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Bank Credit Facility

9 Months Ended

12 Months Ended

Sep. 30, 2011

Dec. 31, 2010

Note 7 — Bank Credit Facility

On April 21 and June 10, 2011, Nytis LLC amended its credit facility with the Bank of Oklahoma. The credit facility’s maturity date was extended from May 2012 to May 2014. The facility’s borrowing base was increased from $8 million to $20 million and the maximum line of credit available under hedging arrangements was increased from $2.7 million to $5.0 million. The Funded Debt Ratio (the ratio of the outstanding balance of all interest bearing indebtedness to the sum of EBITDAX (net income plus interest expense, income taxes, depreciation, depletion, amortization, exploration and impairment expenses and other non-cash charges) for the most recently completed four consecutive fiscal quarters) increased from 3.5 to 1 to 4.25 to 1. In connection with these amendments to the credit facility, Carbon entered into an agreement with the Bank of Oklahoma to guaranty Nytis LLC’s obligations under its credit facility. Nytis LLC also granted the Bank of Oklahoma a security interest in certain of the assets it recently acquired from ING and their related parties and Alerion Drilling (see Note 4).

No repayments of principal are required until maturity, except to the extent that outstanding balances exceed the borrowing base then in effect; however, the Company has the right both to repay principal at any time and to reborrow. Subject to the agreement of the Company and the lender, the size of the credit facility may be increased up to $50 million. As of September 30, 2011, the borrowing base was $20.0 million. The borrowing base is redetermined semi-annually, and the available borrowing amount could be increased or decreased as a result of such redeterminations. Under certain circumstances the lender may request an interim redetermination. The facility has variable interest rates based upon the ratio of outstanding debt to the borrowing base. Interest rates are based on either an Alternate Base Rate or LIBOR. The portion of the loan based on an “Alternate Base Rate” is determined by the rate per annum equal to the greatest of the following: (a) the Federal Funds Rate for such day plus one-half of one percentage point, (b) the Prime Rate for such day or (c) LIBOR for a one-month LIBOR Interest Period plus one percentage point; plus 1.5%. The portion based on LIBOR is determined by the rate per annum equal to LIBOR plus between 2.5% and LIBOR plus 3.25% for each LIBOR tranche. For all debt outstanding regardless if the loan is based on the Alternative Base Rate or LIBOR, there is a minimum floor of 4.5% per annum. In addition, the credit facility includes a hedging component that provides a line of credit under commodity swap, exchange, collar, cap and fixed price agreements and agreements designated to protect the Company against changes in interest and currency exchange rates. The maximum amount of credit on this line is $5.0 million.

At September 30, 2011, there were approximately $8.5 million in outstanding borrowings under the credit facility. The Company’s effective borrowing rate at September 30, 2011 was 4.5%. The credit facility is collateralized by substantially all of the Company’s oil and gas assets. The credit facility includes terms that place limitations on certain types of activities and the payment of dividends, and requires satisfaction of a current ratio (the ratio of current assets to current liabilities as defined) of 1.0 to 1.0 and a maximum Funded Debt Ratio of 4.25 to 1.0 as of the end of any fiscal quarter. The Company is in compliance with all covenants associated with the credit agreement as of September 30, 2011.

Note 7 — Bank Credit Facility

On May 31, 2010, the Company amended its credit facility with the Bank of Oklahoma. The credit facility matures in May 2012. No repayments of principal are required until maturity, except to the extent that outstanding balances exceed the borrowing base then in effect; however, the Company has the right both to repay principal at any time and to reborrow. Subject to the agreement of the Company and the lender, the size of the credit facility may be increased up to $50.0 million. As of December 31, 2010, the borrowing base was $8.0 million. The borrowing base is redetermined semi-annually, and the available borrowing amount could be increased or decreased as a result of such redeterminations. Under certain circumstances the lender may request an interim redetermination. The facility has variable interest rates based upon the ratio of outstanding debt to the borrowing base. Interest rates are based on either an Alternative Base Rate or LIBOR. The portion of the loan based on an “Alternate Base Rate” is determined by the rate per annum equal to the greatest of the following: (a) the Federal Funds Rate for such day plus one-half of one percentage point, (b) the Prime Rate for such day or (c) LIBOR for a one-month LIBOR Interest Period plus 2.5%; plus 1.5%. The portion based on LIBOR is determined by the rate per annum equal to LIBOR plus between 2.5% and 3.25% for each LIBOR tranche.

For all debt outstanding regardless of whether the loan is based on the Alternative Base Rate or LIBOR, there is a minimum floor of 4.5% per annum. In addition, the credit facility includes a hedging component that provides a line of credit under commodity swap, exchange, collar, cap and fixed price agreements and agreements designated to protect the Company against changes in interest and currency exchange rates. The maximum amount of credit on this line is $2.7 million. The credit facility is collateralized by substantially all of the Company’s oil and gas assets. The credit facility includes terms that place limitations on certain types of activities and the payment of dividends, and requires satisfaction of a minimum current ratio (the ratio of current assets to current liabilities) of 1.0 to 1.0 and a maximum Funded Debt Ratio (the ratio of the outstanding balance of all interest bearing indebtedness to the sum of EBITDAX (net income plus interest expense, income taxes, depreciation, depletion, amortization, exploration and impairment expenses and other non-cash charges) for the most recently completed four consecutive fiscal quarters) of 3.5 to 1.0 as of the end of any fiscal quarter.

As of December 31, 2010 and 2009, outstanding balances on the credit facility were approximately $3.1 million and $24.0 million, respectively. The Company’s effective borrowing rate at December 31, 2010 and 2009 was 4.8% and 4.5%, respectively. The Company is in compliance with all covenants associated with the credit agreement as of December 31, 2010. As of December 31, 2010, there were no outstanding borrowings under the hedging component of the line of credit.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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