**UNITED
      STATES SECURITIES AND EXCHANGE**


**COMMISSION**


**Washington,
      D.C. 20549**


_______________


**FORM
      10-K**


**(Mark
      One)**




**[X]**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) **OF
                THE SECURITIES EXCHANGE ACT OF
                1934****





**For
      the fiscal year ended December 31, 2005**




**OR**




**[_]**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) **OF
                THE SECURITIES EXCHANGE ACT OF
                1934****







**Commission
      file number: 814-00672**





**NGP
      Capital Resources Company**


(Exact
      name of registrant as specified in its charter)





**Maryland**
              (State
                or other jurisdiction of
              incorporation
                or organization)
            **20-1371499**
              (I.R.S.
                employer
              identification
                number)**1221
                McKinney Street, Suite 2975**
              **Houston,
                Texas**
              (Address
                of principal executive offices)
            **77010**
              (Zip
                Code)





**(713)
      752-0062**


(Registrant’s
      telephone number, including area code)





**Securities
      registered pursuant to Section 12(b) of the Act: None**




**Securities
      registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value
      per share.**




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes
            [
                 ]
            No
            [X]





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange Act.


Yes
            [ 
                ]
            No
            [X]





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes
            [X]
            No
            [ 
                ]





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. [X]





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.


Large
                accelerated filer
            [
                 ]
            Accelerated
                filer
            [X]
            Non-accelerated
                filer
            [ 
                ]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes
            [ 
                ]
            No
            [X]





As
      of June
      30, 2005, the aggregate market value of the registrant’s common stock held by
      non-affiliates of the registrant was $258,109,840 based on the closing sale
      price as reported on the National Association of Securities Dealers Automated
      Quotation System National Market System.





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.





Class
            
            Outstanding
                at March 9, 2006Common
                Stock, $.001 par value per share
            
            17,400,100
                shares





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Document
            
            Parts
                Into Which IncorporatedAnnual
                Report to Stockholders for the Fiscal Year Ended December 31, 2005
                (Annual
                Report)
            
            Parts
                I and IIProxy
                Statement for the Annual Meeting of Stockholders to be held May 17,
                2006
                (Proxy Statement)
            
            Part
                III












**TABLE
      OF CONTENTS**




**Page**PART
                I
            
            1Item
                1
            Business
            1Item
                1A
            Risk
                Factors
            10Item
                1B
            Unresolved
                Staff Comments
            22Item
                2
            Properties
            22Item
                3
            Legal
                Proceedings
            23Item
                4
            Submission
                of Matters to a Vote of Security Holders
            23PART
                II
            
            23Item
                5
            Market
                for Registrant's Common Equity, Related Stockholder
                Matters and Issuer Purchases of Equity
                Securities
            23Item
                6
            Selected
                Financial Data
            23Item
                7
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations
            24Item
                7A
            Quantitative
                and Qualitative Disclosures About Market Risk
            31Item
                8
            Financial
                Statements and Supplementary Data
            32Item
                9
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure
            50Item
                9A
            Controls
                and Procedures
            50Item
                9B
            Other
                Information
            51PART
                III
            
            51Item
                10
            Directors
                and Executive Officers of the Registrant
            51Item
                11
            Executive
                Compensation
            52Item
                12
            Security
                Ownership of Certain Beneficial Owners and
                Management
            52Item
                13
            Certain
                Relationships and Related Transactions
            52Item
                14
            Principal
                Accountant Fees and Services
            52PART
                IV
            
            52Item
                15
            Exhibits,
                Financial Statement Schedules
            52














**PART
      I.**




**Item
      1.** **Business.**




**Introduction**





**NGP
      Capital Resources Company**




We
      are a
      financial services company organized in July 2004 as a Maryland corporation
      to
      invest primarily in small and mid-size private energy companies, which we
      generally define as companies that have net asset values or annual revenues
      of
      less than $500 million and are not issuers of publicly traded securities. Our
      investment objective is to generate both current income and capital appreciation
      primarily through debt investments with certain equity components. We are
      classified as a business development company under the Investment Company Act
      of
      1940 (the “1940 Act”). In addition, for tax purposes we have elected to be
      treated as a regulated investment company, or RIC, under the Internal Revenue
      Code of 1986 (the “Code”), as amended.





A
      key
      focus area for our targeted investments in the energy industry is domestic
      exploration and production (“E&P”) businesses and midstream businesses that
      gather, process and transport oil and gas. We also evaluate investment
      opportunities in such businesses as coal, power, electricity, energy services
      and alternative energy. Our investments will generally range in size from $10
      million to $50 million, although a few investments may be substantially in
      excess of this range. Our targeted investments primarily consist of debt
      instruments, including senior and subordinated loans combined in one facility
      with an equity component, subordinated loans and subordinated loans with equity
      components and preferred stock or similar securities.





**Our
      Manager**




Our
      operations are conducted by our external manager, NGP Investment Advisor, L.P.
      (the “Manager”), pursuant to an investment advisory agreement between us. Our
      Manager is owned by Natural Gas Partners, L.L.C. (“NGP”) and our administrator,
      NGP Administration, LLC. NGP manages the Natural Gas Partners private equity
      funds (“NGP Funds”), which have specialized in providing equity capital to the
      energy industry since November 1988. Kenneth A. Hersh and David R. Albin, who
      serve on our Board of Directors, are co-Chief Executive Officers of NGP and
      have
      directed the investment of the NGP Funds during the eighteen year period since
      the inception of the initial fund.





Our
      Manager’s day-to-day operations are managed by our executive officers: John H.
      Homier, President and Chief Executive Officer; Richard A. Bernardy, Chief
      Operating Officer; and Stephen K. Gardner, Chief Financial Officer and
      Treasurer, who have more than 60 years combined experience in the energy and
      finance industries. Mr. Homier and Mr. Bernardy worked together for more than
      10
      years at two separate major financial institutions at which they were
      responsible for building and managing successful energy finance businesses.
      Mr.
      Gardner has substantial experience as a Chief Financial Officer of both public
      and private energy companies.





Our
      Manager’s investment decisions are reviewed and approved by its investment
      committee, consisting of Mr. Homier, our Chief Investment Officer, Mr. Hersh,
      our Board Chairman, and two other senior NGP investment professionals. The
      investment committee is supported by NGP Investment Advisor, L.P.’s team of
      eight investment professionals.





**Corporate
      Information**




Our
      executive offices are located at 1221 McKinney Street, Suite 2975, Houston,
      Texas 77010 and our telephone number is (713) 752-0062.




Our
      corporate website is www.ngpcrc.com .
      We make
      available free of charge on our website our annual report on Form 10-K,
      quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments
      to those reports as soon as reasonably practicable after such material is
      electronically filed with or furnished to the SEC.







1





**Our
      Energy Investment Focus**





The
      energy
      industry broadly includes three sectors, generally categorized as
      follows:





·
            *Upstream*-
                businesses that find, develop and extract energy resources, including
                natural gas, crude oil and coal from onshore and offshore geological
                reservoirs.·
            *Midstream*-
                businesses that gather, process, store and transmit energy resources
                and
                their byproducts in a form that is usable by wholesale power generation,
                utility, petrochemical, industrial and gasoline customers, including
                pipelines, gas processing plants, liquefied natural gas facilities
                and
                other energy infrastructure.·
            *Downstream*-
                businesses that refine, market and distribute refined energy resources,
                such as customer-ready natural gas, propane and gasoline, to end-user
                customers and businesses engaged in the generation, transmission
                and
                distribution of power and
                electricity.





Within
      these broad sectors, our key area of focus is small and mid-size energy
      companies engaged in the upstream and midstream oil and gas sectors. In
      addition, we seek investment opportunities for investments related to coal,
      power, electricity, energy services and alternative energy
      businesses.





**Investments**





We
      seek to
      create a varied portfolio of investments in the energy industry. To date most
      of
      our investments have been between approximately $10 million to $50 million
      in
      the securities of small and mid-size energy companies. However, we may invest
      more or less depending on market conditions and our Manager’s view of a
      particular investment opportunity. See “Targeted Investments” below for a
      description of the types of targeted investments on which we focus.





Since
      commencing investment operations in November 2004 through December 31, 2005,
      we
      have invested $126.7 million in seven portfolio companies, all energy-related,
      and received principal prepayments of $33.6 million. Our portfolio companies
      are
      engaged in acquisition, development and production of oil and gas properties
      on
      and offshore California, on the Texas Gulf Coast, on and offshore Texas and
      Louisiana and in the Rocky Mountains. At December 31, 2005, our targeted
      investment portfolio consisted of six portfolio companies and was invested
      19%
      in senior subordinated secured term loans, 13% in senior secured term loans,
      5%
      in unsecured senior notes and 1% in convertible preferred stock, warrants and
      overriding royalty interests. The balance of our portfolio was invested 8%
      in
      corporate notes and 54% in US Treasury bills and cash equivalents.





Our
      weighted average yield on targeted portfolio investments was 12.9% at December
      31, 2005. The weighted average yield on investments in corporate notes was
      5.4%
      and on investments in US Treasury bills and cash equivalents was 3.3% as of
      December 31, 2005. The weighted average yield on our total capital invested
      at
      December 31, 2005 was 7.0%.





**Our
      Investment Approach**




Our
      investment approach seeks attractive returns while limiting potential loss.
      We
      often seek some level of participation in the equity upside of our portfolio
      companies or their assets.




In
      the
      process of screening and evaluating potential investment opportunities our
      Manager considers the following general criteria. However, not all of these
      criteria may be met by each prospective investment.




·
            *Strong
                Management*.
                We
                recognize the importance of strong, committed management teams to
                the
                success of an investment and seek to invest in companies with management
                teams that generally have strong technical, financial, managerial,
                and
                operational capabilities and a competitive edge in certain aspects
                of
                their businesses, which may come from extensive experience and knowledge
                in certain geographical areas and/or superior technological or
                transactional capabilities.






2








·
            *Identified
                Properties With Development-Oriented Risk*.
                Our investment philosophy places a premium on investments having
                strong
                underlying asset values established by engineering and technical
                analysis,
                rather than investments that rely solely on rising energy commodity
                prices, exploratory drilling success, or factors beyond the control
                of a
                portfolio company. We focus on companies that have strong potential
                for
                enhancing asset value through factors within their control. Examples
                of
                these types of factors include operating cost reductions and revenue
                increases driven by improved operations of previously under-performing
                or
                under-exploited assets. These factors involve implementing engineering
                and
                operational plans to increase cash flow through such means as development
                drilling of upstream assets or optimizing the performance of midstream
                or
                downstream assets like pipelines, processing plants or power plants
                that
                have been underutilized.·
            *Collateral
                Security*.
                Most of our targeted investments are secured by the same assets that
                secure traditional senior bank debt, in either a first or second
                lien
                position. However, in certain instances, we may make investments
                in our
                portfolio companies on an unsecured basis. In instances where we
                are
                providing subordinated debt only and there is senior debt provided
                by
                another party, we generally seek to obtain a second lien on the borrowing
                company’s assets behind that of the senior lender.·
            *Capacity
                To Return Investment Principal*.
                We
                perform financial sensitivity analyses when evaluating and structuring
                investments to analyze the effect of a confluence of unfavorable
                events on
                the investment’s ability to return investment principal. For an upstream
                transaction, these might include poor reserve development coupled
                with
                falling commodity prices or higher than expected costs. We seek to
                make
                and be compensated for investments in which the return on, and the
                timing
                of the return of, our investment capital may be at risk, but not
                the
                return of our capital.·
            *Exit
                Strategy*.
                We
                seek to invest in companies that have multiple means of repayment
                of our
                investment, including: a steady stream of cash flow; the completion
                of
                asset development activities that allow a company to be able to refinance
                our facility, often with senior debt; or the sale of the company’s assets
                or the entire company.





Our
      Manager generally structures investments that have collateral coverage from
      the
      value of the underlying assets and from the cash flows of those assets. We
      perform extensive due diligence, exercise discipline with respect to company
      valuation and institute appropriate structural protections in our investment
      agreements. We believe that our management team’s experience in utilizing
      fundamental engineering and technical analysis on energy assets and in dealing
      with the fundamental dynamics of the energy finance market allow us to:




·
            properly
                assess the engineering and technical aspects of the identified assets;·
            value
                the assets and associated cash flows that support our investments;·
            structure
                investments to increase the likelihood of full principal repayment
                and
                realization of yield and upside potential; and·
            implement
                appropriate financial hedging strategies to mitigate the effects
                of events
                such as declines in energy commodity prices.





We
      believe
      that this approach enables our Manager to identify attractive investment
      opportunities throughout the economic cycle.





**Targeted
      Investments**





Once
      we
      have determined that a prospective portfolio company is suitable for investment,
      we work with the management of that company and its other capital providers,
      including other senior, junior and equity capital providers, if any, to
      structure an investment. We negotiate among these parties to agree on how our
      investment is expected to perform relative to the other capital in the portfolio
      company’s capital structure. Our primary consideration when structuring an
      investment is that the total return on our investments (including interest
      income, equity or other similar income and potential equity appreciation)
      appropriately compensates us for our risk. The targeted investments that
      comprise the substantial majority of our portfolio generally fall within one
      of
      the following categories:






3






·
            *Vertical
                Loans - Combining Senior Secured Loans and Subordinated Loans with
                Equity
                Enhancements*These
                investments consist of a senior secured loan tranche and a subordinated
                loan tranche. The senior tranche produces a current cash yield and
                typically is secured by a first lien on cash flow-producing assets.
                The
                subordinated loan tranche typically includes a current cash yield
                component coupled with a property based equity participation right.
                In
                some cases, a warrant or option in the company may be obtained in
                addition
                to, or in lieu of, a property-based equity participation right. The
                subordinated tranche generally is secured by a second lien on the
                company’s assets. Additionally, these loans may have indirect asset
                coverage through a series of covenants that prohibit additional liens
                on
                the company’s assets, limit additional debt or require maintenance of
                minimum asset coverage ratios. Generally, these loans have a term
                of three
                to five years, but in many cases will be prepaid before maturity.
                Additionally, in a number of these loans, there may be amortization
                of
                principal during the entire life of the loan.These
                loans will likely be made to energy companies with assets that provide
                cash flow sufficient to support a typical senior secured debt facility
                but
                not sufficient to support the extra debt needed to acquire or develop
                non-cash flowing assets.·
            *Stand-Alone
                Subordinated Loans*These
                investments consist of subordinated loans with relatively high, fixed
                or
                floating interest rates. Generally, these loans are collateralized
                by a
                subordinated lien on some or all of the assets of the portfolio company,
                or in some cases, a first priority lien on assets not otherwise securing
                senior debt of the borrower. Additionally, these loans may have indirect
                asset coverage through a series of covenants that prohibit additional
                liens senior to ours on the company’s assets, limit additional debt senior
                to ours or require maintenance of minimum asset coverage
                ratios.These
                loans will likely be made to energy companies possessing assets that
                produce sufficient current cash flow and have sufficient asset value
                to
                avoid the issuance of any equity rights that would be dilutive to
                the
                equity owners. For example, such loans could be made to a company
                that
                needs capital to develop non-producing oil and gas reserves but that
                has
                sufficient cash flow from its other assets to provide for the payment
                of
                the higher recurring cash payments required by this type of instrument.
                However, in some instances these loans may have a lower interest
                rate and
                an equity participation to compensate us for the lower current income.
                Generally, these loans have a term of five to seven years, but in
                many
                cases will be prepaid before maturity. Additionally, amortization
                of
                principal is generally deferred to the later years of these loans
                or the
                loans may be structured as non-amortizing.These
                investments should generally provide us with the highest amount of
                current
                income, but the least amount of capital gains, of any of the targeted
                investment structures.·
            *Mezzanine
                Investments*These
                investments are generally in the form of combined senior and subordinated
                loans, subordinated loans, partnership or limited liability company
                investments or preferred equity, with a meaningful property based
                equity
                participation right.These
                investments will likely be made in energy companies that possess
                assets
                that do not produce sufficient current cash flow to amortize the
                principal
                throughout the life of a loan, but have sufficient collateral value
                to
                support the investment. For example, such an investment could be
                made in a
                company that owns proved non-producing oil and gas reserves and requires
                capital to finance development drilling to initiate the production
                of the
                reserves and generate cash flow. Generally, these investments will
                have a
                term of three to seven years, but in many instances will be prepaid
                before
                maturity. Additionally, amortization of principal is generally deferred
                to
                the later years of these investments or the investments may be structured
                as non-amortizing.These
                investments should generally provide us with the least amount of
                current
                income, but the highest amount of capital gains, of any of the targeted
                investment structures.






4






·
            *Other
                Targeted Investments*We
                may also make investments in high grade bonds, high yield bonds,
                other
                securities of public energy companies that are not thinly traded,
                bridge
                loans, asset backed securities, financial guarantees, distressed
                debt,
                lease assets, commercial loans or private equity. In general, these
                investments will have character and structure similar to the other
                categories of Targeted Investments.




We
      seek to
      negotiate or otherwise participate in structures that protect our rights and
      manage our risk, while creating incentives for our portfolio companies to
      achieve their business plans and enhance their profitability. The typical
      structural elements that we seek to negotiate in connection with our investments
      are covenants that afford portfolio companies as much flexibility in managing
      their businesses as possible, while also seeking to preserve our invested
      capital. Such restrictions may include affirmative and negative covenants,
      collateral value covenants, default penalties, lien protection, change of
      control provisions and governance rights, including either board seats or
      observation rights.





While
      we
      may from time to time elect to offer co-investment opportunities to third
      parties, we expect to hold most of our investments to maturity or repayment.
      We
      will sell our investments earlier if circumstances warrant or if a liquidity
      event, such as the sale or recapitalization of a portfolio company, occurs.




**Competitive
      Strengths**




We
      believe
      we have the following competitive strengths:




**Extensive
      Small and Mid-Size Energy Company Sourcing Network**




Because
      of
      the history, market presence, and long-term relationships that our investment
      team and NGP have developed with energy company management teams, we believe
      that we have greater access to investment opportunities in our target markets
      than many other providers. We focus on originating a substantial number of
      our
      investment opportunities, rather than merely investing as a participant in
      transactions originated by other firms, which we may also do from time to time.





**Flexible
      Transaction Structuring Capabilities**




We
      are not
      subject to many of the regulatory limitations that govern traditional lending
      institutions. As a result, we can provide speed of execution and flexibility
      in
      structuring investments and selecting the types of securities in which we
      invest. The members of our management team have substantial experience in
      seeking investments that balance the needs of energy company entrepreneurs
      with
      appropriate risk control.




**Efficient
      Tax Structure**




We
      operate
      our business so as to qualify as a regulated investment company for federal
      tax
      purposes, so that we generally will not have to pay corporate-level federal
      income taxes on any ordinary income or capital gains that we distribute to
      our
      stockholders as dividends. Thus, our stockholders will not be subject to double
      taxation on dividends, unlike investors in typical corporations. Furthermore,
      investors in our stock generally are not required to recognize unrelated
      business taxable income (“UBTI”), unlike investors in public master limited
      partnerships.




