oil and Gas produced from or attributable to the Conveyed Properties, and all revenue therefrom, before the Effective Time (and pursuant to the 2011 Split), and all claims and/or rights to assert a claim thereto;

(d) All Oil and Gas produced from or attributable to the Retained Properties and/or Retained Interest Wells, and all revenue therefrom, whether before or after the Effective Time, and all claims and/or rights to assert a claim thereto;

(e) Equal and concurrent rights in and to any contracts and surface rights, including rights of ingress and egress, that are appurtenant to or used in connection with the Retained Properties and/or Retained Interest Wells, and all rights, titles and interests under contracts and surface rights to the extent that they cover or affect lands outside the vertical boundary of the Retained Properties, including, without limitation, all rights, titles and interests in outside lands that are attributable to area of mutual interest provisions or similar agreements;

(f) Equal and concurrent rights with Buyer to conduct, or to authorize others to conduct, seismic and other geophysical surveys on the Retained Properties, so long as such operations do not unreasonably interfere with operations thereon; and, to the extent Buyer is not prohibited from such transfer by any licensing or use agreement between Buyer and a 3^rd party, and to the extent Seller does not already possess, geological, geophysical and seismic data, owned by Buyer in whole or in part, to the extent they are used or held for use in connection with Seller’s Retained Interest;

(g) All of Seller’s right, title and interest in, to and under all valid and existing gas purchase and sale contracts, operating agreements, participation agreements, prospect agreements, seismic agreements, and other contracts and agreements to the extent relating to the Retained Properties and Retained Well Interest, and any and all other agreements, contracts and rights derived therefrom, including, but not limited to, any agreements, contracts or other documents arising out of that certain Acreage Participation and Exploration Agreement, dated June 17, 2011, by and among Murphy Exploration & Production-USA (“Murphy”), Seller and Buyer;

(h) All right, title and interest in, to and under any and/or all of the Reeves/Meridian Agreements necessary and sufficient to pursue any and all legal and equitable claims and causes of action, of any character or description, against any person or entity (including, without limitation, SandRidge Exchange Company, LLC, its parents, affiliates, subsidiaries, and successors in interest — collectively, “SandRidge”), but not against Buyer or the Meridian Parties, their officers, directors, employees, consultants, or agents relating in any way to an entitlement in favor of the Reeves Parties to any interest (including, without limitation, any overriding royalty interest and/or net profits interest) under any and/or all of the Reeves/Meridian Agreements, whether arising out of SandRidge’s assumption of TMRX’s obligations under the Reeves/Meridian Agreements as set forth in that certain General Conveyance dated February 6, 2008, by and between TMRX and SandRidge, filed of record on March 28, 2008, as Document No. 3405, at Book 1896, Page 197 of Official Records of Garfield County, State of Oklahoma, State of Oklahoma or otherwise applicable law; and any oil, gas or mineral lease, or any renewal or extension thereof, by SandRidge covering any interest, in whole or in part, in the lands described in (i) the aforementioned Document No. 3405 (Book 1896/Page 197, Garfield County Official Records, State of Oklahoma), or (ii) that certain Assignment of Net Profits Interest dated April 7, 2007 from TMRX to J. Reeves, filed of record on June 21, 2007, as Document No. 7721, at Book 1861, Page 570 of the Official Records of Garfield County, Oklahoma. That is, through this Agreement, Seller is reserving any and all rights necessary to claim and/or enforce their interests against SandRidge, or its parent(s), subsidiaries, joint-venturers, assignors or successors (but not against Buyer or the Meridian Parties, their officers, directors, employees, consultants, or agents) (“Seller’s Retained Rights”); and

(i) All right, title, and interest in, to and under any and/or all of the Reeves/Meridian Agreements necessary to provide the Reeves Parties, and their heirs, successors, assigns, affiliates or subsidiaries, including Seller, with the following under the Reeves/Meridian Agreements: (a) all releases in favor of any of the Reeves Parties and/or Seller, including, without limitation, those provided for in Section 2 of the 2009 Settlement

and Release Agreement; (b) all defense and indemnification rights granted to or in favor of any of the Reeves Parties and/or Seller including, without limitation, those provided for in Section 7(b) of the 2009 Settlement and Release Agreement; and (c) all right, title and interest necessary and sufficient for any of the Reeves Parties to defend against or obtain defense and indemnification with respect to any legal and/or equitable claim and/or cause of action of any character or description brought against them by any person or entity (including, but not limited to Buyer) relating in any way, touching, or arising out of the Reeves/Meridian Agreements (“Seller’s Retained Protections”).

Notwithstanding anything herein, or in the Reeves/Meridian Agreements, to the contrary, the Parties hereby agree the Seller’s Retained Interest, including but not limited to, the Retained Properties and the Retained Interest Wells are not presently and shall in no way be burdened by, and shall be free and clear of all burdens save and accept Seller’s proportionate share of any lessor royalties created by the leases set forth and described on Exhibit C.

1.19 “Specified Employees” means, collectively, J. Andrew Reeves and Jeff Robinson.

1.20 “2009 Settlement and Release Agreement” means that certain agreement dated December 22, 2009, by and among The Meridian Resource Corporation and Joseph A. Reeves, Jr., Texas Oil Distribution & Development, Inc., and JAR Resource Holdings, L.P.

1.21 “2011 Settlement and Release Agreement” means that certain agreement dated June 17, 2011, by and among TODD, J. Reeves, D. Reeves, JAR, Matrix, Alta Mesa Holdings, L.P. and The Meridian Resource & Exploration, LLC and its predecessors in interest, including, without limitation, Texas Meridian Resources Corporation, Texas Meridian Resources Exploration, Inc., The Meridian Resources Corporation, and The Meridian Resource Corporation.

1.22 “2011 Split” means the fifty percent (50%)/fifty percent (50%) allocation between the Buyer and Seller of revenues and expenses attributable to the Conveyed Properties with respect to time periods on or after the Effective Time and up to 11:59 p.m, Central Standard Time on the Closing Date, as set forth in Section 2.3(b).

ARTICLE 2

TRANSFER OF THE PROPERTY

Reeves/Meridian Agreements insofar as they relate or apply to the Conveyed Properties, except and excluding the rights reserved by Seller in Article 1.18, effective as of the Effective Time, and Buyer agrees to buy and accept such right, title and interest in the Conveyed Properties from Seller on the Closing Date, effective as of the Effective Time.

Seller’s conveyance and transfer of the Conveyed Properties specifically, conspicuously and expressly excepts and excludes Seller’s Retained Interest as set forth in Article 1.18 hereinabove.

2.2 Purchase Price. Twenty-Two Million, Five Hundred Thousand and No/100 Dollars ($22,500,000.00) (the “Purchase Price”) shall be paid by Buyer to Seller pursuant to an allocation provided by Seller, in immediately available funds on or before the Closing Date.

2.3 Accounting for Expenses and Proceeds of Production and Sales / Post-Closing Adjustments.

(a) On July 1, 2011, Buyer shall disburse Seller’s revenue then accrued up through the last day of the prior month to the extent received and processed by Buyer with regard to the Retained Properties and Conveyed Properties taking into account all revenues and expenses, including ad valorem and production taxes, attributable to operations on or production from the Conveyed Properties and Retained Properties.

(b) Within ninety (90) days after the Closing Date, Buyer shall prepare and deliver to Seller, in accordance with generally accepted accounting principles, a statement (the “Final Settlement Statement”) setting forth each adjustment or payment by which the Purchase Price is to be adjusted on the Final Settlement Date to allocate to Seller (i) all un-received revenues and unpaid expenses, including ad valorem and production taxes, as offset by an applicable credits, refunds or other such benefits owed Seller, attributable to operations on or production from the Conveyed Properties with respect to time periods prior to the Effective Time (taking into account payment(s) made to Seller pursuant to Article 2.3(a), above) and (ii) fifty percent (50%) of all un-received revenues and unpaid expenses, including ad valorem and production taxes, as offset by an applicable credits, refunds or other such benefits owed Seller, attributable to operations on or production from the Conveyed Properties with respect to time periods on or after the Effective Time and up to 11:59 p.m., Central Standard Time on the Closing Date; to allocate to Seller all un-received revenues and unpaid expenses attributable to operations on or production from the Retained Properties with respect to time periods prior to, on and after the Effective Time (taking into account payments made to Seller pursuant to Article 2.3(a), above); and to allocate to Buyer (x) all revenues and expenses attributable to the Conveyed Properties with respect to time periods after 11:59 p.m., Central Standard Time on the Closing Date which may have been received by or paid to Seller and (y) fifty percent (50%) of all revenues and expenses attributable to the Conveyed Properties with respect to time periods on or after the Effective Time and up to 11:59 p.m., Central Standard Time on the Closing Date and any other adjustments attributable to the Conveyed Properties or Retained Properties in accordance with the terms of this Agreement, and showing the calculation of such adjustments together with a copy of

all data used in arriving at such calculations (the “Post-Closing Adjustments”) and the resulting final purchase price (the “Final Purchase Price”).

(c) As soon as practicable after receipt of the Final Settlement Statement, but not later than one hundred five (105) days after the Closing Date, Seller shall deliver to Buyer a written report containing any changes that Seller proposes to be made to the preliminary Final Settlement Statement. The Parties undertake to agree with respect to the amount due pursuant to such Post-Closing Adjustments no later than one hundred twenty (120) days after the Closing Date. The date upon which such agreement is reached, and upon which the Final Purchase Price is established, shall be herein called the “Final Settlement Date”, in no event later than one-hundred twenty (120) days after the Closing Date. In the event that (a) the Final Purchase Price is more than the Purchase Price paid by the Buyer on the Closing Date, Buyer shall pay to Seller the balance of such difference by wire transfer of immediately available funds, or (b) the Final Purchase Price is less than the Purchase Price paid by the Buyer on the Closing Date, Seller shall pay to Buyer the balance of such difference by wire transfer of immediately available funds.

(d) If the Parties cannot agree upon the Post-Closing Adjustments, as of the Final Settlement Date, within one-hundred twenty (120) days after the Closing Date, the Parties agree that the dispute shall be submitted to a mutually selected third-party oil and gas accountant, no later than one-hundred fifty (150) days after the Closing Date, who shall decide all points of disagreement with respect to the Post-Closing Adjustments. The decision of said third party accountant on all such points shall be binding upon the Parties. The cost and expenses of said third party accountant shall be borne equally by the Parties.

ARTICLE 3

ASSUMPTION AND PARTICIPATION BY BUYER

3.1 On the Closing Date at the Effective Time, Buyer shall, and does hereby expressly agree to incur, assume and pay, all of the costs, obligations and liabilities of Seller under the Conveyed Leases, the Contracts and under all other agreements described in this Agreement or in any Exhibit to this Agreement that relate to the Conveyed Properties whether they arise from or relate to events occurring before or after the Effective Time, provided, however, subject to the 2011 Split, all such costs attributable to Seller’s interest in the Properties for all periods prior to the Effective Time shall be accounted for in the Post-Closing Adjustments. Buyer agrees, if requested by Seller, to execute any documents or instruments reasonably requested by Seller to evidence such assumption by Buyer.

3.2 On the Closing Date at the Effective Time, subject to the 2011 Split, Buyer shall be entitled to all revenues of Seller under the Conveyed Leases, the Contracts and under all other agreements described in this Agreement or in any Exhibit to this Agreement that relate to the Conveyed Properties insofar and only insofar as they arise from or relate to production and/or events occurring after the Effective Time, provided, however, all such revenues attributable to Seller’s interest in the Conveyed Properties for all periods prior to the Effective Time shall be accounted for in the Post-Closing Adjustments. Buyer agrees, if

requested by Seller, to execute any documents or instruments reasonably requested by Seller to evidence such assumption by Buyer.

3.3 Buyer agrees and acknowledges that any interests of Seller stated in this Agreement, or any Exhibit to this Agreement, do not constitute representations or warranties as to the quantum of interest actually owned by Seller and that any interests in the Conveyed Properties conveyed to Buyer shall be subject to its proportionate share, in and to each of the Project Areas, of any and all lease and overriding royalty burdens of record in the real property records of the counties in which the Conveyed Lands are located.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Buyer as follows:

4.1 Organization. TODD is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and is qualified to do business in and is in good standing under the laws of the State of Texas. JAR is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Texas and is qualified to do business in and is in good standing under the laws of the State of Texas. J. Reeves and D. Reeves are each individuals residing in the State of Texas.

4.2 Authority and Conflicts. Each of TODD and JAR has all requisite company powers and authority to carry on its business as presently conducted, to enter into this Agreement and to perform its obligations hereunder. The consummation of the transactions contemplated by this Agreement will not violate or be in conflict with any provision of each of TODD and JAR’s articles of incorporation or bylaws, other governing documents or any material agreement or instrument to which TODD or JAR is a party or by which TODD or JAR is bound, or any judgment, decree, order, statute, rule or regulation applicable to TODD or JAR. Each of J. Reeves and D. Reeves has all requisite power and authority to carry on his business as presently conducted, to enter into this Agreement and to perform his or her obligations hereunder. The consummation of the transactions contemplated by this Agreement will not violate or be in conflict with any provision of any material agreement or instrument to which J. Reeves or D. Reeves is a party or by which J. Reeves or D. Reeves is bound, or any judgment, decree, order, statute, rule or regulation applicable to J. Reeves or D. Reeves.

creditors as well as the general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

4.5 Litigation and Claims. Except as otherwise provided in Exhibit E, attached hereto and made a part hereof, to Seller’s knowledge, without inquiry, there are no demands or suits, actions or other proceedings pending or threatened before any court or governmental agency.

4.7 Preferential Rights and Consent to Assign. Seller has not created any, and represents they have no knowledge, without inquiry, of any claims involving third party preferential rights to purchase, rights of first refusal and/or consents to assign, where such rights or consents have arisen out of any action taken solely by Seller upon or subsequent to Seller taking title to the Conveyed Properties.

4.8 Title. Except as may be otherwise set forth herein, and subject to Permitted Encumbrances, Seller represents and warrants that the Properties are free and clear of all Liens arising by, through or under Seller, except for Permitted Encumbrances; and Seller shall convey title to Buyer without warranty, whether express or implied, statutory or otherwise, except for a special warranty, by through and under Seller but not otherwise.

4.9 Contracts. Seller is not delinquent on any invoice for joint interest billing that is not otherwise accounted for in the Post Closing Adjustments.

4.10 Non-Reliance. Except to the extent of any representations by Buyer herein, Seller acknowledges and agrees that they have not relied upon any statements, analysis or representations by Buyer or the Meridian Parties or their representatives in entering into this Agreement, or the transactions contemplated hereby and Seller acknowledges that they have access to all information and data they deem necessary to evaluate this transaction, including the Purchase Price to be paid by Buyer and the other terms and conditions herein.

4.11 Disclaimers. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS ARTICLE 4 ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND SELLER EXPRESSLY DISCLAIMS ANY AND ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES, WITHOUT LIMITATION OF THE FOREGOING. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS ARTICLE 4, THE CONVEYED PROPERTIES SHALL BE CONVEYED TO BUYER WITHOUT ANY WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE:

(i) WITH REGARD TO MERCHANTABILITY;

(ii) RELATING TO TITLE TO THE CONVEYED PROPERTIES;

(iii) RELATING TO THE CURRENT OR FUTURE PHYSICAL, ENVIRONMENTAL OR LEGAL CONDITION (BOTH SUBSURFACE AND SURFACE) OF THE CONVEYED PROPERTIES;

(iv) COMPLIANCE WITH LAW;

(iv) THE EXISTENCE OF HARZARDS, POLLUTANTS AND OTHER RISKS IN, ON OR UNDER THE CONVEYED PROPERTIES OR THAT MAY BE ASSOCIATED WITH OWNERSHIP, OPERATION OR USE OF THE CONVEYED PROPERTIES;

(v) WITH REGARD TO WHETHER ANY LEASE, CONTRACT OR SURFACE RIGHT REMAINS IN EFFECT, OR ARE OTHERWISE ENFORCEABLE, IN WHOLE OR IN PART;

(vi) ANY GEOLOGICAL, GEOPHYSICAL OR ENGINEERING, DATA, INFORMATION OR INTERPRETATIONS RELATING TO THE CONVEYED PROPERTIES;

(vii) RESERVES, DECLINE RATES, EXPLORATION, DEVELOPMENT OR ENHANCED RECOVERY POTENTIAL, HYDROCARBON PRICES, COSTS, TAXES AND ANY OTHER CURRENT OR FUTURE CHARACTERISTIC OF THE CONVEYED PROPERTIES THAT MIGHT AFFECT THEIR OWNERSHIP, OPERATION, USE OR VALUE;

(viii) THE AVAILABILITY OF MARKETING OUTLETS OR TREATMENT OR OTHER FACILITIES REQUIRED TO MAKE OIL OR GAS MARKETABLE,

(ix) WHETHER BUYER WILL BECOME OR IS ENTITLED TO BECOME THE CONTRACT OR REGULATORY OPERATOR OF ANY OF THE CONVEYED PROPERTIES;

(x) THE EXTENT TO WHICH BUYER WILL BE ABLE TO CONTROL EXPLORATION, DEVELOPMENT, PRODUCTION OR ENHANCED RECOVERY OF THE CONVEYED PROPERTIES; AND

(xi) WITH REGARD TO QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS FOR ANY PURPOSE, AND, EXCEPT AS PROVIDED OTHERWISE IN THE FIRST SENTENCE OF THIS PARAGRAPH, WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER.

BUYER SHALL HAVE INSPECTED, OR WAIVED (AND ON THE CLOSING DATE SHALL BE DEEMED TO HAVE WAIVED) ITS RIGHT TO INSPECT THE CONVEYED PROPERTIES FOR ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND

SUBSURFACE, INCLUDING BUT NOT LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN MADE FIBERS, OR NATURALLY OCCURRING RADIOACTIVE MATERIALS (“NORM”). EXCEPT FOR THE REPRESENTATIONS CONTAINED HEREIN IN ARTICLE 4, BUYER IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE CONVEYED PROPERTIES. BUYER SHALL ACCEPT ALL OF THE SAME IN THEIR “AS IS”, “WHERE IS” CONDITION. ALSO WITHOUT LIMITATION OF THE FOREGOING, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE ACCURACY OF COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE CONVEYED PROPERTIES OR THE ABILITY OR POTENTIAL OF THE CONVEYED PROPERTIES TO PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE CONVEYED PROPERTIES OR ANY OTHER MATTERS CONTAINED IN ANY MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER BY SELLER OR BY SELLER’S AGENTS OR REPRESENTATIVES. ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED BY SELLER OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED TO BUYER AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR AGAINST SELLER AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER’S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.

THE CONVEYED PROPERTIES ARE CONVEYED AS IS, WHERE IS, WITH ALL FAULTS AND IN THEIR PRESENT PHYSICAL, ENVIRONMENTAL AND LEGAL CONDITION, LOCATION AND STATE OF REPAIR.

BUYER ACKNOWLEDGES THAT THE CONVEYED PROPERTIES HAVE BEEN USED IN CONNECTION WITH THE EXPLORATION, DEVELOPMENT, OPERATION AND PRODUCTION OF OIL, GAS, ASSOCIATED HYDROCARBONS AND OTHER MINERALS, AND THAT THERE ARE AND MAY HAVE BEEN PRODUCTION AND POST-PRODUCTION FACILITIES LOCATED ON THE CONVEYED PROPERTIES. BUYER ACKNOWLEDGES THAT THERE MAY HAVE BEEN RELEASES OR MIGRATIONS OF HYDROCARBON SUBSTANCES, PRODUCED WATER, POLLUTANTS, CONTAMINANTS, TOXIC, OR HAZARDOUS MATERIALS, WASTES AND OTHER SUBSTANCES THAT MAY HAVE AFFECTED THE SURFACE OR SUBSURFACE (“POLLUTANTS”). BUYER ACKNOWLEDGES THAT SOME ITEMS AMONG THE CONVEYED PROPERTIES MAY CONTAIN NORM. BUYER UNDERSTANDS THAT NORM MAY ATTACH ITSELF TO THE INSIDE OF WELLS AND FACILITIES AS SCALE OR IN OTHER FORMS, THAT THE WELLS AND FACILITIES MAY CONTAIN NORM AND THAT NORM-CONTAINING MATERIALS MAY BE BURIED OR OTHERWISE DISPOSED OF ON THE CONVEYED PROPERTIES. BUYER ACKNOWLEDGES THAT SPECIAL

PROCEDURES MAY BE REQUIRED TO REMOVE AND DISPOSE OF POLLUTANTS, ASBESTOS AND NORM.

AS BETWEEN THE SELLER AND BUYER, BUYER SHALL ASSUME AND FULLY BEAR SOLE RESPONSBILITY FOR ALL RISKS, WITHOUT LIMITATION, ASSOCIATED WITH OR ARISING OUT OF THE CONDITION OF THE CONVEYED PROPERTIES INSOFAR AS BUYER’S INTEREST THEREIN, ANY PAST, PRESENT, OR FUTURE ACTIVITIES ON THE SAID CONVEYED PROPERTIES, ANY REQUIRED ENVIRONMENTAL REMEDIATIONS OR ENVIRONMENTAL VIOLATIONS OR LIABILITY ASSOCIATED WITH OR ARISING OUT OF THE OPERATION OR OWNERSHIP OF THE CONVEYED PROPERTIES IN THE PAST, PRESENT, OR FUTURE, AND/OR ITEMS COVERED BY THIS SECTION (“HAZARDS”) IN CONNECTION WITH THE EXECUTION OF THIS AGREEMENT, THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND THE CONDUCT OF OPERATIONS ON THE CONVEYED PROPERTIES BEFORE AND AFTER THE EFFECTIVE DATE, WITHOUT LIMITATION AND WITH REGARD TO OPERATIONS ON THE CONVEYED PROPERTY AND WITHOUT REGARD TO THE OCURRENCE, DISCOVERY OR CAUSE.

To the extent permitted by law, Buyer releases and agrees not to sue or take any other action against the Seller, their members, shareholders, officers, directors, partners, trustees, beneficiaries, employees, agents, consultants, attorneys, or any of their heirs, successors, legal representatives and assigns, from and for all Claims covered by the disclaimers contained in this Article 4.11.

4.12 Seller’s Retained Interest Disclaimer. AS BETWEEN THE SELLER AND BUYER, SELLER SHALL RETAIN AND FULLY BEAR SOLE RESPONSBILITY FOR ALL RISKS, WITHOUT LIMITATION, ASSOCIATED WITH OR ARISING OUT OF THE CONDITION OF SELLER’S RETAINED INTEREST, ANY PAST, PRESENT, OR FUTURE ACTIVITIES ON THE SAID SELLER’S RETAINED INTEREST, ANY REQUIRED ENVIRONMENTAL REMEDIATIONS OR ENVIRONMENTAL VIOLATIONS OR LIABILITY ASSOCIATED WITH OR ARISING OUT OF THE OPERATION OR OWNERSHIP OF SELLER’S RETAINED INTEREST IN THE PAST, PRESENT, OR FUTURE, AND/OR ITEMS COVERED BY THIS SECTION IN CONNECTION WITH THE EXECUTION OF THIS AGREEMENT, THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND THE CONDUCT OF OPERATIONS ON SELLER’S RETAINED INTEREST BEFORE AND AFTER THE EFFECTIVE DATE, WITHOUT LIMITATION AND WITH REGARD TO OPERATIONS ON SELLER’S RETAINED INTEREST AND WITHOUT REGARD TO THE OCURRENCE, DISCOVERY OR CAUSE.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents to Seller as follows:

5.5 Litigation and Claims. Except as otherwise provided on Exhibit E, Buyer has no knowledge, without inquiry, of any suit, action, claim, investigation or inquiry by any person or entity or by any administrative agency or governmental body and no legal, administrative or arbitration proceeding pending or, to Buyer’s knowledge, threatened against Buyer or any affiliate of Buyer related to or arising out of the Conveyed Properties or Retained Properties.

