LONG-TERM DEBT AND OTHER LONG-TERM LIABILITIES

Long-Term Debt

As of the dates in the table, long-term debt consisted of the following:



	September 30, 2012		December 31, 2011
	(In thousands)
Credit agreement with an average interest rate of 2.7% at December 31, 2011	$	—	$	50,000
6.625% senior subordinated notes due 2021, net of unamortized discount of $4.8 million at September 30, 2012	645,154		250,000
Total long-term debt	$	645,154	$	300,000

Credit Agreement. On September 5, 2012, we amended our Senior Credit Agreement (credit agreement) scheduled to mature on September 13, 2016 . The amount available to be borrowed is the lesser of the amount we elect (from time to time) as the commitment amount (amended to $500.0 million from $250.0 million) or the value of the borrowing base as determined by the lenders (amended to $800.0 million from $600.0 million), but in either event not to exceed the maximum credit agreement amount of $900.0 million (amended from $750.0 million). We are charged a commitment fee ranging from 0.375 to 0.50 of 1% on the amount available but not borrowed. The rate varies based on the amount borrowed as a percentage of the amount of the total borrowing base. In connection with this new amendment, we paid $1.5 million in origination, agency, syndication, and other related fees. We are amortizing these fees over the life of the credit agreement.

The amount of the borrowing base, which is subject to redetermination by the lenders on April 1st and October 1st of each year, is based primarily on a percentage of the discounted future value of our oil and natural gas reserves. We or the lenders may request a onetime special redetermination of the borrowing base between each scheduled redetermination. In addition, we may request a redetermination following the completion of an acquisition that meets the requirements set forth in the credit agreement.

At our election, any part of the outstanding debt under the credit agreement may be fixed at a London Interbank Offered Rate (LIBOR). LIBOR interest is computed as the sum of the LIBOR base for the applicable term plus 1.75% to 2.50% depending on the level of debt as a percentage of the borrowing base and is payable at the end of each term, or every 90 days, whichever is less. Borrowings not under LIBOR bear interest at the Prime Rate, which cannot be less than LIBOR plus 1.00%. Interest is payable at the end of each month, and the principal may be repaid in whole or in part at anytime, without a premium or penalty. At September 30, 2012, we did not have any outstanding borrowings under our credit facility.

We can use borrowings for financing general working capital requirements for (a) exploration, development, production and acquisition of oil and gas properties, (b) acquisitions and operation of mid-stream assets, (c) issuance of standby letters of credit, (d) contract drilling services, and (e) general corporate purposes.

The credit agreement prohibits, among other things:


•	the payment of dividends (other than stock dividends) during any fiscal year in excess of 30% of our consolidated net income for the preceding fiscal year;


•	the incurrence of additional debt with certain limited exceptions; and


•	the creation or existence of mortgages or liens, other than those in the ordinary course of business, on any of our properties, except in favor of our lenders.

The credit agreement also requires that we have at the end of each quarter:


•	a current ratio (as defined in the credit agreement) of not less than 1 to 1; and


•	a leverage ratio of funded debt to consolidated EBITDA (as defined in the credit agreement) for the most recently ended rolling four fiscal quarters of no greater than 4 to 1.

As of September 30, 2012, we were in compliance with the covenants contained in the credit agreement.

6.625% Senior Subordinated Notes. On May 18, 2011, we completed the sale of $250.0 million of our 6.625% Senior Subordinated Notes due 2021 (the 2011 Notes). The 2011 Notes were issued at par and mature on May 15, 2021. We received net proceeds of approximately $244.0 million after deducting fees of approximately $6.0 million. Those fees are being amortized as debt issuance cost over the life of the 2011 Notes. We used the net proceeds to repay outstanding borrowings under our credit agreement, which was $220.3 million on May 18, 2011. The remaining proceeds were used for working capital. The 2011 Notes were registered under the Securities Act.

On July 24, 2012, we completed the sale of $400.0 million aggregate principal amount of senior subordinated notes (the 2012 Notes) due May 15, 2021, which will bear interest at a rate of 6.625% per year. The 2012 Notes were sold at 98.75% of par plus accrued interest from May 15, 2012. We used the net proceeds from the offering to partially finance the acquisition of oil and natural gas properties from Noble. We incurred $8.7 million of fees that are being amortized as debt issuance cost over the life of the 2012 Notes. The 2012 Notes were not registered under the Securities Act.

