9. Debt

Revolving Credit Agreement

We maintain a $400.0 million senior secured revolving credit agreement with Wells Fargo Bank, National Association (“Wells Fargo Bank”), as agent, and the lender parties thereto (the “Senior Credit Agreement”) dated as of July 15, 2005, as amended. Since that time, we have amended and restated this agreement as necessary. Our Senior Credit Agreement provides for aggregate borrowings of up to $400.0 million for acquisitions of crude oil and gas properties and for general corporate cash requirements. The Senior Credit Agreement includes usual and customary covenants for credit facilities of the respective types and sizes, including, among others, limitations on liens, hedging, mergers, asset sales or dispositions, payments of dividends, incurrence of additional indebtedness, certain leases and investments outside of the ordinary course of business, as well as events of default.

The Senior Credit Agreement contains certain financial covenants, including those currently requiring us to maintain (i) a ratio of current assets (including borrowing base availability and excluding derivative instruments) to current liabilities (excluding current portion of long-term debt and derivative instruments) of at least 1.0 to 1.0, (ii) a ratio of our total debt to Adjusted EBITDAX for any four trailing fiscal quarters not greater than 3.50 to 1.00, (iii) a ratio of Adjusted EBITDAX to cash interest expense for any four trailing fiscal quarters not less than 2.75 to 1.00, and (iv) a ratio of the sum of (a) the aggregate outstanding principal amount borrowed under our Senior Credit Agreement plus (b) the aggregate face amount of all outstanding letters of credit, to EBITDAX for the trailing four fiscal quarters not greater than 2.25 to 1.00. EBITDAX represents net income (loss) before net interest expense, income taxes, and depreciation, depletion, amortization and exploration expenses. Adjusted EBITDAX, as defined in our Senior Credit Agreement, represents EBITDAX as further adjusted for (i) unrealized gain or loss on derivative instruments, (ii) non-cash share-based compensation charges, (iii) impaired assets, (iv) other financing costs and (v) gains or losses on the disposition of assets, all of which will be required in determining our compliance with financial covenants under our Senior Credit Agreement and second lien credit agreement.

Borrowings under our Senior Credit Agreement are subject to a borrowing base limitation based on our proved crude oil and natural gas reserves. The borrowing base under our Senior Credit Agreement is currently $100.0 million. The next borrowing base redetermination is scheduled for May 1, 2013 and is subject to semi-annual redeterminations, although our lenders may elect to make one additional redetermination between scheduled redetermination dates. We may also issue up to $200 million in senior unsecured notes. Any such issuance of senior unsecured notes will reduce our borrowing base by 25% of the net proceeds from such issuance in excess of $150 million. Our Senior Credit Agreement also provides for the issuance of letters-of-credit up to a $5.0 million sub-limit. At December 31, 2012, we had $67,600 in letters of credit outstanding and no senior unsecured notes outstanding. All principal amounts, together with all accrued and unpaid interest outstanding under our Senior Credit Agreement will be due and payable in full on May 31, 2015.

Advances under our Senior Credit Agreement are in the form of either base rate loans or LIBOR loans. The interest rate on the base rate loans fluctuates based upon the higher of the lender’s “prime rate” and the Federal Funds rate. The interest rate on the LIBOR loans fluctuates based upon the rate at which Eurodollar deposits in the LIBOR market are quoted for the maturity selected. The applicable margin ranges between 1.75% and 2.75%, for LIBOR loans, and between 0.75% and 1.75%, for base rate loans. The specific applicable interest margin is determined by, in each case, the percent of the borrowing base utilized at the time of the credit extension. LIBOR loans of one, two, three and nine months may be selected. The commitment fee payable on the unused portion of our borrowing base is between 0.375% and 0.500%, depending on the borrowing base utilization.

At December 31, 2012, we had $69.2 million outstanding under our Senior Credit Agreement, with availability of $30.8 million.

Second Lien Credit Agreement

We also maintain a second lien credit agreement, dated December 27, 2010, with Barclays Bank Plc, as agent, and the lender parties thereto, including an affiliate of OCM GW Holdings, LLC (“Oaktree Holdings”), our largest stockholder (the “Second Lien Credit Agreement”) which provided for a term loan, made to us in a single draw, in an aggregate principal amount of $175 million that matures on December 27, 2015. See Note 10 - “Transactions with related parties” for further information.

Advances under our new Second Lien Credit Agreement are in the form of either base rate loans or LIBOR loans. The interest rate on the base rate loans fluctuates based upon the greatest of (i) 4.00% per annum, (ii) the “prime rate”, (iii) the Federal Funds Effective Rate plus ½ of 1% and (iv) the LIBO rate for a one month interest period plus 1.00%. The applicable margin for base rate loans is 8.50%. The interest rate on the LIBOR loans fluctuates based upon the higher of (i) 3.0% per annum and (ii) the LIBOR rate per annum. The applicable margin for LIBOR loans is 9.50%.

In addition to certain of the Senior Credit Agreement covenants described above, the Second Lien Credit Agreement also requires the ratio of PV-10 Value to total Net Debt to be greater than 1.50 to 1.00. The PV-10 Value represents the present value of estimated future revenues less severance and ad valorem taxes, operating, gathering, transportation and marketing expenses and capital expenditures from the production of proved reserves on our oil and gas properties as set forth in the most recent reserve reports. At December 31, 2012, we had a principal amount of $175.0 million outstanding under our Second Lien Credit Agreement, with a discount of $4.7 million using the estimated market value interest rate at the time of issuance, for a net balance of $170.3 million.

Summary

At December 31, 2012, we were in compliance with the covenants under our Senior Credit Agreement and Second Lien Credit Agreement.

The Senior Credit Agreement and the Second Lien Credit Agreement (the “Credit Agreements”) are secured by liens on substantially all of our assets, as well as security interests in the stock of our subsidiaries. The liens securing the Second Lien Credit Agreement are junior to those securing the Senior Credit Agreement. Interest is payable under the Credit Agreements as interim borrowings mature.

Our debt consists of the following:

	December 31,
	2012			2011
Senior Credit Agreement (weighted average interest rate in effect at December 31, 2012 was 2.76%)	$	69,102,161		$	20,977,937
Second Lien Credit Agreement (interest rate in effect at December 31, 2012 was 12.50%)	175,000,000			175,000,000
	244,102,161			195,977,937
Less: Unamortized debt discount	(4,733,296		)	(5,936,004		)
Total long-term debt	$	239,368,865		$	190,041,933

Estimated annual maturities for long-term debt are as follows:

	Long-Term Debt
2013	—
2014	—
2015	244,102,161
2016	—
2017
Total	$	244,102,161