5.7 Non-Reliance. Except to the extent of any representations by Seller herein, Buyer acknowledges and agrees that it has not relied upon any statements, analysis or representations by Seller or its representatives in entering into this Agreement, the transactions contemplated hereby. Buyer acknowledges that it has access to all information and data it deems necessary to evaluate this transaction, including all information, material and data in possession of or owned by the Meridian Parties with regard to the Conveyed Properties and Retained Properties, including the Purchase Price to be paid to Seller and the other terms and conditions herein.

ARTICLE 6

DUE DILIGENCE REVIEW BY BUYER

6.1 Due Diligence. Buyer acknowledges that prior to the Closing Date, Buyer had access to all material information it deemed necessary as part of the due diligence it conducted in part because the Seller acquired the Conveyed Properties from the Meridian Parties and/or affiliates or wholly-owned subsidiary(ies) of the Buyer. Buyer has conducted, at its sole cost, such title examination or investigation, and other examinations and investigations, as it has in its sole discretion chosen to conduct with respect to the Conveyed Properties. As set forth in Article 4.9, Seller makes no representations, covenants or warranties concerning the Conveyed Properties, express, implied or statutory, other than as specifically set forth in this Agreement.

6.2 Due Diligence Indemnity. Buyer hereby INDEMNIFIES and SHALL DEFEND AND HOLD HARMLESS Seller and its respective employees, agents, representatives, contractors, successors, and assigns from and against any and all Claims arising from or relating to Buyer’s due diligence and physical inspection of the Conveyed Properties. THE FOREGOING INDEMNITY INCLUDES, AND THE PARTIES INTEND IT TO INCLUDE, AN INDEMNIFICATION OF THE INDEMNIFIED PARTIES FROM AND AGAINST CLAIMS ARISING OUT OF OR RESULTING, IN WHOLE OR PART, FROM THE CONDITION OF THE CONVEYED PROPERTIES OR THE SOLE, JOINT, COMPARATIVE, OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY OF THE INDEMNIFIED PARTIES.

ARTICLE 7

THE CLOSING AND FINAL SETTLEMENT DATE

7.2 Deliveries by Seller at Closing. The obligations of the Buyer under this Agreement shall not become effective until Seller shall have executed and delivered to Buyer at the Closing:

(a)

An Assignment and Bill of Sale assigning the Conveyed Properties to Buyer, in substantially the form of the assignment attached hereto as Exhibit F-1 (for counties/parishes without Seller’s Retained Interest) and Exhibit F-2 (for counties with Seller’s Retained Interest), in sufficient counterparts to facilitate recording;

(b)

To the extent necessary, and subject to Article 10.1, Letters-in-Lieu of Division Orders or Transfer Orders or such other documents necessary to provide notice to each purchaser of production from the Conveyed Properties of the change in ownership of the Conveyed Properties and

instructing each such purchaser to make all future payments directly to Buyer;

(c)

A certificate pursuant to Internal Revenue Code Section 1445, in the form of Exhibit G, certifying that Seller is not a foreign person; and

(d)

Executed 2011 Settlement and Release Agreement.

7.3 Deliveries by Buyer at Closing. The obligations of the Seller under this Agreement shall not become effective until Buyer shall have executed and/or delivered to Seller at the Closing:

(a)

The Assignment and Bill of Sale;

(b)

The Purchase Price by wire transfer in immediately available funds to an account designated by Seller;

(c)

Revenues attributable to the Conveyed Properties and Seller’s Retained Interest due and owing on June 1, 2011;

(d)

Executed 2011 Settlement and Release Agreement; and

(e)

Waiver of any Preferential Right pursuant to the Reeves/Meridian Agreements by the Meridian Parties.

7.4 Deliveries by Seller at Final Settlement Date. At the Final Settlement Date, and pursuant to Article 2.3, if the Final Purchase Price is less than the Purchase Price, Seller shall pay to Buyer the balance of such difference by wire transfer of immediately available funds.

7.5 Deliveries by Buyer at Final Settlement Date. At the Final Settlement Date, pursuant to Article 2.3, if the Final Purchase Price is greater than the Purchase Price, Buyer shall pay to Seller the balance of such difference by wire transfer of immediately available funds.

ARTICLE 8

NON-COMPETE; RELEASE OF PRIOR NON-COMPETE

8.1 Non-Compete. For a period of one (1) year from the Effective Time, Seller and the Specified Employees agree not to acquire directly or indirectly any oil and gas lease, royalty, overriding royalty, farmout, option, exploration agreement or mineral interest of any kind within the Non-Compete Areas, as defined and described on Exhibit H attached hereto and incorporated herein by reference, without the prior written consent of Buyer.

ARTICLE 9

SURVIVAL, INDEMNIFICATION AND RELEASE

9.1 Survival. Except as set forth in this Article 9, all representations and warranties contained in this Agreement (specifically, the representations and warranties in Articles 4.1 — 4.10 and Article 5) shall terminate on the Closing Date. All other agreements and covenants of the Parties shall survive the execution and delivery of the assignments of the Conveyed Properties to Buyer by Seller.

9.2 Indemnification by Seller. From and after the Closing Date, except for the matters for which Buyer indemnifies Seller under Article 9.4, Seller shall indemnify, defend and hold Buyer harmless from and against any and all Claims suffered by Buyer as a result of (a) any brokers’ or finders’ fees or commissions arising with respect to brokers or finders retained or engaged by Seller and resulting from or relating to the transactions contemplated in this Agreement; (b) the breach of, or failure to perform or satisfy, any of the covenants of Seller set forth in this Agreement which are to be performed after the Closing Date; and (c) breach of any representation or warranty of Seller set forth in this Agreement, except for a breach of Article 4.8. Seller’s indemnity obligations under this Article 9.2 shall expire as to any claim for indemnification not asserted by Buyer within twelve (12) months after the Closing Date. In no event shall Seller’s indemnity obligation under this Article 9.2 exceed five (5) percent of the Purchase Price. The terms and provisions of this Article 9.2 shall be the sole and exclusive remedy of each of the persons indemnified hereunder with respect to the indemnified matters, regardless of whether such Claims are based on contract, tort, strict liability, or other principles.

9.3 Buyer’s Environmental Obligations. On and after the Closing Date, Buyer shall assume, bear and pay all costs of the following with respect to the interests assigned hereunder by Seller in the Conveyed Properties assigned to Buyer as of the Effective Time (collectively, the “Environmental Obligations”) for:

(a)

any plugging and abandonment and surface restoration obligations related to the Conveyed Wells whether arising before, on or after the Effective Time;

(b)

the following occurrences, events, conditions and activities on, or related or attributable to the ownership or operation of, the Conveyed Properties, regardless of whether arising from the ownership or operation of the Properties before, on, or after the Effective Time, and regardless of whether resulting from any negligent acts or omissions or strict liability of Seller, its partners, officers, directors, agents, and contractors:

(i)

Environmental pollution or contamination, including pollution or contamination of the soil, groundwater or air by oil and gas, brine, NORM or otherwise;

(ii)

Underground injection activities and waste disposal;

(iii)

Clean-up responses, and the cost of remediation, control, assessment or compliance with respect to surface and subsurface pollution caused by spills, pits, ponds, lagoons or subsurface storage tanks;

(iv)

Disposal on the Properties of any hazardous substances, wastes, materials and products generated by or used in connection with the ownership or operation of the Properties; and

(v)

Contractual liability for items of the type described under subsections (i) through (iv) above.

9.4 Indemnification by Buyer. To the extent permitted by law and in addition to the indemnifications provided in the Assignment and Bill of Sale, Buyer, from and after the Closing Date, shall release, indemnify, defend and hold Seller and their owners, affiliates, officers, directors and employees (the “Seller Group”) harmless from and against any and all Claims suffered by Seller Group as a result of or relating to any of the following: (a) any liability or obligation relating to or arising from the ownership or operation (before, on or after the Effective Time) of the Conveyed Properties (specifically excluding Claims arising out of Seller’s special warranty of title as contained in Article 4.8); (b) any brokers’ or finders’ fees or commissions arising with respect to brokers or finders retained or engaged by Buyer and resulting from or relating to the transactions contemplated in this Agreement; (c) the breach of any representation or warranty of Buyer set forth in this Agreement; (d) the breach of, or failure to perform or satisfy any of the covenants of Buyer set forth in this Agreement; and (e) the Environmental Obligations, regardless of whether the Environmental Obligations relate to conditions arising before or after the Effective Time.

9.5 Indemnity Threshold. Neither Seller nor Buyer shall have any liability for Claims under the indemnity provided in this Article 9 until the aggregate of all Claims suffered by Seller or Buyer, respectively, exceeds TWENTY-FIVE THOUSAND DOLLARS ($25,000.00), and then only to the extent of such excess.

9.6 Mutual Release, Waiver & Disclaimer.

(a) Release, Waiver & Disclaimer of Certain Obligations Under the Reeves/Meridian Agreements. Subject to the surviving rights retained in Seller’s Retained Interest (specifically, as set forth in Article 1.18, the Parties to this Agreement stipulate and agree that, from the Effective Date of this Agreement, each hereby releases and waives the following with respect to the Reeves/Meridian Agreements:

(i) any obligation of a party to the Reeves/Meridian Agreements to give, offer or allow Seller to participate in “Prospects” (as defined in the Reeves/Meridian Agreements) or make an assignment or conveyance thereof; and

(ii) any obligation of a party to the Reeves/Meridian Agreements to assign or convey, or right of Seller to earn, any net profits overriding royalty interest in “Properties”, as defined in the Reeves/Meridian Agreements.

(b)

In addition to that set forth under Article 9.6(a), the Parties hereto have executed and entered into the 2011 Settlement and Release Agreement, as more particularly defined and described in Article 1.21.

9.7 Express Negligence Disclosure. UNLESS THIS AGREEMENT EXPRESSLY PROVIDES TO THE CONTRARY, THE INDEMNITY, RELEASE, WAIVER AND ASSUMPTION PROVISIONS SET FORTH IN THIS AGREEMENT APPLY REGARDLESS OF WHETHER THE INDEMNIFIED PARTY (OR ITS EMPLOYEES, PARTNERS, AGENTS, CONTRACTORS, SUCCESSORS OR ASSIGNS) CAUSES, IN WHOLE OR PART, AN INDEMNIFIED CLAIM, INCLUDING WITHOUT LIMITATION INDEMNIFIED CLAIMS ARISING OUT OF OR RESULTING, IN WHOLE OR IN PART, FROM, OUT OF OR IN CONNECTION WITH THE CONDITION OF THE CONVEYED PROPERTY OR RETAINED PROPERTY OR THE INDEMNIFIED PARTY’S (OR ITS EMPLOYEES’, PARTNERS’, AGENTS’, REPRESENTATIVES’, CONTRACTORS’, SUCCESSORS’ OR ASSIGNS’) SOLE, JOINT, COMPARATIVE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY, BREACH OF REPRESENTATION, WARRANTY OR AGREEMENT, OR FAULT, BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. THE PARTIES ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.

ARTICLE 10

ADDITIONAL PROVISIONS


If to Seller:		TODD; JAR; J. Reeves & D. Reeves
		ATTN: Joseph A. Reeves, Jr.
		1401 Enclave Parkway, Suite 400
		Houston, Texas 77077
		Phone: 281.597.7012
		Fax: 281.597.8880
		Email: jreeves@matrixpetroleumllc.com


If to Buyer:	Alta Mesa Energy, LLC
	c/o Alta Mesa Holdings, L.P.
	15415 Katy Freeway, Suite 800
	Houston, Texas 77094
	Attn:	F. David Murrell
		Vice President Land
	Phone:	281.530.0991
	Facsimile:	281.530.5278
	E-Mail:	dmurrell@altamesa.net

Any party may, by written notice so delivered to the other, change the address to which delivery shall thereafter be made.

10.5 Governing Law; Jurisdiction and Venue. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS. Each Party submits to the exclusive jurisdiction and venue of the state and federal district courts located in Harris County, Texas, for purposes of resolving any dispute, claim or controversy arising out of, in relation to, or in connection with this Agreement.

10.7 Assignment; Successors and Assigns. Neither Seller nor Buyer may assign their respective rights or delegate their respective duties or obligations arising under this Agreement without the prior written consent of the other Party. Subject thereto, this Agreement is binding upon and shall inure to the benefit of the Parties and, as applicable,

their heirs, successors, legal representatives and assigns. No other person shall have any benefits, rights or remedies under this Agreement.

10.8 Integration. This Agreement, the Exhibits and Schedules hereto, the confidentiality agreement in Article 10.16 and the 2011 Settlement and Release Agreement, and the other agreements to be entered into by the Parties under the provisions of this Agreement set forth the entire agreement and understanding of the Parties in respect of the transactions contemplated hereby and supersede (except where provided otherwise herein) all prior agreements, prior arrangements and prior understandings relating to the subject matter hereof. No representation, promise, inducement or statement of intention has been made by Seller or Buyer that is not embodied in this Agreement or in the documents referred to herein, and neither Seller nor Buyer shall be bound by or liable for any alleged representation, promise, inducement or statement of intention not so set forth.

10.11 Public Announcements. No Party may make press releases or other public announcements concerning this transaction without the other’s prior written approval and agreement to the form of the announcement, except as may be required by applicable laws or rules and regulation of any governmental agency or stock exchange.

10.12 Interpretation. The Parties stipulate and agree that this Agreement shall be deemed and considered for all purposes to have been jointly prepared by the Parties, and shall not be construed against any one Party (nor shall any inference or presumption be made) on the basis of who drafted this Agreement or any particular provision hereof, who supplied the form of Agreement, or any other event of the negotiation, drafting or execution of this Agreement. Each Party agrees that this Agreement has been purposefully drawn and correctly reflects its understanding of the transaction that it contemplates. In construing this Agreement, the following principles will apply.

(a)

Defined terms in this Agreement are denoted by quotation marks. A defined term has its defined meaning throughout this Agreement and each

Exhibit and Schedule to this Agreement, regardless of whether it appears before or after the place where it is defined.

(b)

Except as allowed by Article 10.1, if there is any conflict or inconsistency between the provisions of the main body of this Agreement and the provisions of any Exhibit or Schedule hereto, the provisions of this Agreement shall take precedence. If there is any conflict between the provisions of any pro forma assignment document or other transaction documents attached to this Agreement as an Exhibit or Schedule and the provisions of any assignment documents and other transaction documents actually executed by the Parties, the provisions of the executed assignment documents and other executed transaction documents shall take precedence.

(c)

To the fullest extent permitted by law, all provisions of this Agreement are hereby deemed incorporated into the Assignments by reference.

(d)

(e)

The term “knowledge,” as applied to each Party, shall mean the actual knowledge of such Party or such Party’s officers, managers, partners and directors.

(f)

The plural shall be deemed to include the singular, and vice versa.

(g)

The term “including” means “including, without limitation.”

(h)

10.13 Third-Party Beneficiaries. It is understood and agreed that there shall be no third-party beneficiary of this Agreement, and that the provisions hereof do not impart enforceable rights, benefits, or remedies in anyone who is not a Party or a successor of a Party hereto.

10.14 Waiver of Deceptive Trade Practices Act. As partial consideration for this Agreement, each Party hereby expressly waives the provisions of the Texas Deceptive Trade Practices Consumer Protection Act, Articles 17.41 et seq. of the Texas Business & Commerce Code, other than Article 17.555 which is not waived, and all other consumer protection laws of the State of Texas that may be waived by the Parties to the extent permitted by applicable law. Each Party represents to the other that such Party has had an

adequate opportunity to submit this waiver to legal counsel for review and comment, and understands the rights being waived herein.

10.15 Multiple Counterparts. This Agreement may be executed in a number of identical counterparts, each of which for all purposes is to be deemed as original, and all of which constitute, collectively, one agreement; but in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.

10.16 Confidentiality. Except as required by law or the provisions of the indenture for Buyer 9 5/8% senior notes due 2018, following execution of this Agreement, the Parties shall keep this Agreement and all drafts of this Agreement confidential as required by this Article 10.16, but may disclose all or any portion of this Agreement to their respective consultants, attorneys, advisors and current and prospective lenders, investors and purchasers, who shall be bound by the confidentiality obligations of this Article 10.16. Similarly, the Parties’ respective consultants, attorneys, advisors, and current and prospective lenders, investors, and purchasers may also disclose this Agreement to their respective consultants, attorneys, advisors and lenders and purchasers, and so on, who shall all be bound by the confidentiality obligations of this Article 10.16. The foregoing shall not restrict either Party from disclosing the consummation of this transaction and the transfer of the Conveyed Properties to Buyer; provided, however, that Buyer shall not disclose the name of J. Reeves or D. Reeves in any press releases or other public announcements concerning this transaction.

All obligations under this Article 10.16 terminate on the earlier of (i) as to a particular person in receipt of this Agreement, the date that person is required to disclose the Agreement by a court or other governmental authority or regulations, (ii) the date the Agreement becomes available to the public other than by breach of this Article 10.16, or (iii) as to the non-disclosing Party, the date the disclosing Party discloses this Agreement in a manner that fails to preserve its confidentiality. There shall also be no restriction on either Party’s disclosure of the Agreement in connection with enforcement of its rights under this Agreement, although should it become necessaryn to file the Agreement in a court proceeding, such Party will endeavor to file the Agreement under seal.

[Signature pages attached]

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written.


	SELLER: TEXAS OIL DISTRIBUTION & DEVELOPMENT, INC.
	/s/ Joseph A. Reeves, Jr.
	Joseph A. Reeves, Jr.
	President and Chief Executive Officer

	JAR RESOURCE HOLDINGS, L. P.
	By:	JAR RESOURCE CORPORATION
	its General Partner

	/s/ Joseph A. Reeves, Jr.
	Joseph A. Reeves, Jr.
	President

	JOSEPH A. REEVES, JR.
	/s/ Joseph A. Reeves, Jr.
	Joseph A. Reeves, Jr.


	DIANNE S. REEVES
	/s/ Dianne S. Reeves
	Dianne S. Reeves


	SPECIFIED EMPLOYEES: (signing for the purpose of Article 8.1 of this Agreement)
	/s/ J. Andrew Reeves
	J. Andrew Reeves

	/s/ Jeff Robinson
	Jeff Robinson


	BUYER: ALTA MESA ENERGY, LLC
	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	President

EX-31.1 5 h83108exv31w1.htm EX-31.1 exv31w1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Harlan H. Chappelle, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Alta Mesa Holdings, LP;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Alta Mesa Holdings, LP as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Alta Mesa Holdings, LP and have:

	a.		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Alta Mesa Holdings, LP, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.		[intentionally omitted]

	c.		Evaluated the effectiveness of Alta Mesa Holdings, LP’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.		Disclosed in this report any change in Alta Mesa Holdings, LP’s internal control over financial reporting that occurred during Alta Mesa Holdings, LP’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Alta Mesa Holdings, LP’s internal control over financial reporting.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Alta Mesa Holdings, LP’s auditors and the audit committee of Alta Mesa Holdings, LP’s board of directors (or persons performing the equivalent functions):

	a.		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Alta Mesa Holdings, LP’s ability to record, process, summarize and report financial information; and

	b.		Any fraud, whether or not material, that involves management or other employees who have a significant role in Alta Mesa Holdings, LP’s internal control over financial reporting.


Date: August 12, 2011
/s/ Harlan H. Chappelle
Harlan H. Chappelle
President and Chief Executive Officer of Alta Mesa Holdings GP, LLC, general partner of Alta Mesa Holdings, LP

EX-31.2 6 h83108exv31w2.htm EX-31.2 exv31w2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Michael A. McCabe, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Alta Mesa Holdings, LP;

	a.		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Alta Mesa Holdings, LP, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.		[intentionally omitted]

	c.		Evaluated the effectiveness of Alta Mesa Holdings, LP’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.		Disclosed in this report any change in Alta Mesa Holdings, LP’s internal control over financial reporting that occurred during Alta Mesa Holdings, LP’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Alta Mesa Holdings, LP’s internal control over financial reporting.

	a.		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Alta Mesa Holdings, LP’s ability to record, process, summarize and report financial information; and

	b.		Any fraud, whether or not material, that involves management or other employees who have a significant role in Alta Mesa Holdings, LP’s internal control over financial reporting.


Date: August 12, 2011
/s/ Michael A. McCabe
Michael A. McCabe
Vice President and Chief Financial Officer of Alta Mesa Holdings GP, LLC,general partner of Alta Mesa Holdings, LP

EX-32.1 7 h83108exv32w1.htm EX-32.1 exv32w1

Exhibit 32.1

CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
OF ALTA MESA HOLDINGS, LP
PURSUANT TO 18 U.S.C. SECTION 1350

In connection with this Quarterly Report on Form 10-Q of Alta Mesa Holdings, LP for the quarter ended June 30, 2011, I, Harlan H. Chappelle, President and Chief Executive Officer of Alta Mesa Holdings, LP, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

	1.		This Quarterly Report Form 10-Q for the quarter ended June 30, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	2.		The information contained in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 fairly presents, in all material respects, the financial condition and results of operations of Alta Mesa Holdings, LP for the periods presented therein.


Date: August 12, 2011 /s/ Harlan H. Chappelle
Harlan H. Chappelle
President and Chief Executive Officer of Alta Mesa Holdings GP, LLC, general partner of Alta Mesa Holdings, LP

EX-32.2 8 h83108exv32w2.htm EX-32.2 exv32w2

Exhibit 32.2

CERTIFICATION OF
CHIEF FINANCIAL OFFICER
OF ALTA MESA HOLDINGS, LP
PURSUANT TO 18 U.S.C. SECTION 1350

In connection with this Quarterly Report on Form 10-Q of Alta Mesa Holdings, LP for the quarter ended June 30, 2011, I, Michael A. McCabe, Chief Financial Officer of Alta Mesa Holdings, LP, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

	1.		This Quarterly Report Form 10-Q for the quarter ended June 30, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	2.		The information contained in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 fairly presents, in all material respects, the financial condition and results of operations of Alta Mesa Holdings, LP for the periods presented therein.