Under the registration rights agreement filed with the SEC on Form 8-K on July 25, 2012, we are going to offer to exchange the 2012 Notes for additional notes of our existing 2011 Notes, which are registered under the Securities Act and have terms substantially identical to those of the 2012 Notes. After the exchange is completed, the 2012 Notes that are tendered (the Exchanged Notes) will be treated as a single series of debt securities with the 2011 Notes bringing the total to $650.0 million aggregate principal amount of 6.625% senior subordinated notes if all the 2012 Notes are tendered. The interest is payable semi-annually (in arrears) on May 15 and November 15 of each year, and the notes will mature on May 15, 2021.

The 2011 Notes and the 2012 Notes are, and the Exchange Notes will be, guaranteed by our wholly-owned domestic direct and indirect subsidiaries (the Guarantors). Unit, as the parent company, has no independent assets or operations. The guarantees are full and unconditional and joint and several, subject to certain automatic customary releases, including sale, disposition, or transfer of the capital stock or substantially all of the assets of a subsidiary guarantor, exercise of legal defeasance option or covenant defeasance option, and designation of a subsidiary guarantor as unrestricted in accordance with their respective Indentures described below. Any subsidiaries of Unit other than the Guarantors are minor. There are no significant restrictions on the ability of Unit to receive funds from its subsidiaries through dividends, loans, advances or otherwise.

The 2011 Notes were issued under an Indenture dated as of May 18, 2011, between us and Wilmington Trust FSB, as Trustee (the Trustee), as supplemented by the First Supplemental Indenture dated as of May 18, 2011, between us, the Guarantors and the Trustee, establishing the terms and providing for the issuance of the 2011 Notes (as supplemented, the 2011 Indenture). The 2012 Notes were issued under an Indenture dated as of July 24, 2012 between us, the Guarantors and the Trustee, as supplemented by the First Supplemental Indenture dated as of July 24, 2012, establishing the terms and providing for the issuance of the 2012 Notes (as supplemented, the 2012 Indenture). The discussion of the 2011 Notes and the 2012 Notes in this report is qualified by and subject to the actual terms of the 2011 Indenture and the 2012 Indenture, respectively.

On and after May 15, 2016, we may redeem all or, from time to time, a part of the 2011 Notes, 2012 Notes, or Exchanged Notes (collectively, the Notes) at certain redemption prices, plus accrued and unpaid interest. Before May 15, 2014, we may on any one or more occasions redeem up to 35% of the original principal amount of the Notes with the net cash proceeds of one or more equity offerings at a redemption price of 106.625% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, provided that at least 65% of the original principal amount of the Notes remains outstanding after each redemption. In addition, at any time before May 15, 2016, we may redeem the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount plus a “make whole” premium, plus accrued and unpaid interest, if any, to the redemption date. If a “change of control” occurs, subject to certain conditions, we must offer to repurchase from each holder all or any part of that holder’s Notes at a purchase price in cash equal to 101% of the principal amount of the Notes plus accrued and unpaid interest, if any, to the date of purchase. The 2011 Indenture and the 2012 Indenture contain customary events of default. The Indentures governing the Notes contain covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to incur or guarantee additional indebtedness; pay dividends on our capital stock or redeem capital stock or subordinated indebtedness; transfer or sell assets; make investments; incur liens; enter into transactions with our affiliates; and merge or consolidate with other companies. We were in compliance with all covenants of the Notes as of September 30, 2012.

Other Long-Term Liabilities

Other long-term liabilities consisted of the following:



	September 30, 2012		December 31, 2011
	(In thousands)
Asset retirement obligation (ARO) liability	$	144,849	$	96,446
Workers’ compensation	17,267		17,026
Separation benefit plans	7,484		6,845
Gas balancing liability	3,263		3,263
Deferred compensation plan	2,720		2,463
	175,583		126,043
Less current portion	11,413		12,213
Total other long-term liabilities	$	164,170	$	113,830

Estimated annual principle payments under the terms of debt and other long-term liabilities during each of the five successive twelve month periods beginning October 1, 2012 (and through 2016) are $11.4 million, $23.0 million, $8.4 million, $4.5 million and $3.5 million, respectively.