**Longer
      Investment Horizon than Private Fund Competitors**




Unlike
      private equity and venture capital funds, we are not subject to standard
      periodic capital return requirements. Such requirements typically stipulate
      that
      these funds, together with any capital gains on such investment, can only be
      invested once and must be returned to investors after a pre-determined time
      period. These provisions often force private equity and venture capital funds
      to
      seek returns on their investments through mergers, public equity offerings
      or
      other liquidity events more quickly than they otherwise might, absent such
      provisions, potentially resulting in both a lower overall return to investors
      and an adverse impact on their portfolio companies. We believe our flexibility
      to make investments with a long-term view and without the capital return
      requirements of traditional private investment vehicles provides us with the
      opportunity to generate attractive returns on invested capital.






5






**Valuation
      Process**




On
      a
      quarterly basis, the investment team of our Manager prepares valuations for
      all
      of the assets in our portfolio and presents the valuations to our Valuation
      Committee and our Board of Directors. Investments for which market quotations
      are readily available are recorded in our financial statements at such market
      quotations adjusted for appropriate liquidity discounts, if applicable. However,
      few of our investments have market quotations, in which case our Board of
      Directors undertakes a multi-step valuation process each quarter for our
      investments that are not publicly traded, as described below:




·
            *Investment
                Team Valuation.*The
                investment professionals responsible for the portfolio investment
                initially value each portfolio company or investment.·
            *Investment
                Team Valuation Documentation.*The
                investment team documents and discusses its preliminary valuation
                conclusions with senior management.·
            *Presentation
                to Valuation Committee.*Senior
                management presents the valuation analyses and conclusions to the
                Valuation Committee of our Board of Directors.·
            *Board
                of Directors Valuation Committee.*The
                Valuation Committee reviews and discusses the valuation analyses
                and
                conclusions presented by senior management and determines the valuations
                to be recommended to our Board of Directors for
                ratification.·
            *Third
                Party Valuation Activity.*We
                anticipate that, from time to time, the Valuation Committee of our
                Board
                of Directors may retain an independent valuation firm to review on
                a
                selective basis the valuation methodologies and calculations employed
                by
                the investment team.·
            *Final
                Valuation Determination.*Our
                Board of Directors considers the valuations recommended by the Valuation
                Committee and the review of the independent valuation firm, if any,
                and
                ratifies the final valuations of each investment in our portfolio.





Due
      to the
      uncertainty inherent in the valuation process, such estimates of fair value
      may
      differ significantly from the values that would have been used had a ready
      market for the securities existed, and the differences could be material.
      Additionally, changes in the market environment and other events that may occur
      over the life of the investments may cause the gains or losses ultimately
      realized on these investments to be different from the valuations currently
      assigned.





**Competition**




At
      this
      time, our primary competitors in this market consist of public and private
      funds, commercial and investment banks, and commercial financing companies.
      Although these competitors regularly provide finance products to energy
      companies similar to our targeted investments, a number of them focus on
      different aspects of this market. Additionally, over the last year, competition
      for investment opportunities in the energy industry generally has increased,
      largely because the sustained increase in prices for oil and natural gas has
      attracted investment capital from alternative investment vehicles, such as
      hedge
      funds, that have not typically focused on the energy sector. As a result of
      these new entrants, competition for investment opportunities in the energy
      sector has intensified. We also face competition from other firms that do not
      specialize in energy finance but which are substantially larger and have
      considerably greater financial and marketing resources than we do. Some of
      our
      competitors have a lower cost of funds and access to funding sources that are
      not available to us. In addition, some of our competitors have higher risk
      tolerances or different risk assessments, which allow them to consider a wider
      variety of investments and establish more portfolio relationships than we can.
      Furthermore, many of our competitors are not subject to the regulatory
      restrictions that the 1940 Act imposes on us as a business development company;
      nor are they subject to the requirements imposed on RICs by the Code.
      Nevertheless, we believe that the relationships of the senior professionals
      of
      our manager and of the senior partners of NGP enable us to learn about, and
      compete effectively for, investment opportunities with attractive companies
      in
      the energy sector.




**Employees**




John
      H.
      Homier, our President and Chief Executive Officer, Richard A. Bernardy, our
      Chief Operating Officer and Secretary, and Stephen K. Gardner, our Chief
      Financial Officer and Treasurer comprise our senior management. Each of our
      officers also serves as an officer of our Manager and our administrator. Our
      day-to-day investment operations are conducted by our Manager and our
      administrator, which currently has a staff of seventeen individuals.






6







**Regulation**





**Business
      Development Company**





We
      have
      elected to be treated as a business development company under the 1940 Act.
      By
      electing to be treated as a business development company, we are subject to
      various provisions of the 1940 Act. The 1940 Act contains prohibitions and
      restrictions relating to transactions between business development companies
      and
      their affiliates (including any investment advisers or sub-advisers), principal
      underwriters and affiliates of those affiliates or underwriters and requires
      that a majority of the directors be persons other than “interested persons,” as
      that term is defined in the 1940 Act. We may not change the nature of our
      business so as to cease to be, or withdraw our election to be treated as, a
      business development company without first obtaining the approval of a majority
      of our outstanding voting securities.




The
      Investment Adviser’s Act of 1940 (the “Advisers Act”) generally permits the
      payment of compensation based on capital gains in an investment advisory
      contract between an investment adviser and a business development company.
      We
      have elected to be treated as a business development company in order to provide
      incentive compensation to our Manager based on the capital appreciation of
      our
      portfolio.




The
      following is a brief description of the requirements of the 1940 Act, and is
      qualified in its entirety by reference to the full text of the 1940 Act and
      the
      rules thereunder.






To
      maintain our status as a business development company, we must not acquire
      any
      assets other than “qualifying assets” specified in the 1940 Act unless, at the
      time the acquisition is made, at least 70% of our total assets are qualifying
      assets (with certain limited exceptions).






If
      we
      invest in an issuer that, at the time of the investment, has outstanding
      securities as to which a broker or dealer may extend or maintain margin credit
      or “marginable securities,” these acquired assets cannot normally be treated as
      qualifying assets. This results from the definition of “eligible portfolio
      company” under the 1940 Act, which in part looks to whether a company has
      outstanding securities that are eligible for margin credit. Amendments
      promulgated in 1998 by the board of Governors of the Federal Reserve System
      to
      Regulation T under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), expanded the definition of marginable security to include any
      non-equity security. These amendments have raised questions as to whether a
      private company that has outstanding debt securities would qualify as an
      eligible portfolio company. We have noted that under applicable self-regulatory
      organization rules that govern the ability of brokers and dealers to extend
      margin credit, many non-equity securities issued by private companies may not
      be
      effectively marginable. In November 2004, the SEC issued a proposed rule to
      eliminate the marginable security concept and to define eligible portfolio
      companies generally as issuers that do not have a class of securities listed
      on
      an exchange or quoted on the Nasdaq Stock Market. If adopted, this rule would
      eliminate the current uncertainty as to the definition of eligible portfolio
      company. While the SEC has proposed the foregoing rule, which will correct
      the
      current uncertainty, there is no assurance that the rule will be adopted as
      proposed or at all. We continue to monitor this issue closely and intend to
      adjust our investment focus as needed to comply with and/or take advantage
      of
      any future administrative position, judicial decision or legislative
      action.







We
      may
      invest up to 100% of our assets in securities acquired directly from issuers
      in
      privately negotiated transactions. With respect to such securities, we may,
      for
      the purpose of public resale, be deemed an “underwriter” as that term is defined
      in the Securities Act. Our intention is to not write (sell) or buy put or call
      options to manage risks associated with the publicly traded securities of our
      portfolio companies, except (a) that we may enter into hedging transactions
      to
      manage the risks associated with commodity price and interest rate fluctuations,
      (b) to the extent we purchase or receive warrants to purchase the common stock
      of our portfolio companies or conversion privileges in connection with
      acquisition financing or other investments, and (c) in connection with an
      acquisition, we may acquire rights to require the issuers of acquired securities
      or their affiliates to repurchase them under certain circumstances.




7






We
      do not
      intend to acquire securities issued by any investment company that exceed the
      limits imposed by the 1940 Act. Under these limits, we generally are prohibited
      from (a) acquiring more than 3% of the voting stock of any registered investment
      company, (b) investing more than 5% of the value of our total assets in the
      securities of one investment company, or (c) investing more than 10% of the
      value of our total assets in the securities of more than one investment company.
      With regard to that portion of our portfolio invested in securities issued
      by
      investment companies, it should be noted that such investments might subject
      our
      stockholders to additional expenses. We also do not intend to (a) purchase
      or
      sell real estate or interests in real estate or real estate investments trusts
      (except to the extent that oil or gas royalty, net profits, or leasehold
      interests may be considered interests in real estate), (b) sell securities
      short
      (except with respect to managing risks associated with publicly traded
      securities issued by portfolio companies), or (c) purchase securities on margin
      (except to the extent that we purchase securities with borrowed money or we
      grant a security interest in our assets (including our portfolio securities)
      to
      a lender). None of these policies are fundamental and may be changed without
      stockholder approval.




**Qualifying
      Assets**




A
      business
      development company must be organized and have its principal place of business
      in the United States and operate for the purpose of investing in securities
      of
      certain present and former “eligible portfolio companies” (as described in 1, 2,
      and 3 below) or certain bankrupt or insolvent companies, and must make available
      significant managerial assistance to its portfolio companies. A business
      development company may not acquire any asset other than assets of the type
      listed in Section 55(a) of the 1940 Act, which are referred to as qualifying
      assets, unless, at the time the acquisition is made, qualifying assets represent
      at least 70% of the company’s total assets. The principal categories of
      qualifying assets relevant to our business are the following:




1.  Securities
      purchased in transactions not involving any public offering from the issuer
      of
      such securities, which issuer (subject to certain limited exceptions) is an
      eligible portfolio company, or from any person who is, or has been during the
      preceding 13 months, an affiliated person of an eligible portfolio company,
      or
      from any other person, subject to such rules as may be prescribed by the
      Securities and Exchange Commission (the “SEC”). An eligible portfolio company is
      defined in the 1940 Act as any issuer that:




(a)  is
      organized under the laws of, and has its principal place of business in, the
      United States or any state;




(b)  is
      not an
      investment company (other than a small business investment company wholly owned
      by the business development company) or a company that would be an investment
      company but for certain exclusions under the 1940 Act; and




(c)  either:
      (i) does not have any class of securities with respect to which a broker or
      dealer may extend margin credit; (ii) is controlled by us or a group of
      companies including us and an affiliated person of us is a director of the
      eligible portfolio company; (iii) is a small and solvent company that has total
      assets of not more than $4 million and capital and surplus of not less than
      $2
      million, or (iv) meets such other criteria as may be established by the SEC.




2.  Securities
      of any eligible portfolio company that we control.




3.  Securities
      purchased in a private transaction from a U.S. issuer that is not an investment
      company or from an affiliated person of the issuer, or in transactions incident
      thereto, if the issuer is in bankruptcy and subject to reorganization or if
      the
      issuer, immediately prior to the purchase of its securities was unable to meet
      its obligations as they came due without material assistance other than
      conventional lending or financing arrangements.




4.  Securities
      of an eligible portfolio company purchased from any person in a private
      transaction if there is no ready market for such securities and we already
      own
      60% of the outstanding equity of the eligible portfolio company.




5.  Securities
      received in exchange for or distributed on or with respect to securities
      described in (1) through (4) above, or pursuant to the exercise of warrants
      or
      rights relating to such securities.




6.  Cash,
      cash
      equivalents, U.S. Government securities or high-quality debt maturing in one
      year or less from the time of investment.




8






Control
      is
      presumed to exist where we own more than 25% of the outstanding voting
      securities of a portfolio company. The 1940 Act prohibits or restricts us from
      investing in certain types of companies such as brokerage firms, insurance
      companies, investment banking firms, and investment
      companies.





**Non-Qualifying
      Assets**




We
      may
      invest up to 30% of our total assets in assets that are not qualifying assets
      and are not subject to the limitations referenced above. These investments
      would
      generally include securities of companies that have marginable securities,
      securities of companies not organized under the laws of, or having their
      principal places of business in, the United States of America, or securities
      that are otherwise qualifying assets purchased in the secondary market.




If
      the
      value of non-qualifying assets should at any time exceed 30% of our total
      assets, we will be precluded from acquiring any additional non-qualifying assets
      until such time as the value of our qualifying assets again equals at least
      70%
      of our total assets.




**Managerial
      Assistance to Portfolio Companies**




In
      order
      to count portfolio securities as qualifying assets for the purpose of the 70%
      Test, as a business development company, we must either control the issuer
      of
      the securities or must offer to make available to the issuer of the securities
      (other than certain small and solvent companies described above) significant
      managerial assistance. Making available significant managerial assistance means,
      among other things, (1) any arrangement whereby we, through our directors,
      officers or employees, offer to provide, and, if accepted, do so provide,
      significant guidance and counsel concerning the management, operations, or
      business objectives and policies of a portfolio company, (2) the exercise of
      a
      controlling influence over the management or policies of a portfolio company
      by
      us acting individually or as part of a group acting together to control such
      company, or (3) with respect to SBICs, the making of loans to a portfolio
      company. We may satisfy the requirements of clause (1) with respect to a
      portfolio company by purchasing securities of such company as part of a group
      of
      investors acting together if one person in such group provides the type of
      assistance described in such clause. However, we will not satisfy the general
      requirement of making available significant managerial assistance if we only
      provide such assistance indirectly through an investor group. We need only
      extend significant managerial assistance with respect to portfolio companies
      that are treated as “qualifying assets” for the purpose of satisfying the 70%
      Test.




**Temporary
      Investments**




Pending
      investment in other types of “qualifying assets,” as described above, our
      investments generally consist of cash, cash equivalents, U.S. government
      securities or high-quality debt maturing in one year or less from the time
      of
      investment, which we refer to, collectively, as temporary investments.
      Typically, we invest in commercial paper, U.S. Treasury bills or in repurchase
      agreements, provided that such agreements are fully collateralized by cash
      or
      securities issued by the U.S. Government or its agencies. A repurchase agreement
      involves the purchase by an investor, such as us, of a specified security and
      the simultaneous agreement by the seller to repurchase it at an agreed-upon
      future date and at a price that is greater than the purchase price by an amount
      that reflects an agreed-upon interest rate. There is no percentage restriction
      on the proportion of our assets that may be invested in such repurchase
      agreements. However, if more than 25% of our total assets constitute repurchase
      agreements from a single counterparty, we would not meet the asset
      diversification requirements in order to qualify as a RIC for federal income
      tax
      purposes. Thus, we do not intend to enter into repurchase agreements with a
      single counterparty in excess of this limit. Our Manager will monitor the
      creditworthiness of the counterparties with which we enter into repurchase
      agreement transactions.




**Senior
      Securities**




We
      are
      permitted, under specified conditions, to issue multiple classes of senior
      indebtedness and one class of stock senior to our common stock if our asset
      coverage, as defined in the 1940 Act, is at least equal to 200% immediately
      after each such issuance. In addition, while any senior securities remain
      outstanding, we are required to make provisions to prohibit any distribution
      to
      our stockholders or the repurchase of such securities or shares unless we meet
      the applicable asset coverage ratios at the time of the distribution or
      repurchase. We are also permitted to borrow amounts up to 5% of the value of
      our
      total assets for temporary or emergency purposes without regard to asset
      coverage.




9






**Sale
      and Purchase of Shares**




We
      may
      sell shares of our common stock at a price below our prevailing net asset value
      per share only upon the approval of the policy by security holders holding
      a
      majority of the shares we have issued, including a majority of shares held
      by
      nonaffiliated security holders except in connection with an offering to our
      existing stockholders (including a rights offering), upon conversion of a
      convertible security, or upon exercise of certain warrants. We may repurchase
      our shares subject to the restrictions of the 1940 Act.




**Regulated
      Investment Company**




We
      operated our business in calendar year 2005 so as to be taxed as a regulated
      investment company under Subchapter M of the Internal Revenue Code of 1986,
      as amended, otherwise referred to as the Code. As long as we qualify as a
      regulated investment company, we are not taxed on our investment company taxable
      income or realized net capital gains, to the extent that such taxable income
      or
      gains are distributed, or deemed to be distributed, to shareholders on a timely
      basis.





Taxable
      income generally differs from net income for financial reporting purposes due
      to
      temporary and permanent differences in the recognition of income and expense,
      and generally excludes net unrealized appreciation or depreciation, as gains
      or
      losses are not included in taxable income until they are realized. In addition,
      gains realized for financial reporting purposes may differ from gains included
      in taxable income as a result of our election to recognize gains using
      installment sale treatment, which results in the deferment of gains for tax
      purposes until notes received as consideration from the sale of investments
      are
      collected in cash. Dividends declared and paid by the Company in a year
      generally differ from taxable income for that year as such dividends may include
      the distribution of current year taxable income, the distribution of prior
      year
      taxable income carried forward into and distributed in the current year, or
      returns of capital.





We
      are
      generally required to distribute 98% of our taxable income during the year
      the
      income is earned to avoid paying an excise tax. If this requirement is not
      met,
      the Code imposes a nondeductible excise tax generally equal to 4% of the amount
      by which 98% of the current year’s taxable income exceeds the distribution for
      the year. The taxable income on which an excise tax is paid is generally carried
      forward and distributed to shareholders in the next tax year. Depending on
      the
      level of taxable income earned in a tax year, we may choose to carry forward
      taxable income in excess of current year distributions into the next tax year
      and pay a 4% excise tax on such income.





In
      order
      to maintain our status as a regulated investment company, we must, in general,
      (1) continue to qualify as a business development company; (2) derive
      at least 90% of our gross income from dividends, interest, gains from the
      sale of securities and other specified types of income; (3) meet asset
      diversification requirements as defined in the Code; and (4) timely
      distribute to shareholders at least 90% of our annual investment company
      taxable income as defined in the Code.







**Item
      1A.** **RISK
      FACTORS**




**Risks
      Related to Our Business and Investments**




**We
      are a new company with a limited operating history.**




We
      were
      incorporated in July 2004 and commenced investment operations in November 2004.
      We are subject to all of the business risks and uncertainties associated with
      any new business, including the risk that we will not achieve our investment
      objectives and that the value of your investment could decline
      substantially.