Date: August 12, 2011


/s/ Michael A. McCabe
Michael A. McCabe
Vice President and Chief Financial Officer of Alta Mesa Holdings GP, LLC, general partner of Alta Mesa Holdings, LP

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8234000

2829000 326000 -12170000 14871000

<div align="left" style="font-family: 'Times New Roman',Times,serif">   <div align="left"> </div> <div align="center" style="font-size: 10pt; margin-top: 0pt"><b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>1. SUMMARY OF ORGANIZATION AND NATURE OF OPERATIONS</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The consolidated financial statements reflect the accounts of Alta Mesa Holdings, LP and its subsidiaries (we, us, our, the “Company,” and “Alta Mesa”) after elimination of all significant intercompany transactions and balances. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual consolidated financial statements for the year ended December 31, 2010, which were filed with the Securities and Exchange Commission in our Registration Statement on Form S-4 (Commission File No. 333-173751). </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The consolidated financial statements included herein as of June 30, 2011, and for the six month periods ended June 30, 2011 and 2010, are unaudited, and in the opinion of management, the information furnished reflects all material adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of consolidated financial position and of the results of operations for the interim periods presented. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain minor reclassifications of prior period consolidated financial statements have been made to conform to current reporting practices. The consolidated results of operations for interim periods are not necessarily indicative of results to be expected for a full year. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">We use accounting policies which reflect industry practices and conform to GAAP. As used herein, the following acronyms have the following meanings: “FASB” means the Financial Accounting Standards Board; the “Codification” refers to the Accounting Standards Codification, the collected accounting and reporting guidance maintained by the FASB; “ASC” means Accounting Standards Codification and is generally followed by a number indicating a particular section of the Codification; and “ASU” means Accounting Standards Update, followed by an identification number, which are the periodic updates made to the Codification by the FASB. “SEC” means the Securities and Exchange Commission. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u><i>Organization</i></u><i>: </i>The consolidated financial statements presented herein are of Alta Mesa Holdings, LP and its (i) wholly-owned subsidiaries: Alta Mesa Finance Services Corp., Alta Mesa Eagle, LLC, Alta Mesa Acquisition Sub, LLC, and its direct and indirect wholly-owned subsidiaries, Alta Mesa Energy, LLC, Aransas Resources, LP and its wholly-owned subsidiary ARI Development, LLC, Brayton Resources II, LP, Buckeye Production Company, LP, Galveston Bay Resources, LP, Louisiana Exploration & Acquisitions, LP and its wholly-owned subsidiary Louisiana Exploration & Acquisition Partnership, LLC, Navasota Resources, Ltd., LLP, Nueces Resources, LP, Oklahoma Energy Acquisitions, LP, Alta Mesa Drilling, LLC, Petro Acquisitions, LP, Petro Operating Company, LP, Texas Energy Acquisitions, LP, Virginia Oil and Gas, LLC and Alta Mesa Services, LP, and (ii) partially-owned subsidiaries: Brayton Resources, LP, and Orion Operating Company, LP. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u><i>Nature of Operations</i></u>: We are engaged primarily in the acquisition, exploration, development, and production of oil and natural gas properties. Our properties are located primarily in Texas, Oklahoma, Louisiana, Florida and the Appalachian Region. </div> </div>

