Divestiture

9 Months Ended

Sep. 30, 2011

Divestiture Abstract

Divestiture

(2)  DIVESTITURE

In the second quarter of 2011, the Company sold certain oil and natural gas leases, wells and gathering equipment in Shelby, San Augustine, and Sabine Counties in East Texas for approximately $108.1 million, before customary purchase price adjustments. This divestiture included only the Haynesville and Middle Bossier Shale intervals in the affected acreage, which intervals had net production of approximately 7.0 MMcf per day as of May 25, 2011 and proved net reserves of approximately 25.1 Bcf at December 31, 2010.  Under full cost accounting, this divestiture was accounted for as an adjustment of capitalized natural gas and oil properties with no gain recognized.

At closing, the Company deposited $85.0 million of proceeds from this sale with a qualified intermediary to facilitate potential like-kind exchange transactions pursuant to Section 1031 of the Internal Revenue Code. The remaining funds are classified as restricted cash in the unaudited condensed consolidated balance sheet and, unless utilized for one or more like-kind exchange transactions, are restricted in their use until November 2011.  For the nine months ended September 30, 2011, the Company utilized $15.7 million of these restricted funds for like-kind exchange transactions pursuant to Section 1031 of the Internal Revenue Code.