Credit Facility

At June 30, 2011, the Company had a $75 million revolving line of credit in place with a $60 million borrowing base. The credit facility is collateralized by the Company’s oil and gas producing properties. As of June 30, 2011, the balance outstanding on the credit facility of $32,000 has been used to fund the past three years of development of the Catalina Unit and other non-operated projects in the Atlantic Rim, as well as projects in the Pinedale Anticline. Any balance outstanding on the facility matures on January 31, 2013.

Borrowings under the revolving line of credit bear interest at a daily rate equal to the greater of (a) the Federal Funds rate, plus 0.5%, the Prime Rate or the Eurodollar LIBOR Rate plus 1%, plus (b) a margin ranging between 1.25% and 2.0% depending on the level of funds borrowed. The interest rate on the facility at June 30, 2011 was 2.87%. For the three months ended June 30, 2011 and 2010, the Company incurred interest expense of $232 and $353, respectively, related to the credit facility and $558 and $713 for the six months ended June 30, 2011 and 2010, respectively. The Company capitalized interest costs of $29 and $37 for the three months ended June 30, 2011 and 2010, respectively, and $64 and $87 for the six months ended June 30, 2011 and 2010, respectively.

Under the facility, the Company is subject to both financial and non-financial covenants. The financial covenants include maintaining (i) a current ratio, as defined in the agreement, of 1.0 to 1.0; (ii) a ratio of earnings before interest, taxes, depreciation, depletion, amortization, exploration and other non-cash items (“EBITDAX”) to interest plus dividends, of greater than 1.5 to 1.0; and (iii) a funded debt to EBITDAX ratio of less than 3.5 to 1.0. As of June 30, 2011, the Company was in compliance with all financial covenants. If the Company violates the covenants, and is unable to negotiate a waiver or amendment thereof, the lender would have the right to declare an event of default, terminate the remaining commitment and accelerate all principal and interest outstanding.

In July 2011, the Company entered into a $30 million fixed rate swap contract with a third party as a hedge against the floating interest rate on its credit facility. Under the hedge contract terms, the Company will effectively lock in the Eurodollar LIBOR portion of the interest calculation at approximately 0.578% for a portion of its outstanding debt. The contract is effective July 6, 2011 through December 31, 2012.