<div align="left" style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">As of June 30, 2011, our significant accounting policies are consistent with those discussed in Note 2 of the consolidated financial statements for the fiscal year ended December 31, 2010. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u><b><i>Use of Estimates</i></b></u><b>: </b>The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Reserve estimates significantly impact depreciation, depletion and amortization expense and potential impairments of oil and natural gas properties and are subject to change based on changes in oil and natural gas prices and trends and changes in estimated reserve quantities. We analyze estimates, including those related to oil and natural gas reserves, oil and natural gas revenues, the value of oil and natural gas properties, bad debts, asset retirement obligations, derivative contracts, income taxes and contingencies and litigation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u><b><i>Property and Equipment</i></b></u><b>: </b>Oil and natural gas producing activities are accounted for using the successful efforts method of accounting. Under the successful efforts method, lease acquisition costs and all development costs, including unsuccessful development wells, are capitalized. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><i>Unproved Properties — </i>Acquisition costs associated with the acquisition of leases are recorded as unproved leasehold costs and capitalized as incurred. These consist of costs incurred in obtaining a mineral interest or right in a property such as a lease, in addition to options to lease, broker fees, recording fees and other similar costs related to activities in acquiring properties. Leasehold costs are classified as unproved until proved reserves are discovered, at which time related costs are transferred to proved oil and natural gas properties. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><i>Exploration Expense </i>— Exploration expenses, other than exploration drilling costs, are charged to expense as incurred. These costs include seismic expenditures and other geological and geophysical costs, expired leases, and lease rentals. The costs of drilling exploratory wells and exploratory-type stratigraphic wells are initially capitalized pending determination of whether the well has discovered proved commercial reserves. If the exploratory well is determined to be unsuccessful, the cost of the well is transferred to expense. Exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify completion as a producing well and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made. Assessments of such capitalized costs are made quarterly. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><i>Proved Oil and Natural Gas Properties — </i>Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering, and storing oil and natural gas are capitalized. All costs incurred to drill and equip successful exploratory wells, development wells, development-type stratigraphic test wells, and service wells, including unsuccessful development wells, are capitalized. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><i>Impairment — </i>The capitalized costs of proved oil and natural gas properties are reviewed quarterly for impairment in accordance with ASC 360-10-35, “Property, Plant and Equipment, Subsequent Measurement,” or whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset or asset group exceeds its fair market value and is not recoverable. The determination of recoverability is based on comparing the estimated undiscounted future net cash flows at a producing field level to the carrying value of the assets. If the future undiscounted cash flows, based on estimates of anticipated production from proved reserves and future crude oil and natural gas prices and operating costs, are lower than the carrying cost, the carrying cost of the asset or group of assets is reduced to fair value. For our proved oil and natural gas properties, we estimate fair value by discounting the projected future cash flows at an appropriate risk-adjusted discount rate. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">Unproved leasehold costs are assessed quarterly to determine whether they have been impaired. Individually significant properties are assessed for impairment on a property-by-property basis, while individually insignificant unproved leasehold costs may be assessed in the aggregate. If unproved leasehold costs are found to be impaired, an impairment allowance is provided and a loss is recognized in the consolidated statement of income. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><i>Depreciation, Depletion, and Amortization </i>— Depreciation, depletion, and amortization (“DD&A”) of capitalized costs of proved oil and natural gas properties is computed using the unit-of-production method based upon estimated proved reserves. Assets are grouped for DD&A on the basis of reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field. The reserve base used to calculate DD&A for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. The reserve base used to calculate DD&A for lease and well equipment costs, which include development costs and successful exploration drilling costs, includes only proved developed reserves. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u><b><i>Accounts Receivable, net</i></b></u><b>: </b>Our receivables arise from the sale of oil and natural gas to third parties and joint interest owner receivables for properties in which we serve as the operator. This concentration of customers may impact our overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions affecting the oil and gas industry. Accounts receivable are generally not collateralized. Accounts receivable are shown net of an allowance for doubtful accounts of $957,000 and $338,000 at June 30, 2011 and December 31, 2010, respectively. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u><b><i>Deferred Financing Costs</i></b></u><b>: </b>Deferred financing costs and the amount of discount at which notes payable have been issued (debt discount) are amortized using the straight-line method, which approximates the interest method, over the term of the related debt. For the three months ended June 30, 2011 and 2010, amortization of deferred financing costs included in interest expense amounted to $790,000 and $506,000, respectively. For the six months ended June 30, 2011 and 2010, amortization of deferred financing costs included in interest expense amounted to $1.7 million and $629,000, respectively. Deferred financing costs are listed among our long-term assets, net of accumulated amortization of $6.4 million and $4.7 million at June 30, 2011 and December 31, 2010, respectively. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u><b><i>Financial Instruments</i></b></u><b>: </b>The fair value of cash, accounts receivable, other current assets, and current liabilities approximate book value due to their short-term nature. The estimate of fair value of long-term debt under our senior secured revolving credit facility (“credit facility”) is not considered to be materially different from carrying value due to market rates of interest. The fair value of the debt to our founder is not practicable to determine. We have estimated the fair value of our senior notes payable at $299.3 million and $291 million on June 30, 2011 and December 31, 2010, respectively. See Note 5 for further information on fair values of financial instruments. See Note 8 for information on long-term debt. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Recent Accounting Pronouncements</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">On May 12, 2011, the FASB issued ASU No. 2011-04 to Topic 820, Fair Value Measurements, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” The ASU changes certain definitions of terms used its guidance regarding fair value measurements, as well as modifying certain disclosure requirements and other aspects of the guidance. We are reviewing the ASU, which is effective for interim and annual periods beginning after December 15, 2011. We do not expect adoption of the guidance to have a material impact on our consolidated financial position or results of operations. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">On June 16, 2011, the FASB issued ASU No. 2011-05, <i>Presentation of Comprehensive Income. </i>This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Two presentation options remain. Changes in comprehensive income may be reported in a continuous statement of comprehensive income which presents the components of net income as well as the components of comprehensive income. Alternatively, the components of comprehensive income may be reported in a separate statement of comprehensive income, which must immediately follow the statement of net income. The ASU also creates a new requirement that reclassifications from comprehensive income to net income be presented on a gross basis on the face of the financial statements (previously net presentation and footnoting gross information was permitted). The ASU applies to interim and year end reports and is effective for fiscal years beginning after December 15, 2011, and is to be retrospectively applied to all periods presented in such reports. Early adoption is permitted. We do not expect adoption of the guidance to have a material impact on our consolidated financial position or results of operations. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>3. SIGNIFICANT ACQUISITIONS</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Meridian Acquisition</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">On and effective May 13, 2010, Alta Mesa Acquisition Sub, LLC (“AMAS”), a wholly owned subsidiary of Alta Mesa Holdings, LP, acquired 100% of the shares of and merged with The Meridian Resource Corporation (“Meridian”), with AMAS as the surviving entity. Meridian was a publicly traded company engaged in exploration for and production of oil and natural gas. The oil and natural gas properties of Meridian are similar and in some cases proximate to our areas of operation. Meridian shareholders were paid in cash, funded by proceeds of our credit facility as well as a $50 million equity contribution from our private equity partner Alta Mesa Investment Holdings Inc., an affiliate of Denham Commodities Partners Fund IV LP (“AMIH”). The merger increased the oil portion of our reserves portfolio, improving the balance of our reserves between oil and natural gas, and provided significant additions to our library of 3-D seismic data. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Total cost of the acquisition was $158 million. It was recorded using the acquisition method of accounting. The purchase price was allocated to acquired assets and assumed liabilities based on their estimated fair values at date of acquisition. Acquisition-related costs of approximately $532,000 were recorded in general and administrative expense for the year ended December 31, 2010. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Sydson Acquisition</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">On April 21, 2011, we purchased from Sydson Energy and certain of its related parties (together, “Sydson” and the “Sydson acquisition”) certain oil and natural gas assets primarily located in Texas and South Louisiana in which we had jointly participated with Sydson. The purchase price was $27.5 million in cash (a total cost of $28.4 million including abandonment liabilities we assumed). Total net proved reserves acquired are estimated to be 800 MBOE (5 Bcfe), 45% of which is oil. By virtue of this acquisition, we increased our after payout net revenue interest in the Eagle Ford Shale by over 50%. Funding for the acquisition was provided through our credit facility. In addition, litigation associated with a portion of the assets purchased was resolved as a result of the transaction. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>TODD Acquisition</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">On June 17, 2011, we purchased from Texas Oil Distribution & Development, Inc. and Matrix Petroleum LLC and certain other parties (together, “TODD” and the “TODD acquisition”) certain oil and natural gas assets primarily located in Texas and South Louisiana in which we had jointly participated with TODD. The purchase price was $22.5 million in cash (a total cost of $23.4 million including abandonment liabilities we assumed). Total net proved reserves acquired are estimated to be 700 MBOE (4 Bcfe), 36% of which is oil. By virtue of this acquisition, we increased our after payout net revenue interest in the Eagle Ford Shale by an additional 15%. Funding for the acquisition was provided through our credit facility. In addition, litigation associated with TODD was resolved as a result of the transaction. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">A summary of the consideration paid and the allocations of the purchase prices (which are preliminary for the Sydson and TODD acquisitions) are as follows <b>(dollars in thousands):</b> </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><i>Summary of Consideration:</i></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Meridian</td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Sydson</td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">TODD</td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Cash </div></td> <td> </td> <td align="left">$</td> <td align="right">30,948</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">27,500</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">22,500</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Debt retired </div></td> <td> </td> <td> </td> <td align="right">82,000</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Debt assumed </div></td> <td> </td> <td> </td> <td align="right">5,346</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Working capital deficit <sup style="font-size: 85%; vertical-align: text-top">(1)</sup> </div></td> <td> </td> <td> </td> <td align="right">753</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Other liabilities assumed </div></td> <td> </td> <td> </td> <td align="right">7,971</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Fair value of asset retirement obligations assumed </div></td> <td> </td> <td> </td> <td align="right">30,920</td> <td> </td> <td> </td> <td> </td> <td align="right">922</td> <td> </td> <td> </td> <td> </td> <td align="right">863</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td align="left">$</td> <td align="right">157,938</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">28,422</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">23,363</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><i>Summary of Purchase Price Allocations:</i> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Proved oil and natural gas properties </div></td> <td> </td> <td align="left">$</td> <td align="right">144,325</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">18,330</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">15,223</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Unproved oil and natural gas properties </div></td> <td> </td> <td> </td> <td align="right">3,113</td> <td> </td> <td> </td> <td> </td> <td align="right">10,092</td> <td> </td> <td> </td> <td> </td> <td align="right">8,140</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Other tangible assets </div></td> <td> </td> <td> </td> <td align="right">10,500</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td align="left">$</td> <td align="right">157,938</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">28,422</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">23,363</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left"> <div style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">  </div> </div> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr> <td width="3%"></td> <td width="1%"></td> <td width="96%"></td> </tr> <tr valign="top"> <td nowrap="nowrap" align="left"><sup>(1)</sup></td> <td> </td> <td>Meridian working capital deficit included a cash balance of $11,589,000.</td> </tr> </table> <div align="left" style="font-size: 10pt; margin-top: 6pt">The revenue and earnings related to the Meridian, Sydson, and TODD acquisitions are included in our consolidated statement of income for the six months ended June 30, 2011. The revenue and earnings related to the Meridian acquisition are included in our consolidated statement of income for the six months ended June 30, 2010. Revenue and earnings, had the acquisitions occurred on January 1, 2010, are provided below. This unaudited pro forma information has been derived from historical information and is for illustrative purposes only. The unaudited pro forma financial information does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had the companies been combined during these periods. </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>(Unaudited)</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Revenue</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Income</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>(dollars in thousands)</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Actual results of Meridian included in our statement of income for the six months ended June 30, 2011 </div></td> <td> </td> <td align="left">$</td> <td align="right">64,544</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">32,651</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Actual results of Sydson included in our statement of income for the period April 21, 2011 through June 30, 2011 </div></td> <td> </td> <td align="left">$</td> <td align="right">1,817</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">588</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Actual results of TODD included in our statement of income for the period June 17, 2011 through June 30, 2011 </div></td> <td> </td> <td align="left">$</td> <td align="right">724</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">193</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Pro forma results for the combined entity for the six months ended June 30, 2011 </div></td> <td> </td> <td align="left">$</td> <td align="right">150,653</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">15,347</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Pro forma results for the combined entity for the six months ended June 30, 2010 </div></td> <td> </td> <td align="left">$</td> <td align="right">142,555</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">41,155</td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>4. PROPERTY AND EQUIPMENT</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Property and equipment consists of the following: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June 30,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>(unaudited)</b></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>(dollars in thousands)</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">OIL AND NATURAL GAS PROPERTIES </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Unproved properties </div></td> <td> </td> <td align="left">$</td> <td align="right">35,256</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">12,020</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Accumulated impairment </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(4,679</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(2,686</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Unproved properties, net </div></td> <td> </td> <td> </td> <td align="right">30,577</td> <td> </td> <td> </td> <td> </td> <td align="right">9,334</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Proved oil and natural gas properties </div></td> <td> </td> <td> </td> <td align="right">821,399</td> <td> </td> <td> </td> <td> </td> <td align="right">707,364</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Accumulated depreciation, depletion, amortization and impairment </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(324,113</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(273,818</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Proved oil and natural gas properties, net </div></td> <td> </td> <td> </td> <td align="right">497,286</td> <td> </td> <td> </td> <td> </td> <td align="right">433,546</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">TOTAL OIL AND NATURAL GAS PROPERTIES, net </div></td> <td> </td> <td> </td> <td align="right">527,863</td> <td> </td> <td> </td> <td> </td> <td align="right">442,880</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">LAND </div></td> <td> </td> <td> </td> <td align="right">1,185</td> <td> </td> <td> </td> <td> </td> <td align="right">1,185</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">DRILLING RIG </div></td> <td> </td> <td> </td> <td align="right">10,500</td> <td> </td> <td> </td> <td> </td> <td align="right">10,500</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Accumulated depreciation </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(794</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(444</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">TOTAL DRILLING RIG, net </div></td> <td> </td> <td> </td> <td align="right">9,706</td> <td> </td> <td> </td> <td> </td> <td align="right">10,056</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">OTHER PROPERTY AND EQUIPMENT </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Office furniture and equipment, vehicles </div></td> <td> </td> <td> </td> <td align="right">7,251</td> <td> </td> <td> </td> <td> </td> <td align="right">3,844</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Accumulated depreciation </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(2,161</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(1,701</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">OTHER PROPERTY AND EQUIPMENT, net </div></td> <td> </td> <td> </td> <td align="right">5,090</td> <td> </td> <td> </td> <td> </td> <td align="right">2,143</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">TOTAL PROPERTY AND EQUIPMENT, net </div></td> <td> </td> <td align="left">$</td> <td align="right">543,844</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">456,264</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>5. FAIR VALUE DISCLOSURES</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">We follow the guidance of ASC 820, “Fair Value Measurements and Disclosures,” in the estimation of fair values. ASC 820 provides a hierarchy of fair value measurements, based on the inputs to the fair value estimation process. It requires disclosure of fair values classified according to defined “levels,” which are based on the reliability of the evidence used to determine fair value, with Level 1 being the most reliable and Level 3 the least. Level 1 evidence consists of observable inputs, such as quoted prices in an active market. Level 2 inputs typically correlate the fair value of the asset or liability to a similar, but not identical item which is actively traded. Level 3 inputs include at least some unobservable inputs, such as valuation models developed using the best information available in the circumstances. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">We utilize the modified Black-Scholes option pricing model to estimate the fair value of oil and natural gas derivative contracts. Inputs to this model include observable inputs from the New York Mercantile Exchange (“NYMEX”) for futures contracts, and inputs derived from NYMEX observable inputs, such as implied volatility of oil and natural gas prices. We have classified the fair values of all our oil and natural gas derivative contracts as Level 2. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The fair value of our interest rate derivative contracts was calculated using the modified Black-Scholes option pricing model and is also considered a Level 2 fair value. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">Oil and natural gas properties are subject to impairment testing and potential impairment write down. Oil and gas properties with a carrying amount of $24.4 million were written down to their fair value of $13.6 million, resulting in an impairment charge of $10.8 million for the six months ended June 30, 2011. Oil and gas properties with a carrying amount of $4.4 million were written down to their fair value of $2.3 million, resulting in an impairment charge of $2.1 million for the six months ended June 30, 2010. For the three months ended June 30, 2011, oil and gas properties with a carrying amount of $14.2 million were written down to their fair value of $9.3 million, resulting in an impairment charge of $4.9 million, and for the three months ended June 30, 2010, oil and gas properties with a carrying amount of $1.2 million were written down to their fair value of $0.6 million, resulting in an impairment charge of $0.6 million. Significant Level 3 assumptions used in the calculation of estimated discounted cash flows in the impairment analysis included our estimate of future oil and natural gas prices, production costs, development expenditures, estimated timing of production of proved reserves, appropriate risk-adjusted discount rates, and other relevant data. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the Meridian acquisition, we recorded oil and natural gas properties with a fair value of $147.4 million in the second quarter of 2010. In connection with the Sydson and TODD acquisitions, we recorded oil and natural gas properties with a fair value of $28.4 million, and $23.4 million, respectively, in the second quarter of 2011. For information on these acquisitions, see Note 3. Significant Level 3 inputs used were the same as those used in determining impairments based on estimated discounted cash flows for the acquired properties. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">New additions to asset retirement obligations result from estimations for new properties, and fair values for them are categorized as Level 3. Such estimations are based on present value techniques which utilize company-specific information for such inputs as cost and timing of plug and abandonment of wells and facilities. We recorded $2.8 million and $34.6 million in additions to asset retirement obligations measured at fair value during the six months ended June 30, 2011 and 2010, respectively. The significant additions in 2010 were the result of the purchase of Meridian. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The following table presents information about our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="52%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 1</td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 2</td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 3</td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>(dollars in thousands)</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b><i>At June 30, 2011 (unaudited):</i></b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Financial Assets: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Derivative contracts for oil and natural gas </div></td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">59,898</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">59,898</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Financial Liabilities: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Derivative contracts for oil and natural gas </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">40,105</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">40,105</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Derivative contracts for interest rate </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">4,880</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">4,880</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b><i>At December 31, 2010:</i></b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Financial Assets: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Derivative contracts for oil and natural gas </div></td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">61,623</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">61,623</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Financial Liabilities: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Derivative contracts for oil and natural gas </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">37,022</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">37,022</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Derivative contracts for interest rate </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">5,388</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">5,388</td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The amounts above are presented on a gross basis; presentation on our consolidated balance sheets utilizes netting of assets and liabilities with the same counterparty where master netting agreements are in place. For additional information on derivative contracts, see Note 6. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>6. DERIVATIVE FINANCIAL INSTRUMENTS</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">We account for our derivative contracts under the provisions of ASC 815, “Derivatives and Hedging.” We have entered into forward-swap contracts and collar contracts to reduce our exposure to price risk in the spot market for oil and natural gas. We also utilize financial basis swap contracts, which address the price differential between market-wide benchmark prices and other benchmark pricing referenced in certain of our natural gas sales contracts. Substantially all of our hedging agreements are executed by affiliates of the lenders under the credit facility described in Note 8 below, and are collateralized by the security interests of the respective affiliated lenders in certain of our assets under the credit facility. The contracts settle monthly and are scheduled to coincide with either oil production equivalent to barrels (Bbl) per month or gas production equivalent to volumes in millions of British thermal units (MMbtu) per month. The contracts represent agreements between us and the counter-parties to exchange cash based on a designated price. Prices are referenced to the natural gas spot market benchmark price at the Houston Ship Channel or the NYMEX index. Cash settlement occurs monthly based on the specified price benchmark. We have not designated any of our derivative contracts as fair value or cash flow hedges; accordingly we use mark-to-market accounting, recognizing unrealized gains and losses in the statement of operations at each reporting date. Realized gains and losses on commodities hedging contracts are included in oil and natural gas revenues. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">We have entered into a series of interest rate swap agreements with several financial institutions to mitigate the risk of loss due to changes in interest rates. The interest rate swaps are not designated as cash flow hedges in accordance with ASC 815. Both realized gains and losses from settlement and unrealized gains and losses from changes in the fair market value of the interest rate swaps are included in interest expense. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The second table below provides information on the location and amounts of realized and unrealized gains and losses on derivatives included in the consolidated statements of income for each of the three month and six month periods ended June 30, 2011 and 2010. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The following table summarizes the fair value (see Note 5 for further discussion of fair value) and classification of our derivative instruments, none of which have been designated as hedging instruments under ASC 815: </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="52%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="center" colspan="16" style="border-bottom: 1px solid #000000"><b>Fair Values of Derivative Contracts</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>Balance Sheet Location at June 30, 2011</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Current asset</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Current liability</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Long-term asset</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Long-term liability</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>portion of</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>portion of</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>portion of</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>portion of</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Derivative</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Derivative</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Derivative</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Derivative</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>financial</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>financial</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>financial</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>financial</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>instruments</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>instruments</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>instruments</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>instruments</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>(unaudited)</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>(dollars in thousands)</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Fair value of oil and gas commodity contracts, assets </div></td> <td> </td> <td align="left">$</td> <td align="right">25,913</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">33,985</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Fair value of oil and gas commodity contracts, (liabilities) </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(14,788</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(25,317</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Fair value of interest rate contracts, (liabilities) </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(3,176</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(1,704</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Total net assets, (liabilities) </div></td> <td> </td> <td align="left">$</td> <td align="right">11,125</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(3,176</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">8,668</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(1,704</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="52%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="center" colspan="16" style="border-bottom: 1px solid #000000"><b>Fair Values of Derivative Contracts</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>Balance Sheet Location at December 31, 2010</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Current asset</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Current liability</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Long-term asset</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Long-term liability</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>portion of</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>portion of</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>portion of</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>portion of</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Derivative</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Derivative</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Derivative</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Derivative</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>financial</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>financial</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>financial</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>financial</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>instruments</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>instruments</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>instruments</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>instruments</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>(dollars in thousands)</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Fair value of oil and gas commodity contracts, assets </div></td> <td> </td> <td align="left">$</td> <td align="right">27,118</td> <td> </td> <td> </td> <td align="left">$</td> <td nowrap="nowrap" align="right"><b>—</b></td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">34,505</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Fair value of oil and gas commodity contracts, (liabilities) </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(16,682</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(20,340</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Fair value of interest rate contracts, (liabilities) </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(3,092</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(2,296</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Total net assets, (liabilities) </div></td> <td> </td> <td align="left">$</td> <td align="right">10,436</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(3,092</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">14,165</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(2,296</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Commodity contracts are subject to master netting arrangements and are presented on a net basis in the consolidated balance sheets. This netting can cause derivative assets to be ultimately presented in a (liability) account on the consolidated balance sheets. Likewise, derivative (liabilities) could be presented in an asset account. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">The following table summarizes the effect of our derivative instruments in the consolidated statements of operations: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="20%"> </td> <td width="2%"> </td> <td width="15%"> </td> <td width="2%"> </td> <td width="10%"> </td> <td width="2%"> </td> <td width="4%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="2%"> </td> <td width="4%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="2%"> </td> <td width="4%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="2%"> </td> <td width="4%"> </td> <td width="1%"> </td> <td width="5%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="center"><b>Derivatives not</b></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="7"> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="7"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="center"><b>designated as hedging</b></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="7"><b>For the three months</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="7"><b>For the six months ended</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="center"><b>instruments under ASC</b></td> <td> </td> <td nowrap="nowrap" align="center"><b>Location of Gain</b></td> <td> </td> <td nowrap="nowrap" align="center"><b>Classification of</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000"><b>ended June 30,</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000"><b>June 30,</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>815</b></td> <td> </td> <td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>(Loss)</b></td> <td> </td> <td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>Gain (Loss)</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2010</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="15"><b>(unaudited)</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="15"><b>(dollars in thousands)</b></td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">Natural gas commodity <br /> contracts </div></td> <td> </td> <td align="center" valign="top">Natural gas revenues </td> <td> </td> <td align="center" valign="bottom">Realized </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">5,120</td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">6,452</td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">10,911</td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">9,201</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr valign="bottom"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">Oil commodity contracts </div></td> <td> </td> <td align="center" valign="bottom">Oil revenues </td> <td> </td> <td align="center" valign="bottom">Realized </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">(2,434</td> <td nowrap="nowrap" valign="bottom">)</td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">39</td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">(3,918</td> <td nowrap="nowrap" valign="bottom">)</td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">276</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr valign="bottom"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">  </div></td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">Interest rate contracts </div></td> <td> </td> <td align="center" valign="bottom">Interest benefit<br /> (expense) </td> <td> </td> <td align="center" valign="bottom">Realized </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">2,298</td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">(1,024</td> <td nowrap="nowrap" valign="bottom">)</td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">1,928</td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">(2,051</td> <td nowrap="nowrap" valign="bottom">)</td> </tr> <tr style="font-size: 1px"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">  </div></td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom" style="border-top: 1px solid #000000"> </td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom" style="border-top: 1px solid #000000"> </td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom" style="border-top: 1px solid #000000"> </td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom" style="border-top: 1px solid #000000"> </td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr valign="bottom"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">  </div></td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr valign="bottom"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">Total realized gains (losses) from derivatives not designated as hedges </div></td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">4,984</td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">5,467</td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">8,921</td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">7,426</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size: 1px"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">  </div></td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom" style="border-top: 3px double #000000"> </td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom" style="border-top: 3px double #000000"> </td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom" style="border-top: 3px double #000000"> </td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom" style="border-top: 3px double #000000"> </td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr valign="bottom"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">  </div></td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">Natural gas commodity <br /> contracts </div></td> <td> </td> <td align="center" valign="top">Unrealized gain (loss) — oil and natural gas derivative contracts </td> <td> </td> <td align="center" valign="bottom">Unrealized </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">1,659</td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">(5,985</td> <td nowrap="nowrap" valign="bottom">)</td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">(1,299</td> <td nowrap="nowrap" valign="bottom">)</td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">15,296</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr valign="bottom"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">  </div></td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr valign="bottom"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">Oil commodity contracts </div></td> <td> </td> <td align="center" valign="top">Unrealized gain (loss) — oil and natural gas derivative contracts </td> <td> </td> <td align="center" valign="bottom">Unrealized </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">12,718</td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">8,090</td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">(3,509</td> <td nowrap="nowrap" valign="bottom">)</td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">7,612</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr valign="bottom"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">  </div></td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">Interest rate contracts </div></td> <td> </td> <td align="center" valign="top">Interest benefit<br /> (expense) </td> <td> </td> <td align="center" valign="bottom">Unrealized </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">465<br /> <div style="font-size: 1pt; border-top: 1px solid #000000">  </div></td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">488<br /> <div style="font-size: 1pt; border-top: 1px solid #000000">  </div></td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">508<br /> <div style="font-size: 1pt; border-top: 1px solid #000000">  </div></td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom">403<br /> <div style="font-size: 1pt; border-top: 1px solid #000000">  </div> </td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr valign="bottom"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">  </div></td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom"> </td> <td valign="bottom"> </td> </tr> <tr valign="bottom"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">Total unrealized gains (losses) from derivatives not designated as hedges </div></td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">14,842</td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">2,593</td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">(4,300</td> <td nowrap="nowrap" valign="bottom">)</td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom">$</td> <td align="right" valign="bottom">23,311</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr style="font-size: 1px"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">  </div></td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td align="center" valign="top"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom" style="border-top: 3px double #000000"> </td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom" style="border-top: 3px double #000000"> </td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom" style="border-top: 3px double #000000"> </td> <td nowrap="nowrap" valign="bottom"> </td> <td> </td> <td nowrap="nowrap" align="right" valign="bottom"> </td> <td align="right" valign="bottom" style="border-top: 3px double #000000"> </td> <td nowrap="nowrap" valign="bottom"> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Although our counterparties provide no collateral, the master derivative agreements with each counterparty effectively allow us, so long as we are not a defaulting party, after a default or the occurrence of a termination event, to set-off an unpaid hedging agreement receivable against the interest of the counterparty in any outstanding balance under the credit facility. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">If a counterparty were to default in payment of an obligation under the master derivative agreements, we could be exposed to commodity price fluctuations, and the protection intended by the hedge could be lost. The value of our derivative financial instruments would be impacted. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">We had the following open derivative contracts for natural gas at June 30, 2011 <b>(unaudited)</b>: </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>NATURAL GAS DERIVATIVE CONTRACTS</b> </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="52%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>Volume in</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>Weighted</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Range</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>Period and Type of Contract</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>MMbtu</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Average</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>High</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Low</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td align="center"> <div style="margin-left:15px; text-indent:-15px"><b>2011</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Price Swap Contracts</b> </div></td> <td> </td> <td> </td> <td align="right">6,030,000</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">5.60</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">8.83</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4.44</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Collar Contracts</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Short Call Options </div></td> <td> </td> <td> </td> <td align="right">6,760,000</td> <td> </td> <td> </td> <td> </td> <td align="right">5.67</td> <td> </td> <td> </td> <td> </td> <td align="right">7.05</td> <td> </td> <td> </td> <td> </td> <td align="right">5.40</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Long Put Options </div></td> <td> </td> <td> </td> <td align="right">3,060,000</td> <td> </td> <td> </td> <td> </td> <td align="right">6.05</td> <td> </td> <td> </td> <td> </td> <td align="right">6.30</td> <td> </td> <td> </td> <td> </td> <td align="right">5.75</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Long Call Options </div></td> <td> </td> <td> </td> <td align="right">600,000</td> <td> </td> <td> </td> <td> </td> <td align="right">7.45</td> <td> </td> <td> </td> <td> </td> <td align="right">7.45</td> <td> </td> <td> </td> <td> </td> <td align="right">7.45</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Short Put Options </div></td> <td> </td> <td> </td> <td align="right">2,950,000</td> <td> </td> <td> </td> <td> </td> <td align="right">3.86</td> <td> </td> <td> </td> <td> </td> <td align="right">4.00</td> <td> </td> <td> </td> <td> </td> <td align="right">3.65</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td align="center"> <div style="margin-left:15px; text-indent:-15px"><b>2012</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Price Swap Contracts</b> </div></td> <td> </td> <td> </td> <td align="right">7,525,000</td> <td> </td> <td> </td> <td> </td> <td align="right">6.17</td> <td> </td> <td> </td> <td> </td> <td align="right">8.83</td> <td> </td> <td> </td> <td> </td> <td align="right">5.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Collar Contracts</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Short Call Options </div></td> <td> </td> <td> </td> <td align="right">7,560,000</td> <td> </td> <td> </td> <td> </td> <td align="right">5.76</td> <td> </td> <td> </td> <td> </td> <td align="right">6.00</td> <td> </td> <td> </td> <td> </td> <td align="right">5.50</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Long Put Options </div></td> <td> </td> <td> </td> <td align="right">4,350,000</td> <td> </td> <td> </td> <td> </td> <td align="right">5.93</td> <td> </td> <td> </td> <td> </td> <td align="right">6.75</td> <td> </td> <td> </td> <td> </td> <td align="right">5.50</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Long Call Options </div></td> <td> </td> <td> </td> <td align="right">3,660,000</td> <td> </td> <td> </td> <td> </td> <td align="right">5.00</td> <td> </td> <td> </td> <td> </td> <td align="right">5.00</td> <td> </td> <td> </td> <td> </td> <td align="right">5.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Short Put Options </div></td> <td> </td> <td> </td> <td align="right">8,730,000</td> <td> </td> <td> </td> <td> </td> <td align="right">4.11</td> <td> </td> <td> </td> <td> </td> <td align="right">4.50</td> <td> </td> <td> </td> <td> </td> <td align="right">4.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td align="center"> <div style="margin-left:15px; text-indent:-15px"><b>2013</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Price Swap Contracts</b> </div></td> <td> </td> <td> </td> <td align="right">4,825,000</td> <td> </td> <td> </td> <td> </td> <td align="right">6.48</td> <td> </td> <td> </td> <td> </td> <td align="right">9.15</td> <td> </td> <td> </td> <td> </td> <td align="right">5.35</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Collar Contracts</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Short Call Options </div></td> <td> </td> <td> </td> <td align="right">1,500,000</td> <td> </td> <td> </td> <td> </td> <td align="right">8.51</td> <td> </td> <td> </td> <td> </td> <td align="right">8.80</td> <td> </td> <td> </td> <td> </td> <td align="right">8.31</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Long Put Options </div></td> <td> </td> <td> </td> <td align="right">1,500,000</td> <td> </td> <td> </td> <td> </td> <td align="right">6.09</td> <td> </td> <td> </td> <td> </td> <td align="right">6.15</td> <td> </td> <td> </td> <td> </td> <td align="right">6.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Short Put Options </div></td> <td> </td> <td> </td> <td align="right">900,000</td> <td> </td> <td> </td> <td> </td> <td align="right">5.50</td> <td> </td> <td> </td> <td> </td> <td align="right">5.50</td> <td> </td> <td> </td> <td> </td> <td align="right">5.50</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td align="center"> <div style="margin-left:15px; text-indent:-15px"><b>2014</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Price Swap Contracts</b> </div></td> <td> </td> <td> </td> <td align="right">3,125,000</td> <td> </td> <td> </td> <td> </td> <td align="right">6.27</td> <td> </td> <td> </td> <td> </td> <td align="right">7.50</td> <td> </td> <td> </td> <td> </td> <td align="right">5.60</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Collar Contracts</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Short Call Options </div></td> <td> </td> <td> </td> <td align="right">1,650,000</td> <td> </td> <td> </td> <td> </td> <td align="right">8.21</td> <td> </td> <td> </td> <td> </td> <td align="right">9.00</td> <td> </td> <td> </td> <td> </td> <td align="right">7.92</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Long Put Options </div></td> <td> </td> <td> </td> <td align="right">1,650,000</td> <td> </td> <td> </td> <td> </td> <td align="right">6.73</td> <td> </td> <td> </td> <td> </td> <td align="right">7.00</td> <td> </td> <td> </td> <td> </td> <td align="right">6.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Short Put Options </div></td> <td> </td> <td> </td> <td align="right">1,200,000</td> <td> </td> <td> </td> <td> </td> <td align="right">5.50</td> <td> </td> <td> </td> <td> </td> <td align="right">5.50</td> <td> </td> <td> </td> <td> </td> <td align="right">5.50</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td align="center"> <div style="margin-left:15px; text-indent:-15px"><b>2015</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Price Swap Contracts</b> </div></td> <td> </td> <td> </td> <td align="right">1,825,000</td> <td> </td> <td> </td> <td> </td> <td align="right">5.91</td> <td> </td> <td> </td> <td> </td> <td align="right">5.91</td> <td> </td> <td> </td> <td> </td> <td align="right">5.91</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td align="center"> <div style="margin-left:15px; text-indent:-15px"><b>2016</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Collar Contracts</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Short Call Options </div></td> <td> </td> <td> </td> <td align="right">455,000</td> <td> </td> <td> </td> <td> </td> <td align="right">7.50</td> <td> </td> <td> </td> <td> </td> <td align="right">7.50</td> <td> </td> <td> </td> <td> </td> <td align="right">7.50</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Long Put Options </div></td> <td> </td> <td> </td> <td align="right">455,000</td> <td> </td> <td> </td> <td> </td> <td align="right">5.50</td> <td> </td> <td> </td> <td> </td> <td align="right">5.50</td> <td> </td> <td> </td> <td> </td> <td align="right">5.50</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Short Put Options </div></td> <td> </td> <td> </td> <td align="right">455,000</td> <td> </td> <td> </td> <td> </td> <td align="right">4.00</td> <td> </td> <td> </td> <td> </td> <td align="right">4.00</td> <td> </td> <td> </td> <td> </td> <td align="right">4.00</td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">We had the following open derivative contracts for crude oil at June 30, 2011 <b>(unaudited)</b>: </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>OIL DERIVATIVE CONTRACTS</b> </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="52%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>Weighted</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Range</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>Period and Type of Contract</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Volume in Bbls</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Average</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>High</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Low</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td align="center"> <div style="margin-left:15px; text-indent:-15px"><b>2011</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Price Swap Contracts</b> </div></td> <td> </td> <td> </td> <td align="right">230,000</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">83.80</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">103.20</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">67.50</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Collar Contracts</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Short Call Options </div></td> <td> </td> <td> </td> <td align="right">276,000</td> <td> </td> <td> </td> <td> </td> <td align="right">103.15</td> <td> </td> <td> </td> <td> </td> <td align="right">110.00</td> <td> </td> <td> </td> <td> </td> <td align="right">82.25</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Long Put Options </div></td> <td> </td> <td> </td> <td align="right">317,400</td> <td> </td> <td> </td> <td> </td> <td align="right">86.67</td> <td> </td> <td> </td> <td> </td> <td align="right">100.00</td> <td> </td> <td> </td> <td> </td> <td align="right">75.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Long Call Options </div></td> <td> </td> <td> </td> <td align="right">55,200</td> <td> </td> <td> </td> <td> </td> <td align="right">75.00</td> <td> </td> <td> </td> <td> </td> <td align="right">75.00</td> <td> </td> <td> </td> <td> </td> <td align="right">75.00</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Short Put Options </div></td> <td> </td> <td> </td> <td align="right">402,592</td> <td> </td> <td> </td> <td> </td> <td align="right">66.42</td> <td> </td> <td> </td> <td> </td> <td align="right">89.85</td> <td> </td> <td> </td> <td> </td> <td align="right">55.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td align="center"> <div style="margin-left:15px; text-indent:-15px"><b>2012</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Price Swap Contracts</b> </div></td> <td> </td> <td> </td> <td align="right">228,900</td> <td> </td> <td> </td> <td> </td> <td align="right">85.69</td> <td> </td> <td> </td> <td> </td> <td align="right">96.00</td> <td> </td> <td> </td> <td> </td> <td align="right">67.25</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Collar Contracts</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Short Call Options </div></td> <td> </td> <td> </td> <td align="right">491,172</td> <td> </td> <td> </td> <td> </td> <td align="right">115.89</td> <td> </td> <td> </td> <td> </td> <td align="right">123.50</td> <td> </td> <td> </td> <td> </td> <td align="right">100.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Long Put Options </div></td> <td> </td> <td> </td> <td align="right">522,648</td> <td> </td> <td> </td> <td> </td> <td align="right">80.75</td> <td> </td> <td> </td> <td> </td> <td align="right">85.00</td> <td> </td> <td> </td> <td> </td> <td align="right">80.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Short Put Options </div></td> <td> </td> <td> </td> <td align="right">635,376</td> <td> </td> <td> </td> <td> </td> <td align="right">62.26</td> <td> </td> <td> </td> <td> </td> <td align="right">65.00</td> <td> </td> <td> </td> <td> </td> <td align="right">60.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td align="center"> <div style="margin-left:15px; text-indent:-15px"><b>2013</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Price Swap Contracts</b> </div></td> <td> </td> <td> </td> <td align="right">136,500</td> <td> </td> <td> </td> <td> </td> <td align="right">84.35</td> <td> </td> <td> </td> <td> </td> <td align="right">94.74</td> <td> </td> <td> </td> <td> </td> <td align="right">77.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Collar Contracts</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Short Call Options </div></td> <td> </td> <td> </td> <td align="right">417,935</td> <td> </td> <td> </td> <td> </td> <td align="right">110.62</td> <td> </td> <td> </td> <td> </td> <td align="right">127.00</td> <td> </td> <td> </td> <td> </td> <td align="right">90.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Long Put Options </div></td> <td> </td> <td> </td> <td align="right">351,500</td> <td> </td> <td> </td> <td> </td> <td align="right">81.95</td> <td> </td> <td> </td> <td> </td> <td align="right">90.00</td> <td> </td> <td> </td> <td> </td> <td align="right">80.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Long Call Options </div></td> <td> </td> <td> </td> <td align="right">82,500</td> <td> </td> <td> </td> <td> </td> <td align="right">79.00</td> <td> </td> <td> </td> <td> </td> <td align="right">79.00</td> <td> </td> <td> </td> <td> </td> <td align="right">79.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Short Put Options </div></td> <td> </td> <td> </td> <td align="right">434,000</td> <td> </td> <td> </td> <td> </td> <td align="right">61.58</td> <td> </td> <td> </td> <td> </td> <td align="right">70.00</td> <td> </td> <td> </td> <td> </td> <td align="right">60.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td align="center"> <div style="margin-left:15px; text-indent:-15px"><b>2014</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Price Swap Contracts</b> </div></td> <td> </td> <td> </td> <td align="right">127,300</td> <td> </td> <td> </td> <td> </td> <td align="right">87.63</td> <td> </td> <td> </td> <td> </td> <td align="right">91.05</td> <td> </td> <td> </td> <td> </td> <td align="right">81.00</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Collar Contracts</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Short Call Options </div></td> <td> </td> <td> </td> <td align="right">273,750</td> <td> </td> <td> </td> <td> </td> <td align="right">125.70</td> <td> </td> <td> </td> <td> </td> <td align="right">133.50</td> <td> </td> <td> </td> <td> </td> <td align="right">107.50</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Long Put Options </div></td> <td> </td> <td> </td> <td align="right">488,450</td> <td> </td> <td> </td> <td> </td> <td align="right">85.33</td> <td> </td> <td> </td> <td> </td> <td align="right">90.00</td> <td> </td> <td> </td> <td> </td> <td align="right">80.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Short Put Options </div></td> <td> </td> <td> </td> <td align="right">488,450</td> <td> </td> <td> </td> <td> </td> <td align="right">65.33</td> <td> </td> <td> </td> <td> </td> <td align="right">70.00</td> <td> </td> <td> </td> <td> </td> <td align="right">60.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td align="center"> <div style="margin-left:15px; text-indent:-15px"><b>2015</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px"><b>Collar Contracts</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Short Call Options </div></td> <td> </td> <td> </td> <td align="right">246,350</td> <td> </td> <td> </td> <td> </td> <td align="right">125.12</td> <td> </td> <td> </td> <td> </td> <td align="right">135.98</td> <td> </td> <td> </td> <td> </td> <td align="right">116.40</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Long Put Options </div></td> <td> </td> <td> </td> <td align="right">319,350</td> <td> </td> <td> </td> <td> </td> <td align="right">87.57</td> <td> </td> <td> </td> <td> </td> <td align="right">90.00</td> <td> </td> <td> </td> <td> </td> <td align="right">85.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Short Put Options </div></td> <td> </td> <td> </td> <td align="right">319,350</td> <td> </td> <td> </td> <td> </td> <td align="right">66.86</td> <td> </td> <td> </td> <td> </td> <td align="right">70.00</td> <td> </td> <td> </td> <td> </td> <td align="right">60.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td align="center"> <div style="margin-left:15px; text-indent:-15px"><b>2016</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px"><b>Collar Contracts</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Short Call Options </div></td> <td> </td> <td> </td> <td align="right">36,400</td> <td> </td> <td> </td> <td> </td> <td align="right">130.00</td> <td> </td> <td> </td> <td> </td> <td align="right">130.00</td> <td> </td> <td> </td> <td> </td> <td align="right">130.00</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Long Put Options </div></td> <td> </td> <td> </td> <td align="right">36,400</td> <td> </td> <td> </td> <td> </td> <td align="right">95.00</td> <td> </td> <td> </td> <td> </td> <td align="right">95.00</td> <td> </td> <td> </td> <td> </td> <td align="right">95.00</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Short Put Options </div></td> <td> </td> <td> </td> <td align="right">36,400</td> <td> </td> <td> </td> <td> </td> <td align="right">75.00</td> <td> </td> <td> </td> <td> </td> <td align="right">75.00</td> <td> </td> <td> </td> <td> </td> <td align="right">75.00</td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">In those instances where contracts are identical as to time period, volume and strike price, but opposite as to direction (long and short), the volumes and average prices have been netted in the two tables above. In some instances our counterparties in the offsetting contracts are not the same, and may have different credit ratings. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">We had the following open financial basis swap contracts at June 30, 2011 <b>(unaudited)</b>: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="54%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="15%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000">Volume in MMbtu</td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Reference Price</td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Period</td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Spread ($ per MMbtu)</td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">1,200,000 </div></td> <td> </td> <td colspan="3" align="center">Houston Ship Channel</td> <td> </td> <td colspan="3" align="right">Jul ’11 — Dec ’11</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(0.2000</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">1,200,000 </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">Houston Ship Channel</td> <td> </td> <td colspan="3" nowrap="nowrap" align="right">Jul ’11 — Dec ’11</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(0.1600</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">460,000 </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">Houston Ship Channel</td> <td> </td> <td colspan="3" nowrap="nowrap" align="right">Jul ’11 — Dec ’11</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(0.0850</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">1,380,000 </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">Houston Ship Channel</td> <td> </td> <td colspan="3" nowrap="nowrap" align="right">Jul ’11 — Dec ’11</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(0.1550</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">1,830,000 </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">Houston Ship Channel</td> <td> </td> <td colspan="3" nowrap="nowrap" align="right">Jan ’12 — Dec ’12</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(0.1575</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">1,840,000 </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">Houston Ship Channel</td> <td> </td> <td colspan="3" nowrap="nowrap" align="right">Jul ’11 — Dec ’11</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(0.1150</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">3,660,000 </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">Houston Ship Channel</td> <td> </td> <td colspan="3" nowrap="nowrap" align="right">Jan ’12 — Dec ’12</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(0.1400</td> <td nowrap="nowrap">)</td> </tr>  </table> </div> <div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td> <td>We had the following open interest rate swap contracts at June 30, 2011 <b>(unaudited)</b>:</td> </tr> </table> </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="center" colspan="8" style="border-bottom: 1px solid #000000">Interest Rate Swaps</td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000">Term</td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Principal Amount</td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Interest Rate (1)</td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td align="center" colspan="6">(dollars in thousands)</td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><i>Floating to Fixed Rate Swaps:</i> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">July 2011 — August 2012 </div></td> <td> </td> <td align="left">$</td> <td align="right">50,000</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">4.95</td> <td nowrap="nowrap">%</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">July 2011 — October 2011 </div></td> <td> </td> <td align="left">$</td> <td align="right">25,000</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">3.21</td> <td nowrap="nowrap">%</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><i>Fixed to Floating Rate Swaps:</i> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">July 2011 — June 2015 </div></td> <td> </td> <td align="left">$</td> <td align="right">150,000</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">9.625</td> <td nowrap="nowrap">%</td> </tr>  </table> </div> <div align="left"> <div style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">  </div> </div> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr> <td width="3%"></td> <td width="1%"></td> <td width="96%"></td> </tr> <tr valign="top"> <td nowrap="nowrap" align="left">(1)</td> <td> </td> <td>The floating rate is the three-month LIBOR rate, except the swap for $150 million, which is a fixed to floating rate swap using a floating rate of three-month LIBOR plus 8.06%.</td> </tr> </table> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>7. ASSET RETIREMENT OBLIGATIONS</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">A summary of the changes in asset retirement obligations is included in the table below <b>(unaudited, dollars in thousands)</b>: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="88%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Balance, December 31, 2010 </div></td> <td> </td> <td align="left">$</td> <td align="right">42,713</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Liabilities incurred </div></td> <td> </td> <td> </td> <td align="right">332</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Liabilities assumed with acquired producing properties </div></td> <td> </td> <td> </td> <td align="right">2,504</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Liabilities settled </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(246</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Revisions to previous estimates </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(7</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Accretion expense </div></td> <td> </td> <td> </td> <td align="right">946</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Balance, June 30, 2011 </div></td> <td> </td> <td> </td> <td align="right">46,242</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Less: Current portion </div></td> <td> </td> <td> </td> <td align="right">1,755</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Long term portion </div></td> <td> </td> <td align="left">$</td> <td align="right">44,487</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>8. LONG-TERM DEBT AND NOTES PAYABLE TO FOUNDER</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Long-term debt consists of the following: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June 30,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>(unaudited)</b></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>(dollars in thousands)</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Senior Debt — On November 13, 2008, we entered into a Fifth Amended and Restated Credit Agreement with a group of banks, which was replaced by the Sixth Amended and Restated Credit Agreement on May 13, 2010, as amended (“credit facility”). The credit facility matures on May 23, 2016 and is secured by substantially all of our oil and gas properties. The credit facility borrowing base is redetermined periodically and, as of June 30, 2011, the borrowing base under the facility was $260 million. The credit facility bears interest at LIBOR plus applicable margins between 2.00% and 2.75% or a “Reference Rate,” which is based on the prime rate of Wells Fargo Bank, N. A., plus a margin ranging from 1.00% to 1.75%, depending on the utilization of our borrowing base. The rate was 2.519% as of June 30, 2011 and 2.875% as of December 31, 2010 </div></td> <td> </td> <td align="left">$</td> <td align="right">159,790</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">73,290</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Senior Notes Payable — On October 13, 2010, we issued notes due October 15, 2018 with a face value of $300 million, at a discount of $2.1 million. The senior notes carry a face interest rate of 9 5/8%, with an effective rate of 9 3/4%; interest is payable semi-annually each April 15<sup style="font-size: 85%; vertical-align: text-top">th</sup> and October 15<sup style="font-size: 85%; vertical-align: text-top">th</sup>. The senior notes are secured by general corporate credit, and effectively rank junior to any of our existing or future secured indebtedness, which includes the credit facility. The senior notes are unconditionally guaranteed on a senior unsecured basis by each of our material subsidiaries. The balance is presented net of unamortized discount of $1.9 million and $2.0 million at June 30, 2011 and December 31, 2010, respectively. </div></td> <td> </td> <td> </td> <td align="right">298,116</td> <td> </td> <td> </td> <td> </td> <td align="right">297,986</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Total long-term debt </div></td> <td> </td> <td align="left">$</td> <td align="right">457,906</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">371,276</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The senior notes contain an optional redemption provision beginning in October 2013 allowing us to retire up to 35% of the principal outstanding under the senior notes with the proceeds of an equity offering, at 109.625%. Additional optional redemption provisions allow for retirement at 104.813%, 102.406%, and 100.0% beginning on each of October 15, 2014, 2015, and 2016, respectively. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">On October 13, 2010, we entered into a registration rights agreement with the initial purchasers of the senior notes. Pursuant to the registration rights agreement, we filed a registration statement with the SEC to allow for registration of “exchange notes” with terms substantially identical to the senior notes. The exchange offer was consummated on August 12, 2011, with the tendered original senior notes exchanged for the exchange notes. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">On May 23, 2011, we amended our $500 million senior secured revolving credit facility to, among other things, increase the borrowing base limit from $220 million to $260 million and reduce applicable interest rates provided thereunder, extend the maturity date from November 13, 2012 to May 23, 2016, and increase the amount of senior debt securities that we are permitted to issue from $500 million to $700 million. The amended credit facility is currently subject to a $260 million borrowing base limit. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The credit facility and senior notes include covenants requiring us to maintain certain financial covenants including a Current Ratio, Leverage Ratio, and Interest Coverage Ratio. At June 30, 2011, we were in compliance with the covenants. The terms of the credit facility also restrict our ability to make distributions and investments. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">In addition, we have notes payable to our founder which bear simple interest at 10% with a balance of $20.3 million and $19.7 million at June 30, 2011 and December 31, 2010, respectively. The notes mature December 31, 2018. Interest and principal are payable at maturity. The notes are subordinate to all debt. Interest on the notes payable to our founder amounted to $600,000 and $590,000 for the six months ended June 30, 2011 and 2010, respectively, and $302,000 and $297,000 for the three months ended June 30, 2011 and 2010, respectively. Such amounts have been added to the balance of the notes. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The following provides the detail of accounts payable and accrued liabilities: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June 30,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>(unaudited)</b></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>(dollars in thousands)</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Capital expenditures </div></td> <td> </td> <td align="left">$</td> <td align="right">32,815</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">22,743</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Revenues and royalties payable </div></td> <td> </td> <td> </td> <td align="right">5,287</td> <td> </td> <td> </td> <td> </td> <td align="right">5,962</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Operating expenses/taxes </div></td> <td> </td> <td> </td> <td align="right">23,152</td> <td> </td> <td> </td> <td> </td> <td align="right">18,220</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Compensation </div></td> <td> </td> <td> </td> <td align="right">4,057</td> <td> </td> <td> </td> <td> </td> <td align="right">2,591</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Liability related to drilling rig </div></td> <td> </td> <td> </td> <td align="right"><b>—</b></td> <td> </td> <td> </td> <td> </td> <td align="right">9,785</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Other </div></td> <td> </td> <td> </td> <td align="right">2,513</td> <td> </td> <td> </td> <td> </td> <td align="right">1,775</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Total accrued liabilities </div></td> <td> </td> <td> </td> <td align="right">67,824</td> <td> </td> <td> </td> <td> </td> <td align="right">61,076</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Accounts payable </div></td> <td> </td> <td> </td> <td align="right">6,321</td> <td> </td> <td> </td> <td> </td> <td align="right">26,179</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Accounts payable and accrued liabilities </div></td> <td> </td> <td align="left">$</td> <td align="right">74,145</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">87,255</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The following provides the detail of other long-term liabilities: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June 30,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>(unaudited)</b></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>(dollars in thousands)</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Acquisition obligation </div></td> <td> </td> <td align="left">$</td> <td align="right">985</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">411</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Remediation liability </div></td> <td> </td> <td> </td> <td align="right">966</td> <td> </td> <td> </td> <td> </td> <td align="right">943</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Other </div></td> <td> </td> <td> </td> <td align="right">3,489</td> <td> </td> <td> </td> <td> </td> <td align="right">5,886</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total other long-term liabilities </div></td> <td> </td> <td align="left">$</td> <td align="right">5,440</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">7,240</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>10. COMMITMENTS AND CONTINGENCIES</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><i>Contingencies</i> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u>Deep Bossier litigation</u>: On July 23, 2009, we made a payment of $25.5 million and took assignment of substantially all working interests that had been held by Chesapeake Energy Corporation in an approximate 50,000 acre area of Leon and Robertson Counties, Texas in the Deep Bossier play. We had exercised our preferential right to purchase these interests from Gastar Exploration Ltd. in late 2005, but Gastar and Chesapeake had opposed this and Chesapeake took record title until we finally and conclusively prevailed, and in 2008 a Texas court of appeals directed that specific performance take place. In early 2009, the Texas Supreme Court denied the defendants’ request to hear the appeal. As a result, we were able to take working interests in over 30 producing wells and participate in further development of the area, primarily with EnCana, but also with Gastar. A subsequent payment to EnCana of $15.2 million plus purchase accounting adjustments of $3.8 million brought the total cost of the acquisition to $44.5 million. While the ownership of these interests has been decided by the courts, we are pursuing other claims against Chesapeake; Chesapeake is claiming an additional $36.5 million of past expenses from us. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of this matter or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any amount for this matter in our consolidated financial statements at June 30, 2011. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u>Texas Oil Distribution & Development, Inc. and Matrix Petroleum, LLC v. Alta Mesa Holdings, LP and The Meridian Resource & Exploration, LLC</u>: In November 2010, Texas Oil Distribution & Development, Inc. and Matrix Petroleum LLC (together, “TODD”), filed a petition seeking declaratory relief based on TODD’s employment of Thomas Tourek, a former independent contractor of the Company. TODD subsequently filed an amended petition for declaratory relief, breach of contract and tortious interference related to certain assignments of oil and gas interests and joined Meridian as a defendant. On June 17, 2011, the litigation was settled. See Note 3, “Significant Acquisitions — TODD Acquisition” for further information. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u>Ted R. Stalder, TRS LP, Richard Hughart, and Richmar Interests, Inc. v. Texas Energy Acquisitions, LP</u>: On May 24, 2011, the plaintiffs brought suit against us for breach of contract, common law fraud, fraud in a real estate transaction, declaratory relief, money had and received, an accounting, and injunctive relief related to two purchase and sales agreements dated December 23, 2008 and a dispute over the interpretation of the payment provisions in those agreements. An <i>ex parte</i> temporary restraining order (“TRO”) was entered against us on May 24, 2011, requiring among other things that we deposit into the registry of the court all payments received from oil, gas and liquids from the properties covered by the agreements. Our motion to dissolve the TRO was denied and the TRO was amended and extended another 14 days on June 2, 2011. We subsequently agreed to amend and extend the TRO until July 8, 2011. On July 7, 2011, during a hearing on the temporary injunction, the court recommended that the parties enter into an agreed temporary injunction. The plaintiffs and us agreed to enter into a temporary injunction whereby, among other things, we would pay directly to the plaintiffs the portion of the payments received from oil, gas, and liquids from the properties covered by the agreements that we contend the plaintiffs are due, less any previous payments. Furthermore, we have agreed to deposit into the registry of the court the amount that the plaintiffs contend they are owed, less any previous payments made to the registry of the court or to the plaintiffs. We are still in the process of negotiating the agreed temporary injunction. On July 28, 2011, we filed a motion for partial summary judgment on the plaintiffs’ fraud claims, which is set for hearing on August 18, 2011. We intend to contest the matter vigorously. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of this matter or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any amount for this matter in our consolidated financial statements at June 30, 2011. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u>Environmental claims</u>: Management has established a liability for soil contamination in Florida of $966,000 at June 30, 2011 and $943,000 December 31, 2010, based on our undiscounted engineering estimates. The obligations are included in other long-term liabilities in the accompanying consolidated balance sheets. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Various landowners have sued Meridian (along with numerous other oil companies) in lawsuits concerning several fields in which Meridian has had operations. The lawsuits seek injunctive relief and other relief, including unspecified amounts in both actual and punitive damages for alleged breaches of mineral leases and alleged failure to restore the plaintiffs’ lands from alleged contamination and otherwise from Meridian’s oil and natural gas operations. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of the various environmental claims or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any amount for these claims in our financial statements at June 30, 2011. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Due to the nature of our business, some contamination of the real estate property owned or leased by us is possible. Environmental site assessments of the property would be necessary to adequately determine remediation costs, if any. No accrual has been made other than the balance noted above. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u>Title/lease disputes</u>: Title and lease disputes may arise in the normal course of our operations. These disputes are usually small but could result in an increase or decrease in reserves once a final resolution to the title dispute is made. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u>Other contingencies</u>: We are subject to legal proceedings, claims and liabilities arising in the ordinary course of business. The outcome cannot be reasonably estimated; however, in the opinion of management, such litigation and claims will be resolved without material adverse effect on our financial position, results of operations or cash flows. Accruals for losses associated with litigation are made when losses are deemed probable and can be reasonably estimated. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">We have contingent commitments to pay an amount up to a maximum of approximately $6.7 million for properties acquired in 2008 and prior years. The additional purchase consideration will be paid only if certain product price conditions are met. We cannot estimate the amounts that will be paid in the future, if any, or the fiscal years in which such amounts could become due. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u>Drilling rig</u><b>: </b>Included in our acquisition of Meridian was a contractual obligation for the use of a drilling rig, which expired in February 2011. Meridian and Alta Mesa were not able to fully utilize this rig during the contractual term; however, we were obligated for the dayrate regardless of whether the rig was working or idle. The operator, Orion Drilling, LP (“Orion”), sought other parties to use the rig and agreed to credit Meridian’s and Alta Mesa’s obligation, based on revenues from third parties who utilized the rig when it was not utilized under the contract. We had provided approximately $9.8 million for the liability under this drilling contract and under a similar rig contract which had previously expired and was also underutilized. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">On May 19, 2011, we fully settled this liability with a payment of $8.5 million to Orion, and recorded a gain on contact settlement of $1.3 million. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>11. SIGNIFICANT RISKS AND UNCERTAINTIES</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Our business makes us vulnerable to changes in wellhead prices of crude oil and natural gas. Such prices have been volatile in the past and can be expected to be volatile in the future. By definition, proved reserves are based on analysis of current oil and natural gas prices. Price declines reduce the estimated value of proved reserves and may increase annual amortization expense (which is based on proved reserves). Price declines may also result in impairments, or non-cash write-downs, of the value of our oil and gas properties. We mitigate a portion of this vulnerability by entering into oil and natural gas price derivative contracts. See Note 6. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>12. PARTNERS’ CAPITAL</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">In September 2006, our limited partnership agreement was amended such that the affiliates of Alta Mesa Holdings, LP and certain other parties became Class A limited partners (“Class A Partners”) and AMIH was admitted to the partnership as the sole Class B limited partner (“Class B Partner.”) </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u>Management and Control:</u> Our business and affairs are managed by Alta Mesa Holdings GP, LLC, our general partner (“General Partner”). With certain exceptions, the General Partner may not be removed except for the reasons of “cause,” which are defined in the Alta Mesa Holdings, LP Partnership Agreement (“Partnership Agreement”). The Class B limited partner has certain approval rights, generally over capital plans and significant transactions in the areas of finance, acquisition, and divestiture. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u>Distribution and Income Allocation:</u> Net cash flow from operations may be distributed to the Class A and Class B Partners based on a variable formula as defined in the Partnership Agreement. <br /><br style="font-size: 6pt" />After January 1, 2012, the Class B Partner may require the General Partner to make distributions; however, any distribution must be permitted under the terms of our credit facility and our senior notes. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Distribution of net cash flow from a Liquidity Event (as defined below) is distributed to the Class A and Class B Partners according to a variable formula as defined in the Partnership Agreement. A “Liquidity Event” is any event in which we receive cash proceeds outside the ordinary course of our business. Further, after January 1, 2012, the Class B Partner can, without consent of any other partners, request that the General Partner take action to cause us, or our assets, to be sold to one or more third parties. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>13. SUBSIDIARY GUARANTORS</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">All of our material wholly-owned subsidiaries are guarantors under the terms of both our senior notes and our credit facility. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Our consolidated financial statements reflect the combined financial position of these subsidiary guarantors. Our parent company, Alta Mesa Holdings, LP has no independent operations, assets, or liabilities. The guarantees are full and unconditional and joint and several. Those subsidiaries which are not wholly owned and are not guarantors are minor. There are no restrictions on dividends, distributions, loans, or other transfers of funds from the subsidiary guarantors to our parent company. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>14. SUBSEQUENT EVENTS</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Management has evaluated all events subsequent to the balance sheet date of June 30, 2011 to August 12, 2011, which is the date the consolidated financial statements were issued, and has determined that no events require disclosure. </div> </div>

