LONG-TERM DEBT

Long-term debt consists of the following:



	As of December 31,
	2011			2010
	(in thousands)
Senior notes
3.25% Convertible senior notes due 2016:
Principal amount	$	115,000		$	115,000
Unamortized discount	(17,079		)	(20,252		)
3.25% Convertible senior notes due 2016, net of discount	97,921			94,748
12% Senior notes due 2018:
Principal amount	203,000			203,000
Unamortized discount	(1,764		)	(2,053		)
12% Senior notes due 2018, net of discount	201,236			200,947
Total senior notes	299,157			295,695
Credit facilities
Corporate	209,000			—
PDCM	24,000			—
Total credit facilities	233,000			—
Total long-term debt	$	532,157		$	295,695

Senior Notes

3.25% Convertible Senior Notes Due 2016. In November 2010, we issued $115 million of 3.25% convertible senior notes due 2016 in a private placement to qualified institutional buyers. The convertible notes and the common stock issuable upon conversion of the convertible notes, if any, have not been registered under the Securities Act of 1933 ("Securities Act") or any state securities laws, nor are we required to register such convertible notes or common shares. The convertible notes are governed by an indenture dated November 23, 2010, between the Company and the Bank of New York Mellon, as trustee. The maturity for the payment of principal is May 15, 2016. Interest at the rate of 3.25% per year is payable in cash semiannually in arrears on each May 15 and November 15, commencing on May 15, 2011. The convertible notes are senior, unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the convertible notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated (including our 12% senior notes due 2018); effectively junior in right of payment to any of our secured indebtedness (including our obligations under our senior secured credit facility) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries. The indenture governing the convertible notes does not contain any restrictive financial covenants.

We may not redeem the convertible notes prior to the maturity date of the convertible notes. However, prior to November 15, 2015, holders of the convertible notes may convert upon specified events and periods as defined in the governing indenture. The notes are convertible at any time thereafter at an initial conversion rate of 23.5849 per $1,000 principal amount of the convertible notes, which is equal to a conversion price of approximately $42.40 per share. The conversion rate is subject to adjustment upon certain events. Upon conversion, the convertible notes may be settled, at our election, in shares of our common stock, cash or a combination of cash and shares of our common stock. We have initially elected a net-settlement method to satisfy our conversion obligation, which allows us to settle the $1,000 principal amount of the convertible notes in cash and to settle the excess conversion value in shares, as well as cash in lieu of fractional shares.

We allocated the gross proceeds of the convertible notes between the liability and equity components of the debt. The initial $94.3 million liability component was determined based on the fair value of similar debt instruments with similar terms, excluding the conversion feature, and priced on the same day we issued our convertible notes. The initial $20.7 million equity component represents the debt discount and was calculated as the difference between the liability component of the debt and the gross proceeds of the convertible notes. As of December 31, 2011, the unamortized debt discount will be amortized over the remaining contractual term to maturity of the convertible notes of 4.4 years using an effective interest rate of 7.4%. For 2011, interest expense related to the indebtedness and the amortization of the discount were $3.7 million and $3.2 million, respectively, compared to $0.4 million and $0.5 million, respectively, in 2010. As of December 31, 2011 and 2010, notwithstanding the inability to convert, assuming conversion, the value of the convertible notes did not exceed the principal amount.

12% Senior Notes Due 2018. In 2008, we issued $203 million of 12% senior notes due 2018 in a private placement. The notes have not been registered under the Securities Act or any state securities laws, nor are we required to register such notes. The notes are governed by an indenture dated February 8, 2008, between the Company and the Bank of New York, as trustee, as supplemented by the first supplement indenture dated said date. The maturity for the payment of principal is February 15, 2018. Interest at the rate of 12% per year is payable in cash semiannually in arrears on each February 15 and August 15. The senior notes were issued at a discount, 98.572% of the principal amount. The notes are senior unsecured obligations and rank, in right of payment, equally with all of our existing and future senior unsecured indebtedness and senior to any of our existing and future subordinated indebtedness. The notes are effectively subordinated to any of our existing or future secured indebtedness to the extent of the assets securing such indebtedness.

The indenture governing the notes contains customary representations and warranties as well as typical restrictive covenants, with the most restrictive being two incurrence covenants: 1) earnings before interest, taxes, DD&A expense and capital expenditures ("EBITDAX") of at least two times interest expense and 2) total debt of less than 4.0 times EBITDAX. We were in compliance with all covenants as of December 31, 2011, and expect to remain in compliance throughout the next year.

The indenture provides that we may, at our option, redeem all or part of the notes at any time prior to February 15, 2013, at the make-whole price set forth in the indenture, and on or after February 15, 2013, at fixed redemption prices, plus accrued and unpaid interest, if any, to the date of redemption. Further, the indenture provides that upon a change of control, we must give holders of the notes the opportunity to put their notes to us for repurchase at a repurchase price of 101% of the principal amount, plus accrued and unpaid interest.

Bank Credit Facilities

Corporate Credit Facility. We operate under a credit facility dated November 5, 2010, as amended last on October 12, 2011, with an aggregate revolving commitment or borrowing base of $400 million. The maximum allowable facility amount is $600 million. The credit facility is with certain commercial lending institutions and is available for working capital requirements, capital expenditures, acquisitions, general corporate purposes, and to support letters of credit.

