Going Concern

6 Months Ended

Jun. 30, 2011

Going Concern [Abstract]

Going Concern

(2) Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern.

On December 29, 2010, the Company entered into a Third Amended and Restated Credit Agreement (the “MBL Credit Agreement”), with Macquarie Bank Limited (“MBL”) as administrative agent and issuing lender as more fully described in Note 6, “Long Term Debt.” Proceeds available from the MBL Credit Agreement were used to substantially reduce amounts outstanding under the Company’s prior credit facility, as well as to extend the maturity of the remaining balance under that credit facility from January 15, 2011 to January 31, 2012, and to fund capital expenditures. On June 28, 2011, the Company amended the MBL Credit Agreement to permit the 2011 Wapiti Transaction.

On June 28, 2011, the Company closed on a transaction with Wapiti Oil & Gas, L.L.C. (“Wapiti”) to sell its remaining interests in various non-core assets primarily located in Texas and Wyoming (the “2011 Wapiti Transaction”) for gross cash proceeds of approximately $43.2 million. Proceeds from the 2011 Wapiti Transaction were used to further reduce amounts outstanding under the MBL Credit Agreement, as well as to fund capital expenditures.

The MBL Credit Agreement, as amended, provides for a revolving loan and a term loan, each with a maturity date of January 31, 2012. At June 30, 2011, zero was outstanding under the revolving loan and $15.0 million was outstanding under the term loan. The Company was in compliance with its financial covenants under the MBL Credit Agreement as of June 30, 2011.

During the six months ended June 30, 2011, the Company experienced a net loss attributable to Delta common stockholders of $28.8 million, and at June 30, 2011 had a working capital deficiency, excluding discontinued operations, of $139.0 million, including $15.0 million outstanding under the MBL Credit Agreement (which is classified as a current liability in the accompanying balance sheet). In addition to the amounts outstanding under the Company’s credit facility which are due on January 31, 2012, the holders of the Company’s $115.0 million 3³/₄% senior convertible notes have the option to require the Company to repurchase the notes at par on May 1, 2012.

While the 2011 Wapiti Transaction and the MBL Credit Agreement provided capital to the Company that helped to improve its financial position, the Company does not have adequate capital to repay its credit facility borrowings due on January 31, 2012 or fund the purchase of convertible notes if the holders of such notes elect to require the Company to repurchase such notes on May 1, 2012, as expected.

The Company believes that the amounts available under the Company’s credit facility, as amended, combined with projected net cash from operating activities, will provide sufficient liquidity to fund its operating expenses, the limited Vega Area capital development plan, and maintain current debt service obligations until the January 2012 maturity of the Company’s credit facility. In order to address the January 2012 maturity of the Company’s credit facility and the expected mandatory redemption in May 2012 of the $115.0 million senior convertible notes, the Company is in the process of seeking additional sources of long-term capital (including the issuance of equity, debt instruments, sales of assets and joint venture financing), as well as consider other potential corporate transactions such as a sale of the Company.

As a result, in July 2011, the Board of Directors of the Company announced that it had engaged Macquarie Capital (USA) Inc. and Evercore Group, L.L.C. to act as advisors to the Company in conducting a strategic alternatives process in order to maximize shareholder value and address the 2012 debt maturities. Through this process, the Board of Directors intends to evaluate all opportunities available, including a potential sale of the Company.

The timing, structure, terms, size, and pricing of any transaction consummated as a result of the strategic alternatives process will depend on investor interest and market conditions, as well as the Company’s drilling and completion results, and there can be no assurance that the Company will be able to obtain any such financing or consummate any such transaction, and if so, that it will be on terms satisfactory to the Company which raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of uncertainty regarding the Company’s ability to raise additional capital, sell assets, or otherwise obtain sufficient funds to meet its obligations.

The DHS Drilling Company (“DHS”) credit facility debt of $69.9 million at June 30, 2011 is included in the accompanying consolidated balance sheets as a component of liabilities related to assets held for sale. DHS has entered into a forbearance agreement, as amended, that currently expires on August 8, 2011. Although DHS is in ongoing negotiations with its lender, Lehman Commercial Paper, Inc. (“LCPI”) to modify the terms of the existing DHS credit facility, there can be no assurance that DHS will be able to renegotiate the terms of its debt agreement or obtain any further extension to the forbearance agreement. If DHS is unable to extend the forbearance agreement or modify the terms of its debt agreement, and if LCPI exercises its default rights upon expiration of the forbearance period, including demanding immediate payment of all amounts outstanding under the debt agreement, DHS is not anticipated to have sufficient capital to repay the amounts due. The DHS facility is non-recourse to Delta. During the first quarter of 2011, the Board of Directors of DHS engaged transaction advisors to commence a strategic alternatives process, focused on a sale of DHS or substantially all of its assets. There can be no assurance that the terms offered by a potential buyer or buyers, if any, will be acceptable to the DHS shareholders, including Delta. Additionally, the consummation of certain transactions are subject to the approval of LCPI and the proceeds received will be required to be used to pay down amounts outstanding under its LCPI credit facility.