**High
      oil and gas prices may increase the availability of alternative sources of
      capital and reduce demand for our targeted investments.**




As
      a
      result of the current high prices for oil and natural gas relative to historical
      levels, energy companies are generally experiencing strong financial results
      and
      increased cash flows. Therefore, energy companies currently may have less
      financial need for borrowing than in a lower commodity price environment. At
      these higher commodity price levels, borrowers may use the additional cash
      flow
      to reduce outstanding debt under senior secured facilities, which typically
      makes future borrowing capacity available to such borrowers. In addition, to
      the
      extent senior lenders base borrowing capacity on reserve value calculations,
      higher commodity prices typically increase reserve values, thereby creating
      additional borrowing capacity. Because interest rates under senior secured
      facilities will generally be lower than the interest rates of our targeted
      investments, demand for our targeted investments may be reduced if energy
      companies have the ability to borrow additional amounts under their senior
      debt
      facilities. As a result, high commodity prices may have the effect of delaying
      the deployment of the net proceeds of our November 2004 offering, reducing
      the
      number of energy companies seeking investments similar to our targeted
      investments or causing us to achieve lower total returns on our targeted
      investments.




10






**We
      operate in a highly competitive market for investment
      opportunities.**




A
      large
      number of entities compete with us to make the types of investments that we
      make
      in energy companies. We compete with public and private funds, commercial and
      investment banks, commercial financing companies, and, to the extent they
      provide an alternative form of financing, private equity funds. Many of our
      competitors are substantially larger and have considerably greater financial,
      technical and marketing resources than we do. For example, some competitors
      may
      have a lower cost of funds and access to funding sources that are not available
      to us. In addition, some of our competitors may have higher risk tolerances
      or
      different risk assessments, which could allow them to consider a wider variety
      of investments and establish more relationships than us. Furthermore, many
      of
      our competitors are not subject to the regulatory restrictions that the 1940
      Act
      imposes on us as a business development company. The competitive pressures
      that
      we face may have a material adverse effect on our business, financial condition
      and results of operations. Also, as a result of this competition, we may not
      be
      able to take advantage of attractive investment opportunities from time to
      time,
      and we may not be able to identify and make investments that are consistent
      with
      our investment objectives.




We
      do not
      seek to compete solely based on the interest rates we offer to prospective
      portfolio companies. However, some of our competitors may make loans with
      interest rates comparable to or lower than the rates we offer. We may lose
      investment opportunities if we do not match our competitors’ pricing, terms and
      structures. If we match our competitors’ pricing, terms and structures, we may
      experience decreased net interest income and increased risk of credit loss,
      and
      the value of our shares or the amount of dividends paid may
      decline.




**Our
      Manager and our management team have little experience managing a business
      development company and we cannot assure you that their past experience will
      be
      sufficient to manage our company as a business development company.**




The
      1940
      Act imposes numerous complex constraints on the operations of business
      development companies. In order to maintain our status as a business development
      company, the 1940 Act prohibits us from acquiring any assets other than
“qualifying assets” unless, after giving effect to the acquisition, at least 70%
      of our total assets are qualifying assets. We refer to this requirement as
      the
      70% Test. Qualifying assets include securities of privately-owned or
      thinly-traded public U.S. companies, cash, cash equivalents, U.S. government
      securities and high quality debt instruments that mature in one year or less.
      The failure to comply with these provisions in a timely manner could prevent
      us
      from qualifying as a business development company or could force us to pay
      unexpected taxes and penalties, which could be material. The lack of experience
      of our management team in managing a portfolio of assets under such regulatory
      constraints may hinder their ability to take advantage of attractive investment
      opportunities and, as a result, achieve our investment objectives.




**A
      failure on our part to maintain our status as a business development company
      would significantly reduce our operating flexibility.**




If
      we do
      not continue to qualify as a business development company, we might be regulated
      as a closed-end investment company under the 1940 Act, which would significantly
      decrease our operating flexibility.




**We
      will be subject to corporate-level income tax if we are unable to qualify as
      a
      RIC.**




To
      qualify
      as a RIC under the Code, we must meet certain income source, asset
      diversification and annual distribution requirements. The annual distribution
      requirement for a RIC is satisfied if we distribute at least 90% of our
“investment company taxable income” (which generally consists of ordinary income
      and realized net short-term capital gains in excess of realized net long-term
      capital losses, if any) and net tax-exempt interest to our stockholders on
      an
      annual basis. Because we may use debt financing in the future, we may be subject
      to certain asset coverage ratio requirements under the 1940 Act as a business
      development company, and financial covenants under loan and credit agreements
      that could, under certain circumstances, restrict us from making distributions
      necessary to qualify as a RIC. If we are unable to obtain cash from other
      sources, we may fail to qualify as a RIC and, thus, may be subject to
      corporate-level income tax. To qualify as a RIC, we must also meet certain
      asset
      diversification requirements at the end of each calendar quarter. We may borrow
      funds if necessary to make qualifying investments to satisfy such
      diversification requirements. Failure to meet these tests may result in our
      having to dispose of certain investments quickly in order to prevent the loss
      of
      RIC status. Because most of our investments will be in private companies, any
      such dispositions could be made at disadvantageous prices and may result in
      substantial losses. If we fail to qualify as a RIC for any reason at any time
      in
      the future and we remain or become subject to corporate income tax, the
      resulting corporate taxes could substantially reduce our net assets, the amount
      of income available for distribution and the amount of our distributions. In
      addition, our stockholders would be subject to income tax on distributions.
      Such
      a failure would have a material adverse effect on us and our
      stockholders.




11






**Investing
      in privately-held companies may be riskier than investing in publicly-traded
      companies due to the lack of available public information.**




We
      invest
      primarily in privately-held companies, which may be subject to higher risk
      than
      investments in publicly-traded companies. Generally, little public information
      exists about these companies, and we are required to rely on the ability of
      our
      management team to obtain adequate information to evaluate the potential risks
      and returns involved in investing in these companies. If we are unable to
      uncover all material information about these companies, we may not make a
      fully-informed investment decision, and we may lose some or all of the money
      we
      invest in these companies. These factors could subject us to greater risk than
      investments in publicly-traded companies and negatively affect our investment
      returns, which could negatively impact our ability to pay dividends and cause
      the loss of all or part of your investment.




**Our
      equity investments may lose all or part of their value, causing us to lose
      all
      or part of our investment in those companies.**




The
      equity
      interests in which we invest may not appreciate or may decline in value.
      Accordingly, we may not be able to realize gains from our equity interests,
      and
      any gains that we do realize on the disposition of any equity interests may
      not
      be sufficient to offset any other losses we experience. As a result, our equity
      interests may decline in value, causing us to lose all or part of our equity
      investment in those companies, and may negatively impact our ability to pay
      dividends and cause the loss of all or part of your investment.




**The
      energy industry is subject to many risks.**




We
      concentrate our investments in the energy industry. The revenues, income (or
      losses) and valuations of energy companies can fluctuate suddenly and
      dramatically due to any one or more of the following factors:




*Commodity
      Pricing Risk.* Energy
      companies in general are directly affected by energy commodity prices, such
      as
      the market prices of crude oil, natural gas and wholesale electricity,
      especially for those who own the underlying energy commodity. In addition,
      the
      volatility of commodity prices can affect other energy companies due to the
      impact of prices on the volume of commodities transported, processed, stored
      or
      distributed and on the cost of fuel for power generation companies. The
      volatility of commodity prices can also affect energy companies’ ability to
      access the capital markets in light of market perception that their performance
      may be directly tied to commodity prices. Historically, energy commodity prices
      have been cyclical and exhibited significant volatility. Some of our portfolio
      companies may not engage in hedging transactions to minimize their exposure
      to
      commodity price risk. Those companies that engage in such hedging transactions
      remain subject to market risks, including market liquidity and counterparty
      creditworthiness.




*Regulatory
      Risk.* The
      profitability of energy companies could be adversely affected by changes in
      the
      regulatory environment. The businesses of energy companies are heavily regulated
      by federal, state and local governments in diverse matters, such as the way
      in
      which energy assets are constructed, maintained and operated and the prices
      energy companies may charge for their products and services. Such regulation
      can
      change over time in scope and intensity. For example, a particular by-product
      of
      an energy process may be declared hazardous by a regulatory agency, which can
      unexpectedly increase production costs. Moreover, many state and federal
      environmental laws provide for civil penalties as well as regulatory
      remediation, thus adding to the potential liability an energy company may
      face.




*Production
      Risk.* The
      profitability of energy companies may be materially impacted by the volume
      of
      crude oil, natural gas or other energy commodities available for transporting,
      processing, storing, distributing or generating power. A significant decrease
      in
      the production of natural gas, crude oil, coal or other energy commodities,
      due
      to the decline of production from existing facilities, import supply disruption,
      depressed commodity prices, political events, OPEC actions or otherwise, could
      reduce revenue and operating income or increase operating costs of energy
      companies and, therefore, their ability to pay debt or dividends.




12






*Demand
      Risk.* A
      sustained decline in demand for crude oil, natural gas, refined petroleum
      products and electricity could materially affect revenues and cash flows of
      energy companies. Factors that could lead to a decrease in market demand include
      a recession or other adverse economic conditions, increases in the market price
      of the underlying commodity, higher taxes or other regulatory actions that
      increase costs, or shifts in consumer demand for such products.




*Depletion
      and Exploration Risk.* A portion
      of an energy company’s assets may be dedicated to natural gas, crude oil and/or
      coal reserves and other commodities that naturally deplete over time. Depletion
      could have a material adverse impact on such company’s ability to maintain its
      revenue. Further, estimates of energy reserves may not be accurate and, even
      if
      accurate, reserves may not be produced profitably. In addition, exploration
      of
      energy resources, especially of oil and gas, is inherently risky and requires
      large amounts of capital.




*Weather
      Risk.* Unseasonable extreme weather patterns could result in significant volatility
      in
      demand for energy and power or may directly impact the operations of individual
      companies. This weather-related risk may create fluctuations in earnings of
      energy companies.




*Operational
      Risk.* **** Energy
      companies are subject to various operational risks, such as failed drilling
      or
      well development, unscheduled outages, underestimated cost projections,
      unanticipated operation and maintenance expenses, failure to obtain the
      necessary permits to operate and failure of third-party contractors (e.g.,
      energy producers and shippers) to perform their contractual obligations. In
      addition, energy companies employ a variety of means of increasing cash flow,
      including increasing utilization of existing facilities, expanding operations
      through new construction, expanding operations through acquisitions, or securing
      additional long-term contracts. Thus, some energy companies may be subject
      to
      construction risk, acquisition risk or other risks arising from their specific
      business strategies.




*Competition
      Risk* **.** The
      energy companies in which we may invest that are involved in the upstream and
      midstream businesses will face substantial competition in acquiring properties,
      enhancing and developing their assets, marketing their commodities, securing
      trained personnel and operating their properties. Many of their competitors,
      including major oil companies, natural gas utilities, independent power
      producers and other private independent energy companies, may have financial
      and
      other resources that substantially exceed their resources. The upstream
      businesses in which we may invest face greater competition in the production,
      marketing and selling of power and energy products brought about in part from
      the deregulation of the energy markets.




*Valuation
      Risk.* The
      targeted investments made by us are based upon valuations of our portfolio
      companies’ assets that are subject to uncertainties inherent in estimating
      quantities of reserves of oil, natural gas and coal and in projecting future
      rates of production and the timing of development expenditures, which are
      dependent upon many factors beyond our control. The estimates rely on various
      assumptions, including, for example, commodity prices, operating expenses,
      capital expenditures and the availability of funds, and are therefore inherently
      imprecise indications of future net cash flows. Actual future production, cash
      flows, taxes, operating expenses, development expenditures and quantities of
      recoverable reserves may vary substantially from those assumed in the estimates.
      Any significant variance in these assumptions could materially affect the value
      of our investments.




*Financing
      Risk.* Some of
      the portfolio companies in which we invest may rely on capital markets to raise
      money to pay their existing obligations. Their ability to access the capital
      markets on attractive terms or at all may be affected by any of the risk factors
      associated with energy companies described above, by general economic and market
      conditions or by other factors. This may in turn affect their ability to satisfy
      their obligations with us.




**When
      we are a debt or minority equity investor in a portfolio company, we generally
      will not be in a position to control the entity, and management of the portfolio
      company may make decisions that could decrease the value of our portfolio
      holdings.**




We
      generally make debt and minority equity investments, and are therefore subject
      to the risks that a portfolio company may make business decisions with which
      we
      disagree. Further, the stockholders and management of such company may take
      risks or otherwise act in ways that do not serve our interests. Due to the
      lack
      of liquidity in the markets for our investments in privately-held companies,
      we
      may not be able to dispose of our interests in our portfolio companies as
      readily as we would like. As a result, a portfolio company may make decisions
      that could decrease the value of our portfolio holdings.




**The
      lack of liquidity in our investments may adversely affect our
      business.**




We
      generally make investments in private companies. Substantially all of these
      investments will be subject to legal and other restrictions on resale or
      otherwise are less liquid than publicly traded securities. The illiquidity
      of
      our investments may make it difficult for us to sell such investments if the
      need arises. In addition, if we are required to liquidate all or a portion
      of
      our portfolio quickly, we may realize significantly less than the value at
      which
      we have previously recorded our investments. In addition, we may face other
      restrictions on our ability to liquidate an investment in a portfolio company
      to
      the extent that we have material non-public information regarding such portfolio
      company.




13






**We
      may experience fluctuations in our quarterly results.**




We
      could
      experience fluctuations in our quarterly operating results due to a number
      of
      factors, including changes in the fair values of our portfolio investments,
      the
      interest rate payable on the debt securities we acquire, the default rate on
      such securities, the level of our expenses, variations in, and the timing of,
      the recognition of realized and unrealized gains or losses, the degree to which
      we encounter competition in our markets and general economic conditions. As
      a
      result of these factors, results for any period should not be relied upon as
      being indicative of performance in future periods.




**We
      may choose to invest a portion of our portfolio in investments that may be
      considered highly speculative, which could negatively impact our ability to
      pay
      dividends and cause a loss of part of your investment.**




Our
      mezzanine investments are generally in the form of combined senior and
      subordinated loans, subordinated loans, partnership or limited liability company
      investments or preferred equity, with property-based equity participation
      rights. These investments will likely be made in energy companies that possess
      assets that do not produce sufficient current cash flow to amortize the
      principal throughout the life of a loan. For example, such an investment could
      be made in a company that owns proved non-producing oil and gas reserves and
      requires capital to finance development drilling to initiate the production
      of
      the reserves and generate cash flow. Some of these investments may be of a
      highly speculative nature and may lose some or all of their value, which could
      negatively impact our ability to pay dividends and cause the loss of part of
      your investment.




**We
      may invest a portion of our assets in foreign securities. Investing in foreign
      securities typically involves more risks than investing in U.S. securities.
      These risks can increase the potential for losses by us and negatively affect
      our stock price.**




Foreign
      securities may be issued and traded in foreign currencies. As a result, their
      values may be affected by changes in exchange rates between foreign currencies
      and the U.S. dollar. For example, if the value of the U.S. dollar goes up
      compared to a foreign currency, a loan payable in that foreign currency will
      go
      down in value because it will be worth fewer U.S. dollars.




The
      political, economic, and social structure of some foreign countries may be
      less
      stable and more volatile than those in the U.S. Investments in these countries
      may be subject to the risks of internal and external conflicts, currency
      devaluations, foreign ownership limitations and tax increases. It is possible
      that a government may take over assets or operations of a company or impose
      restrictions on the exchange or export of currency or other assets. Some
      countries also may have different legal systems that may make it difficult
      for
      us to vote proxies, exercise stockholder rights, and pursue legal remedies
      with
      respect to foreign investments. Diplomatic and political developments, including
      rapid and adverse political changes, social instability, regional conflicts,
      terrorism and war, could affect the economies, industries and securities and
      currency markets, and the value of our investments, in non-U.S. countries.
      These
      factors are extremely difficult, if not impossible, to predict and to take
      into
      account with respect to our investments in foreign securities.




Brokerage
      commissions and other fees generally are higher for foreign securities.
      Government supervision and regulation of foreign stock exchanges, currency
      markets, trading systems and brokers may be less than in the U.S. The procedures
      and rules governing foreign transactions and custody (holding of our assets)
      also may involve delays in payment, delivery or recovery of money or
      investments.




Foreign
      companies may not be subject to the same disclosure, accounting, auditing and
      financial reporting standards and practices as U.S. companies. Thus, there
      may
      be less information publicly available about foreign companies than about most
      U.S. companies.




Certain
      foreign securities may be less liquid (harder to sell) and more volatile than
      many U.S. securities. This means we may at times be unable to sell foreign
      securities at favorable prices.




Dividend
      and interest income from foreign securities may be subject to withholding taxes
      by the country in which the issuer is located, and we may not be able to pass
      through to our stockholders foreign tax credits or deductions with respect
      to
      these taxes.




14






**We
      may be exposed to risks associated with changes in interest
      rates.**




General
      interest rate fluctuations may have a negative impact on our investments and
      investment opportunities and, accordingly, may have a material adverse effect
      on
      investment objectives and our rate of return on invested capital. Because we
      borrow money to make investments, our net investment income is dependent upon
      the difference between the rate at which we borrow funds and the rate at which
      we invest these funds. As a result, there can be no assurance that a significant
      change in market interest rates will not have a material adverse effect on
      our
      net investment income. Trading prices for debt that pays a fixed rate of return
      tend to fall as interest rates rise. Trading prices tend to fluctuate more
      for
      fixed-rate securities that have longer maturities. Although we have no policy
      governing the maturities of our investments, under current market conditions
      we
      expect that we will invest in a portfolio of debt generally having maturities
      of
      three to seven years, but may have longer maturities. This means that, to the
      extent we fund longer term fixed rate investments with shorter term floating
      rate borrowings, we will be subject to greater risk (other things being equal)
      than a fund invested solely in shorter term securities. A decline in the prices
      of the debt we own could adversely affect the trading price of our
      shares.




**We
      may not have sufficient funds to make follow-on investments. Our decision not
      to
      make a follow-on investment may have a negative impact on a portfolio company
      in
      need of such an investment or may result in a missed opportunity for
      us.**




After
      our
      initial investment in a portfolio company, we may be called upon from time
      to
      time to provide additional funds to such company or have the opportunity to
      increase our investment in a successful situation, for example, the exercise
      of
      a warrant to purchase common stock. There is no assurance that we will make,
      or
      will have sufficient funds to make, follow-on investments. Any decision we
      make
      not to make a follow-on investment or any inability on our part to make such
      an
      investment may have a negative impact on a portfolio company in need of such
      an
      investment or may result in a missed opportunity for us to increase our
      participation in a successful operation and may dilute our equity interest
      or
      reduce the expected yield on our investment **.**




**If
      we issue senior securities, such as debt or preferred stock, we will be exposed
      to additional risks.**




We
      may
      issue debt securities or preferred stock, and/or borrow money from banks or
      other financial institutions, which we refer to collectively as senior
      securities, up to the maximum amount permitted by the 1940 Act. We may issue
      senior securities to make new or follow-on investments, to maintain our RIC
      status or to pay contingencies and expenses. We will be permitted under the
      1940
      Act to issue senior securities if, immediately after the borrowing or issuance,
      we will have an asset coverage of at least 200%. That is, we may borrow funds
      in
      an amount up to 50% of the value of our assets (including investments made
      with
      borrowed funds). The amount and nature of any borrowings will depend on a number
      of factors over which we have no control, including general economic conditions
      and conditions in the financial markets. We may also need to borrow funds to
      make qualifying investments to maintain our RIC status. Therefore, we may need
      to raise additional capital, which we may elect to finance in part through
      a
      credit facility. We may not be able to obtain a credit facility on terms that
      we
      find acceptable, if at all. The unavailability of funds from commercial banks
      or
      other sources on favorable terms could inhibit the growth of our business and
      have a material adverse effect on our performance.