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Natural gas liquids Natural Gas Midstream Revenue Oil And Gas Revenue Other Other revenues Other revenues Other revenues Total revenues Oil and Gas Revenue Total revenues Unrealized Gain Loss Oil And Natural Gas Derivative Contracts Unrealized gain (loss) - oil and natural gas derivative contracts Unrealized gain (loss) -- oil and natural gas derivative contracts Unrealized gain (loss) - oil and natural gas derivative contracts TOTAL REVENUES Revenues, Total TOTAL REVENUES EXPENSES Costs and Expenses [Abstract] Lease and plant operating expense Oil and Gas Property, Lease Operating Expense Production And Ad Valorem Taxes Production and ad valorem taxes Production and ad valorem taxes Workover Expense Workover expense Workover expense Workover expense Exploration expense Exploration Expense Depreciation, depletion, and amortization Depreciation, Depletion and Amortization Impairment expense Impairment of Oil and Gas Properties Accretion expense Asset Retirement Obligation, Accretion 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Net Cash Provided by (Used in) Operating Activities [Abstract] Net income Adjustments to reconcile net income to net cash provided by operating activities: Adjustments, Noncash Items, to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities [Abstract] Amortization of loan costs Amortization of Financing Costs Amortization of debt discount Amortization of Debt Discount (Premium) Dry hole expense Results of Operations, Dry Hole Costs Unrealized (gain) loss on derivatives Unrealized Gain (Loss) on Derivatives Unrealized (gain) loss on derivatives (Gain) on contract settlement Interest converted into debt Paid-in-Kind Interest Settlement of asset retirement obligation Asset Retirement Obligation, Liabilities Settled Changes in assets and liabilities: Increase (Decrease) in Operating Capital [Abstract] Accounts receivable Increase (Decrease) in Accounts Receivable Accounts receivable Other receivables Increase (Decrease) in Other Receivables Other receivables Prepaid expenses and other non-current assets Increase (Decrease) in Prepaid Expense and Other Assets Prepaid expenses and other non-current assets Accounts payable, accrued liabilities, other long-term liabilities Increase (Decrease) in Operating Liabilities Accounts payable, accrued liabilities, other long-term liabilities NET CASH PROVIDED BY OPERATING ACTIVITIES Net Cash Provided by (Used in) Operating Activities NET CASH PROVIDED BY OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Net Cash Provided by (Used in) Investing Activities [Abstract] Capital expenditures for property and equipment Payments to Acquire Property, Plant, and Equipment Capital expenditures for property and equipment Acquisitions Payments to Acquire Businesses, Gross Acquisitions NET CASH USED IN INVESTING ACTIVITIES Net Cash Provided by (Used in) Investing Activities NET CASH USED IN INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES: Net Cash Provided by (Used in) Financing Activities [Abstract] Proceeds from long-term debt Proceeds from Issuance of Long-term Debt Repayments of long-term debt Repayments of Long-term Debt Repayments of long-term debt Additions to deferred financing costs Payments of Financing Costs Additions to deferred financing costs Capital contributions Proceeds from Contributed Capital Capital distributions Payments of Capital Distribution Capital distributions NET CASH PROVIDED BY FINANCING ACTIVITIES Net Cash Provided by (Used in) Financing Activities NET CASH PROVIDED BY FINANCING ACTIVITIES NET INCREASE IN CASH Cash and Cash Equivalents, Period Increase (Decrease) NET INCREASE IN CASH CASH AND CASH EQUIVALENTS, beginning of period CASH AND CASH EQUIVALENTS, end of period SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Supplemental Cash Flow Information [Abstract] Cash paid during the period for interest Interest Paid Cash paid during the period for taxes Income Taxes Paid Change In Property Asset Retirement Obligations Net Change in property asset retirement obligations, net Change in property asset retirement obligations, net Change In Accruals Or Liabilities For Capital Expenditures Change in accruals or liabilities for capital expenditures Change in accruals or liabilities for capital expenditures SUMMARY OF ORGANIZATION AND NATURE OF OPERATIONS Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] Summary of Organization and Nature of Operations [Abstract] Summary of Organization and Nature of Operations [Abstract] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant Accounting Policies [Text Block] Summary of Significant Accounting Policies [Abstract] Summary of Significant Accounting Policies [Abstract] SIGNIFICANT ACQUISITIONs Business Combination Disclosure [Text Block] Significant Acquisitions [Abstract] Significant Acquisitions [Abstract] PROPERTY AND EQUIPMENT Property, Plant and Equipment Disclosure [Text Block] Property and Equipment [Abstract] Property and Equipment [Abstract] FAIR VALUE DISCLOSURES Fair Value Disclosures [Text Block] Fair Value Disclosures [Abstract] Fair Value Disclosures [Abstract] DERIVATIVE FINANCIAL INSTRUMENTS Derivative Instruments and Hedging Activities Disclosure [Text Block] Derivative Financial Instruments [Abstract] Derivative Financial Instruments [Abstract] ASSET RETIREMENT OBLIGATIONS Asset Retirement Obligation Disclosure [Text Block] Asset Retirement Obligations [Abstract] Asset Retirement Obligations [Abstract] LONG-TERM DEBT AND NOTES PAYABLE TO FOUNDER Long-term Debt [Text Block] Long-Term Debt and Notes Payable To Founder [Abstract] Long-Term Debt and Notes Payable To Founder [Abstract] ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts Payable and Accrued Liabilities Disclosure [Text Block] Accounts Payable and Accrued Liabilities [Abstract] Accounts Payable and Accrued Liabilities [Abstract] COMMITMENTS AND CONTINGENCIES Commitments and Contingencies Disclosure [Text Block] Commitments and Contingencies [Abstract] Commitments and Contingencies [Abstract] SIGNIFICANT RISKS AND UNCERTAINTIES Concentration Risk Disclosure [Text Block] Significant Risks and Uncertainties [Abstract] Significant Risks and Uncertainties [Abstract] Partners Capital [Text Block] PARTNERS' CAPITAL PARTNERS' CAPITAL Partners' Capital [Abstract] Partners' Capital [Abstract] SUBSIDIARY GUARANTORS Guarantees [Text Block] Subsidiary Guarantors [Abstract] Subsidiary Guarantors [Abstract] SUBSEQUENT EVENTS Subsequent Events [Text Block] Subsequent Events [Abstract] Subsequent Events [Abstract] Amendment Flag Current Fiscal Year End Date Document Period End Date Document Type Entity Central Index Key Entity Common Stock, Shares Outstanding Entity Current Reporting Status Entity Filer Category Entity Registrant Name Entity Voluntary Filers Entity Well-known Seasoned Issuer Entity Public Float Document Fiscal Period Focus Document Fiscal Year Focus Consolidated Balance Sheets [Abstract] Consolidated Statements of Income [Abstract] Consolidated Statements of Cash Flows [Abstract] EX-101.PRE 13 altms-20110630_pre.xml EX-101 PRESENTATION LINKBASE DOCUMENT XML 14 R3.htm IDEA: XBRL DOCUMENT

