(7) Indebtedness

The following table sets forth our indebtedness.


	December 31,
	2012		2011
	(In thousands)
8.25% senior notes issued February 14, 2011, face amount of $210.0 million, interest rate of
8.25% payable semi- annually, in arrears on February 15 and August 15 of each year,
maturity date February 15, 2018	$	205,125	$	204,390
8.25% senior notes issued October 25, 2012, face amount of $300.0 million, interest rate of
8.25% payable semi-annually, in arrears on February 15 and August 15 of each year,
maturity date February 15, 2018		289,786		-
Senior credit facility, interest rate based on base rate or LIBOR plus a floating spread, maturity
date October 31, 2016		195,000		-
Total indebtedness		689,911		204,390
Current portion of indebtedness		-		-
Noncurrent portion of indebtedness	$	689,911	$	204,390

On October 25, 2012, we issued the $300.0 million in aggregate principal amount of our 2012 Senior Notes. On October 31, 2012, we obtained an increase in our senior credit facility from $250.0 million to $750.0 million. The net proceeds from the sale of our 2012 Senior Notes and borrowings under our senior credit facility were used to fund the Hilcorp Acquisition (see Note 2).

On February 14, 2011, in connection with the ASOP Acquisition (see Note 2), we issued the $210.0 million in aggregate principal amount of our 2011 Senior Notes. Furthermore, our credit facility existing on that date was terminated and replaced with our senior credit facility. The termination of our prior credit facility during the year ended December 31, 2011 resulted in a loss on early extinguishment of debt of $2.4 million, primarily due to writing off the unamortized deferred financing costs associated with the terminated facility.

2012 Senior Notes

On October 25, 2012, we issued the $300.0 million in aggregate principal amount of our 2012 Senior Notes under an Indenture dated as of October 25, 2012 (the “2012 Indenture”). As described in Note 2, “Acquisitions,” we used the net proceeds from the offering of the 2012 Senior Notes of $289.5 million, after deducting the initial purchasers’ discount, to fund a portion of the Hilcorp Acquisition. The 2012 Senior Notes bear interest from August 15, 2012 at an annual rate of 8.25% with interest due semi-annually, in arrears on February 15th and August 15th of each year commencing on February 15, 2013. The purchase price of the 2012 Senior Notes included $4.8 million of accrued interest for the period from August 15, 2012 to October 25, 2012, which we recorded as interest payable. The 2012 Senior Notes are fully and unconditionally guaranteed on a senior basis initially by each of our existing direct and indirect domestic subsidiaries (other than immaterial subsidiaries). The 2012 Senior Notes mature on February 15, 2018. The effective interest rate on the 2012 Senior Notes is approximately 9.2%.

The 2012 Senior Notes were offered in a private placement only to qualified institutional buyers under Rule 144A promulgated under the the Securities Act, or to persons outside of the United States in compliance with Regulation S promulgated under the Securities Act. The 2012 Senior Notes have terms that are substantially identical to the terms of our 2011 Senior Notes, other than with respect to special mandatory redemption provisions related to the closing of the Hilcorp Acquisition. Such provisions are now inapplicable because the Hilcorp Acquisition has closed. However, the 2012 Senior Notes were issued under a different indenture as a separate class of securities and therefore, until exchanged for an issue of additional notes to be publicly registered (the “Exchange Notes”), will not trade together with the 2011 Senior Notes. Pursuant to a registration rights agreement executed as part of the sale of the 2012 Senior Notes (the “Registration Rights Agreement”), we have agreed to issue publicly registered additional notes under our Indenture, dated as of February 14, 2011 (the “2011 Indenture”), in exchange for the 2012 Senior Notes.

Under the Registration Rights Agreement, we and our guarantor subsidiaries (the “Guarantors”) agreed to file a registration statement with the SEC offering to exchange the 2012 Senior Notes for the Exchange Notes under the 2011 Indenture which notes have terms substantially identical to the 2012 Senior Notes (except that the Exchange Notes will not be subject to restrictions on transfer or contain terms with respect to the payment of liquidation damages). We and the Guarantors have agreed to (i) file a registration statement for the Exchange Notes with the SEC on or prior to March 24, 2013, which is the date that is 150 days after the October 25, 2012 closing of the 2012 Senior Notes offering; (ii) use commercially reasonable efforts to cause the registration statement to be declared effective as soon as practicable, but in any event on or prior to May 23, 2013, which is the date that is 210 days after the October 25, 2012 closing of the 2012 Senior Notes offering; and (iii) use commercially reasonable efforts to close the exchange offer on or prior to 30 business days after the registration statement is declared effective. In certain circumstances, we may be required to file a shelf registration statement to cover resales of the notes. The use of the shelf registration statement will be subject to certain customary suspension periods. If we and the Guarantors do not meet these deadlines, we will be required to pay special interest to holders of notes under certain circumstances.