**Our
      Board of Directors may change most of our operating policies and strategies
      without prior notice or stockholder approval, the effects of which may be
      adverse.**




Our
      Board
      of Directors has the authority to modify or waive most of our current operating
      policies and our strategies without prior notice and without stockholder
      approval. We cannot predict the effect any changes to our current operating
      policies and strategies would have on our business, operating results and value
      of our stock. However, the effects might be adverse, which could negatively
      impact our ability to pay you dividends and cause you to lose all or part of
      your investment. In the event that our Board of Directors determines that we
      cannot economically pursue our investment objective under the 1940 Act, they
      may
      at some future date decide to withdraw our election to be treated as a business
      development company and convert us to a management investment company or an
      operating company not subject to regulation under the 1940 Act, or cause us
      to
      liquidate. These changes may not be effected without approval of a requisite
      percentage of our Board of Directors and the holders of a majority of our
      shares.




15






**We
      may choose to waive or defer enforcement of covenants in the debt securities
      held in our portfolio, which may cause us to lose all or part of our investment
      in these companies.**




We
      generally structure the debt investments in our portfolio companies to include
      customary business and financial covenants placing affirmative and negative
      obligations on the operation of each company’s business and its financial
      condition. However, from time to time we may elect to waive breaches of these
      covenants, including our right to payment, or waive or defer enforcement of
      remedies, such as acceleration of obligations or foreclosure on collateral,
      depending upon the financial condition and prospects of the particular portfolio
      company. These actions may reduce the likelihood of us receiving the full amount
      of future payments of interest or principal and be accompanied by a
      deterioration in the value of the underlying collateral as many of these
      companies may have limited financial resources, may be unable to meet future
      obligations and may go bankrupt. This could negatively impact our ability to
      pay
      dividends and cause the loss of all or part of your investment.




**Economic
      downturns could impair our access to capital and our portfolio companies’
operations and ability to satisfy obligations to their respective lenders,
      including us, which could negatively impact our ability to pay dividends and
      cause the loss of all or part of your investment.**




Our
      portfolio companies may be susceptible to economic downturns and may be unable
      to repay our loans during these periods. Therefore, our non-performing assets
      are likely to increase and the value of our portfolio is likely to decrease
      during these periods. Adverse economic conditions also may decrease the value
      of
      collateral securing some of our loans and the value of our equity investments.
      Economic downturns could lead to financial losses in our portfolio and decreases
      in revenues, net income and assets. Unfavorable economic conditions also could
      increase our funding costs, limit our access to the capital markets or result
      in
      decisions by lenders not to extend credit to us. These events could prevent
      us
      from making additional investments and harm our operating results.




A
      portfolio company’s failure to satisfy financial or operating covenants imposed
      by us or other lenders could lead to defaults and, potentially, termination
      of
      its loans and foreclosure on the assets securing such loans, which could trigger
      cross-defaults under other agreements and jeopardize our portfolio company’s
      ability to meet its obligations under the debt securities that we hold. We
      may
      incur expenses to the extent necessary to seek recovery upon default or to
      negotiate new terms with a defaulting portfolio company. In addition, if one
      of
      our portfolio companies were to go bankrupt, even though we may have structured
      our interest as senior debt, depending on the facts and circumstances, including
      the extent to which we actually provided managerial assistance to that portfolio
      company, a bankruptcy court might recharacterize our debt holding and
      subordinate all or a portion of our claim to that of other creditors. This
      could
      negatively impact our ability to pay dividends and cause the loss of all or
      part
      of your investment.




**Our
      portfolio investments may be concentrated in a limited number of portfolio
      companies, which would magnify the effect if one of those companies were to
      suffer a significant loss. This could negatively impact our ability to pay
      dividends and cause the loss of all or part of your
      investment.**




While
      we
      intend for the investments in our portfolio to be allocated among a substantial
      number of companies, there is no limit on the amount of our assets that we
      may
      invest in any one portfolio company and our investments may be concentrated
      in a
      limited number of companies. We are classified as a “non-diversified” investment
      company under the 1940 Act, which means we are not limited by the 1940 Act
      in
      the proportion of our assets that may be invested in the securities of a single
      issuer. A consequence of this concentration is that the aggregate returns we
      initially realize may be adversely affected if a small number of our investments
      perform poorly or if we need to write down the value of any one such investment.
      Beyond the applicable federal income tax diversification requirements, we do
      not
      have fixed guidelines for diversification, and our investments could be
      concentrated in relatively few portfolio companies. Financial difficulty on
      the
      part of any single portfolio company will expose us to a greater risk of loss
      than would be the case if we were a “diversified” company holding numerous
      investments. To the extent that we take large positions in the securities of
      a
      small number of portfolio companies, our net asset value and the market price
      of
      our common stock may fluctuate as a result of changes in the financial condition
      or in the market’s assessment of such portfolio companies to a greater extent
      than that of a diversified investment company. These factors could negatively
      impact our ability to pay dividends and cause the loss of all or part of your
      investment.




In
      addition, our investments are concentrated in the energy industry. Consequently,
      we are exposed to the risks of adverse developments affecting the energy
      industry to a greater extent than if our investments were dispersed over a
      variety of industries. See “The energy industry is subject to many
      risks.”




**Our
      portfolio companies may incur debt that ranks equally with, or senior to, our
      investments in such companies. As a result, the holders of such debt may be
      entitled to payments of principal or interest prior to us, preventing us from
      obtaining the full value of our investment in the event of an insolvency,
      liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio
      company.**




16






A
      substantial amount of our assets are invested in subordinated debt securities
      and mezzanine investments issued by our portfolio companies. The portfolio
      companies usually will have, or may be permitted to incur, other debt that
      ranks
      equally with, or senior to, the debt securities in which we invest. By their
      terms, such debt instruments may provide that the holders are entitled to
      receive payment of interest or principal on or before the dates on which we
      are
      entitled to receive payments in respect of the debt securities in which we
      invest. Also, in the event of insolvency, liquidation, dissolution,
      reorganization or bankruptcy of a portfolio company, holders of debt instruments
      ranking senior to our investment in that portfolio company would typically
      be
      entitled to receive payment in full before we receive any distribution in
      respect of our investment. After repaying such senior creditors, the portfolio
      company may not have any remaining assets to use for repaying its obligation
      to
      us. In the case of debt ranking equally with debt securities in which we invest,
      we would have to share on an equal basis any distributions with other creditors
      holding such debt in the event of an insolvency, liquidation, dissolution,
      reorganization or bankruptcy of the relevant portfolio company. As a result,
      we
      may be prevented from obtaining the full value of our investment in the event
      of
      an insolvency, liquidation, dissolution, reorganization or bankruptcy of the
      relevant portfolio company.




**Risks
      Related to Our Manager**




**Our
      management team may provide services to other investors, which could reduce
      the
      amount of time and effort that they devote to us, which could negatively impact
      our performance.**




Our
      investment advisory agreement does not restrict the right of our Manager, NGP,
      or any persons working on our behalf, to carry on their respective businesses,
      including providing advice to others with respect to the purchase of securities
      that would meet our investment objectives. Although the officers of our Manager
      devotes full time to the management of our structured finance business, our
      investment advisory agreement does not specify a minimum time period that
      representatives of NGP who are serving as directors or members of our Manager’s
      investment committee must devote to managing our investments. These NGP
      representatives continue to have substantial responsibilities in connection
      with
      their roles managing other NGP private equity funds. Our Manager and its
      management team may also be called upon to provide managerial assistance to
      our
      portfolio companies. The ability of these parties to engage in these other
      business activities, including managing assets for third parties, could reduce
      the time and effort they spend managing our portfolio, which could negatively
      impact our performance.




**Our
      future success is dependent upon the members of our management team and their
      access to investment professionals of our Manager’s affiliates and the loss of
      any of them could detrimentally affect our operations.**




We
      depend
      on the diligence, experience, skill and network of business contacts of our
      management team. We also depend, to a significant extent, on our Manager’s
      investment professionals and the information and deal flow generated by them
      in
      the course of their investment and portfolio management activities. Our
      management team evaluates, negotiates, structures, closes and monitors our
      investments. Our future success will depend on the continued service of our
      management team. Further, our Manager has not yet fully filled some of its
      investment team positions. There is competition for qualified professionals
      in
      our Manager’s industry. If our Manager is unable to hire qualified personnel, we
      may be unable to successfully implement our investment strategy and the value
      of
      your investment could decline. The departure of any of the senior members of
      our
      management team, or of a significant number of the investment professionals
      of
      our Manager, could have a material adverse effect on our ability to achieve
      our
      investment objectives. We have not entered into employment agreements, nor
      do we
      have an employment relationship, with any of these individuals. In addition,
      we
      can offer no assurance that our Manager will remain our Manager or that we
      will
      continue to have access to the investment professionals of our Manager or their
      information and deal flow. The loss of any member of our management team could
      detrimentally affect our operations.




**Our
      obligation to reimburse our Manager for certain expenses could result in a
      conflict of interest.**




In
      the
      course of our investing activities, we pay management and incentive fees to
      our
      Manager. Also, we reimburse our Manager and our administrator for certain
      expenses they incur, such as those payable to third parties in monitoring our
      financial and legal affairs and investments and performing due diligence on
      our
      prospective investments. As a result, investors in our common stock will invest
      on a “gross” basis and receive distributions on a “net” basis after expenses,
      resulting in, among other things, a lower rate of return than one might achieve
      through direct investments. Due to this arrangement, there may be times when
      our
      Manager has interests that differ from those of our stockholders, giving rise
      to
      a conflict which could negatively impact our investment returns and the value
      of
      your investment.




17






**We
      pay our Manager a base management fee based upon our total assets, which may
      lead our Manager to cause us to incur more debt than is prudent in order to
      maximize its compensation.**




We
      will
      pay our Manager a quarterly base management fee based on the value of our total
      assets (including assets acquired with borrowed funds). Accordingly, our Manager
      has an enhanced economic incentive to increase our leverage. If our leverage
      is
      increased, we will be exposed to increased risk of loss, bear the increased
      cost
      of issuing and servicing such senior indebtedness, and will be subject to any
      additional covenant restrictions imposed in an indenture or by the applicable
      lender, which could negatively impact our business and results of
      operation.




**We
      pay our Manager incentive compensation based on our portfolio’s performance.
      This arrangement may lead our Manager to recommend riskier or more speculative
      investments in an effort to maximize its incentive
      compensation.**




In
      addition to its base management fee, our Manager earns incentive compensation
      in
      two parts. The first part, which is payable quarterly and is equal to a
      specified percentage of the amount by which our net investment income exceeds
      a
      hurdle rate. The second part of the incentive fee is determined and payable
      in
      arrears as of the end of each calendar year and equals (1) 20% of (a) our net
      realized capital gain (realized capital gains less realized capital losses)
      on a
      cumulative basis from the closing date of our initial public offering to the
      end
      of such fiscal year, less (b) any unrealized capital depreciation at the end
      of
      such fiscal year, less (2) the aggregate amount of all capital gains fees paid
      to our Manager in prior years.




The
      way in
      which the incentive fee payable to our Manager is determined may encourage
      our
      Manager to use leverage to increase the return on our investments. Under certain
      circumstances, the use of leverage may increase the likelihood of default,
      which
      would adversely affect our stockholders because their interests would be
      subordinate to those of debtholders. In addition, our Manager receives the
      incentive fee based, in part, upon net capital gains realized on our
      investments. Unlike the portion of the incentive fee based on income, there
      is
      no hurdle rate applicable to the portion of the incentive fee based on net
      capital gains. As a result, our Manager may have a tendency to invest more
      in
      investments that are likely to result in capital gains as compared to
      income-producing securities. Other key criteria related to determining
      appropriate investments and investment strategies, including the preservation
      of
      capital, might be under-weighted if our Manager focuses exclusively or
      disproportionately on maximizing its income. Such a practice could result in
      our
      investing in more speculative securities than would otherwise be the case,
      which
      could result in higher investment losses.




**The
      payment of part of the incentive compensation on a quarterly basis may lead
      our
      Manager to accelerate or defer interest payable by our portfolio companies
      in a
      manner that could result in fluctuations in the timing and amount of
      dividends.**




Our
      Manager receives a quarterly incentive fee based, in part, on our net investment
      income, if any, for the immediately preceding fiscal quarter. To the extent
      our
      Manager exerts influence over our portfolio companies, the quarterly incentive
      fee may provide our Manager with an incentive to induce our portfolio companies
      to accelerate or defer payments for interest or other obligations owed to us
      from one fiscal quarter to another. This could result in greater fluctuations
      in
      the timing and amount of dividends that we pay.




**We
      may be obligated to pay our Manager incentive compensation even if we incur
      a
      loss.**




Pursuant
      to the investment advisory agreement, our Manager is entitled to receive
      incentive compensation for each fiscal quarter in an amount equal to a
      percentage of the excess of our net investment income for that quarter above
      a
      hurdle rate. In addition, the investment advisory agreement further provides
      that our net investment income for incentive compensation purposes excludes
      unrealized capital losses that we may incur in the fiscal quarter, even if
      such
      capital losses result in a net loss on our statement of operations for that
      quarter. The calculation of the incentive fee includes any deferred interest
      accrued, but not yet received. As a result, we may be paying an incentive fee
      on
      interest, the collection of which may be uncertain or deferred. Thus, we may
      be
      required to pay our Manager incentive compensation for a fiscal quarter even
      if
      there is a decline in the value of our portfolio or we incur a net loss for
      that
      quarter. The fixed hurdle rate formula for incentive compensation may result
      in
      increased compensation being paid to our Manager during periods of rising
      interest rates.




**While
      our management team currently does not provide advisory services to other
      investment vehicles that may have common investment objectives with ours, our
      management team may do so in the future and may face conflicts of interest
      in
      allocating investments.**




18






Our
      management team does not currently provide advisory services to other investment
      vehicles with common investment objectives to ours. However, they are not
      prohibited from doing so. In addition, the NGP private equity funds are not
      precluded from making investments in securities like our targeted investments,
      although they have not traditionally focused on such types of investments in
      the
      past. If our management team does provide such services to other investment
      vehicles in the future, or if the focus of the NGP private equity funds were
      to
      change to include securities like our targeted investments, our management
      team
      might allocate investment opportunities to other entities, and thus might divert
      attractive investment opportunities away from us. In addition, our executive
      officers and directors, and the members of our management team, serve or may
      serve as officers, directors or principals of entities that operate in the
      same
      or a related line of business as we do or of investment funds managed by our
      affiliates. These multiple responsibilities might create conflicts of interest
      for our management team and NGP if they are presented with opportunities that
      might benefit us and their other clients, investors or
      shareholders.




**Our
      Manager’s liability is limited under the investment advisory agreement, and we
      have agreed to indemnify our Manager against certain liabilities, which may
      lead
      our Manager to act in a riskier manner on our behalf than it would when acting
      for its own account.**




Our
      Manager has not assumed any responsibility to us other than to provide the
      services described in the investment advisory agreement, and it is not
      responsible for any action of our Board of Directors in declining to follow
      our
      Manager’s advice or recommendations. Pursuant to the investment advisory
      agreement, our Manager and its managing members, officers and employees are
      not
      liable to us for their acts, under the investment advisory agreement, absent
      willful misfeasance, bad faith, gross negligence or reckless disregard in the
      performance of their duties. We have agreed to indemnify, defend and protect
      our
      Manager and its managing members, officers and employees with respect to all
      expenses, losses, damages, liabilities, demands, charges and claims arising
      from
      acts of our Manager not constituting willful misfeasance, bad faith, gross
      negligence or reckless disregard in the performance of their duties. These
      protections may lead our Manager to act in a riskier manner when acting on
      our
      behalf than it would when acting for its own account.




**We
      are a different vehicle from any other NGP-affiliated
      fund.**




Our
      investment strategies differ from those of other funds (including any NGP
      private equity fund) that are, or have been, managed by NGP or its affiliates.
      Investors in NGP Capital Resources Company do not own any interest in NGP or
      in
      any other NGP-affiliated fund. The historical performance of NGP is not
      indicative of the results that our company will achieve, and you should not
      rely
      upon such historical performance in purchasing our common stock. Our targeted
      rate of return is lower than that of NGP’s private equity funds, and as a result
      our expected rate of return is lower than those sought by NGP’s private equity
      funds. We can provide no assurance that we will replicate the historical or
      future performance of NGP or its affiliated funds, and we caution you that
      our
      investment returns may be substantially lower than the returns achieved by
      those
      funds.




**Our
      ability to grow will depend on our ability to raise capital.**




We
      will
      need to periodically access the capital markets to raise cash to fund new
      investments. Unfavorable economic conditions could increase our funding costs,
      limit our access to the capital markets or result in a decision by lenders
      not
      to extend credit to us. An inability to successfully access the capital markets
      could limit our ability to grow our business and fully execute our business
      strategy and could decrease our earnings, if any. With certain limited
      exceptions, we are only allowed to borrow amounts such that our asset coverage,
      as defined in the 1940 Act, equals at least 200% after such borrowing. The
      amount of leverage that we employ will depend on our investment adviser’s and
      our Board of Directors’ assessment of market and other factors at the time of
      any proposed borrowing. We cannot assure you that we will be able to maintain
      our current Facilities or obtain another line of credit at all or on terms
      acceptable to us.




**Legal
      and Tax Risks**




**We
      may have difficulty paying our required distributions if we recognize income
      before, or without, receiving cash representing such income. If we are unable
      to
      pay required distributions, we may fail to qualify as a RIC and thus be subject
      to corporate-level income tax.**




For
      federal income tax purposes, we include in income certain amounts that we have
      not yet received in cash, such as original issue discount, which arises when
      we
      receive warrants, property-based equity participation rights or loan discount
      points in connection with the purchase of a loan or possibly in other
      circumstances, or contracted payment-in-kind interest, which represents
      contractual interest added to the loan balance and due at the end of the loan
      term. Such original issue discount, which could be significant relative to
      our
      company’s overall investment activities, or increases in loan balances as a
      result of contracted payment-in-kind arrangements, are included in income before
      we receive any corresponding cash payments. We also may be required to include
      in income certain other amounts that we do not receive in cash.




19






Since
      in
      certain cases we may recognize income before or without receiving cash
      representing such income, we may have difficulty meeting the tax requirement
      to
      distribute at least 90% of the sum of our “investment company taxable income”
(which generally consists of ordinary income and realized net short-term capital
      gains in excess of realized net long-term capital losses) and net tax-exempt
      interest to our stockholders on an annual basis, to maintain our status as
      a
      RIC. Accordingly, we may have to sell some of our investments at times we would
      not consider advantageous, raise additional debt or equity capital, borrow
      funds
      or reduce new investment originations to meet these distribution requirements.
      If we are not able to obtain cash from other sources, we may fail to qualify
      as
      a RIC and thus be subject to corporate-level income tax.




