Credit Facility

At September 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 September 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.

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. 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 locked in the Eurodollar LIBOR portion of the interest calculation at approximately 0.578% for this tranche of its outstanding debt, which based on the Company’s current level of outstanding debt, translates to a an interest rate on this tranche of approximately 3.08%. The contract is effective July 6, 2011 through December 31, 2012.

The average interest rate on the facility at September 30, 2011 was 3.18%. For the three months ended September 30, 2011 and 2010, the Company incurred interest expense related to the credit facility of $260 and $405, respectively, and $818 and $1,118 for the nine months ended September 30, 2011 and 2010, respectively. The Company capitalized interest costs of $29 and $37 for the three months ended September 30, 2011 and 2010, respectively, and $93 and $124 for the nine months ended September 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 September 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.

Subsequent to September 30, 2011, the Company amended its existing credit facility to increase the revolving line of credit to $150 million ($60 million borrowing base) and extended the maturity date of the facility from January 31, 2013 to October 24, 2016. The amendment also lowered the interest rate margin for the level of funds borrowed to between 0.75% and 1.75%.