18. Oil and Gas Reserves (unaudited)

All information set forth herein relating to our proved reserves, estimated future net cash flows and present values is taken or derived from reports prepared by NSAI. The estimates of these engineers were based upon their review of production histories and other geological, economic, ownership and engineering data provided by and relating to us. No reports on our reserves have been filed with any federal agency. In accordance with the SEC’s guidelines, our estimates of proved reserves and the future net revenues from which present values are derived beginning with 2009 are based on an unweighted 12-month average of the first-day-of-the-month price for the period January through December for that year held constant throughout the life of the properties. Operating costs, development costs and certain production-related taxes were deducted in arriving at estimated future net revenues, but such costs do not include debt service, general and administrative expenses and income taxes.

Proved Oil and Gas Reserve Quantities

The following table sets forth net proved crude oil, natural gas and natural gas liquids reserves, all within the United States, at December 31, 2012, 2011 and 2010, together with the changes therein.

	Crude Oil (MBbls)		Natural Gas (MMcf)		Natural Gas Liquids (MBbls)		Total (Mcfe)
QUANTITIES OF PROVED RESERVES:
Balance December 31, 2010	2,164		135,675		2,973		166,498
Revisions (1)	2		(18,645	)	(165	)	(19,625	)
Extensions, discoveries and additions	1,943		57,311		154		69,890
Sales (2)	22		35		—		170
Production	(397	)	(11,676	)	(418	)	(16,564	)
Balance December 31, 2011	3,734		162,700		2,544		200,369
Revisions (1)	134		(98,683	)	189		(96,738	)
Extensions, discoveries and additions	3,088		5,666		559		27,544
Sales (2)	—		—		—		—
Production	(754	)	(7,799	)	(300	)	(14,126	)
Balance December 31, 2012	6,202		61,884		2,992		117,049
PROVED DEVELOPED RESERVES:
December 31, 2010	1,403		60,325		1,898		80,130
December 31, 2011	1,845		53,024		1,637		73,913
December 31, 2012	2,343		39,554		1,686		63,732
PROVED UNDEVELOPED RESERVES:
December 31, 2010	761		75,350		1,075		86,368
December 31, 2011	1,890		109,676		907		126,456
December 31, 2012	3,859		22,330		1,306		53,317

(1) Periodic revisions to the estimated reserves and future cash flows may be necessary as a result of a number of factors, including reservoir performance, new drilling, oil and natural gas prices, cost changes, technological advances, new geological or geophysical data, or other economic factors.

(2) Sales are calculated based on the beginning of the year reserves adjusted for current year production with no adjustment for revisions.

Capitalized Costs Relating to Oil and Gas Producing Activities

	2012			2011
Unproved oil and gas properties	$	14,016,656		$	17,799,420
Proved oil and gas properties	662,277,626			592,699,504
Wells and related equipment and facilities	63,775,863			52,915,523
	740,070,145			663,414,447
Less accumulated depreciation, depletion, amortization and impairment	(439,829,372		)	(267,614,210		)
Net capitalized costs	$	300,240,773		$	395,800,237

Costs Incurred

The following table shows the costs incurred in our crude oil and gas producing activities for the past three years ended December 31, 2012:

	2012		2011		2010
Property Acquisitions:
Proved	$	—	$	1,101,868	$	—
Unproved	1,724,053		8,221,361		5,774,043
Development Costs	68,636,057		69,595,880		47,973,323
Exploration Costs	10,139,041		10,199,440		2,000,941
Total	$	80,499,151	$	89,118,549	$	55,748,307

These costs include crude oil and gas property acquisition, exploration and development activities regardless of whether the costs were capitalized or charged to expense, including lease rental expenses and geological and geophysical expenses and changes to the long-lived asset related to our asset retirement obligation.

Results of Operations for Oil and Natural Gas Producing Activities

The following table shows the results of operations for oil and natural gas producing activities for the years ended December 31, 2012, 2011 and 2010, respectively:

	2012			2011			2010
Oil, natural gas and natural gas liquids sales	$	108,938,208		$	106,138,430		$	75,019,664
Production costs	18,055,355			21,001,717			22,030,309
Depreciation, depletion and amortization	58,764,443			56,920,515			45,022,272
Impairment and abandonment of oil and gas properties	117,890,239			14,954,633			22,254,059
Income (loss) before income taxes	(85,771,829		)	13,261,565			(14,286,976		)
Income tax benefit (expense)	23,502,016			(4,485,385		)	5,000,118
Results of operations	$	(62,269,813	)	$	8,776,180		$	(9,286,858	)

Sales are based on market prices and exclude the effects of realized derivative hedging gains of $7.0 million, $7.5 million and $20.9 million for the years 2012, 2011 and 2010, respectively. The results of operations for oil and natural gas producing activities exclude general and administrative expenses, interest and other financing charges, gain on sale of assets and the effects of unrealized derivative hedging gains and losses.