**Regulations
      governing our operation as a business development company affect our ability
      to,
      and the way in which we, raise additional capital.**




We
      have
      elected to be treated as a business development company under the 1940 Act.
      The
      1940 Act imposes numerous restrictions on our activities, including restrictions
      on the nature of our investments, our use of borrowed funds, our issuance of
      securities, options, warrants, or rights. Such restrictions may prohibit the
      purchase of certain investments that would otherwise be suitable for investment
      or render such purchases inadvisable.




Under
      the
      provisions of the 1940 Act, as a business development company, we are permitted
      to issue senior securities only in amounts such that our asset coverage, as
      defined in the 1940 Act, equals at least 200% after each issuance of senior
      securities. If the value of our assets declines, we may be unable to satisfy
      this test. If that happens, we may be required to sell a portion of our
      investments and, depending on the nature of our leverage, repay a portion of
      our
      indebtedness at a time when such sales may be disadvantageous and result in
      unfavorable prices.




We
      generally cannot issue and sell our common stock at a price below net asset
      value per share. We may, however, sell our common stock, or warrants, options
      or
      rights to acquire our common stock, at prices below the current net asset value
      of the common stock if our Board of Directors determines that such sale is
      in
      the best interests of our company and its stockholders, and our stockholders
      approve such sale. In any such case, the price at which our securities are
      to be
      issued and sold may not be less than a price that, in the determination of
      our
      Board of Directors, closely approximates the market value of such securities
      (less any distributing commission or discount).




In
      addition to issuing securities to raise capital as described above, we may
      in
      the future seek to securitize our loans to generate cash for funding new
      investments. To securitize loans, we may create a wholly-owned subsidiary and
      contribute a pool of loans to the subsidiary. This could include the sale of
      interests in the subsidiary on a non-recourse basis (except for customary
      repurchase obligations for breach of representations and warranties) to
      purchasers whom we would expect to be willing to accept a lower interest rate
      to
      invest in investment grade loan pools, and we would expect that we would retain
      a subordinated interest in the assets and participate (most likely on a first
      loss basis) in losses related to the securitized assets to the extent of that
      interest. However, the exact structure and provisions of any securitization
      will
      be based upon then-current market conditions and may vary from the description
      in this prospectus. An inability to securitize our loan portfolio successfully
      could limit our ability to grow our business, fully execute our business
      strategy and decrease our earnings, if any. Moreover, the successful
      securitization of our loan portfolio might expose us to losses as the residual
      loans in which we do not sell interests will tend to be those that are riskier
      and more apt to generate losses.




Because
      there are no judicial and few administrative interpretations of the provisions
      of the 1940 Act pertaining to business development companies, there is no
      assurance that such provisions will be interpreted or administratively
      implemented in a manner consistent with our investment objectives and intended
      manner of operation. In the event that our Board of Directors determines that
      we
      cannot economically pursue our investment objective under the 1940 Act, they
      may
      at some future date decide to withdraw our election to be treated as a business
      development company and convert us to a management investment company or an
      operating company not subject to regulation under the 1940 Act, or cause us
      to
      liquidate. These changes may not be effected without approval of a requisite
      percentage of our Board of Directors and the holders of a majority of our
      shares.




**If
      our primary investments are deemed not to be qualifying assets, we could lose
      our status as a business development company or be precluded from investing
      according to our current business plan.**




20






In
      order
      to maintain our status as a business development company, the 1940 Act prohibits
      us from acquiring any assets other than “qualifying assets” unless we meet the
      70% Test. Qualifying assets include securities of privately-owned or
      thinly-traded public U.S. companies, cash, cash equivalents, U.S. government
      securities and high quality debt instruments that mature in one year or less.
      In
      general, we will seek to invest in companies that qualify as “eligible portfolio
      companies” under the 1940 Act. While some of these criteria are provided in the
      alternative, the criterion encompassing the greatest number of potentially
      eligible companies, and hence the one on which we expect to rely most
      frequently, is that the company not have any class of securities with respect
      to
      which a broker or dealer may extend margin credit.




In
      1998,
      the Board of Governors of the Federal Reserve System, or the Federal Reserve
      Board, amended Regulation T (one of the federal regulations governing margin
      credit) to allow brokers and dealers to extend margin credit on a “non-equity
      security.” If the term “non-equity security” were to be interpreted to include
      any form of indebtedness, then companies with any outstanding debt would not
      qualify as eligible portfolio companies. As a further consequence of such an
      interpretation, when we lend money, as we plan to do, whether in the form of
      senior debt or long-term subordinated debt, to a company that previously has
      no
      outstanding debt securities, the issuer of that debt instrument may cease to
      be
      an “eligible portfolio company” immediately upon our acquisition of that debt
      instrument and arguably could not be counted by us toward compliance with the
      70% Test.




If
      the
      term “non-equity security” were to be given a broad interpretation to encompass
      the types of debt instruments we seek to acquire, the number of companies that
      would qualify as eligible portfolio companies would be greatly reduced, and
      we
      may be forced to focus on investments in equity interests. As a result, our
      identification of appropriate investments would be more difficult and more
      time-consuming. This, in turn, could have a material adverse effect on the
      timing of our investment of our investment capital, our results of operations,
      our ability to pay dividends and the value of our common stock.




Additionally,
      if we make investments in senior debt or long-term subordinated debt and if
      such
      investments are determined by the SEC, courts or other regulatory authorities
      to
      be marginable securities within the meaning of Regulation T, the issuers of
      such
      indebtedness would likely no longer qualify as eligible portfolio companies,
      we
      may not satisfy the 70% Test and we could lose our status as a business
      development company. This, in turn, could cause us to lose our status as a
      RIC.
      Any of these results would have a material adverse effect on our ability to
      invest in the manner described in this prospectus, on our operating results,
      financial condition and ability to pay dividends, and on the value of our common
      stock.




We
      cannot assure you that the SEC, the courts or any other regulatory authority
      will interpret the definition of “eligible portfolio companies” to include those
      private companies having no outstanding debt securities prior to our investment.
      The SEC has not taken a position on this matter and, in the future, could
      interpret the definition to exclude those companies in which we intend to
      invest. A court or other regulatory authority could similarly interpret the
      definition in a manner contrary to our interests. A ruling or decision adverse
      to us could require that we dispose of some or all of our investments. Any
      such
      dispositions could have a material adverse effect on our financial condition
      and
      results of operations because we may be required to consummate such dispositions
      quickly, which would make it more difficult to obtain favorable terms. In
      addition, because these types of investments will generally be illiquid, we
      may
      have difficulty finding a buyer and, even if we do find a buyer, we may have
      to
      sell the investments at a substantial loss.




On
      November 1, 2004, the Securities and Exchange Commission proposed for
      comment two new rules under the 1940 Act that are designed to realign the
      definition of eligible portfolio company set forth under the 1940 Act, and
      the
      investment activities of business development companies, with their original
      purpose by (1) defining eligible portfolio company with reference to
      whether an issuer has any class of securities listed on a national securities
      exchange or on an automated interdealer quotation system of a national
      securities association (‘‘Nasdaq’’) and (2) permitting business development
      companies to make certain additional (‘‘follow-on’’) investments in those
      issuers even after they list their securities on a national securities exchange
      or on Nasdaq. The proposed rules are intended to expand the definition of
      eligible portfolio company in a manner that would promote the flow of capital
      to
      small, developing and financially troubled companies. We cannot assure you
      that
      these rules, or related rules arising out of the comment process, will be
      approved by the Securities and Exchange Commission.




Until
      the
      Securities and Exchange Commission or its staff has issued final rules with
      respect to the issue discussed above, we will continue to monitor this issue
      closely, and may be required to adjust our investment focus to comply with
      and/or take advantage of any future administrative position, judicial decision
      or legislative action.




21






**Many
      of our portfolio investments are not publicly traded and, as a result, there
      is
      uncertainty as to the value of our portfolio investments.**




A
      large
      percentage of our portfolio investments (other than our short-term cash
      investments) are, and will continue to be, in the form of securities that are
      not publicly traded. The fair value of securities and other investments that
      are
      not publicly traded may not be readily determinable. We value these securities
      quarterly at fair value in accordance with procedures as determined in good
      faith by our Board of Directors. However, we may be required on a more frequent
      basis to value our securities to reflect significant events affecting the value
      of our securities. The types of factors that may be considered in fair value
      pricing of an investment include the nature and realizable value of any
      collateral, the portfolio company’s earnings and ability to make payments, the
      markets in which the portfolio company does business, comparison to publicly
      traded companies, discounted cash flow and other relevant factors. Because
      such
      valuations, and particularly valuations of private securities and private
      companies, are inherently uncertain, may fluctuate during short periods of
      time
      and may be based on estimates, our determinations of fair value may differ
      materially from the values that would have been used if a ready market for
      these
      securities existed. As a result, we may not be able to dispose of our holdings
      at a price equal to or greater than our determined fair value. Our net asset
      value could be adversely affected if our determinations regarding the fair
      value
      of our investments are materially higher than the values that we ultimately
      realize upon the disposal of such securities. In addition, the subjective nature
      of such valuations may cause the shares of our common stock to trade at a
      discount to our net asset value.




**Changes
      in laws or regulations governing our operations and those of our portfolio
      companies, our Manager or its affiliates may adversely affect our business
      or
      cause us to alter our business strategy.**




We,
      our
      portfolio companies, and our Manager and its affiliates are subject to
      regulation by laws and regulations at the local, state and federal level. New
      legislation may be enacted into law or new interpretations, rulings or
      regulations could be adopted, including those governing the types of investments
      we are permitted to make, any of which could harm us, our Manager and our
      stockholders, with retroactive effect. Such changes could result in material
      changes to our strategies and plans and may result in our investment focus
      shifting from the areas of expertise of our Manager to other types of
      investments in which our Manager may have less expertise or little or no
      experience. Thus, any such changes, if they occur, could have a material adverse
      effect on our results of operations and the value of your
      investment.




**Our
      ability to enter into transactions with our affiliates is
      restricted.**




We
      are
      prohibited under the 1940 Act from knowingly participating in certain
      transactions with our affiliates without the prior approval of our independent
      directors and, in certain cases, the SEC. Any person that owns, directly or
      indirectly, 5% or more of our outstanding voting securities is our affiliate
      for
      purposes of the 1940 Act and we are generally prohibited from buying or selling
      any security from or to such affiliate, absent the prior approval of our
      independent directors and, in certain cases, the SEC. The 1940 Act also
      prohibits ‘‘joint’’ transactions with an affiliate, which could include
      investments in the same portfolio company (whether at the same or different
      times), without prior approval of our independent directors and, in certain
      cases, the SEC. If a person acquires more than 25% of our voting securities,
      we
      are prohibited from buying or selling any security from or to such person,
      or
      entering into joint transactions with such person, absent the prior approval
      of
      the SEC.




**Delays
      in obtaining or a failure to obtain any necessary state lending licenses may
      impede our lending activities in such states.**




Given
      our
      objective of investing, in part, in debt instruments, we may be required to
      apply for lending licenses or permits under applicable state laws in states
      other than where we currently operate. We cannot assure you that we will obtain
      these licenses and permits or, if we do, when we will obtain them. If we are
      unable to obtain these licenses or permits, our investment activities in those
      states may be impeded.




**Item
      1B.     Unresolved Staff
      Comments.**





None.




**Item
      2.** **Properties.**




We
      do not
      own any real estate or other physical properties materially important to our
      operation. Our headquarters are located in Houston, Texas, where we occupy
      our
      office space leased by our Administrator pursuant to a lease agreement (to
      which
      we are not a party) dated December 3, 2004 that expires on May 31,
      2010.




22






**Item
      3.****Legal
      Proceedings.**




We
      are not
      currently subject to any material legal proceedings, nor, to our knowledge,
      is
      any material legal proceeding threatened against us.




**Item
      4.****Submission
      of Matters to a Vote of Security Holders.**




No
      matters
      were submitted to a vote of stockholders through the solicitation of proxies
      or
      otherwise during the fourth quarter of the fiscal year ending December 31,
      2005.





**PART
      II.**




**Item
      5.** **Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
      of Equity Securities.**




Our
      common
      stock is quoted on the National Market tier of the Nasdaq Stock Market under
      the
      symbol “NGPC”. Our common stock began trading on November 10, 2004, at an
      initial public offering price of $15.00 per share. On March 8, 2006, there
      were
      approximately 8,184 record holders and beneficial owners (held in street name)
      of our common stock, according to our transfer agent. The following table sets
      forth the range of high and low sales prices of our common stock as reported
      on
      the Nasdaq Stock Market and our dividends declared from our IPO through December
      31, 2005.




**Sales
                Price****Fiscal
                2004**
            
            **High**
            
            **Low**
            
            **Dividend
                Declared**Fourth
                Quarter (beginning November 10, 2004)
            
            $
            16.15
            
            $
            14.20
            
            $
            0.00**Fiscal
                2005**First
                Quarter
            
            $
            16.75
            
            $
            14.41
            
            $
            0.120Second
                Quarter
            
            $
            16.30
            
            $
            14.30
            
            $
            0.125Third
                Quarter
            
            $
            15.70
            
            $
            13.22
            
            $
            0.140Fourth
                Quarter
            
            $
            15.04
            
            $
            12.92
            
            $
            0.275




**Use
      of Proceeds from Registered Securities**




The
      net
      offering proceeds received by us from the initial public offering of the shares
      of common stock, after deducting expenses and underwriting discounts and
      commissions, were approximately $244,337,000. We are using such net proceeds
      received for investing in portfolio companies in accordance with our investment
      objectives and strategies as described in our Registration and incorporated
      herein by reference. From November 15, 2004, the day we received the net
      proceeds from the initial public offering, to December 31, 2004, we invested
      approximately $66 million in the debt securities of two portfolio companies
      and
      paid a management fee to our Manager in the amount $452,676, organization costs
      in the amount $704,808, and general and administrative expenses (including
      payments to the administrator) in the amount of $285,771. At December 31, 2004,
      we had cash and cash investments of $136.3 million, and investments in agency
      and auction rate securities of $41.3 million. From January 1, 2005 to December
      31, 2005, we invested approximately $60 million in debt and equity securities
      of
      one existing and five new portfolio companies, bringing the total amount
      invested in portfolio companies since the initial public offering to $126.7
      million. Additionally, during 2005 we invested $51.1 million in unsecured
      corporate debt securities. We have sold $29.1 million of our investments in
      unsecured corporate debt securities and received prepayments from portfolio
      companies totaling approximately $33.6 million. During 2005, we paid management
      fees to our Manager in the amount of $3,600,000, organization costs in the
      amount of $1,111, and general and administrative expenses (including payments
      to
      the administrator) in the amount of $2,964,849. At December 31, 2005, we had
      cash and cash investments of $134.9 million.




**Item
      6.****Selected
      Financial Data.**




The
      following table sets forth our selected historical financial and operating
      data,
      as of and for the dates and period indicated. The selected historical financial
      data are derived from our audited financial statements and should be read in
      conjunction with our financial statements and notes thereto and together with
      “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations.”




23




**NGP
        CAPITAL RESOURCES COMPANY**
 **CONSOLIDATED
        SELECTED FINANCIAL DATA**
  Period
                  August 6, 2004Year
                  ended
              
              (commencement
                  of operations)December
                  31, 2005
              
              through
                  December 31, 2004Total
                  operating income
              
              $
              17,306,794
              
              $
              853,038Total
                  operating expenses
              
              
              6,898,885
              
              
              1,443,255Net
                  investment income (loss)
              
              
              10,407,909
              
              
              (590,217
              )Net
                  realized capital gain (loss) on portfolio securities and corporate
                  notes
              
              
              1,338,351
              
              
              -Unrealized
                  appreciation (depreciation)on
                  portfolio securities and corporate notes
              
              
              (394,933
              )
              
              290,789Net
                  increase (decrease) in stockholders' equity(net
                  assets) resulting from operations
              
              $
              11,351,327
              
              $
              (299,428
              )Per
                  share data:Net
                  investment income (loss)
              
              $
              0.60
              
              $
              (0.03
              )Net
                  realized and unrealized gain (loss) on portfolio securities and
                  corporate
                  notes
              
              $
              0.05
              
              $
              0.01Net
                  increase (decrease) in stockholders' equity(net
                  assets) resulting from operations
              
              $
              0.65
              
              $
              (0.02
              )Dividend
                  declared
              
              $
              (0.66
              )
              $
              -Net
                  assets
              
              $
              14.02
              
              $
              14.03Balance
                  Sheet Data:Total
                  assets
              
              $
              249,490,266
              
              $
              244,552,003Stockholders'
                  equity (net assets)
              
              $
              243,898,485
              
              $
              244,038,830


**Item
      7.****Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.**







*The
      following analysis of our financial condition and results of operations should
      be read in conjunction with our financial statements and the notes thereto
      contained elsewhere in this report.*




Certain
      statements in this report that relate to estimates or expectations of our future
      performance or financial condition may constitute “forward-looking statements”
as defined under the Private Securities Litigation Reform Act of 1995. These
      forward-looking statements are subject to various risks and uncertainties,
      which
      could cause actual results and conditions to differ materially from those
      projected, including, but not limited to,




·
            uncertainties
                associated with the timing of transaction closings;·
            changes
                in the prospects of our portfolio companies;·
            changes
                in interest rates;·
            changes
                in regional, national, or international economic conditions and their
                impact on the industries in which we
                invest;




24






·
            the
                future operating results of our portfolio companies and their ability
                to
                achieve their objectives;·
            changes
                in the conditions of the industries in which we invest;·
            the
                adequacy of our cash resources and working capital;·
            the
                timing of cash flows, if any, from the operations of our portfolio
                companies;·
            the
                ability of our Manager to locate suitable investments for us and
                to
                monitor and administer the investments; and·
            other
                factors enumerated in our filings with the Securities and Exchange
                Commission.




We
      may use
      words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,”
“may” and similar expressions to identify forward-looking statements. Such
      statements are based on currently available operating, financial and competitive
      information and are subject to various risks and uncertainties that could cause
      actual results to differ materially from our historical experience and present
      expectations. Undue reliance should not be placed on such forward-looking
      statements, as such statements speak only as of the date on which they are
      made.
      Additional information regarding these and other risks and uncertainties is
      contained in our periodic filings with the SEC.




**Overview**




We
      are a
      financial services company created to invest primarily in debt securities of
      small and mid-size private energy companies. We have elected to be treated
      as a
      business development company under the 1940 Act and, as such, we are required
      to
      comply with certain regulatory requirements. For instance, we generally have
      to
      invest at least 70% of our total assets in “qualifying assets,” including
      securities of private or thinly traded public U.S. companies, cash, cash
      equivalents, U.S. government securities and high-quality debt investments that
      mature in one year or less. In addition, for tax purposes we operate so as
      to be
      treated as a RIC under the Code. Pursuant to these elections, we generally
      will
      not have to pay corporate-level taxes on any income and capital gains we
      distribute to our stockholders.