Our credit facility borrowing base is subject to size redetermination semiannually based on a quantification of our reserves at December 31 and June 30 and is also subject to a redetermination upon the occurrence of certain events. The borrowing base of the credit facility will be the loan value assigned to the proved reserves attributable to our and our subsidiaries’ natural gas and crude oil interests. The credit facility is secured by a pledge of the stock of certain of our subsidiaries, mortgages of certain producing natural gas and crude oil properties and substantially all of our and such subsidiaries’ other assets. Neither PDCM nor the various limited partnerships for which we have sponsored and continue to serve as the managing general partner are guarantors of the credit facility.

Our outstanding principal amount accrues interest at a varying interest rate that fluctuates with an alternate base rate (equal to the greater of JPMorgan Chase Bank, N.A.'s prime rate, the federal funds rate plus a premium and 1-month LIBOR plus a premium), or at our election, a rate equal to the rate for dollar deposits in the London interbank market for certain time periods. Additionally, commitment fees, interest margin and other bank fees, charged as a component of interest, vary with our utilization of the facility. No principal payments are required until the credit agreement expires on November 5, 2015, or in the event that the borrowing base would fall below the outstanding balance. We pay a fee of 0.5% per annum on the unutilized commitment on our available funds under our credit facility.

The credit facility contains covenants customary for agreements of this type, with the most restrictive being certain financial tests and maintaining certain financial ratios on a quarterly basis. The financial tests and ratios include requirements to: (a) maintain a minimum current ratio, as defined per credit facility, of 1.00 to 1.00 and (b) not exceed a maximum leverage ratio of 4.25 to 1.00 through December 31, 2011, and 4.00 to 1.00 thereafter.

The credit facility contains restrictions as to when we can directly or indirectly, retire, redeem, repurchase or prepay in cash, any part of the principal of the 12% Senior Notes Due 2018 or the 3.25% Convertible Senior Notes Due 2016. Among others, the restriction requires that immediately after giving effect to any such retirement, redemption, defeasance, repurchase, settlement or prepayment the aggregate commitment exceed the aggregate credit exposure by at least the greater of (1) $115 million or (2) an amount equal to or greater than 30% of the aggregate commitment.

We have outstanding an $18.7 million irrevocable standby letter of credit in favor of a third party transportation service provider to secure the construction of certain additions and/or replacements to its facilities to provide firm transportation of the natural gas produced by us and others for whom we market their production in the West Virginia and Southwestern Pennsylvania areas. The letter of credit reduces the amount of available funds under our credit facility by an equal amount. We pay a fronting fee of 0.125% per annum and an additional quarterly maintenance fee equivalent to the spread over Eurodollar loans (2.5% per annum as of December 31, 2011) for the period the letter of credit remains outstanding. The letter of credit expires on May 22, 2012.

As of December 31, 2011, the available funds under our credit facility, including a reduction for the $18.7 million irrevocable standby letter of credit in effect, was $172.3 million. The weighted average borrowing rate on our credit facility, exclusive of the letter of credit, was 3.8% and 4.9% in 2011 and 2010, respectively. We were in compliance with all covenants at December 31, 2011, and expect to remain in compliance throughout the next year.

PDCM Credit Facility. PDCM has a credit facility dated April 30, 2010, as amended last on November 18, 2011, with an aggregate revolving commitment or borrowing base of $80 million. The maximum allowable facility amount is $400 million. PDCM is required to pay a commitment fee of 0.5% per annum on the unutilized portion of the activated credit facility. Based upon PDCM's discretion, interest accrues at either an alternative base rate ("ABR") or an adjusted LIBOR. The ABR is the greater of BNP Paribas' prime rate, the federal funds effective rate plus 0.5% or the adjusted LIBOR for a three month interest period plus 1%. ABR and adjusted LIBOR borrowings are assessed an additional margin based upon the outstanding balance as a percentage of the available balance. ABR borrowings are assessed an additional margin of 1.0% to 1.75%. Adjusted LIBOR borrowings are assessed an additional margin spread of 2.0% to 2.75%. No principal payments are required until the credit agreement expires on April 30, 2014, or in the event that the borrowing base would fall below the outstanding balance. The credit facility is subject to and secured by PDCM's properties, with no recourse to us. The credit facility borrowing base is subject to size redetermination semiannually based upon a quantification of PDCM's reserves at December 31 and June 30; further, either PDCM or the lenders may request a redetermination upon the occurrence of certain events. Pursuant to the interests of the joint venture, the credit facility will be utilized by PDCM for the exploration and development of its Marcellus assets.

The credit facility contains covenants customary for agreements of this type, with the most restrictive being certain financial tests and maintaining certain financial ratios on a quarterly basis. The financial tests and ratios include requirements to: (a) maintain a minimum current ratio of 1.0 to 1.0, (b) not to exceed a debt to EBITDAX ratio of 4.0 to 1.0 and (c) maintain a minimum interest coverage ratio of 2.5 to 1.0. As of December 31, 2011, PDCM was in compliance with all bank credit facility covenants and expects to remain in compliance throughout the next twelve-month period.