2011 Senior Notes

On February 14, 2011, we issued the $210.0 million in aggregate principal amount of our 2011 Senior Notes under the 2011 Indenture, dated as of February 14, 2011. As described in Note 2, “Acquisitions,” we used the net proceeds from the offering of the 2011 Senior Notes of $202.0 million, after deducting the initial purchasers’ discount and offering expenses payable by us, to acquire the ASOP Properties for a purchase price of $200.7 million, before adjustments to reflect an economic effective date of January 1, 2011, and for general corporate purposes. The 2011 Senior Notes bear interest from the date of their issuance at an annual rate of 8.25% with interest due semi-annually, in arrears, on February 15th and August 15th of each year, commencing on August 15, 2011. The 2011 Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured senior basis initially by each of our existing direct and indirect domestic subsidiaries (other than immaterial subsidiaries). The 2011 Senior Notes will mature on February 15, 2018. The effective interest rate on the 2011 Senior Notes is approximately 9.0%.

The 2011 Senior Notes were offered in a private placement only to qualified institutional buyers under Rule 144A promulgated under the Securities Act, or to persons outside of the United States in compliance with Regulation S promulgated under the Securities Act. In connection with the execution of the Original Indenture, we also entered into a registration rights agreement, dated as of February 14, 2011. Under this agreement, on July 14, 2011, we and our guarantor subsidiaries filed a registration statement with the SEC, which was declared effective on July 26, 2011, offering to exchange a new series of freely tradable notes having substantially identical terms as the 2011 Senior Notes (“Original Exchange Notes”) for the 2011 Senior Notes. Pursuant to this offering, 100% in aggregate principal amount of the 2011 Senior Notes was exchanged for the 2011 Exchange Notes, effective as of August 29, 2011.

On or after February 15, 2015, we may on any one or more occasions redeem all or a part of the 2012 Senior Notes and 2011 Senior Notes (collectively, the “8.25% Notes) upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and special interest, if any, on the notes redeemed, to the applicable date, if redeemed during the twelve-month period beginning on February 15 of the years indicated below, subject to the rights of holders of notes on the relevant record date to receive interest on the relevant interest payment date:


Year	Percentage
2015	104.125%
2016	102.063%
2017 and thereafter	100.000%

Any such redemption and notice may, in our discretion, be subject to the satisfaction of one or more conditions, precedent, including, but not limited to, the occurrence of a change of control. Unless we default in the payment of the redemption price, interest will cease to accrue on the 8.25% Notes or portions thereof called for redemption on the applicable redemption date.

At any time prior to February 15, 2014, we may, at our option, on any one or more occasions redeem with the net cash proceeds of certain equity offerings up to 35% of the aggregate principal amount of outstanding 8.25% Notes (which amount includes additional notes issued under the 2011 Indenture and the 2012 Indenture (together, the “Indentures”), upon not less than 30 nor more than 60 days’ notice, at a redemption price equal to 108.25% of the principal amount of the notes redeemed, plus the accrued and unpaid interest and special interest, if any, to the redemption date, provided that: (1) at least 65% of the aggregate principal amount of notes issued under the Indentures (which amount includes additional notes under the Indentures) remains outstanding immediately after the occurrence of such redemption; and (2) the redemption occurs within 90 days of the date after the closing of such equity offering. This option to redeem up to 35% of the aggregate principal amount of outstanding 8.25% Notes with the net cash proceeds of certain equity offerings is considered an embedded derivative. We estimate that the fair value of this option at December 31, 2012 is not material. In addition, we may, at our option, on any one or more occasions redeem all or a part of the 8.25% Notes prior to February 15, 2015 at a redemption price equal to 100% of the principal amount of the 8.25% Notes redeemed plus a “make-whole” premium as of, and accrued and unpaid interest to the redemption date.