Our
      investment objective is to generate both current income and capital appreciation
      primarily through debt investments with certain equity components. A key focus
      area for our targeted investments in the energy industry is domestic exploration
      and production businesses and midstream businesses that gather, process and
      transport oil and gas. We also evaluate investment opportunities in such
      businesses as coal, power, electricity, energy services and alternative energy.
      Our investments will generally range in size from $10 million to $50 million,
      although a few investments may be substantially in excess of this range. Our
      targeted investments primarily consist of debt instruments, including senior
      and
      subordinated loans combined in one facility with an equity component,
      subordinated loans and subordinated loans with equity components and preferred
      stock or similar securities.





Our
      level
      of investment activity can and does vary substantially from period to period
      depending on many factors, including the amount of debt and equity capital
      available to energy companies, the level of acquisition and divestiture activity
      for such companies, the level and volatility of energy commodity prices, the
      general economic environment and the competitive environment for the types
      of
      investments we make. We believe that, for energy companies, the availability
      of
      debt capital from banks, mezzanine providers and alternative investment vehicles
      such as hedge funds has generally increased over the last twelve months and
      has
      put downward pressure on spreads. However, we do not expect this increased
      availability of capital to impair our ability to make good long-term investment
      decisions with our capital. We remain committed to our underwriting and
      investment disciplines in selectively investing in appropriate risk-reward
      opportunities within the energy sector.




We
      generate revenue in the form of interest income on the debt securities that
      we
      own, dividend income on any common or preferred stock that we own, and capital
      gains or losses on any debt or equity securities that we acquire in portfolio
      companies and subsequently sell. Our investments, if in the form of debt
      securities, typically have a term of three to seven years and bear interest
      at a
      fixed or floating rate. To the extent achievable, we seek to collateralize
      our
      investments by obtaining security interests in our portfolio companies' assets.
      We also may acquire minority or majority equity interests in our portfolio
      companies, which may pay cash or in-kind dividends on a recurring or otherwise
      negotiated basis. In addition, we may generate revenue in other forms including
      commitment, origination, structuring, administration or due diligence fees;
      fees
      for providing managerial assistance; and possibly consultation fees.




25






**Critical
      Accounting Policies**




**Valuation
      of Investments** ******




Investments
      are carried at fair value, as determined in good faith by our Board of
      Directors. On a quarterly basis, the investment team of our Manager prepares
      valuations for all of the assets in our portfolio and presents the valuations
      to
      our Valuation Committee and our Board of Directors. The valuations are
      determined and recommended by the Valuation Committee to the Board of Directors,
      which reviews and ratifies the final portfolio valuations. (See “Valuation
      Process” above.)





Investments
      in securities for which market quotations are readily available are recorded
      in
      our financial statements at such market quotations as of the valuation date
      adjusted for appropriate liquidity discounts, if applicable. For investments
      in
      securities for which market quotations are unavailable, or for which we have
      various degrees of trading restrictions, the investment team prepares valuation
      analyses, as generally described below.





Using
      the
      most recently available financial statements, forecasts and, when applicable,
      comparable transaction data, the investment team prepares valuation analyses
      for
      the various securities in our investment portfolio. These valuation analyses
      are
      prepared using traditional valuation methodologies which rely on estimates
      of
      the asset values and enterprise values of portfolio companies issuing
      securities.





The
      methodologies for determining asset valuations include estimates based on:
      the
      liquidation or sale value of a portfolio company’s assets, the discounted value
      of expected future net cash flows from the assets and third party valuations
      of
      a portfolio company’s assets, such as engineering reserve reports of oil and gas
      properties. We consider some or all of the above valuation methods to determine
      the estimated asset value of a portfolio company.




The
      methodologies for determining enterprise valuations include estimates based
      on:
      valuations of comparable public companies, recent sales of comparable companies,
      the value of recent investments in the equity securities of a portfolio company
      and the asset valuation methodologies described above. We consider some or
      all
      of the above valuation methods to determine the estimated enterprise value
      of
      the company.





*Debt
      Securities:* We value
      non-convertible debt securities at cost plus amortized original issue discount,
      or OID, to the extent that the estimated asset or enterprise value of the
      portfolio company exceeds the outstanding debt of a portfolio company. We value
      convertible debt securities at the higher of: 1) cost plus amortized original
      issue discount, or OID, to the extent that the estimated asset or enterprise
      value of the portfolio company equals or exceeds the outstanding debt of a
      portfolio company; and 2) our pro rata share, upon conversion, of the residual
      equity value of the portfolio company available after deducting all outstanding
      debt from its estimated enterprise value. If the estimated asset or enterprise
      value is less than the sum of the value of our debt investment and all other
      debt securities of the portfolio company *pari
      passu* or senior
      to our debt investment, we reduce the value of our debt investment beginning
      with our junior-most debt such that the asset or enterprise value less the
      value
      of the outstanding *pari
      passu* or senior
      debt is zero.




*Equity
      Securities:* We value
      investments in preferred and common equity securities (including warrants or
      options to acquire equity securities) based on our pro rata share of the
      residual equity value available after deducting all outstanding debt from the
      estimated enterprise value.





*Property-Based
      Equity Participation Rights:* We value
      investments in overriding royalty and net profits interests based on the asset
      valuation methodologies discussed above.





Due
      to the
      uncertainty inherent in the valuation process, such estimates of fair value
      may
      differ significantly from the values that would have been used had a ready
      market for the securities existed, and the differences could be material.
      Additionally, changes in the market environment and other events that may occur
      over the life of the investments may cause the gains or losses ultimately
      realized on these investments to be different from the valuations currently
      assigned.




26






**Securities
      Transactions, Interest and Dividend Income Recognition**




All
      securities transactions are accounted for on a trade-date basis. Interest income
      is recorded on the accrual basis to the extent that such amounts are expected
      to
      be collected. OID is deferred and accreted into interest income over the life
      of
      the loan using the effective interest method. OID includes the value of
      detachable equity warrants and property-based equity participation rights
      obtained in conjunction with the acquisition of debt securities. OID also
      includes the portion of the loan discount points paid that represent additional
      yield or discount on a loan. Upon the prepayment of a loan or debt security,
      any
      unamortized OID is recorded as interest income. We record prepayment premiums
      on
      loans and debt securities as interest income when we receive such amounts.
      Dividend income is recognized on the ex-dividend date. We stop accruing interest
      or dividends on our investments when it is determined that the interest or
      dividend is not collectible. We assess the collectibility of the interest and
      dividends based on many factors, including the portfolio company’s ability to
      service our loan based on current and projected cash flows as well as the
      current valuation of the company’s assets. For investments with payment-in-kind,
      or PIK, interest, we base income accruals on the valuation of the PIK notes
      received from the borrower. If the portfolio company’s asset valuation indicates
      a value of the PIK notes that is not sufficient to cover the contractual
      interest, we will not accrue interest income on the notes.




A change
      in
      a portfolio company’s operating performance and cash flows can impact a
      portfolio company’s ability to service our debt and therefore could impact our
      interest income recognition.




**Fee
      Income Recognition**




Fees
      primarily include financial advisory, transaction structuring, loan
      administration, commitment and prepayment fees. Financial advisory fees
      represent amounts received for providing advice and analysis to companies and
      are recognized as earned when such services are performed provided collection
      is
      probable. Transaction structuring fees represent amounts received for
      structuring, financing, and executing transactions and are generally payable
      only if the transaction closes. Such fees are deferred and accreted into
      interest income over the life of the loan using the effective interest method.
      Commitment fees represent amounts received for committed funding and are
      generally payable whether or not the transaction closes. On transactions that
      close within the commitment period, commitment fees are deferred and accreted
      into interest income over the life of the loan using the effective interest
      method. Commitment fees on transactions that do not close are generally
      recognized over the time period the commitment is outstanding. Prepayment and
      loan administration fees are recognized as they are received.





**Net
      Realized Gains or Losses and Net Change in Unrealized Appreciation or
      Depreciation**





We
      calculate realized capital gains or losses on portfolio securities and corporate
      notes as the difference between the net proceeds from the repayment or sale
      and
      the amortized cost basis of the investment, considering unamortized fees and
      prepayment premiums and without regard to unrealized appreciation or
      depreciation previously recognized. Net unrealized appreciation or depreciation
      reflects the change in portfolio investment values during the reporting period,
      including the reversal of previously recorded unrealized appreciation or
      depreciation, when capital gains or losses are realized.




**Portfolio
      and Investment Activity**




From
      commencement of investment operations in November 2004 through December 31,
      2005, we invested $126.7 million in seven portfolio companies, all
      energy-related, and received principal prepayments of $33.6 million. At December
      31, 2005, our targeted investment portfolio consisted of six portfolio companies
      and was invested 19% in senior subordinated secured term loans, 13% in senior
      secured term loans, 5% in unsecured senior notes and 1% in convertible preferred
      stock, warrants and overriding royalty interests. The balance of our portfolio
      was invested 8% in corporate notes and 54% in U.S. Treasury bills and cash
      equivalents.




The
      following table lists each targeted portfolio investment (at its original cost,
      net of OID) made from our commencement of investment operations in November
      2004
      through December 31, 2005:




27






**Portfolio
                  Company**
              **Energy
                  Industry Segment**
              **Date**
              **Investment**
              
              
              **Original
                  Cost**Crescent
                  Resources, LLC
              Oil
                  & Gas Production
              December,
                  2004
              Senior
                  Subordinated-
              
              $
              47,246,400and
                  Development
              
              Secured
                  (2nd Lien) Term LoanSenior
                  Subordinated-
              
              
              10,575,360Secured
                  (2nd lien) Bridge LoanVenoco
                  Inc.
              Oil
                  & Gas Production
              December,
                  2004
              Senior
                  Notes
              
              
              7,948,964June,
                  2005
              Senior
                  Notes
              
              
              3,920,008TierraMar
                  Energy LLC
              Oil
                  & Gas Production
              May,
                  2005
              Senior
                  Secured (1st lien)
              
              
              5,940,000and
                  Development
              
              Multiple-Advance
                  Term LoanOverriding
                  Royalty Interest
              
              
              20,000Warrants
              
              
              10,000C-Gas
                  LLC
              Oil
                  & Gas Production
              April,
                  2005
              Senior
                  Secured (1st lien)
              
              
              14,669,583and
                  Development
              
              Multiple-Advance
                  Term LoanOverriding
                  Royalty Interest
              
              
              45,000Atchee
                  CBM LLC
              Oil
                  & Gas Production
              April,
                  2005
              Senior
                  Secured (1st lien)
              
              
              374,921and
                  Development
              
              Multiple-Advance
                  Term LoanOverriding
                  Royalty Interest
              
              
              5,000Millennium
                  Offshore Group, Inc.
              Oil
                  & Gas Production
              August,
                  2005
              Senior
                  Secured Bridge Loan (1st lien)
              
              
              21,861,043and
                  DevelopmentOverriding
                  Royalty Interest
              
              
              10,000Chroma
                  Exploration & Production, Inc.
              Oil
                  & Gas Production
              September,
                  2005
              Senior
                  Secured (1st lien)
              
              
              9,428,750and
                  Development
              
              Multiple-Advance
                  Term LoanOverriding
                  Royalty Interest
              
              
              175,0008,000
                  Shares Series A Participating
              
              
              2,000,000Convertible
                  Preferred Stock8.11
                  Shares Common Stock
              
              
              -**Total
                  Original Cost**
              
              
              
              
              $
              124,230,029






**Results
      of Operations**




**Investment
      Income**




Investment
      income was $17.3 million for the year ended December 31, 2005 and $0.9 million
      for the period August 6, 2004 (commencement of operations) through December
      31,
      2004.  Investment
      income for the year ended December 31, 2005 consisted of $10.9 million
      attributable to targeted investments in portfolio companies, $1.9 million
      attributable to investments in corporate notes, $4.2 million attributable to
      investments in cash and cash equivalents and $0.3 million attributable to fee
      income from third parties and affiliates. The comparable amounts for the period
      August 6, 2004 (commencement of operations) through December 31, 2004 were
      approximately $0.2 million attributable to targeted investments in portfolio
      companies and approximately $0.6 million attributable to investments in cash
      and
      cash equivalents.




The
      weighted average yield on targeted portfolio investments was 12.9% at December
      31, 2005. The weighted average yield on investments in corporate notes was
      5.4%
      and on investments in US Treasury bills and cash equivalents was 3.3% as of
      December 31, 2005. The weighted average yield on our total capital invested
      at
      December 31, 2005 was 7.0%. Yields are computed using interest rates as of
      the
      balance sheet date and include amortization of loan discount points, original
      issue discount and market premium or discount, weighted by their respective
      costs when averaged.




28






**Operating
      Expenses**




For
      the
      year ended December 31, 2005, operating expenses totaled $6.70 million, compared
      to $1.44 million for the period August 6, 2004 (commencement of operations)
      through December 31, 2004. This amount consisted of investment advisory and
      management fees of $3.70 million (including $0.03 million of capital gains
      incentive fees) and insurance expenses, professional fees, directors’ fees and
      other general and administrative expenses (including our allocated share of
      employee, facilities, marketing and shareholder services costs) of $3.00
      million. In comparison, those amounts were $0.45 million for investment advisory
      and management fees and $0.99 million for insurance expenses, professional
      fees,
      directors’ fees and other general and administrative expenses (including our
      allocated share of employee, facilities, marketing and shareholder services
      costs) for the period August 6, 2004 (commencement of operations) through
      December 31, 2004, including a non-recurring charge of approximately $0.70
      million in expenses related to the organization of the Company.




The
      operating expenses for the year ended December 31, 2005 and the period August
      6,
      2004 (commencement of operations) through December 31, 2004 represented our
      allocable portion of the total organizational and operating expenses incurred
      by
      us, our Manager, and our administrator, as determined by our Board of Directors
      and representatives of our Manager and our administrator taking into account
      our
      start-up nature. As our operations continue to mature, the amount of operating
      expenses allocated to us under the terms of our investment advisory and
      administration agreements with our Manager and our administrator could likely
      increase. In addition, according to the terms of the investment advisory
      agreement, beginning on December 1, 2005 and thereafter, the base management
      fee
      is calculated quarterly as 0.45% of the average of the total assets of the
      Company as of the end of the two previous quarters, an increase from the lesser
      of $900,000 or 0.375% of such average. Although we would anticipate any
      increased expenses to be mitigated by increased operating revenues, our net
      income and dividends in future periods could be reduced by increases in
      operating expenses.





**Net
      Investment Income**




For
      the
      year ended December 31, 2005, net investment income was $10.41 million compared
      to a net investment loss of $0.59 million for the period August 6, 2004
      (commencement of operations) through December 31, 2004.




**Unrealized
      Appreciation or Depreciation on Investments**




For
      the
      year ended December 31, 2005, net unrealized depreciation was $0.39 million,
      compared to net unrealized appreciation of $0.29 million for the period August
      6, 2004 (commencement of operations) through December 31, 2004. The decrease
      was
      attributable to unrealized appreciation on our portfolio securities of $0.80
      million and unrealized depreciation on our corporate notes of $1.19 million.




**Net
      Realized Gains**




For
      the
      year ended December 31, 2005, we realized capital gains of $1.34 million,
      consisting of $1.02 million from the sale of overriding royalty interests
      associated with our Millennium investment and $0.32 million from the sale of
      $25.0 million in corporate notes.




**Net
      Increase in Stockholders’ Equity from Operations**




For
      the
      year ended December 31, 2005, we had a net increase in stockholders’ equity (net
      assets) resulting from operations of $11.4 million, or $0.65 per share, compared
      to a net decrease of ($0.3) million, or ($0.02) per share for the period August
      6, 2004 (commencement of operations) through December 31, 2004.







**Financial
      Condition, Liquidity and Capital Resources**




During
      this fiscal year, we generated cash from operations, including interest earned
      on our portfolio securities, as well as our investments in corporate notes,
      U.S.
      government securities and other high-quality debt securities that mature in
      one
      year or less. During the twelve months ended December 31, 2005 we received
      repayment from Crescent Resources of its $10.8 million Senior Subordinated
      Secured Bridge Loan and from Millennium of its $22.5 million Senior Secured
      Bridge Loan. At December 31, 2005, we had cash and cash equivalents of $13.4
      million, investments in U.S. Treasury Bills of $121.5 million and investments
      in
      corporate notes of $20.5 million.




29






Our
      investments in portfolio securities at December 31, 2005 totaled $92.8 million.
      Five of our investments are in the form of credit facilities under which we
      have
      commitments to fund a total of $97.5 million. We expect to fund our investments
      in 2006 from the balance of the net proceeds from our IPO and income earned
      on
      our portfolio and temporary investments. In future periods, we also plan to
      fund
      additional investments utilizing borrowings under our senior secured revolving
      credit facility.




**Credit
      Facility**




In
      May
      2005, we entered into a senior credit facility having an initial term of one
      year providing for borrowings of up to $60 million. The credit facility is
      secured by substantially all of our assets. Initially, the credit facility
      is
      collateralized by cash and cash equivalent investments and the interest rate
      applicable to borrowings is LIBOR plus 25 basis points. Once we are more fully
      invested, as long as the ratio of net asset value to total indebtedness is
      at
      least 3.5 to 1, the interest rate applicable to borrowings will be LIBOR plus
      a
      range of 125 to 250 basis points, depending on the ratio of total debt to net
      asset value. The credit facility contains covenants and events of default
      customary for financings of this type. We have not yet borrowed any amounts
      under the Credit Agreement. For a more detailed discussion of the terms of
      our
      Credit Agreement, please see Note 3 to our consolidated financial statements.




In
      addition to our credit facility we may also fund a portion of our investments
      with issuances of equity or senior debt securities. We may also securitize
      a
      portion of our investments in mezzanine or senior secured loans or other assets.
      We expect our primary use of funds to be investments in portfolio companies,
      cash distributions to holders of our common stock and payment of fees and other
      operating expenses.




**Dividends**




We
      operate
      our business so as to be taxed as a regulated investment company under
      Subchapter M of the Internal Revenue Code of 1986 for 2005 and later years.
      As a
      RIC, we are required to distribute annually at least 90% of our investment
      company taxable income. We intend to make distributions to our stockholders
      on a
      quarterly basis of at least 90% of our annual taxable income. We also currently
      intend to make distributions of net realized capital gains, if any, at least
      annually. However, we may in the future decide to retain capital gains for
      investment and designate such gains as deemed capital gains dividends.




