Acquisition and Development Agreement

6 Months Ended

Jun. 30, 2011

Acquisition and Development Agreement

Acquisition and Development Agreement

Note 12 - Acquisition and Development Agreement

In June 2011, the Company entered into an Acquisition and Development Agreement (the “Agreement”) with Mitsui  E&P Texas LP (“Mitsui”), an indirect subsidiary of Mitsui & Co., Ltd.  Pursuant to the Agreement, the Company agreed to transfer to Mitsui a 12.5 percent working interest in certain oil and gas assets representing approximately 39,000 net acres in Dimmit, LaSalle, Maverick and Webb Counties, Texas.  The transaction also provides for the conveyance of one-half of the Company’s ownership in related gathering assets for reimbursement of 50 percent of costs incurred on those assets at the time of closing.  The effective date of the transfer of the assets will be March 1, 2011.  The transaction is expected to close in the third quarter of 2011, subject to the satisfaction of closing conditions, including the receipt of certain consents and the resolution of title and environmental defects exceeding specified levels.  In return for the assets transferred, Mitsui has agreed to pay, or carry, 90 percent of certain drilling and completion costs on behalf of the Company and expenses for the affected acreage following the closing of the transaction until Mitsui has expended an aggregate $680.0 million on behalf of the Company, which is estimated to take three to four years based on the operator’s announced drilling plans.  Mitsui will also reimburse the Company for its share of capital expenditures and other costs, net of revenues, related to the period from March 1, 2011, until closing.  The Company will apply these reimbursed costs to the remaining ten percent of the Company’s drilling and completion costs for the affected acreage.