Consolidated Statements of Income (Unaudited) (USD $) In Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
REVENUES
Natural gas	$ 38,731	$ 30,120	$ 74,112	$ 57,935
Oil	39,292	16,278	71,489	25,799
Natural gas liquids	2,847	1,214	5,900	1,943
Other revenues	297	386	766	407
Total revenues	81,167	47,998	152,267	86,084
Unrealized gain (loss) - oil and natural gas derivative contracts	14,377	2,105	(4,808)	22,908
TOTAL REVENUES	95,544	50,103	147,459	108,992
EXPENSES
Lease and plant operating expense	15,041	9,354	28,372	17,432
Production and ad valorem taxes	4,069	2,785	9,470	4,398
Workover expense	2,352	1,330	3,978	3,289
Exploration expense	5,690	1,651	8,421	4,572
Depreciation, depletion, and amortization	22,963	13,500	42,431	22,122
Impairment expense	4,929	643	10,755	2,093
Accretion expense	476	270	946	415
General and administrative expenses	8,843	4,679	14,593	6,902
TOTAL EXPENSES	64,363	34,212	118,966	61,223
INCOME FROM OPERATIONS	31,181	15,891	28,493	47,769
OTHER INCOME (EXPENSE)
Interest expense	(6,843)	(4,530)	(16,323)	(8,729)
Interest income	12	5	14	5
Gain on contract settlement	1,285		1,285
TOTAL OTHER INCOME (EXPENSE)	(5,546)	(4,525)	(15,024)	(8,724)
INCOME BEFORE STATE INCOME TAXES	25,635	11,366	13,469	39,045
(PROVISION FOR) STATE INCOME TAXES	(75)		(75)
NET INCOME	$ 25,560	$ 11,366	$ 13,394	$ 39,045

XML 15 R4.htm IDEA: XBRL DOCUMENT

Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 13,394	$ 39,045
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization	42,431	22,122
Impairment expense	10,755	2,093
Accretion expense	946	415
Amortization of loan costs	1,694	629
Amortization of debt discount	130
Dry hole expense	5,267	219
Unrealized (gain) loss on derivatives	4,300	(23,311)
(Gain) on contract settlement	(1,285)
Interest converted into debt	600	590
Settlement of asset retirement obligation	(246)	(463)
Changes in assets and liabilities:
Accounts receivable	(3,428)	619
Other receivables	4,391	148
Prepaid expenses and other non-current assets	(6,344)	(6,331)
Accounts payable, accrued liabilities, other long-term liabilities	(1,455)	(19,669)
NET CASH PROVIDED BY OPERATING ACTIVITIES	71,150	16,106
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment	(94,139)	(32,289)
Acquisitions	(61,235)	(101,359)
NET CASH USED IN INVESTING ACTIVITIES	(155,374)	(133,648)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt	86,500	95,000
Repayments of long-term debt		(167)
Additions to deferred financing costs	(1,589)	(7,164)
Capital contributions		50,000
Capital distributions		(55)
NET CASH PROVIDED BY FINANCING ACTIVITIES	84,911	137,614
NET INCREASE IN CASH	687	20,072
CASH AND CASH EQUIVALENTS, beginning of period	4,836	4,274
CASH AND CASH EQUIVALENTS, end of period	5,523	24,346
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	16,484	8,234
Cash paid during the period for taxes	0	0
Change in property asset retirement obligations, net	2,829	326
Change in accruals or liabilities for capital expenditures	$ (12,170)	$ 14,871

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Document and Entity Information (USD $)
6 Months Ended

Jun. 30, 2011

Document and Entity Information [Abstract]

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Entity Central Index Key 0001518403

Document Type 10-Q

Document Period End Date Jun. 30, 2011

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Document Fiscal Year Focus 2011

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Entity Voluntary Filers No

Entity Current Reporting Status No

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Long-Term Debt and Notes Payable To Founder
6 Months Ended

Jun. 30, 2011

Long-Term Debt and Notes Payable To Founder [Abstract]

LONG-TERM DEBT AND NOTES PAYABLE TO FOUNDER

8. LONG-TERM DEBT AND NOTES PAYABLE TO FOUNDER

Long-term debt consists of the following:

June 30, December 31,

2011 2010

(unaudited)

(dollars in thousands)

Senior Debt — On November 13, 2008, we entered into a Fifth Amended and Restated Credit Agreement with a group of banks, which was replaced by the Sixth Amended and Restated Credit Agreement on May 13, 2010, as amended (“credit facility”). The credit facility matures on May 23, 2016 and is secured by substantially all of our oil and gas properties. The credit facility borrowing base is redetermined periodically and, as of June 30, 2011, the borrowing base under the facility was $260 million. The credit facility bears interest at LIBOR plus applicable margins between 2.00% and 2.75% or a “Reference Rate,” which is based on the prime rate of Wells Fargo Bank, N. A., plus a margin ranging from 1.00% to 1.75%, depending on the utilization of our borrowing base. The rate was 2.519% as of June 30, 2011 and 2.875% as of December 31, 2010
$ 159,790 $ 73,290

Senior Notes Payable — On October 13, 2010, we issued notes due October 15, 2018 with a face value of $300 million, at a discount of $2.1 million. The senior notes carry a face interest rate of 9 5/8%, with an effective rate of 9 3/4%; interest is payable semi-annually each April 15^th and October 15^th. The senior notes are secured by general corporate credit, and effectively rank junior to any of our existing or future secured indebtedness, which includes the credit facility. The senior notes are unconditionally guaranteed on a senior unsecured basis by each of our material subsidiaries. The balance is presented net of unamortized discount of $1.9 million and $2.0 million at June 30, 2011 and December 31, 2010, respectively.
298,116 297,986

Total long-term debt
$ 457,906 $ 371,276

The senior notes contain an optional redemption provision beginning in October 2013 allowing us to retire up to 35% of the principal outstanding under the senior notes with the proceeds of an equity offering, at 109.625%. Additional optional redemption provisions allow for retirement at 104.813%, 102.406%, and 100.0% beginning on each of October 15, 2014, 2015, and 2016, respectively.

On October 13, 2010, we entered into a registration rights agreement with the initial purchasers of the senior notes. Pursuant to the registration rights agreement, we filed a registration statement with the SEC to allow for registration of “exchange notes” with terms substantially identical to the senior notes. The exchange offer was consummated on August 12, 2011, with the tendered original senior notes exchanged for the exchange notes.

On May 23, 2011, we amended our $500 million senior secured revolving credit facility to, among other things, increase the borrowing base limit from $220 million to $260 million and reduce applicable interest rates provided thereunder, extend the maturity date from November 13, 2012 to May 23, 2016, and increase the amount of senior debt securities that we are permitted to issue from $500 million to $700 million. The amended credit facility is currently subject to a $260 million borrowing base limit.

The credit facility and senior notes include covenants requiring us to maintain certain financial covenants including a Current Ratio, Leverage Ratio, and Interest Coverage Ratio. At June 30, 2011, we were in compliance with the covenants. The terms of the credit facility also restrict our ability to make distributions and investments.

In addition, we have notes payable to our founder which bear simple interest at 10% with a balance of $20.3 million and $19.7 million at June 30, 2011 and December 31, 2010, respectively. The notes mature December 31, 2018. Interest and principal are payable at maturity. The notes are subordinate to all debt. Interest on the notes payable to our founder amounted to $600,000 and $590,000 for the six months ended June 30, 2011 and 2010, respectively, and $302,000 and $297,000 for the three months ended June 30, 2011 and 2010, respectively. Such amounts have been added to the balance of the notes.

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Subsidiary Guarantors
6 Months Ended

Jun. 30, 2011

Subsidiary Guarantors [Abstract]

SUBSIDIARY GUARANTORS

13. SUBSIDIARY GUARANTORS

All of our material wholly-owned subsidiaries are guarantors under the terms of both our senior notes and our credit facility.

Our consolidated financial statements reflect the combined financial position of these subsidiary guarantors. Our parent company, Alta Mesa Holdings, LP has no independent operations, assets, or liabilities. The guarantees are full and unconditional and joint and several. Those subsidiaries which are not wholly owned and are not guarantors are minor. There are no restrictions on dividends, distributions, loans, or other transfers of funds from the subsidiary guarantors to our parent company.

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Property and Equipment
6 Months Ended

Jun. 30, 2011

Property and Equipment [Abstract]

PROPERTY AND EQUIPMENT

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

June 30, December 31,

2011 2010

(unaudited)

(dollars in thousands)

OIL AND NATURAL GAS PROPERTIES

Unproved properties
$ 35,256 $ 12,020

Accumulated impairment
(4,679 ) (2,686 )

Unproved properties, net
30,577 9,334

Proved oil and natural gas properties
821,399 707,364

Accumulated depreciation, depletion, amortization and impairment
(324,113 ) (273,818 )

Proved oil and natural gas properties, net
497,286 433,546

TOTAL OIL AND NATURAL GAS PROPERTIES, net
527,863 442,880

LAND
1,185 1,185

DRILLING RIG
10,500 10,500

Accumulated depreciation
(794 ) (444 )

TOTAL DRILLING RIG, net
9,706 10,056

OTHER PROPERTY AND EQUIPMENT

Office furniture and equipment, vehicles
7,251 3,844

Accumulated depreciation
(2,161 ) (1,701 )

OTHER PROPERTY AND EQUIPMENT, net
5,090 2,143

TOTAL PROPERTY AND EQUIPMENT, net
$ 543,844 $ 456,264

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Commitments and Contingencies
6 Months Ended

Jun. 30, 2011

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

10. COMMITMENTS AND CONTINGENCIES

Contingencies

Deep Bossier litigation: On July 23, 2009, we made a payment of $25.5 million and took assignment of substantially all working interests that had been held by Chesapeake Energy Corporation in an approximate 50,000 acre area of Leon and Robertson Counties, Texas in the Deep Bossier play. We had exercised our preferential right to purchase these interests from Gastar Exploration Ltd. in late 2005, but Gastar and Chesapeake had opposed this and Chesapeake took record title until we finally and conclusively prevailed, and in 2008 a Texas court of appeals directed that specific performance take place. In early 2009, the Texas Supreme Court denied the defendants’ request to hear the appeal. As a result, we were able to take working interests in over 30 producing wells and participate in further development of the area, primarily with EnCana, but also with Gastar. A subsequent payment to EnCana of $15.2 million plus purchase accounting adjustments of $3.8 million brought the total cost of the acquisition to $44.5 million. While the ownership of these interests has been decided by the courts, we are pursuing other claims against Chesapeake; Chesapeake is claiming an additional $36.5 million of past expenses from us. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of this matter or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any amount for this matter in our consolidated financial statements at June 30, 2011.

Texas Oil Distribution & Development, Inc. and Matrix Petroleum, LLC v. Alta Mesa Holdings, LP and The Meridian Resource & Exploration, LLC: In November 2010, Texas Oil Distribution & Development, Inc. and Matrix Petroleum LLC (together, “TODD”), filed a petition seeking declaratory relief based on TODD’s employment of Thomas Tourek, a former independent contractor of the Company. TODD subsequently filed an amended petition for declaratory relief, breach of contract and tortious interference related to certain assignments of oil and gas interests and joined Meridian as a defendant. On June 17, 2011, the litigation was settled. See Note 3, “Significant Acquisitions — TODD Acquisition” for further information.

Ted R. Stalder, TRS LP, Richard Hughart, and Richmar Interests, Inc. v. Texas Energy Acquisitions, LP: On May 24, 2011, the plaintiffs brought suit against us for breach of contract, common law fraud, fraud in a real estate transaction, declaratory relief, money had and received, an accounting, and injunctive relief related to two purchase and sales agreements dated December 23, 2008 and a dispute over the interpretation of the payment provisions in those agreements. An ex parte temporary restraining order (“TRO”) was entered against us on May 24, 2011, requiring among other things that we deposit into the registry of the court all payments received from oil, gas and liquids from the properties covered by the agreements. Our motion to dissolve the TRO was denied and the TRO was amended and extended another 14 days on June 2, 2011. We subsequently agreed to amend and extend the TRO until July 8, 2011. On July 7, 2011, during a hearing on the temporary injunction, the court recommended that the parties enter into an agreed temporary injunction. The plaintiffs and us agreed to enter into a temporary injunction whereby, among other things, we would pay directly to the plaintiffs the portion of the payments received from oil, gas, and liquids from the properties covered by the agreements that we contend the plaintiffs are due, less any previous payments. Furthermore, we have agreed to deposit into the registry of the court the amount that the plaintiffs contend they are owed, less any previous payments made to the registry of the court or to the plaintiffs. We are still in the process of negotiating the agreed temporary injunction. On July 28, 2011, we filed a motion for partial summary judgment on the plaintiffs’ fraud claims, which is set for hearing on August 18, 2011. We intend to contest the matter vigorously. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of this matter or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any amount for this matter in our consolidated financial statements at June 30, 2011.

Environmental claims: Management has established a liability for soil contamination in Florida of $966,000 at June 30, 2011 and $943,000 December 31, 2010, based on our undiscounted engineering estimates. The obligations are included in other long-term liabilities in the accompanying consolidated balance sheets.

Various landowners have sued Meridian (along with numerous other oil companies) in lawsuits concerning several fields in which Meridian has had operations. The lawsuits seek injunctive relief and other relief, including unspecified amounts in both actual and punitive damages for alleged breaches of mineral leases and alleged failure to restore the plaintiffs’ lands from alleged contamination and otherwise from Meridian’s oil and natural gas operations. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of the various environmental claims or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any amount for these claims in our financial statements at June 30, 2011.

Due to the nature of our business, some contamination of the real estate property owned or leased by us is possible. Environmental site assessments of the property would be necessary to adequately determine remediation costs, if any. No accrual has been made other than the balance noted above.

Title/lease disputes: Title and lease disputes may arise in the normal course of our operations. These disputes are usually small but could result in an increase or decrease in reserves once a final resolution to the title dispute is made.

Other contingencies: We are subject to legal proceedings, claims and liabilities arising in the ordinary course of business. The outcome cannot be reasonably estimated; however, in the opinion of management, such litigation and claims will be resolved without material adverse effect on our financial position, results of operations or cash flows. Accruals for losses associated with litigation are made when losses are deemed probable and can be reasonably estimated.

We have contingent commitments to pay an amount up to a maximum of approximately $6.7 million for properties acquired in 2008 and prior years. The additional purchase consideration will be paid only if certain product price conditions are met. We cannot estimate the amounts that will be paid in the future, if any, or the fiscal years in which such amounts could become due.

Drilling rig: Included in our acquisition of Meridian was a contractual obligation for the use of a drilling rig, which expired in February 2011. Meridian and Alta Mesa were not able to fully utilize this rig during the contractual term; however, we were obligated for the dayrate regardless of whether the rig was working or idle. The operator, Orion Drilling, LP (“Orion”), sought other parties to use the rig and agreed to credit Meridian’s and Alta Mesa’s obligation, based on revenues from third parties who utilized the rig when it was not utilized under the contract. We had provided approximately $9.8 million for the liability under this drilling contract and under a similar rig contract which had previously expired and was also underutilized.

On May 19, 2011, we fully settled this liability with a payment of $8.5 million to Orion, and recorded a gain on contact settlement of $1.3 million.

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Significant Risks and Uncertainties
6 Months Ended

Jun. 30, 2011

Significant Risks and Uncertainties [Abstract]

SIGNIFICANT RISKS AND UNCERTAINTIES

11. SIGNIFICANT RISKS AND UNCERTAINTIES

Our business makes us vulnerable to changes in wellhead prices of crude oil and natural gas. Such prices have been volatile in the past and can be expected to be volatile in the future. By definition, proved reserves are based on analysis of current oil and natural gas prices. Price declines reduce the estimated value of proved reserves and may increase annual amortization expense (which is based on proved reserves). Price declines may also result in impairments, or non-cash write-downs, of the value of our oil and gas properties. We mitigate a portion of this vulnerability by entering into oil and natural gas price derivative contracts. See Note 6.

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+ References

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 275
-SubTopic 10
-Section 50
-Paragraph 20
-URI http://asc.fasb.org/extlink&oid=6927468&loc=d3e6404-108592

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-Publisher AICPA
-Name Statement of Position (SOP)
-Number 94-6
-Paragraph 21, 22, 24
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-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
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Accounts Payable and Accrued Liabilities
6 Months Ended

Jun. 30, 2011

Accounts Payable and Accrued Liabilities [Abstract]

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The following provides the detail of accounts payable and accrued liabilities:

June 30, December 31,

2011 2010

(unaudited)

(dollars in thousands)

Capital expenditures
$ 32,815 $ 22,743

Revenues and royalties payable
5,287 5,962

Operating expenses/taxes
23,152 18,220

Compensation
4,057 2,591

Liability related to drilling rig
— 9,785

Other
2,513 1,775

Total accrued liabilities
67,824 61,076

Accounts payable
6,321 26,179

Accounts payable and accrued liabilities
$ 74,145 $ 87,255

The following provides the detail of other long-term liabilities:

June 30, December 31,

2011 2010

(unaudited)

(dollars in thousands)

Acquisition obligation
$ 985 $ 411

Remediation liability
966 943

Other
3,489 5,886

Total other long-term liabilities
$ 5,440 $ 7,240

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The entire disclosure for accounts payable and accrued liabilities at the end of the reporting period.

+ References

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-Name Regulation S-X (SX)
-Number 210
-Section 02
-Paragraph 19
-Subparagraph a
-Article 5

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Summary of Significant Accounting Policies
6 Months Ended

Jun. 30, 2011

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As of June 30, 2011, our significant accounting policies are consistent with those discussed in Note 2 of the consolidated financial statements for the fiscal year ended December 31, 2010.

Use of Estimates: The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Reserve estimates significantly impact depreciation, depletion and amortization expense and potential impairments of oil and natural gas properties and are subject to change based on changes in oil and natural gas prices and trends and changes in estimated reserve quantities. We analyze estimates, including those related to oil and natural gas reserves, oil and natural gas revenues, the value of oil and natural gas properties, bad debts, asset retirement obligations, derivative contracts, income taxes and contingencies and litigation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Property and Equipment: Oil and natural gas producing activities are accounted for using the successful efforts method of accounting. Under the successful efforts method, lease acquisition costs and all development costs, including unsuccessful development wells, are capitalized.

Unproved Properties — Acquisition costs associated with the acquisition of leases are recorded as unproved leasehold costs and capitalized as incurred. These consist of costs incurred in obtaining a mineral interest or right in a property such as a lease, in addition to options to lease, broker fees, recording fees and other similar costs related to activities in acquiring properties. Leasehold costs are classified as unproved until proved reserves are discovered, at which time related costs are transferred to proved oil and natural gas properties.

Exploration Expense — Exploration expenses, other than exploration drilling costs, are charged to expense as incurred. These costs include seismic expenditures and other geological and geophysical costs, expired leases, and lease rentals. The costs of drilling exploratory wells and exploratory-type stratigraphic wells are initially capitalized pending determination of whether the well has discovered proved commercial reserves. If the exploratory well is determined to be unsuccessful, the cost of the well is transferred to expense. Exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify completion as a producing well and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made. Assessments of such capitalized costs are made quarterly.

Proved Oil and Natural Gas Properties — Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering, and storing oil and natural gas are capitalized. All costs incurred to drill and equip successful exploratory wells, development wells, development-type stratigraphic test wells, and service wells, including unsuccessful development wells, are capitalized.

Impairment — The capitalized costs of proved oil and natural gas properties are reviewed quarterly for impairment in accordance with ASC 360-10-35, “Property, Plant and Equipment, Subsequent Measurement,” or whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset or asset group exceeds its fair market value and is not recoverable. The determination of recoverability is based on comparing the estimated undiscounted future net cash flows at a producing field level to the carrying value of the assets. If the future undiscounted cash flows, based on estimates of anticipated production from proved reserves and future crude oil and natural gas prices and operating costs, are lower than the carrying cost, the carrying cost of the asset or group of assets is reduced to fair value. For our proved oil and natural gas properties, we estimate fair value by discounting the projected future cash flows at an appropriate risk-adjusted discount rate.

Unproved leasehold costs are assessed quarterly to determine whether they have been impaired. Individually significant properties are assessed for impairment on a property-by-property basis, while individually insignificant unproved leasehold costs may be assessed in the aggregate. If unproved leasehold costs are found to be impaired, an impairment allowance is provided and a loss is recognized in the consolidated statement of income.

Depreciation, Depletion, and Amortization — Depreciation, depletion, and amortization (“DD&A”) of capitalized costs of proved oil and natural gas properties is computed using the unit-of-production method based upon estimated proved reserves. Assets are grouped for DD&A on the basis of reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field. The reserve base used to calculate DD&A for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. The reserve base used to calculate DD&A for lease and well equipment costs, which include development costs and successful exploration drilling costs, includes only proved developed reserves.

Accounts Receivable, net: Our receivables arise from the sale of oil and natural gas to third parties and joint interest owner receivables for properties in which we serve as the operator. This concentration of customers may impact our overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions affecting the oil and gas industry. Accounts receivable are generally not collateralized. Accounts receivable are shown net of an allowance for doubtful accounts of $957,000 and $338,000 at June 30, 2011 and December 31, 2010, respectively.

Deferred Financing Costs: Deferred financing costs and the amount of discount at which notes payable have been issued (debt discount) are amortized using the straight-line method, which approximates the interest method, over the term of the related debt. For the three months ended June 30, 2011 and 2010, amortization of deferred financing costs included in interest expense amounted to $790,000 and $506,000, respectively. For the six months ended June 30, 2011 and 2010, amortization of deferred financing costs included in interest expense amounted to $1.7 million and $629,000, respectively. Deferred financing costs are listed among our long-term assets, net of accumulated amortization of $6.4 million and $4.7 million at June 30, 2011 and December 31, 2010, respectively.

Financial Instruments: The fair value of cash, accounts receivable, other current assets, and current liabilities approximate book value due to their short-term nature. The estimate of fair value of long-term debt under our senior secured revolving credit facility (“credit facility”) is not considered to be materially different from carrying value due to market rates of interest. The fair value of the debt to our founder is not practicable to determine. We have estimated the fair value of our senior notes payable at $299.3 million and $291 million on June 30, 2011 and December 31, 2010, respectively. See Note 5 for further information on fair values of financial instruments. See Note 8 for information on long-term debt.

Recent Accounting Pronouncements

On May 12, 2011, the FASB issued ASU No. 2011-04 to Topic 820, Fair Value Measurements, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” The ASU changes certain definitions of terms used its guidance regarding fair value measurements, as well as modifying certain disclosure requirements and other aspects of the guidance. We are reviewing the ASU, which is effective for interim and annual periods beginning after December 15, 2011. We do not expect adoption of the guidance to have a material impact on our consolidated financial position or results of operations.