Standardized Measure of Discounted Future Net Cash Flows

The following table sets forth as of December 31 for each of the preceding three years, the estimated future net cash flow from and Standardized Measure of Discounted Future Net Cash Flows (“Standardized Measure”) of our proved reserves, which were prepared in accordance with the rules and regulations of the SEC and the Financial Accounting Standards Board. Future net cash flow represents future gross cash flow from the production and sale of proved reserves, net of crude oil, natural gas and natural gas liquids production costs (including production taxes, ad valorem taxes and operating expenses) and future development costs. The calculations used to produce the figures in this table are based on current cost and price factors at December 31 for each year. Future income taxes were estimated using future cash inflows, future tax depletion expense on existing producing properties and available net operating loss carryforwards that existed at year-end for all years reported. At December 31, 2010, the future pretax net cash flows from our proved oil and gas reserves were estimated to be less than the sum of the tax basis of the applicable producing properties and our available NOL carryforwards; therefore, there was zero future tax benefit or expense at December 31, 2010. We believe it is more likely than not that all of our total available NOL carryforwards will be realized within the appropriate carryforward period. Our operations and all NOL carryforwards are attributable to our oil and gas assets. We cannot assure you that the proved reserves will all be developed within the periods used in the calculations or that those prices and costs will remain constant. A Standardized Measure is not required to be presented for interim financial presentation dates.

Standardized Measure relating to proved reserves:

	2012			2011			2010
Future cash inflows	$	895,951,200		$	1,133,153,500		$	860,655,250
Future production and development costs:
Production	(193,747,800		)	(305,301,493		)	(218,221,203		)
Development	(155,937,800		)	(299,390,312		)	(195,819,078		)
Future cash flows before income taxes	546,265,600			528,461,695			446,614,969
Future income taxes	(80,702,813		)	(40,347,466		)	(37,624,289		)
Future net cash flows after income taxes	465,562,787			488,114,229			408,990,680
10% annual discount for estimated timing of cash flows	(169,123,190		)	(232,782,186		)	(182,476,004		)
Standardized measure of discounted future net cash flows	$	296,439,597		$	255,332,043		$	226,514,676

Our calculations of the Standardized Measure include the effect of estimated future income tax expenses for all years reported. At December 31, 2010, the future pretax net cash flows from our proved oil and gas reserves are estimated to be less than the sum of the tax basis of the applicable producing properties and our available NOL carryforwards; therefore, there was zero future tax benefit or expense at December 31, 2010. We believe it is more likely than not that all of our total available NOL carryforwards will be realized within the appropriate carryforward period. Our operations and all NOL carryforwards are attributable to our oil and gas assets.

The following reconciles the change in the Standardized Measure:

	2012			2011			2010
Beginning of year	$	255,332,043		$	226,514,676		$	176,422,700

Changes from:
Change in prices and in production costs	61,122,312			35,843,018			(1,102,871		)
Changes in estimated future development costs	(1,336,336		)	(11,283,184		)	(11,801,896		)
Sales of crude oil, natural gas and natural gas liquids produced, net of production costs	(91,175,504		)	(86,132,123		)	(53,956,677		)
Extensions, discoveries and improved recovery, less related costs	98,539,507			113,088,953			109,361,697
Purchases of minerals in place	—			226,395			—
Sales of minerals in place	—			—			(408,190		)
Revision of quantity estimates	(52,958,824		)	(29,416,407		)	9,476,255
Previously estimated development costs incurred during the period	22,482,000			75,258,100			11,788,100
Accretion of discount	24,482,116			(70,061,524		)	17,642,270
Changes in production rates (timing) and other	12,448,329			(770,619		)	(17,700,497		)
Change in income taxes	(32,496,046		)	2,064,758			(13,206,215		)
Total change in the Standardized Measure	41,107,554			28,817,367			50,091,976

End of year	$	296,439,597		$	255,332,043		$	226,514,676

This disclosure excludes the effects of realized hedges ($6,965,808 gain in 2012; $7,497,604 gain in 2011, $20,912,559 gain in 2010) which are included in crude oil and natural gas sales on the Statements of Operations.