We
      have
      also established an “opt out” dividend reinvestment plan for our common
      stockholders. As a result, if we declare a cash dividend, a stockholder’s cash
      dividend will be automatically reinvested in additional shares of our common
      stock unless the stockholder specifically “opts out” of the dividend
      reinvestment plan and elects to receive cash dividends. It is customary practice
      for many brokers to opt out of dividend reinvestment plans on behalf of their
      clients unless specifically instructed otherwise. As of December 31, 2005,
      holders of 1,660,140 shares, or approximately 9.5% of outstanding shares, were
      participants in our dividend reinvestment plan.




Our
      dividend reinvestment plan provides for the plan agent to purchase shares in
      the
      open market for credit to the accounts of plan participants unless the average
      of the closing sales prices for the shares for the five days immediately
      preceding the payment date exceeds 110% of the most recently reported net asset
      value per share. To date, all shares credited to participants’ accounts have
      been purchased in the open market. No new shares have been issued pursuant
      to
      the dividend reinvestment plan.




We
      cannot
      assure stockholders that they will receive any distributions or distributions
      at
      a particular level. (See “Risk Factors” above.)




During
      2005 we declared dividends totaling $0.66 per share on our common stock for
      our shareholders.




**Portfolio
      Credit Quality**




We
      maintain a system to evaluate the credit quality of our loans. This system
      is
      intended to reflect the performance and prospects of our investments. As of
      December 31, 2005, all of our investments in portfolio companies were rated
      as
      performing at or above plan.




30






**Subsequent
      Events**




On
      March
      10, 2006, our Board of Directors declared a quarterly dividend of $0.16 per
      common share payable on April 14, 2006 to shareholders of record as of March
      31,
      2006. In addition, in January 2006, the Company closed a $16.9 million Senior
      Secured Credit Facility with Piceance Basin Properties, LLC, a Houston, Texas
      based developer of Rocky Mountain region oil and gas properties. The initial
      funding under the facility totaled approximately $2.8 million. Also, since
      the
      beginning of the 2006 fiscal year, existing portfolio companies have drawn
      approximately $6.5 million under their respective facilities.





**Item
      7A.****Quantitative
      and Qualitative Disclosures About Market Risk.**




Our
      business activities contain elements of risk. We consider the principal market
      risks to be: credit risk, risks related to the energy industry, illiquidity
      of
      individual investments in our investment portfolio, leverage risk, and risks
      related to fluctuations in interest rates.




Credit
      risk is the principal market risk associated with our business. Credit risk
      originates from the fact that some of our portfolio companies may become unable
      or unwilling to fulfill their contractual payment obligations to us and may
      eventually default on those obligations. These contractual payment obligations
      arise under the debt securities and other investments that we hold. They include
      payment of interest, principal, dividends, royalties, fees and payments under
      guarantees and similar instruments. Our Manager endeavors to mitigate and manage
      credit risk through the analysis, structure, and requirements of our
      investments. Prior to making an investment, our Manager evaluates it under
      a
      variety of scenarios to understand its sensitivity to changes in critical
      variables and assumptions and to assess its potential credit risk. The
      structures for our investments are designed to mitigate credit risk. For
      example, debt investments are often secured by the underlying assets of our
      portfolio companies; for some investments, our Manager may require that our
      portfolio companies enter into commodity price hedges on a portion of their
      production to minimize the sensitivity of their projected cash flows to declines
      in commodity prices; and, in many instances, there is capital junior to ours
      in
      the capital structure of our portfolio companies. Our investments generally
      require routine reporting, periodic appraisal of asset values, and covenant
      requirements designed to minimize and detect developing credit risk.




We
      concentrate our investments in the securities of companies that operate in
      the
      energy industry. That industry is replete with risks that may affect individual
      companies or may systematically affect our entire investment portfolio. The
      revenues, income (or losses), cash flow available for debt service or
      distribution, and valuations of energy companies can be significantly impacted
      by any one or more of the following factors: commodity pricing risk, operational
      risk, weather risk, depletion and exploration risk, production risk, demand
      risk, competition risk, valuation risk, financing risk, and regulatory risk.
      Elaboration of these risks is provided in “Risk Factors”. Through our credit
      risk management process, we endeavor to mitigate and manage these risks as
      they
      relate to individual portfolio companies and, by extension, to our entire
      portfolio of investments. However, we cannot be assured that our Manager’s
      efforts to mitigate and manage credit risk and the risks associated with the
      energy industry will successfully insulate us from any and all losses, either
      at
      the level of individual portfolio companies or, more broadly, for our entire
      investment portfolio.




We
      primarily invest in illiquid debt and other securities of private companies.
      In
      some cases these investments include additional equity components. Our
      investments generally have no established trading market or are generally
      subject to restrictions on resale. The illiquidity of our investments may
      adversely affect our ability to dispose of debt and equity securities at times
      when it may be otherwise advantageous for us to liquidate such investments
      (for
      example, for management of the various diversification requirements we are
      subject to as a business development company and as a RIC, or for management
      of
      credit risk). In such instances, the proceeds realized from such a liquidation
      would likely be significantly less than the long term value of the liquidated
      investments.





We
      anticipate that we will use a combination of long-term and short-term borrowings
      to supplement our equity capital to finance our investing activities. We expect
      to use our revolving line of credit as a means to bridge to long-term financing.
      These borrowings will rank senior in our capital structure to interests of
      our
      shareholders and, thus, will have a senior claim on earnings and cash flows
      generated by our investment portfolio. To the extent that we are able to invest
      the borrowed money at rates in excess of the cost of that money, we will
      generate greater returns on our equity capital than would have been the case
      without the borrowed money. However, if we have losses in our investment
      portfolio, we must first service or repay the borrowings. This would potentially
      subject our shareholders to the risk of greater loss than would have been the
      case without the borrowed money. Elaboration of the risks associated with the
      issue of senior securities is provided in “Risk Factors”.




31





Another
      facet of utilizing borrowed money to make investments is that our net investment
      income will be dependent upon the difference, or spread, between the rate at
      which we borrow funds and the rate at which we invest those funds. We mitigate
      the risk of asymmetric movements in the cost of borrowing versus investment
      return generally by following a practice of funding floating rate investments
      with equity capital or floating rate debt, and fixed rate investments with
      equity capital or fixed rate debt. In addition, we may use interest rate risk
      management techniques in an effort to limit our exposure to interest rate
      fluctuations. Such techniques may include various interest rate hedging
      activities to the extent permitted by the 1940 Act.





**Item
      8.****Financial
      Statements and Supplementary Data.**




**Index
      to Financial Statements**


**Page**Reports
                  of Independent Registered Public Accounting Firm
              33Consolidated
                  Balance Sheet
              35Consolidated
                  Statement of Operations
              36Consolidated
                  Statement of Changes in Stockholders' Equity (Net Assets)
              37Consolidated
                  Statement of Cash Flows
              38Consolidated
                  Schedules of Investments
              39Notes
                  to Consolidated Financial Statements
              41Consolidated
                  Financial Highlights
              49Selected
                  Quarterly Financial Data (unaudited)
              50






32






**Report
      of Independent Registered Public Accounting Firm**





**To
      the Board of Directors and Stockholders**


**Of
      NGP Capital Resources Company:**





We
      have
      completed an integrated audit of NGP Capital Resources Company’s 2005
      consolidated financial statements and financial highlights and of its internal
      control over financial reporting as of December 31, 2005 in accordance with
      the
      standards of the Public Company Accounting Oversight Board (United States).
      Our
      opinions, based on our audit, are presented below.





Consolidated
      financial statements





In
      our
      opinion, the consolidated financial statements listed in the accompanying index
      present fairly, in all material respects, the financial position of NGP Capital
      Resources Company at December 31, 2005, and the results of its operations,
      its
      cash flows and financial highlights for the year ended December 31, 2005 in
      conformity with accounting principles generally accepted in the United States
      of
      America. These financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these financial
      statements based on our audits. We conducted our audit of these statements
      in
      accordance with the standards of the Public Company Accounting Oversight Board
      (United States). Those standards require that we plan and perform the audit
      to
      obtain reasonable assurance about whether the financial statements are free
      of
      material misstatement. An audit of financial statements includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statement, assessing the accounting principles used and significant estimates
      made by management, and evaluating the overall financial statement presentation.
      We believe that our audit provides a reasonable basis for our opinion.





Internal
      control over financial reporting





Also,
      in
      our opinion, management’s assessment, included in Management’s Report on
      Internal Control over Financial Reporting appearing under Item 9A, that the
      Company maintained effective internal control over financial reporting as of
      December 31, 2005 based on criteria established in *Internal
      Control - Integrated Framework* issued by
      the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
      is
      fairly stated, in all material aspects, based on those criteria. Furthermore,
      in
      our opinion, the Company maintained, in all material respects, effective
      internal control over financial reporting as of December 31, 2005, based on
      criteria established in *Internal
      Control - Integrated Framework* issued by
      the COSO. The Company’s management is responsible for maintaining effective
      internal control over financial reporting and for its assessment of the
      effectiveness of internal control over financial reporting. Our responsibility
      is to express opinions on management’s assessment and on the effectiveness of
      the Company’s internal control over financial reporting based on our audit. We
      conducted our audit of internal control over financial reporting in accordance
      with the standards of the Public Company Accounting Oversight Board (United
      States). Those standards require that we plan and perform the audit to obtain
      reasonable assurance about whether effective internal control over financial
      reporting was maintained in all material respects. An audit of internal control
      over financial reporting includes obtaining an understanding of internal control
      over financial reporting, evaluation of management’s assessment, testing
      and evaluating the design and operating effectiveness of internal control,
      and
      performing such other procedures as we consider necessary in the circumstances.
      We believe that our audit provides a reasonable basis for our
      opinions.





A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (i) pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company; (ii)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (iii) provide reasonable assurance regarding prevention or
      timely detection of unauthorized acquisition, use, or disposition of the
      company’s assets that could have a material effect on the financial
      statements.




33






Because
      of
      its inherent limitations, internal control over financial reporting may not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





/S/
      PricewaterhouseCoopers LLP





Houston,
      Texas


March
      13,
      2006








**Report
        of Independent Registered Public Accounting Firm**




The
      Board
      of Directors and Shareholders


NGP
      Capital Resources Company:




We
      have
      audited the accompanying balance sheet of NGP Capital Resources Company,
      including the schedule of investments, as of December 31, 2004 and the
      related statements of operations, changes in stockholders’ equity (net assets),
      and cash flows for the period August 6, 2004 (commencement of operations)
      through December 31, 2004, and the financial highlights for the period August
      6,
      2004 (commencement of operations) through December 31, 2004. These financial
      statements and financial highlights are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these financial
      statements and financial highlights based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements and financial highlights are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements. Our procedures included confirmation
      and physical examination of securities owned as of December 31, 2004, by
      correspondence with custodians. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that our
      audit provides a reasonable basis for our opinion.





In
      our
      opinion, the financial statements and financial highlights referred to above
      present fairly, in all material respects, the financial position of NGP Capital
      Resources Company as of December 31, 2004, the results of its operations,
      changes in its stockholders’ equity (net assets), and cash flows for the period
      August 6, 2004 (commencement of operations) through December 31, 2004, and
      the
      financial highlights for the period August 6, 2004 (commencement of operations)
      through December 31, 2004 in conformity with U.S. generally accepted accounting
      principles.





KPMG
      LLP




Fort
      Worth, Texas


April
      7,
      2005




34





**NGP
        CAPITAL RESOURCES COMPANY**
 **CONSOLIDATED
        BALANCE SHEET**


December
                  31,2005
              
              2004Assets:Investments
                  in portfolio securities at fair value(cost:
                  $91,761,111 and $65,770,724, respectively)
              
              $
              92,847,043
              
              $
              66,061,513Investments
                  in agency and auction rate securities,at
                  cost which approximates fair value
              
              
              -
              
              
              41,301,002Investments
                  in corporate notes at fair value(cost:
                  $21,727,976 and $0, respectively)
              
              
              20,537,900
              
              
              -Investments
                  in U.S. treasury bills, at amortized costwhich
                  approximates fair value
              
              
              121,518,196
              
              
              -Total
                  investments
              
              
              234,903,139
              
              
              107,362,515Cash
                  and cash equivalents, at cost whichapproximates
                  fair value
              
              
              13,350,588
              
              
              136,314,402Accounts
                  receivable
              
              
              50,965
              
              
              80,000Interest
                  receivable
              
              
              609,545
              
              
              303,484Prepaid
                  assets
              
              
              576,029
              
              
              491,602Total
                  assets
              
              $
              249,490,266
              
              $
              244,552,003Liabilities
                  and stockholders' equity (net assets):Liabilities:Accounts
                  payable
              
              $
              407,580
              
              $
              213,173Management
                  and incentive fees payable
              
              
              399,173
              
              
              300,000Dividends
                  payable
              
              
              4,785,028
              
              
              -Total
                  liabilities
              
              
              5,591,781
              
              
              513,173Commitments
                  and contingencies (note 8)Stockholders’
                  equity (net assets)Common
                  stock, $.001 par value, 250,000,000 sharesauthorized;
                  17,400,100 issued and outstanding
              
              
              17,400
              
              
              17,400Paid-in
                  capital in excess of par
              
              
              244,309,260
              
              
              243,730,641Undistributed
                  net investment income (loss)
              
              
              (324,031
              )
              
              -Net
                  unrealized appreciation (depreciation)of
                  portfolio securities and corporate notes
              
              
              (104,144
              )
              
              290,789Total
                  stockholders’ equity (net assets)
              
              
              243,898,485
              
              
              244,038,830Total
                  liabilities and stockholders' equity (net assets)
              
              $
              249,490,266
              
              $
              244,552,003Net
                  assets per share
              
              $
              14.02
              
              $
              14.03*(See
                  accompanying notes to consolidated financial
                  statements)*


35





**NGP
        CAPITAL RESOURCES COMPANY**
 **CONSOLIDATED
        STATEMENT OF OPERATIONS**
  Year
                      ended
                  December
                    31, 2005
              
              Period
                      August 6, 2004
                    (commencement
                        of operations) through
                      December
                        31, 2004Investment
                  incomeInterest
                  income
              
              $
              16,960,044
              
              $
              853,038Dividend
                  income
              
              
              33,250
              
              
              -Other
                  income
              
              
              313,500
              
              
              -17,306,794
              
              
              853,038Operating
                  expensesManagement
                  fees
              
              
              3,699,173
              
              
              452,676Organization
                  costs
              
              
              1,111
              
              
              704,808Professional
                  fees
              
              
              866,880
              
              
              -Insurance
                  expense
              
              
              570,891
              
              
              79,278Credit
                  facility fees
              
              
              199,983
              
              
              -General
                  and administrative expenses
              
              
              1,560,847
              
              
              206,493Total
                  operating expenses
              
              
              6,898,885
              
              
              1,443,255Net
                  investment income (loss)
              
              
              10,407,909
              
              
              (590,217
              )Net
                  realized capital gain on portfolio securities and corporate
                  notes
              
              
              1,338,351
              
              
              -Net
                  increase (decrease) in unrealized appreciation(depreciation)
                  on portfolio securities and corporate notes
              
              
              (394,933
              )
              
              290,789Net
                  increase (decrease) in stockholders' equity(net
                  assets) resulting from operations
              
              $
              11,351,327
              
              $
              (299,428
              )Net
                  increase (decrease) in stockholders' equity (net assets)resulting
                  from operations per common share
              
              $
              0.65
              
              $
              (0.02
              )*(See
                  accompanying notes to consolidated financial
                  statements)*







36





**NGP
        CAPITAL RESOURCES COMPANY**
 **CONSOLIDATED
        STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (NET ASSETS)**


Common
                Stock
            
            Paid-in
                Capital
            
            UndistributedNet
                Investment
            
            Net
                Realized
            
            Unrealized
                    Appreciation(Depreciation)
                    of Portfolio Securities
            
            Total
                Stockholders'
                Equity
                  (NetShares
            
            Amount
            
            in
                  Excess of Par
            
            Income
                  (Loss)
            
            Capital
                  Gain
            
            and
                    corporatenotes
            
            Assets)Balance
                at August 6, 2004(commencement
                of operations)
            
            
            100
            
            $
            -
            
            $
            1,500
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            1,500Issuance
                of common stock from publicoffering
                (net of underwriting costs)
            
            
            17,400,000
            
            
            17,400
            
            
            246,627,600
            
            
            -
            
            
            -
            
            
            -
            
            
            246,645,000Offering
                costs
            
            
            -
            
            
            -
            
            
            (2,308,242
            )
            
            -
            
            
            -
            
            
            -
            
            
            (2,308,242
            )Net
                increase (decrease) instockholders'
                equity (net assets)resulting
                from operations
            
            
            -
            
            
            -
            
            
            (590,217
            )
            
            -
            
            
            -
            
            
            290,789
            
            
            (299,428
            )Balance
                at December 31, 2004
            
            
            17,400,100
            
            $
            17,400
            
            $
            243,730,641
            
            $
            -
            
            $
            -
            
            $
            290,789
            
            $
            244,038,830Net
                increase (decrease) instockholders'
                equity (net assets)resulting
                from operations
            
            
            -
            
            
            -
            
            
            586,225
            
            
            9,821,684
            
            
            1,338,351
            
            
            (394,933
            )
            
            11,351,327Offering
                costs
            
            
            -
            
            
            -
            
            
            (7,606
            )
            
            -
            
            
            -
            
            
            -
            
            
            (7,606
            )Dividends
                declared
            
            
            -
            
            
            -
            
            
            -
            
            
            (10,145,715
            )
            
            (1,338,351
            )
            
            -
            
            
            (11,484,066
            )Balance
                at December 31, 2005
            
            
            17,400,100
            
            $
            17,400
            
            $
            244,309,260
            
            $
            (324,031
            )
            $
            -
            
            $
            (104,144
            )
            $
            243,898,485*(See
                accompanying notes to consolidated financial
                statements)*







37




**NGP
        CAPITAL RESOURCES COMPANY**
 **CONSOLIDATED
        STATEMENT OF CASH FLOWS**
  Year
                    ended
                December
                  31, 2005
              
              Period
                      August 6, 2004
                    (commencement
                        of operations) through
                        December
                          31, 2004Cash
                  flows from operating activitiesNet
                  increase (decrease) in stockholders' equity (net assets) resulting
                  from
                  operations
              
              $
              11,351,327
              
              $
              (299,428
              )Adjustments
                  to reconcile net increase (decrease) in stockholders' equity (net
                  assets)resulting
                  from operations to net cash used in operating activities:(Increase)
                  decrease in accounts receivable
              
              
              29,035
              
              
              (80,000
              )(Increase)
                  in interest receivable
              
              
              (306,062
              )
              
              (303,484
              )(Increase)
                  in investment balance due to payment in kind dividend
              
              
              (33,250
              )
              
              -(Increase)
                  in prepaid assets
              
              
              (84,427
              )
              
              (491,602
              )Increase
                  in accounts payable
              
              
              293,581
              
              
              513,173Net
                  amortization of premiums, discounts and fees
              
              
              (1,129,615
              )
              
              -(Increase)
                  decrease in unrealized appreciation on portfolio securities and
                  corporate
                  notes
              