On June 16, 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Two presentation options remain. Changes in comprehensive income may be reported in a continuous statement of comprehensive income which presents the components of net income as well as the components of comprehensive income. Alternatively, the components of comprehensive income may be reported in a separate statement of comprehensive income, which must immediately follow the statement of net income. The ASU also creates a new requirement that reclassifications from comprehensive income to net income be presented on a gross basis on the face of the financial statements (previously net presentation and footnoting gross information was permitted). The ASU applies to interim and year end reports and is effective for fiscal years beginning after December 15, 2011, and is to be retrospectively applied to all periods presented in such reports. Early adoption is permitted. We do not expect adoption of the guidance to have a material impact on our consolidated financial position or results of operations.

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-Name Accounting Principles Board Opinion (APB)
-Number 22
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Fair Value Disclosures
6 Months Ended

Jun. 30, 2011

Fair Value Disclosures [Abstract]

FAIR VALUE DISCLOSURES

5. FAIR VALUE DISCLOSURES

We follow the guidance of ASC 820, “Fair Value Measurements and Disclosures,” in the estimation of fair values. ASC 820 provides a hierarchy of fair value measurements, based on the inputs to the fair value estimation process. It requires disclosure of fair values classified according to defined “levels,” which are based on the reliability of the evidence used to determine fair value, with Level 1 being the most reliable and Level 3 the least. Level 1 evidence consists of observable inputs, such as quoted prices in an active market. Level 2 inputs typically correlate the fair value of the asset or liability to a similar, but not identical item which is actively traded. Level 3 inputs include at least some unobservable inputs, such as valuation models developed using the best information available in the circumstances.

We utilize the modified Black-Scholes option pricing model to estimate the fair value of oil and natural gas derivative contracts. Inputs to this model include observable inputs from the New York Mercantile Exchange (“NYMEX”) for futures contracts, and inputs derived from NYMEX observable inputs, such as implied volatility of oil and natural gas prices. We have classified the fair values of all our oil and natural gas derivative contracts as Level 2.

The fair value of our interest rate derivative contracts was calculated using the modified Black-Scholes option pricing model and is also considered a Level 2 fair value.

Oil and natural gas properties are subject to impairment testing and potential impairment write down. Oil and gas properties with a carrying amount of $24.4 million were written down to their fair value of $13.6 million, resulting in an impairment charge of $10.8 million for the six months ended June 30, 2011. Oil and gas properties with a carrying amount of $4.4 million were written down to their fair value of $2.3 million, resulting in an impairment charge of $2.1 million for the six months ended June 30, 2010. For the three months ended June 30, 2011, oil and gas properties with a carrying amount of $14.2 million were written down to their fair value of $9.3 million, resulting in an impairment charge of $4.9 million, and for the three months ended June 30, 2010, oil and gas properties with a carrying amount of $1.2 million were written down to their fair value of $0.6 million, resulting in an impairment charge of $0.6 million. Significant Level 3 assumptions used in the calculation of estimated discounted cash flows in the impairment analysis included our estimate of future oil and natural gas prices, production costs, development expenditures, estimated timing of production of proved reserves, appropriate risk-adjusted discount rates, and other relevant data.

In connection with the Meridian acquisition, we recorded oil and natural gas properties with a fair value of $147.4 million in the second quarter of 2010. In connection with the Sydson and TODD acquisitions, we recorded oil and natural gas properties with a fair value of $28.4 million, and $23.4 million, respectively, in the second quarter of 2011. For information on these acquisitions, see Note 3. Significant Level 3 inputs used were the same as those used in determining impairments based on estimated discounted cash flows for the acquired properties.

New additions to asset retirement obligations result from estimations for new properties, and fair values for them are categorized as Level 3. Such estimations are based on present value techniques which utilize company-specific information for such inputs as cost and timing of plug and abandonment of wells and facilities. We recorded $2.8 million and $34.6 million in additions to asset retirement obligations measured at fair value during the six months ended June 30, 2011 and 2010, respectively. The significant additions in 2010 were the result of the purchase of Meridian.

The following table presents information about our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value:

Level 1 Level 2 Level 3 Total

(dollars in thousands)

At June 30, 2011 (unaudited):

Financial Assets:

Derivative contracts for oil and natural gas
$ — $ 59,898 $ — $ 59,898

Financial Liabilities:

Derivative contracts for oil and natural gas
— 40,105 — 40,105

Derivative contracts for interest rate
— 4,880 — 4,880

At December 31, 2010:

Financial Assets:

Derivative contracts for oil and natural gas
$ — $ 61,623 $ — $ 61,623

Financial Liabilities:

Derivative contracts for oil and natural gas
— 37,022 — 37,022

Derivative contracts for interest rate
— 5,388 — 5,388

The amounts above are presented on a gross basis; presentation on our consolidated balance sheets utilizes netting of assets and liabilities with the same counterparty where master netting agreements are in place. For additional information on derivative contracts, see Note 6.

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The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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Derivative Financial Instruments
6 Months Ended

Jun. 30, 2011

Derivative Financial Instruments [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

6. DERIVATIVE FINANCIAL INSTRUMENTS

We account for our derivative contracts under the provisions of ASC 815, “Derivatives and Hedging.” We have entered into forward-swap contracts and collar contracts to reduce our exposure to price risk in the spot market for oil and natural gas. We also utilize financial basis swap contracts, which address the price differential between market-wide benchmark prices and other benchmark pricing referenced in certain of our natural gas sales contracts. Substantially all of our hedging agreements are executed by affiliates of the lenders under the credit facility described in Note 8 below, and are collateralized by the security interests of the respective affiliated lenders in certain of our assets under the credit facility. The contracts settle monthly and are scheduled to coincide with either oil production equivalent to barrels (Bbl) per month or gas production equivalent to volumes in millions of British thermal units (MMbtu) per month. The contracts represent agreements between us and the counter-parties to exchange cash based on a designated price. Prices are referenced to the natural gas spot market benchmark price at the Houston Ship Channel or the NYMEX index. Cash settlement occurs monthly based on the specified price benchmark. We have not designated any of our derivative contracts as fair value or cash flow hedges; accordingly we use mark-to-market accounting, recognizing unrealized gains and losses in the statement of operations at each reporting date. Realized gains and losses on commodities hedging contracts are included in oil and natural gas revenues.

We have entered into a series of interest rate swap agreements with several financial institutions to mitigate the risk of loss due to changes in interest rates. The interest rate swaps are not designated as cash flow hedges in accordance with ASC 815. Both realized gains and losses from settlement and unrealized gains and losses from changes in the fair market value of the interest rate swaps are included in interest expense.

The second table below provides information on the location and amounts of realized and unrealized gains and losses on derivatives included in the consolidated statements of income for each of the three month and six month periods ended June 30, 2011 and 2010.

The following table summarizes the fair value (see Note 5 for further discussion of fair value) and classification of our derivative instruments, none of which have been designated as hedging instruments under ASC 815:

Fair Values of Derivative Contracts

Balance Sheet Location at June 30, 2011

Current asset Current liability Long-term asset Long-term liability

portion of portion of portion of portion of

Derivative Derivative Derivative Derivative

financial financial financial financial

instruments instruments instruments instruments

(unaudited)

(dollars in thousands)

Fair value of oil and gas commodity contracts, assets
$ 25,913 $ — $ 33,985 $ —

Fair value of oil and gas commodity contracts, (liabilities)
(14,788 ) — (25,317 ) —

Fair value of interest rate contracts, (liabilities)
— (3,176 ) — (1,704 )

Total net assets, (liabilities)
$ 11,125 $ (3,176 ) $ 8,668 $ (1,704 )

Fair Values of Derivative Contracts

Balance Sheet Location at December 31, 2010

Current asset Current liability Long-term asset Long-term liability

portion of portion of portion of portion of

Derivative Derivative Derivative Derivative

financial financial financial financial

instruments instruments instruments instruments

(dollars in thousands)

Fair value of oil and gas commodity contracts, assets
$ 27,118 $ — $ 34,505 $ —

Fair value of oil and gas commodity contracts, (liabilities)
(16,682 ) — (20,340 ) —

Fair value of interest rate contracts, (liabilities)
— (3,092 ) — (2,296 )

Total net assets, (liabilities)
$ 10,436 $ (3,092 ) $ 14,165 $ (2,296 )

Commodity contracts are subject to master netting arrangements and are presented on a net basis in the consolidated balance sheets. This netting can cause derivative assets to be ultimately presented in a (liability) account on the consolidated balance sheets. Likewise, derivative (liabilities) could be presented in an asset account.

The following table summarizes the effect of our derivative instruments in the consolidated statements of operations:

Derivatives not

designated as hedging For the three months For the six months ended

instruments under ASC Location of Gain Classification of ended June 30, June 30,

815 (Loss) Gain (Loss) 2011 2010 2011 2010

(unaudited)

(dollars in thousands)

Natural gas commodity
contracts
Natural gas revenues Realized $ 5,120 $ 6,452 $ 10,911 $ 9,201

Oil commodity contracts
Oil revenues Realized (2,434 ) 39 (3,918 ) 276

Interest rate contracts
Interest benefit
(expense) Realized 2,298 (1,024 ) 1,928 (2,051 )

Total realized gains (losses) from derivatives not designated as hedges
$ 4,984 $ 5,467 $ 8,921 $ 7,426

Natural gas commodity
contracts
Unrealized gain (loss) — oil and natural gas derivative contracts Unrealized $ 1,659 $ (5,985 ) $ (1,299 ) $ 15,296

Oil commodity contracts
Unrealized gain (loss) — oil and natural gas derivative contracts Unrealized 12,718 8,090 (3,509 ) 7,612

Interest rate contracts
Interest benefit
(expense) Unrealized 465

488

508

403

Total unrealized gains (losses) from derivatives not designated as hedges
$ 14,842 $ 2,593 $ (4,300 ) $ 23,311

Although our counterparties provide no collateral, the master derivative agreements with each counterparty effectively allow us, so long as we are not a defaulting party, after a default or the occurrence of a termination event, to set-off an unpaid hedging agreement receivable against the interest of the counterparty in any outstanding balance under the credit facility.

If a counterparty were to default in payment of an obligation under the master derivative agreements, we could be exposed to commodity price fluctuations, and the protection intended by the hedge could be lost. The value of our derivative financial instruments would be impacted.

We had the following open derivative contracts for natural gas at June 30, 2011 (unaudited):

NATURAL GAS DERIVATIVE CONTRACTS

Volume in Weighted Range

Period and Type of Contract MMbtu Average High Low

2011

Price Swap Contracts
6,030,000 $ 5.60 $ 8.83 $ 4.44

Collar Contracts

Short Call Options
6,760,000 5.67 7.05 5.40

Long Put Options
3,060,000 6.05 6.30 5.75

Long Call Options
600,000 7.45 7.45 7.45

Short Put Options
2,950,000 3.86 4.00 3.65

2012

Price Swap Contracts
7,525,000 6.17 8.83 5.00

Collar Contracts

Short Call Options
7,560,000 5.76 6.00 5.50

Long Put Options
4,350,000 5.93 6.75 5.50

Long Call Options
3,660,000 5.00 5.00 5.00

Short Put Options
8,730,000 4.11 4.50 4.00

2013

Price Swap Contracts
4,825,000 6.48 9.15 5.35

Collar Contracts

Short Call Options
1,500,000 8.51 8.80 8.31

Long Put Options
1,500,000 6.09 6.15 6.00

Short Put Options
900,000 5.50 5.50 5.50

2014

Price Swap Contracts
3,125,000 6.27 7.50 5.60

Collar Contracts

Short Call Options
1,650,000 8.21 9.00 7.92

Long Put Options
1,650,000 6.73 7.00 6.00

Short Put Options
1,200,000 5.50 5.50 5.50

2015

Price Swap Contracts
1,825,000 5.91 5.91 5.91

2016

Collar Contracts

Short Call Options
455,000 7.50 7.50 7.50

Long Put Options
455,000 5.50 5.50 5.50

Short Put Options
455,000 4.00 4.00 4.00

We had the following open derivative contracts for crude oil at June 30, 2011 (unaudited):

OIL DERIVATIVE CONTRACTS

Weighted Range

Period and Type of Contract Volume in Bbls Average High Low

2011

Price Swap Contracts
230,000 $ 83.80 $ 103.20 $ 67.50

Collar Contracts

Short Call Options
276,000 103.15 110.00 82.25

Long Put Options
317,400 86.67 100.00 75.00

Long Call Options
55,200 75.00 75.00 75.00

Short Put Options
402,592 66.42 89.85 55.00

2012

Price Swap Contracts
228,900 85.69 96.00 67.25

Collar Contracts

Short Call Options
491,172 115.89 123.50 100.00

Long Put Options
522,648 80.75 85.00 80.00

Short Put Options
635,376 62.26 65.00 60.00

2013

Price Swap Contracts
136,500 84.35 94.74 77.00

Collar Contracts

Short Call Options
417,935 110.62 127.00 90.00

Long Put Options
351,500 81.95 90.00 80.00

Long Call Options
82,500 79.00 79.00 79.00

Short Put Options
434,000 61.58 70.00 60.00

2014

Price Swap Contracts
127,300 87.63 91.05 81.00

Collar Contracts

Short Call Options
273,750 125.70 133.50 107.50

Long Put Options
488,450 85.33 90.00 80.00

Short Put Options
488,450 65.33 70.00 60.00

2015

Collar Contracts

Short Call Options
246,350 125.12 135.98 116.40

Long Put Options
319,350 87.57 90.00 85.00

Short Put Options
319,350 66.86 70.00 60.00

2016

Collar Contracts

Short Call Options
36,400 130.00 130.00 130.00

Long Put Options
36,400 95.00 95.00 95.00

Short Put Options
36,400 75.00 75.00 75.00

In those instances where contracts are identical as to time period, volume and strike price, but opposite as to direction (long and short), the volumes and average prices have been netted in the two tables above. In some instances our counterparties in the offsetting contracts are not the same, and may have different credit ratings.

We had the following open financial basis swap contracts at June 30, 2011 (unaudited):

Volume in MMbtu Reference Price Period Spread ($ per MMbtu)

1,200,000
Houston Ship Channel Jul ’11 — Dec ’11 (0.2000 )

1,200,000
Houston Ship Channel Jul ’11 — Dec ’11 (0.1600 )

460,000
Houston Ship Channel Jul ’11 — Dec ’11 (0.0850 )

1,380,000
Houston Ship Channel Jul ’11 — Dec ’11 (0.1550 )

1,830,000
Houston Ship Channel Jan ’12 — Dec ’12 (0.1575 )

1,840,000
Houston Ship Channel Jul ’11 — Dec ’11 (0.1150 )

3,660,000
Houston Ship Channel Jan ’12 — Dec ’12 (0.1400 )

We had the following open interest rate swap contracts at June 30, 2011 (unaudited):

Interest Rate Swaps

Term Principal Amount Interest Rate (1)

(dollars in thousands)

Floating to Fixed Rate Swaps:

July 2011 — August 2012
$ 50,000 4.95 %

July 2011 — October 2011
$ 25,000 3.21 %

Fixed to Floating Rate Swaps:

July 2011 — June 2015
$ 150,000 9.625 %

(1) The floating rate is the three-month LIBOR rate, except the swap for $150 million, which is a fixed to floating rate swap using a floating rate of three-month LIBOR plus 8.06%.

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Subsequent Events
6 Months Ended

Jun. 30, 2011

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

14. SUBSEQUENT EVENTS

Management has evaluated all events subsequent to the balance sheet date of June 30, 2011 to August 12, 2011, which is the date the consolidated financial statements were issued, and has determined that no events require disclosure.

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Asset Retirement Obligations
6 Months Ended

Jun. 30, 2011

Asset Retirement Obligations [Abstract]

ASSET RETIREMENT OBLIGATIONS

7. ASSET RETIREMENT OBLIGATIONS

A summary of the changes in asset retirement obligations is included in the table below (unaudited, dollars in thousands):

Balance, December 31, 2010
$ 42,713

Liabilities incurred
332

Liabilities assumed with acquired producing properties
2,504

Liabilities settled
(246 )

Revisions to previous estimates
(7 )

Accretion expense
946

Balance, June 30, 2011
46,242

Less: Current portion
1,755

Long term portion
$ 44,487

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-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 143
-Paragraph 22
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Summary of Organization and Nature of Operations
6 Months Ended

Jun. 30, 2011

Summary of Organization and Nature of Operations [Abstract]

SUMMARY OF ORGANIZATION AND NATURE OF OPERATIONS

1. SUMMARY OF ORGANIZATION AND NATURE OF OPERATIONS

The consolidated financial statements reflect the accounts of Alta Mesa Holdings, LP and its subsidiaries (we, us, our, the “Company,” and “Alta Mesa”) after elimination of all significant intercompany transactions and balances. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual consolidated financial statements for the year ended December 31, 2010, which were filed with the Securities and Exchange Commission in our Registration Statement on Form S-4 (Commission File No. 333-173751).

The consolidated financial statements included herein as of June 30, 2011, and for the six month periods ended June 30, 2011 and 2010, are unaudited, and in the opinion of management, the information furnished reflects all material adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of consolidated financial position and of the results of operations for the interim periods presented. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain minor reclassifications of prior period consolidated financial statements have been made to conform to current reporting practices. The consolidated results of operations for interim periods are not necessarily indicative of results to be expected for a full year.

We use accounting policies which reflect industry practices and conform to GAAP. As used herein, the following acronyms have the following meanings: “FASB” means the Financial Accounting Standards Board; the “Codification” refers to the Accounting Standards Codification, the collected accounting and reporting guidance maintained by the FASB; “ASC” means Accounting Standards Codification and is generally followed by a number indicating a particular section of the Codification; and “ASU” means Accounting Standards Update, followed by an identification number, which are the periodic updates made to the Codification by the FASB. “SEC” means the Securities and Exchange Commission.

Organization: The consolidated financial statements presented herein are of Alta Mesa Holdings, LP and its (i) wholly-owned subsidiaries: Alta Mesa Finance Services Corp., Alta Mesa Eagle, LLC, Alta Mesa Acquisition Sub, LLC, and its direct and indirect wholly-owned subsidiaries, Alta Mesa Energy, LLC, Aransas Resources, LP and its wholly-owned subsidiary ARI Development, LLC, Brayton Resources II, LP, Buckeye Production Company, LP, Galveston Bay Resources, LP, Louisiana Exploration & Acquisitions, LP and its wholly-owned subsidiary Louisiana Exploration & Acquisition Partnership, LLC, Navasota Resources, Ltd., LLP, Nueces Resources, LP, Oklahoma Energy Acquisitions, LP, Alta Mesa Drilling, LLC, Petro Acquisitions, LP, Petro Operating Company, LP, Texas Energy Acquisitions, LP, Virginia Oil and Gas, LLC and Alta Mesa Services, LP, and (ii) partially-owned subsidiaries: Brayton Resources, LP, and Orion Operating Company, LP.

Nature of Operations: We are engaged primarily in the acquisition, exploration, development, and production of oil and natural gas properties. Our properties are located primarily in Texas, Oklahoma, Louisiana, Florida and the Appalachian Region.

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Significant Acquisitions
6 Months Ended

Jun. 30, 2011

Significant Acquisitions [Abstract]

SIGNIFICANT ACQUISITIONs

3. SIGNIFICANT ACQUISITIONS

Meridian Acquisition

On and effective May 13, 2010, Alta Mesa Acquisition Sub, LLC (“AMAS”), a wholly owned subsidiary of Alta Mesa Holdings, LP, acquired 100% of the shares of and merged with The Meridian Resource Corporation (“Meridian”), with AMAS as the surviving entity. Meridian was a publicly traded company engaged in exploration for and production of oil and natural gas. The oil and natural gas properties of Meridian are similar and in some cases proximate to our areas of operation. Meridian shareholders were paid in cash, funded by proceeds of our credit facility as well as a $50 million equity contribution from our private equity partner Alta Mesa Investment Holdings Inc., an affiliate of Denham Commodities Partners Fund IV LP (“AMIH”). The merger increased the oil portion of our reserves portfolio, improving the balance of our reserves between oil and natural gas, and provided significant additions to our library of 3-D seismic data.

Total cost of the acquisition was $158 million. It was recorded using the acquisition method of accounting. The purchase price was allocated to acquired assets and assumed liabilities based on their estimated fair values at date of acquisition. Acquisition-related costs of approximately $532,000 were recorded in general and administrative expense for the year ended December 31, 2010.

Sydson Acquisition

On April 21, 2011, we purchased from Sydson Energy and certain of its related parties (together, “Sydson” and the “Sydson acquisition”) certain oil and natural gas assets primarily located in Texas and South Louisiana in which we had jointly participated with Sydson. The purchase price was $27.5 million in cash (a total cost of $28.4 million including abandonment liabilities we assumed). Total net proved reserves acquired are estimated to be 800 MBOE (5 Bcfe), 45% of which is oil. By virtue of this acquisition, we increased our after payout net revenue interest in the Eagle Ford Shale by over 50%. Funding for the acquisition was provided through our credit facility. In addition, litigation associated with a portion of the assets purchased was resolved as a result of the transaction.

TODD Acquisition

On June 17, 2011, we purchased from Texas Oil Distribution & Development, Inc. and Matrix Petroleum LLC and certain other parties (together, “TODD” and the “TODD acquisition”) certain oil and natural gas assets primarily located in Texas and South Louisiana in which we had jointly participated with TODD. The purchase price was $22.5 million in cash (a total cost of $23.4 million including abandonment liabilities we assumed). Total net proved reserves acquired are estimated to be 700 MBOE (4 Bcfe), 36% of which is oil. By virtue of this acquisition, we increased our after payout net revenue interest in the Eagle Ford Shale by an additional 15%. Funding for the acquisition was provided through our credit facility. In addition, litigation associated with TODD was resolved as a result of the transaction.

A summary of the consideration paid and the allocations of the purchase prices (which are preliminary for the Sydson and TODD acquisitions) are as follows (dollars in thousands):

Summary of Consideration: Meridian Sydson TODD

Cash
$ 30,948 $ 27,500 $ 22,500

Debt retired
82,000 — —

Debt assumed
5,346 — —

Working capital deficit ⁽¹⁾
753 — —

Other liabilities assumed
7,971 — —

Fair value of asset retirement obligations assumed
30,920 922 863

Total
$ 157,938 $ 28,422 $ 23,363

Summary of Purchase Price Allocations:

Proved oil and natural gas properties
$ 144,325 $ 18,330 $ 15,223

Unproved oil and natural gas properties
3,113 10,092 8,140

Other tangible assets
10,500 — —

Total
$ 157,938 $ 28,422 $ 23,363

⁽¹⁾ Meridian working capital deficit included a cash balance of $11,589,000.

The revenue and earnings related to the Meridian, Sydson, and TODD acquisitions are included in our consolidated statement of income for the six months ended June 30, 2011. The revenue and earnings related to the Meridian acquisition are included in our consolidated statement of income for the six months ended June 30, 2010. Revenue and earnings, had the acquisitions occurred on January 1, 2010, are provided below. This unaudited pro forma information has been derived from historical information and is for illustrative purposes only. The unaudited pro forma financial information does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had the companies been combined during these periods.

(Unaudited)

Revenue Income

(dollars in thousands)

Actual results of Meridian included in our statement of income for the six months ended June 30, 2011
$ 64,544 $ 32,651

Actual results of Sydson included in our statement of income for the period April 21, 2011 through June 30, 2011
$ 1,817 $ 588

Actual results of TODD included in our statement of income for the period June 17, 2011 through June 30, 2011
$ 724 $ 193

Pro forma results for the combined entity for the six months ended June 30, 2011
$ 150,653 $ 15,347

Pro forma results for the combined entity for the six months ended June 30, 2010
$ 142,555 $ 41,155

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Partners' Capital
6 Months Ended

Jun. 30, 2011

Partners' Capital [Abstract]

PARTNERS' CAPITAL

12. PARTNERS’ CAPITAL

In September 2006, our limited partnership agreement was amended such that the affiliates of Alta Mesa Holdings, LP and certain other parties became Class A limited partners (“Class A Partners”) and AMIH was admitted to the partnership as the sole Class B limited partner (“Class B Partner.”)