If we experience a change of control (as defined in the Indentures), each holder of the 8.25% Notes will have the right to require us to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000 in excess thereof) of the 8.25% Notes at a price in cash equal to 101% of the aggregate principal amount of the 8.25% Notes repurchased, plus accrued and unpaid interest to the date of repurchase. If we engage in certain asset sales, within 360 days of such sale, we generally must use the net cash proceeds from such sales to repay outstanding senior secured debt (other than intercompany debt or any debt owed to an affiliate), to acquire all or substantially all of the assets, properties or capital stock of one or more companies in our industry, to make capital expenditures or to invest in our business. When any such net proceeds that are not so applied or invested exceed $20.0 million, we must make an offer to purchase the 8.25% Notes and other pari passu debt that is subject to similar asset sale provisions in an aggregate principal amount equal to the excess net cash proceeds. The purchase price of each 8.25% Note (or other pari passu debt) so purchased will be 100% of its principal amount, plus accrued and unpaid interest to the repurchase date, and will be payable in cash.

The Indentures, among other things, limit our ability to: (i) declare or pay dividends, redeem subordinated debt or make other restricted payments; (ii) incur or guarantee additional debt or issue preferred stock; (iii) create or incur liens; (iv) incur dividend or other payment restrictions affecting restricted subsidiaries; (v) consummate a merger, consolidation or sale of all or substantially all of our assets; (vi) enter into sale-leaseback transactions, (vii) enter into transactions with affiliates; (viii) transfer or sell assets; (ix) engage in business other than our current business and reasonably related extensions thereof; or (x) issue or sell capital stock of certain subsidiaries. These covenants are subject to a number of important exceptions and qualifications set forth in the Indentures.

Senior Credit Facility

On February 14, 2011, we entered into our senior secured credit facility with BMO Capital Markets, as lead arranger, and Bank of Montreal, as administrative agent and a lender, and the other lender parties thereto (as amended and restated, the “Senior Credit Facility”). The original terms of our Senior Credit Facility established a revolving credit facility with a four-year term that could be used for revolving credit loans and letters of credit up to an aggregate principal amount of $250.0 million. On October 31, 2012, in connection with the Hilcorp Acquisition, through an amendment and restatement of our Senior Credit Facility, the aggregate commitment under this facility was increased to a maximum of $750.0 million and the maturity date was extended to October 31, 2016. The maximum amount of letters of credit that may be outstanding at any one time is $20.0 million. The amount available under the revolving credit facility is limited by the borrowing base. The borrowing base under our Senior Credit Facility has been determined at the discretion of the lenders, based on the collateral value of our proved reserves and is subject to potential special and regular semi-annual redeterminations. On October 31, 2012, the borrowing base under the expanded credit facility was increased from $200.0 million to $425.0 million. On October 31, 2012, we borrowed $205.0 million under the Senior Credit Facility to fund a portion of the purchase price and related expenses of the Hilcorp Acquisition. As of December 31, 2012, we had $195.0 million drawn under our Senior Credit Facility, and the borrowing base remains at $425.0 million. We had no amounts drawn under our Senior Credit Facility at December 31, 2011.

The interest rate spread on loans and letters of credit under our Senior Credit Facility is based on the level of utilization and range from a base rate plus a margin of 0.75% to 1.75% for base rate borrowings and LIBOR plus a margin of 1.75% to 2.75% for LIBOR borrowings. Commitment fees ranging from 0.375% to 0.50% are payable on the unused portion of the borrowing base. Interest on our base rate borrowings is payable quarterly, in arrears, and interest on our LIBOR borrowings is payable on the last day of each relevant interest period, except that in the case of any interest period that is longer than three months, interest is payable on each successive date three months after the first day of such interest period.

Our Senior Credit Facility contains customary covenants, default provisions and collateral requirements. As described in the agreement underlying our Senior Credit Facility, we must maintain, for each period for which a covenant certification is required, (a) a minimum current ratio (as defined in the agreement for our Senior Credit Facility) of 1.0 to 1.0 and (b) a maximum total debt to EBITDAX ratio of 3.5 to 1.0. We are also required to maintain a commodities hedging program that is in compliance with the requirements set forth in our Senior Credit Facility. Our Senior Credit Facility also places restrictions on the maximum estimated future production volumes that can be subject to commodity derivative instruments.

Our obligations under our Senior Credit Facility, as well as any hedging contracts and treasury management agreements with the lenders or affiliates of lenders, are secured by substantially all of our assets, including a) mortgages on at least 80% of the total value of our oil and gas properties evaluated in the most recently completed reserve report, after giving effect to exploration and production activities, acquisitions and dispositions, and b) the stock of certain wholly-owned subsidiaries.