Management and Control: Our business and affairs are managed by Alta Mesa Holdings GP, LLC, our general partner (“General Partner”). With certain exceptions, the General Partner may not be removed except for the reasons of “cause,” which are defined in the Alta Mesa Holdings, LP Partnership Agreement (“Partnership Agreement”). The Class B limited partner has certain approval rights, generally over capital plans and significant transactions in the areas of finance, acquisition, and divestiture.

Distribution and Income Allocation: Net cash flow from operations may be distributed to the Class A and Class B Partners based on a variable formula as defined in the Partnership Agreement.

After January 1, 2012, the Class B Partner may require the General Partner to make distributions; however, any distribution must be permitted under the terms of our credit facility and our senior notes.

Distribution of net cash flow from a Liquidity Event (as defined below) is distributed to the Class A and Class B Partners according to a variable formula as defined in the Partnership Agreement. A “Liquidity Event” is any event in which we receive cash proceeds outside the ordinary course of our business. Further, after January 1, 2012, the Class B Partner can, without consent of any other partners, request that the General Partner take action to cause us, or our assets, to be sold to one or more third parties.

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Consolidated Balance Sheets (USD $)
In Thousands

Jun. 30, 2011

Dec. 31, 2010

CURRENT ASSETS

Cash and cash equivalents $ 5,523 $ 4,836

Accounts receivable, net 41,509 38,081

Other receivables 1,947 6,338

Prepaid expenses and other current assets 4,608 2,292

Derivative financial instruments 11,125 10,436

TOTAL CURRENT ASSETS 64,712 61,983

PROPERTY AND EQUIPMENT

Oil and natural gas properties, successful efforts method, net 527,863 442,880

Other property and equipment, net 15,981 13,384

TOTAL PROPERTY AND EQUIPMENT, NET 543,844 456,264

OTHER ASSETS

Investment in Partnership - cost 9,000 9,000

Deferred financing costs, net 13,447 13,552

Derivative financial instruments 8,668 14,165

Advances to operators 5,980 2,699

Deposits 1,323 576

TOTAL OTHER ASSETS 38,418 39,992

TOTAL ASSETS 646,974 558,239

CURRENT LIABILITIES

Accounts payable and accrued liabilities 74,145 87,255

Current portion, asset retirement obligations 1,755 1,617

Derivative financial instruments 3,176 3,092

TOTAL CURRENT LIABILITIES 79,076 91,964

LONG-TERM LIABILITIES

Asset retirement obligations 44,487 41,096

Long-term debt 457,906 371,276

Notes payable to founder 20,309 19,709

Derivative financial instruments 1,704 2,296

Other long-term liabilities 5,440 7,240

TOTAL LONG-TERM LIABILITIES 529,846 441,617

TOTAL LIABILITIES 608,922 533,581

COMMITMENTS AND CONTINGENCIES (NOTE 10)

PARTNERS' CAPITAL 38,052 24,658

TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 646,974 $ 558,239

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Document and Entity Information (USD $)	6 Months Ended
Document and Entity Information (USD $)	Jun. 30, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	Alta Mesa Holdings, LP
Entity Central Index Key	0001518403
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	No
Entity Filer Category	Non-accelerated Filer
Entity Public Float	$ 0
Entity Common Stock, Shares Outstanding	0

Subsidiary Guarantors	6 Months Ended
Subsidiary Guarantors	Jun. 30, 2011
Subsidiary Guarantors [Abstract]
SUBSIDIARY GUARANTORS	13. SUBSIDIARY GUARANTORS All of our material wholly-owned subsidiaries are guarantors under the terms of both our senior notes and our credit facility. Our consolidated financial statements reflect the combined financial position of these subsidiary guarantors. Our parent company, Alta Mesa Holdings, LP has no independent operations, assets, or liabilities. The guarantees are full and unconditional and joint and several. Those subsidiaries which are not wholly owned and are not guarantors are minor. There are no restrictions on dividends, distributions, loans, or other transfers of funds from the subsidiary guarantors to our parent company.

Commitments and Contingencies	6 Months Ended
Commitments and Contingencies	Jun. 30, 2011
Commitments and Contingencies [Abstract]
COMMITMENTS AND CONTINGENCIES	10. COMMITMENTS AND CONTINGENCIES Contingencies Deep Bossier litigation: On July 23, 2009, we made a payment of $25.5 million and took assignment of substantially all working interests that had been held by Chesapeake Energy Corporation in an approximate 50,000 acre area of Leon and Robertson Counties, Texas in the Deep Bossier play. We had exercised our preferential right to purchase these interests from Gastar Exploration Ltd. in late 2005, but Gastar and Chesapeake had opposed this and Chesapeake took record title until we finally and conclusively prevailed, and in 2008 a Texas court of appeals directed that specific performance take place. In early 2009, the Texas Supreme Court denied the defendants’ request to hear the appeal. As a result, we were able to take working interests in over 30 producing wells and participate in further development of the area, primarily with EnCana, but also with Gastar. A subsequent payment to EnCana of $15.2 million plus purchase accounting adjustments of $3.8 million brought the total cost of the acquisition to $44.5 million. While the ownership of these interests has been decided by the courts, we are pursuing other claims against Chesapeake; Chesapeake is claiming an additional $36.5 million of past expenses from us. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of this matter or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any amount for this matter in our consolidated financial statements at June 30, 2011. Texas Oil Distribution & Development, Inc. and Matrix Petroleum, LLC v. Alta Mesa Holdings, LP and The Meridian Resource & Exploration, LLC: In November 2010, Texas Oil Distribution & Development, Inc. and Matrix Petroleum LLC (together, “TODD”), filed a petition seeking declaratory relief based on TODD’s employment of Thomas Tourek, a former independent contractor of the Company. TODD subsequently filed an amended petition for declaratory relief, breach of contract and tortious interference related to certain assignments of oil and gas interests and joined Meridian as a defendant. On June 17, 2011, the litigation was settled. See Note 3, “Significant Acquisitions — TODD Acquisition” for further information. Ted R. Stalder, TRS LP, Richard Hughart, and Richmar Interests, Inc. v. Texas Energy Acquisitions, LP: On May 24, 2011, the plaintiffs brought suit against us for breach of contract, common law fraud, fraud in a real estate transaction, declaratory relief, money had and received, an accounting, and injunctive relief related to two purchase and sales agreements dated December 23, 2008 and a dispute over the interpretation of the payment provisions in those agreements. An ex parte temporary restraining order (“TRO”) was entered against us on May 24, 2011, requiring among other things that we deposit into the registry of the court all payments received from oil, gas and liquids from the properties covered by the agreements. Our motion to dissolve the TRO was denied and the TRO was amended and extended another 14 days on June 2, 2011. We subsequently agreed to amend and extend the TRO until July 8, 2011. On July 7, 2011, during a hearing on the temporary injunction, the court recommended that the parties enter into an agreed temporary injunction. The plaintiffs and us agreed to enter into a temporary injunction whereby, among other things, we would pay directly to the plaintiffs the portion of the payments received from oil, gas, and liquids from the properties covered by the agreements that we contend the plaintiffs are due, less any previous payments. Furthermore, we have agreed to deposit into the registry of the court the amount that the plaintiffs contend they are owed, less any previous payments made to the registry of the court or to the plaintiffs. We are still in the process of negotiating the agreed temporary injunction. On July 28, 2011, we filed a motion for partial summary judgment on the plaintiffs’ fraud claims, which is set for hearing on August 18, 2011. We intend to contest the matter vigorously. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of this matter or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any amount for this matter in our consolidated financial statements at June 30, 2011. Environmental claims: Management has established a liability for soil contamination in Florida of $966,000 at June 30, 2011 and $943,000 December 31, 2010, based on our undiscounted engineering estimates. The obligations are included in other long-term liabilities in the accompanying consolidated balance sheets. Various landowners have sued Meridian (along with numerous other oil companies) in lawsuits concerning several fields in which Meridian has had operations. The lawsuits seek injunctive relief and other relief, including unspecified amounts in both actual and punitive damages for alleged breaches of mineral leases and alleged failure to restore the plaintiffs’ lands from alleged contamination and otherwise from Meridian’s oil and natural gas operations. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of the various environmental claims or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any amount for these claims in our financial statements at June 30, 2011. Due to the nature of our business, some contamination of the real estate property owned or leased by us is possible. Environmental site assessments of the property would be necessary to adequately determine remediation costs, if any. No accrual has been made other than the balance noted above. Title/lease disputes: Title and lease disputes may arise in the normal course of our operations. These disputes are usually small but could result in an increase or decrease in reserves once a final resolution to the title dispute is made. Other contingencies: We are subject to legal proceedings, claims and liabilities arising in the ordinary course of business. The outcome cannot be reasonably estimated; however, in the opinion of management, such litigation and claims will be resolved without material adverse effect on our financial position, results of operations or cash flows. Accruals for losses associated with litigation are made when losses are deemed probable and can be reasonably estimated. We have contingent commitments to pay an amount up to a maximum of approximately $6.7 million for properties acquired in 2008 and prior years. The additional purchase consideration will be paid only if certain product price conditions are met. We cannot estimate the amounts that will be paid in the future, if any, or the fiscal years in which such amounts could become due. Drilling rig: Included in our acquisition of Meridian was a contractual obligation for the use of a drilling rig, which expired in February 2011. Meridian and Alta Mesa were not able to fully utilize this rig during the contractual term; however, we were obligated for the dayrate regardless of whether the rig was working or idle. The operator, Orion Drilling, LP (“Orion”), sought other parties to use the rig and agreed to credit Meridian’s and Alta Mesa’s obligation, based on revenues from third parties who utilized the rig when it was not utilized under the contract. We had provided approximately $9.8 million for the liability under this drilling contract and under a similar rig contract which had previously expired and was also underutilized. On May 19, 2011, we fully settled this liability with a payment of $8.5 million to Orion, and recorded a gain on contact settlement of $1.3 million.

Significant Risks and Uncertainties	6 Months Ended
Significant Risks and Uncertainties	Jun. 30, 2011
Significant Risks and Uncertainties [Abstract]
SIGNIFICANT RISKS AND UNCERTAINTIES	11. SIGNIFICANT RISKS AND UNCERTAINTIES Our business makes us vulnerable to changes in wellhead prices of crude oil and natural gas. Such prices have been volatile in the past and can be expected to be volatile in the future. By definition, proved reserves are based on analysis of current oil and natural gas prices. Price declines reduce the estimated value of proved reserves and may increase annual amortization expense (which is based on proved reserves). Price declines may also result in impairments, or non-cash write-downs, of the value of our oil and gas properties. We mitigate a portion of this vulnerability by entering into oil and natural gas price derivative contracts. See Note 6.

Summary of Significant Accounting Policies	6 Months Ended
Summary of Significant Accounting Policies	Jun. 30, 2011
Summary of Significant Accounting Policies [Abstract]
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES As of June 30, 2011, our significant accounting policies are consistent with those discussed in Note 2 of the consolidated financial statements for the fiscal year ended December 31, 2010. *Use of Estimates: The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Reserve estimates significantly impact depreciation, depletion and amortization expense and potential impairments of oil and natural gas properties and are subject to change based on changes in oil and natural gas prices and trends and changes in estimated reserve quantities. We analyze estimates, including those related to oil and natural gas reserves, oil and natural gas revenues, the value of oil and natural gas properties, bad debts, asset retirement obligations, derivative contracts, income taxes and contingencies and litigation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Property and Equipment: Oil and natural gas producing activities are accounted for using the successful efforts method of accounting. Under the successful efforts method, lease acquisition costs and all development costs, including unsuccessful development wells, are capitalized. Unproved Properties —* Acquisition costs associated with the acquisition of leases are recorded as unproved leasehold costs and capitalized as incurred. These consist of costs incurred in obtaining a mineral interest or right in a property such as a lease, in addition to options to lease, broker fees, recording fees and other similar costs related to activities in acquiring properties. Leasehold costs are classified as unproved until proved reserves are discovered, at which time related costs are transferred to proved oil and natural gas properties. Exploration Expense — Exploration expenses, other than exploration drilling costs, are charged to expense as incurred. These costs include seismic expenditures and other geological and geophysical costs, expired leases, and lease rentals. The costs of drilling exploratory wells and exploratory-type stratigraphic wells are initially capitalized pending determination of whether the well has discovered proved commercial reserves. If the exploratory well is determined to be unsuccessful, the cost of the well is transferred to expense. Exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify completion as a producing well and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made. Assessments of such capitalized costs are made quarterly. Proved Oil and Natural Gas Properties — Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering, and storing oil and natural gas are capitalized. All costs incurred to drill and equip successful exploratory wells, development wells, development-type stratigraphic test wells, and service wells, including unsuccessful development wells, are capitalized. Impairment — The capitalized costs of proved oil and natural gas properties are reviewed quarterly for impairment in accordance with ASC 360-10-35, “Property, Plant and Equipment, Subsequent Measurement,” or whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset or asset group exceeds its fair market value and is not recoverable. The determination of recoverability is based on comparing the estimated undiscounted future net cash flows at a producing field level to the carrying value of the assets. If the future undiscounted cash flows, based on estimates of anticipated production from proved reserves and future crude oil and natural gas prices and operating costs, are lower than the carrying cost, the carrying cost of the asset or group of assets is reduced to fair value. For our proved oil and natural gas properties, we estimate fair value by discounting the projected future cash flows at an appropriate risk-adjusted discount rate. Unproved leasehold costs are assessed quarterly to determine whether they have been impaired. Individually significant properties are assessed for impairment on a property-by-property basis, while individually insignificant unproved leasehold costs may be assessed in the aggregate. If unproved leasehold costs are found to be impaired, an impairment allowance is provided and a loss is recognized in the consolidated statement of income. Depreciation, Depletion, and Amortization — Depreciation, depletion, and amortization (“DD&A”) of capitalized costs of proved oil and natural gas properties is computed using the unit-of-production method based upon estimated proved reserves. Assets are grouped for DD&A on the basis of reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field. The reserve base used to calculate DD&A for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. The reserve base used to calculate DD&A for lease and well equipment costs, which include development costs and successful exploration drilling costs, includes only proved developed reserves. *Accounts Receivable, net: Our receivables arise from the sale of oil and natural gas to third parties and joint interest owner receivables for properties in which we serve as the operator. This concentration of customers may impact our overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions affecting the oil and gas industry. Accounts receivable are generally not collateralized. Accounts receivable are shown net of an allowance for doubtful accounts of $957,000 and $338,000 at June 30, 2011 and December 31, 2010, respectively. Deferred Financing Costs: Deferred financing costs and the amount of discount at which notes payable have been issued (debt discount) are amortized using the straight-line method, which approximates the interest method, over the term of the related debt. For the three months ended June 30, 2011 and 2010, amortization of deferred financing costs included in interest expense amounted to $790,000 and $506,000, respectively. For the six months ended June 30, 2011 and 2010, amortization of deferred financing costs included in interest expense amounted to $1.7 million and $629,000, respectively. Deferred financing costs are listed among our long-term assets, net of accumulated amortization of $6.4 million and $4.7 million at June 30, 2011 and December 31, 2010, respectively. Financial Instruments: The fair value of cash, accounts receivable, other current assets, and current liabilities approximate book value due to their short-term nature. The estimate of fair value of long-term debt under our senior secured revolving credit facility (“credit facility”) is not considered to be materially different from carrying value due to market rates of interest. The fair value of the debt to our founder is not practicable to determine. We have estimated the fair value of our senior notes payable at $299.3 million and $291 million on June 30, 2011 and December 31, 2010, respectively. See Note 5 for further information on fair values of financial instruments. See Note 8 for information on long-term debt. Recent Accounting Pronouncements* On May 12, 2011, the FASB issued ASU No. 2011-04 to Topic 820, Fair Value Measurements, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” The ASU changes certain definitions of terms used its guidance regarding fair value measurements, as well as modifying certain disclosure requirements and other aspects of the guidance. We are reviewing the ASU, which is effective for interim and annual periods beginning after December 15, 2011. We do not expect adoption of the guidance to have a material impact on our consolidated financial position or results of operations. On June 16, 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Two presentation options remain. Changes in comprehensive income may be reported in a continuous statement of comprehensive income which presents the components of net income as well as the components of comprehensive income. Alternatively, the components of comprehensive income may be reported in a separate statement of comprehensive income, which must immediately follow the statement of net income. The ASU also creates a new requirement that reclassifications from comprehensive income to net income be presented on a gross basis on the face of the financial statements (previously net presentation and footnoting gross information was permitted). The ASU applies to interim and year end reports and is effective for fiscal years beginning after December 15, 2011, and is to be retrospectively applied to all periods presented in such reports. Early adoption is permitted. We do not expect adoption of the guidance to have a material impact on our consolidated financial position or results of operations.

Subsequent Events	6 Months Ended
Subsequent Events	Jun. 30, 2011
Subsequent Events [Abstract]
SUBSEQUENT EVENTS	14. SUBSEQUENT EVENTS Management has evaluated all events subsequent to the balance sheet date of June 30, 2011 to August 12, 2011, which is the date the consolidated financial statements were issued, and has determined that no events require disclosure.

Summary of Organization and Nature of Operations	6 Months Ended
Summary of Organization and Nature of Operations	Jun. 30, 2011
Summary of Organization and Nature of Operations [Abstract]
SUMMARY OF ORGANIZATION AND NATURE OF OPERATIONS	1. SUMMARY OF ORGANIZATION AND NATURE OF OPERATIONS The consolidated financial statements reflect the accounts of Alta Mesa Holdings, LP and its subsidiaries (we, us, our, the “Company,” and “Alta Mesa”) after elimination of all significant intercompany transactions and balances. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual consolidated financial statements for the year ended December 31, 2010, which were filed with the Securities and Exchange Commission in our Registration Statement on Form S-4 (Commission File No. 333-173751). The consolidated financial statements included herein as of June 30, 2011, and for the six month periods ended June 30, 2011 and 2010, are unaudited, and in the opinion of management, the information furnished reflects all material adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of consolidated financial position and of the results of operations for the interim periods presented. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain minor reclassifications of prior period consolidated financial statements have been made to conform to current reporting practices. The consolidated results of operations for interim periods are not necessarily indicative of results to be expected for a full year. We use accounting policies which reflect industry practices and conform to GAAP. As used herein, the following acronyms have the following meanings: “FASB” means the Financial Accounting Standards Board; the “Codification” refers to the Accounting Standards Codification, the collected accounting and reporting guidance maintained by the FASB; “ASC” means Accounting Standards Codification and is generally followed by a number indicating a particular section of the Codification; and “ASU” means Accounting Standards Update, followed by an identification number, which are the periodic updates made to the Codification by the FASB. “SEC” means the Securities and Exchange Commission. Organization: The consolidated financial statements presented herein are of Alta Mesa Holdings, LP and its (i) wholly-owned subsidiaries: Alta Mesa Finance Services Corp., Alta Mesa Eagle, LLC, Alta Mesa Acquisition Sub, LLC, and its direct and indirect wholly-owned subsidiaries, Alta Mesa Energy, LLC, Aransas Resources, LP and its wholly-owned subsidiary ARI Development, LLC, Brayton Resources II, LP, Buckeye Production Company, LP, Galveston Bay Resources, LP, Louisiana Exploration & Acquisitions, LP and its wholly-owned subsidiary Louisiana Exploration & Acquisition Partnership, LLC, Navasota Resources, Ltd., LLP, Nueces Resources, LP, Oklahoma Energy Acquisitions, LP, Alta Mesa Drilling, LLC, Petro Acquisitions, LP, Petro Operating Company, LP, Texas Energy Acquisitions, LP, Virginia Oil and Gas, LLC and Alta Mesa Services, LP, and (ii) partially-owned subsidiaries: Brayton Resources, LP, and Orion Operating Company, LP. Nature of Operations: We are engaged primarily in the acquisition, exploration, development, and production of oil and natural gas properties. Our properties are located primarily in Texas, Oklahoma, Louisiana, Florida and the Appalachian Region.

Partners' Capital	6 Months Ended
Partners' Capital	Jun. 30, 2011
Partners' Capital [Abstract]
PARTNERS' CAPITAL	12. PARTNERS’ CAPITAL In September 2006, our limited partnership agreement was amended such that the affiliates of Alta Mesa Holdings, LP and certain other parties became Class A limited partners (“Class A Partners”) and AMIH was admitted to the partnership as the sole Class B limited partner (“Class B Partner.”) Management and Control: Our business and affairs are managed by Alta Mesa Holdings GP, LLC, our general partner (“General Partner”). With certain exceptions, the General Partner may not be removed except for the reasons of “cause,” which are defined in the Alta Mesa Holdings, LP Partnership Agreement (“Partnership Agreement”). The Class B limited partner has certain approval rights, generally over capital plans and significant transactions in the areas of finance, acquisition, and divestiture. Distribution and Income Allocation: Net cash flow from operations may be distributed to the Class A and Class B Partners based on a variable formula as defined in the Partnership Agreement. After January 1, 2012, the Class B Partner may require the General Partner to make distributions; however, any distribution must be permitted under the terms of our credit facility and our senior notes. Distribution of net cash flow from a Liquidity Event (as defined below) is distributed to the Class A and Class B Partners according to a variable formula as defined in the Partnership Agreement. A “Liquidity Event” is any event in which we receive cash proceeds outside the ordinary course of our business. Further, after January 1, 2012, the Class B Partner can, without consent of any other partners, request that the General Partner take action to cause us, or our assets, to be sold to one or more third parties.

Consolidated Balance Sheets (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
CURRENT ASSETS
Cash and cash equivalents	$ 5,523	$ 4,836
Accounts receivable, net	41,509	38,081
Other receivables	1,947	6,338
Prepaid expenses and other current assets	4,608	2,292
Derivative financial instruments	11,125	10,436
TOTAL CURRENT ASSETS	64,712	61,983
PROPERTY AND EQUIPMENT
Oil and natural gas properties, successful efforts method, net	527,863	442,880
Other property and equipment, net	15,981	13,384
TOTAL PROPERTY AND EQUIPMENT, NET	543,844	456,264
OTHER ASSETS
Investment in Partnership - cost	9,000	9,000
Deferred financing costs, net	13,447	13,552
Derivative financial instruments	8,668	14,165
Advances to operators	5,980	2,699
Deposits	1,323	576
TOTAL OTHER ASSETS	38,418	39,992
TOTAL ASSETS	646,974	558,239
CURRENT LIABILITIES
Accounts payable and accrued liabilities	74,145	87,255
Current portion, asset retirement obligations	1,755	1,617
Derivative financial instruments	3,176	3,092
TOTAL CURRENT LIABILITIES	79,076	91,964
LONG-TERM LIABILITIES
Asset retirement obligations	44,487	41,096
Long-term debt	457,906	371,276
Notes payable to founder	20,309	19,709
Derivative financial instruments	1,704	2,296
Other long-term liabilities	5,440	7,240
TOTAL LONG-TERM LIABILITIES	529,846	441,617
TOTAL LIABILITIES	608,922	533,581
COMMITMENTS AND CONTINGENCIES (NOTE 10)
PARTNERS' CAPITAL	38,052	24,658
TOTAL LIABILITIES AND PARTNERS' CAPITAL	$ 646,974	$ 558,239