              
              394,933
              
              
              (290,789
              )Purchase
                  of investments in portfolio securities
              
              
              (58,449,304
              )
              
              (65,770,724
              )Redemption
                  of investments in portfolio securities
              
              
              33,597,539
              
              
              -Net
                  sale (purchase) of investments in agency and auction rate
                  securities
              
              
              41,301,002
              
              
              (41,301,002
              )Purchase
                  of investments in corporate notes
              
              
              (51,167,818
              )
              
              -Sale
                  of investments in corporate notes
              
              
              29,357,422
              
              
              -Net
                  (purchase) of investments in U.S. treasury bills
              
              
              (121,411,533
              )
              
              -Net
                  cash provided by (used in) operating activities
              
              
              (116,257,170
              )
              
              (108,023,856
              )Cash
                  flows from financing activitiesNet
                  proceeds from the issuance of common stock
              
              
              -
              
              
              246,645,000Offering
                  costs from the issuance of common stock
              
              
              (7,606
              )
              
              (2,308,242
              )Dividends
                  paid
              
              
              (6,699,038
              )
              
              -Net
                  cash provided by (used in) financing activities
              
              
              (6,706,644
              )
              
              244,336,758Net
                  increase (decrease) in cash and cash equivalents
              
              
              (122,963,814
              )
              
              136,312,902Cash
                  and cash equivalents, beginning of period
              
              
              136,314,402
              
              
              1,500Cash
                  and cash equivalents, end of period
              
              $
              13,350,588
              
              $
              136,314,402*(See
                  accompanying notes to consolidated financial
                  statements)*






38


**NGP
        CAPITAL RESOURCES COMPANY**
 **CONSOLIDATED
        SCHEDULE OF INVESTMENTS**
 **December
        31, 2005**
  **Portfolio
                  Company (1)**
              **Energy
                  Industry Segment**
              **Investment
                  (2) (4)**
              
              
              **Principal**
              
              
              **Cost**
              
              
              **Fair
                  Value (3)**Crescent
                  Resources, LLC
              Oil
                  & Gas Production
              Senior
                  Subordinated-
              
              $
              48,250,000
              
              $
              47,443,575
              
              $
              47,443,575and
                  Development
              Secured
                  Term Loan(LIBOR
                  + 9.5%, due 12/20/2008)Venoco
                  Inc.
              Oil
                  & Gas Production
              Senior
                  Notes
              
              
              8,000,000
              
              
              7,954,671
              
              
              8,160,000and
                  Development
              (8.75%,
                  due 12/15/2011)Venoco
                  Inc.
              Oil
                  & Gas Production
              Senior
                  Notes
              
              
              4,000,000
              
              
              3,925,048
              
              
              4,080,000and
                  Development
              (8.75%,
                  due 12/15/2011)TierraMar
                  Energy LLC
              Oil
                  & Gas Production
              Senior
                  Secured
              
              
              6,100,000
              
              
              5,964,780
              
              
              5,964,780and
                  Development
              Multiple-Advance
                  Term Loan(LIBOR
                  + 6%, due 5/13/2008)Overriding
                  Royalty Interest (6)
              
              
              20,000
              
              
              19,510
              
              
              200,000Warrants
                  (5)
              
              
              10,000
              
              
              10,000
              
              
              400,000C-Gas
                  LLC
              Oil
                  & Gas Production
              Senior
                  Secured
              
              
              14,589,550
              
              
              14,357,968
              
              
              14,357,968and
                  Development
              Multiple-Advance
                  Term Loan(LIBOR
                  + 5.5%, due 4/25/2009)Overriding
                  Royalty Interest (6)
              
              
              45,000
              
              
              44,839
              
              
              200,000Atchee
                  CBM LLC
              Oil
                  & Gas Production
              Senior
                  Secured
              
              
              385,922
              
              
              375,421
              
              
              375,421and
                  Development
              Multiple-Advance
                  Term Loan(LIBOR
                  + 5.5%, due 4/25/2009)Overriding
                  Royalty Interest (5)(6)
              
              
              5,000
              
              
              5,000
              
              
              5,000Chroma
                  Exploration & Production, Inc.
              Oil
                  & Gas Production
              Senior
                  Secured
              
              
              9,750,000
              
              
              9,454,102
              
              
              9,454,102and
                  Development
              Multiple-Advance
                  Term Loan(LIBOR
                  + 6%, due 9/21/2008)Overriding
                  Royalty Interest (6)
              
              
              175,000
              
              
              172,947
              
              
              172,9478,133
                  Shares Series A Participating
              
              
              2,033,250
              
              
              2,033,250
              
              
              2,033,250Convertible
                  Preferred Stock8.11
                  Shares Common Stock
              
              
              -
              
              
              -
              
              
              -**Total
                  targeted investments (37.39% of total
                  investments)**
              
              
              
              
              
              **$**
              **91,761,111**
              
              **$**
              **92,847,043****Issuing
                  Company**
              **Industry
                  Segment**
              **Investment
                  (4)**
              
              
              **Principal**
              
              
              **Cost**
              
              
              **Fair
                  Value**Pioneer
                  Nat Res
              Energy
              Senior
                  Notes, 7.2%, due 2028
              
              
              10,000,000
              
              
              11,713,648
              
              
              10,752,100XTO
                  Energy
              Energy
              Senior
                  Notes, 5.0%, due 2015
              
              
              10,000,000
              
              
              10,014,328
              
              
              9,785,800**Total
                  investment grade senior notes ( 8.27% of total
                  investments)**
              
              
              
              
              
              **$**
              **21,727,976**
              
              **$**
              **20,537,900****Issuing
                  Company**
              **Industry
                  Segment**
              **Investment**
              
              
              **Principal**
              
              
              **Cost**
              
              
              **Fair
                  Value**US
                  Treasury Bills
              Government
              US
                  Treasury Bills, 3.762%, due 01/05/2006
              
              
              12,046,000
              
              
              12,041,047
              
              
              12,041,047US
                  Treasury Bills
              Government
              US
                  Treasury Bills, 3.453%, due 01/05/2006
              
              
              12,031,000
              
              
              12,026,455
              
              
              12,026,455US
                  Treasury Bills
              Government
              US
                  Treasury Bills, 3.37%, due 01/05/2006
              
              
              12,029,000
              
              
              12,024,496
              
              
              12,024,496US
                  Treasury Bills
              Government
              US
                  Treasury Bills, 3.37%, due 01/05/2006
              
              
              24,055,000
              
              
              24,046,718
              
              
              24,046,718US
                  Treasury Bills
              Government
              US
                  Treasury Bills, 3.044%, due 01/05/2006
              
              
              61,400,000
              
              
              61,379,480
              
              
              61,379,480**Total
                  government securities (48.96% of total
                  investments)**
              
              
              
              
              
              **$**
              **121,518,196**
              
              **$**
              **121,518,196****Total
                  cash (5.38% of total investments)**
              
              
              
              
              
              **$**
              **13,350,588**
              
              **$**
              **13,350,588****Total
                  investments, cash and cash equivalents**
              
              
              
              
              
              **$**
              **248,357,871**
              
              **$**
              **248,253,727****Other
                  liabilities in excess of assets**
              
              
              
              
              
              
              
              
              
              **$**
              **(4,355,242)****Net
                  assets**
              
              
              
              
              
              
              
              
              
              **$**
              **243,898,485**
  (1)
                  None of our portfolio companies are controlled by or affiliated
                  with us as
                  defined by the Investment Company Act of 1940.(2)
                  Percentages represent interest rates in effect at December 31,
                  2005, and
                  due dates represent the contractual maturity dates.(3)
                  Fair value of targeted investments is determined by or under the
                  direction
                  of the Board of Directors.(4)
                  All investments are in entities with primary operations in the
                  United
                  States of America.(5)
                  Non-income producing securities.(6)
                  Securities are subject to restrictions as to their
                  sale.*(See
                  accompanying notes to consolidated financial
                  statements)*






39






**NGP
        CAPITAL RESOURCES COMPANY**
 **SCHEDULE
        OF INVESTMENTS**
 **December
        31, 2004**




**Portfolio
                  Company (1)**
              **Energy
                  Industry Segment**
              **Investment
                  (2)**
              
              
              **Principal**
              
              
              **Cost**
              
              
              **Fair
                  Value (3)**Crescent
                  Resources, LLC
              Production
                  and
              Senior
                  Subordinated-
              
              $
              48,250,000
              
              $
              47,246,400
              
              $
              47,246,400Development
              Secured
                  Term Loan(LIBOR
                  + 9.5%, due 12/20/2008)Senior
                    Subordinated-
              
              
              10,800,000
              
              
              10,575,360
              
              
              10,575,360Secured
                  Bridge Loan(14%
                  PIK, due 12/20/2008)Venoco
                  Inc.
              Production
                  and
              Senior
                  Notes
              
              
              8,000,000
              
              
              7,948,964
              
              
              8,239,753Development
              (8.75%,
                  due 12/15/2011)**Total
                  targeted investments (27.1%)**
              
              
              
              
              
              **$**
              **65,770,724**
              
              **$**
              **66,061,513****Issuing
                  Company**
              **Industry
                  Segment**
              **Investment
                  (4), (5)**
              
              
              **Principal**
              
              
              **Cost**
              
              
              **Fair
                  Value**SLM
                    Student Loan Trust 2002-2007
              Government
                  Agency
              Agency
                  Notes, 2.4%
              
              $
              10,000,000
              
              $
              10,000,000
              
              $
              10,000,000ARG
                    Funding Corp
              Auto
                  Rental
              Auction
                  Rate Security, 2.45%
              
              
              5,000,000
              
              
              5,000,000
              
              
              5,000,000Vermont
                    Student Asst 2001
              State
                  Agency
              Auction
                  Rate Security, 2.10%
              
              
              1,050,000
              
              
              1,050,000
              
              
              1,050,000Massachusetts
                    St. Health Facility
              State
                  Agency
              Auction
                  Rate Security, 2.33%
              
              
              100,000
              
              
              100,181
              
              
              100,181Northeastern
                  Univ. Mass. Revenue
              State
                  Agency
              Auction
                  Rate Security, 2.24%
              
              
              3,000,000
              
              
              2,999,970
              
              
              2,999,970Potomoc
                  Trust Capital I
              State
                  Agency
              Auction
                  Rate Security, 2.50%
              
              
              5,030,000
              
              
              5,030,000
              
              
              5,030,000Insurance
                  Note Capital II
              Insurance
              Auction
                  Rate Security, 2.50%
              
              
              5,004,167
              
              
              5,004,167
              
              
              5,004,167SLM
                  Private Cr Student Loan Trust
              Government
                  Agency
              Auction
                  Rate Security, 1.95%
              
              
              1,000,000
              
              
              1,000,242
              
              
              1,000,242Insurance
                  Note Capital IV
              Insurance
              Auction
                  Rate Security, 2.50%
              
              
              5,500,000
              
              
              5,500,000
              
              
              5,500,000Potomoc
                  Trust Capital II
              State
                  Agency
              Auction
                  Rate Security, 2.50%
              
              
              2,500,000
              
              
              2,500,000
              
              
              2,500,000San
                      Diego Cty California Pension
              State
                  Agency
              Auction
                  Rate Security, 2.30%
              
              
              3,100,000
              
              
              3,116,442
              
              
              3,116,442**Total Agency
                  and Auction Rate Securities (16.9%)**
              
              
              
              
              
              **$**
              **41,301,002**
              
              **$**
              **41,301,002****Total Investments
                  (44.0%)**
              
              
              
              
              
              **$**
              **107,071,726**
              
              **$**
              **107,362,515**(1)
                    None of our portfolio companies are controlled by or affiliated
                    with us as
                    defined by the Investment Company Act of 1940.(2)
                  Percentages represent interest rates in effect at December 31,
                  2004, and
                  due dates represent the contractual maturity dates.(3)
                  Fair value of targeted investments is determined by or under the
                  direction
                  of the Board of Directors (See Note 2 to the financial statements).(4)
                  All investments are in entities with primary operations in the
                  United
                  States of America.(5)
                    Interest reset date in 90 days or less.*(See
                  accompanying notes to consolidated financial
                  statements)*




40






**NGP
      CAPITAL RESOURCES COMPANY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005**





**Note
      1: Organization**






NGP
      Capital Resources Company (the “Company”) was organized as a Maryland
      corporation in July 2004. The Company has elected to be treated as a business
      development company under the Investment Company Act of 1940, as amended (the
      “1940 Act”). In addition, for tax purposes the Company has elected to be treated
      as a regulated investment company, (“RIC”), under the Internal Revenue Code of
      1986, as amended (the “Code”) for 2005 and later years. The Company has several
      subsidiaries, all created in 2005, that are single member limited liability
      companies and wholly-owned limited partnerships established to hold certain
      portfolio investments or provide services to the Company in accordance with
      specific rules prescribed for a company operating as a RIC. These subsidiaries
      are: NGPC Funding GP, LLC, a Texas limited liability company; NGPC Nevada,
      LLC,
      a Nevada limited liability company; NGPC Funding, LP, a Texas limited
      partnership; NGPC Asset Holdings GP, LLC, a Texas limited liability company;
      and
      NGPC Asset Holdings, LP, a Texas limited partnership. The Company consolidates
      the results of its subsidiaries for financial reporting purposes. The financial
      results of the Company's portfolio investments are not consolidated in the
      Company's consolidated financial statements.




The
      Company was created to invest primarily in small and mid-size private energy
      companies, which are generally defined as companies that have net asset values
      or annual revenues of less than $500 million and are not issuers of publicly
      traded securities. The Company’s investment objective is to generate both
      current income and capital appreciation through debt investments with certain
      equity components.




The
      Company is managed and advised, subject to the overall supervision of the
      Company’s Board of Directors, by NGP Investment Advisor, L.P. (the “Manager”), a
      Delaware limited partnership owned by Natural Gas Partners, LLC and NGP
      Administration LLC (the “Administrator”), the Company’s administrator.




**Note
      2: Significant Accounting Policies**




The
      consolidated financial statements include the accounts of the Company and its
      subsidiaries. All intercompany accounts and transactions have been eliminated
      in
      consolidation . Our
      financial statements are prepared in accordance with generally accepted
      accounting principles (“GAAP”) and pursuant to the requirements for reporting on
      Form 10-K and Article 10 of Regulation S-X. The consolidated financial
      statements include all adjustments, consisting of normal recurring adjustments,
      considered necessary for a fair presentation of such consolidated financial
      statements.





The
      following is a summary of the significant accounting policies followed by the
      Company in the preparation of its consolidated financial statements:




**Use
      of Estimates**




The
      consolidated financial statements have been prepared in accordance with GAAP
      that require management to make estimates and assumptions that affect the
      amounts reported in the consolidated financial statements and the accompanying
      notes to the consolidated financial statements. Actual results could differ
      from
      these estimates.




**Cash
      and Cash Equivalents**




Cash
      and
      cash equivalents consist of demand deposits and highly liquid investments with
      original maturities of three months or less when purchased. Cash and cash
      equivalents are carried at cost which approximates fair value.




**Prepaid
      Assets**




Prepaid
      assets consist of premiums paid for directors’ and officers’ insurance and
      fidelity bonds with a policy term of one year, and fees associated with the
      establishment of the credit facility. Such premiums and fees are amortized
      monthly on a straight line basis.




**Concentration
      of Credit Risk**




The
      Company places its cash and cash equivalents with financial institutions and,
      at
      times, cash held in checking accounts may exceed the Federal Deposit Insurance
      Corporation insured limit.




41




**NGP
        CAPITAL RESOURCES COMPANY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**Valuation
      of Investments**




Investments
      are carried at fair value, as determined in good faith by the Company’s Board of
      Directors. On a quarterly basis, the Manager prepares valuations for all of
      the
      assets in the Company’s portfolio and presents the valuations to the Company’s
      Valuation Committee and Board of Directors. The valuations are determined and
      recommended by the Valuation Committee to the Board of Directors, which reviews
      and ratifies the final portfolio valuations. (See “Valuation Process”
above.)





Investments
      in securities for which market quotations are readily available are recorded
      in
      the financial statements at such market quotations as of the valuation date
      adjusted for appropriate liquidity discounts, if applicable. For investments
      in
      securities for which market quotations are unavailable, or which have various
      degrees of trading restrictions, the Manager prepares valuation analyses, as
      generally described below.





Using
      the
      most recently available financial statements, forecasts and, when applicable,
      comparable transaction data, the Manager prepares valuation analyses for the
      various securities in the Company’s investment portfolio. These valuation
      analyses are prepared using traditional valuation methodologies which rely
      on
      estimates of the asset values and enterprise values of portfolio companies
      issuing securities.





The
      methodologies for determining asset valuations include estimates based on:
      the
      liquidation or sale value of a portfolio company’s assets, the discounted value
      of expected future net cash flows from the assets and third party valuations
      of
      a portfolio company’s assets, such as engineering reserve reports of oil and gas
      properties. The Manager considers some or all of the above valuation methods
      to
      determine the estimated asset value of a portfolio company.





The
      methodologies for determining enterprise valuations include estimates based
      on:
      valuations of comparable public companies, recent sales of comparable companies,
      the value of recent investments in the equity securities of a portfolio company
      and the asset valuation methodologies described above. The Manager considers
      some or all of the above valuation methods to determine the estimated enterprise
      value of a portfolio company.





*Debt
      Securities:* The
      Company values non-convertible debt securities at cost plus amortized original
      issue discount, or OID, to the extent that the estimated asset or enterprise
      value of the portfolio company exceeds the outstanding debt of the portfolio
      company. The Company values convertible debt securities at the higher of: 1)
      cost plus amortized OID, to the extent that the estimated asset or enterprise
      value of the portfolio company equals or exceeds the outstanding debt of the
      portfolio company; and 2) the Company’s pro rata share, upon conversion, of the
      residual equity value of the portfolio company available after deducting all
      outstanding debt from its estimated enterprise value. If the estimated asset
      or
      enterprise value is less than the sum of the value of the Company’s debt
      investment and all other debt securities of the portfolio company *pari
      passu* or senior
      to the Company’s debt investment, the Company reduces the value of its debt
      investment beginning with its junior-most debt investment such that the asset
      or
      enterprise value less the value of the outstanding *pari
      passu* or senior
      debt is zero.





*Equity
      Securities:* The
      Company values investments in preferred and common equity securities (including
      warrants or options to acquire equity securities) based on its pro rata share
      of
      the residual equity value available after deducting all outstanding debt from
      the estimated enterprise value.





*Property-Based
      Equity Participation Rights:* The
      Company values investments in overriding royalty and net profits interests
      based
      on the asset valuations methodologies discussed above.





Due
      to the
      uncertainty inherent in the valuation process, such estimates of fair value
      may
      differ significantly from the values that would have been used had a ready
      market for the securities existed, and the differences could be material.
      Additionally, changes in the market environment and other events that may occur
      over the life of the investments may cause the gains or losses ultimately
      realized on these investments to be different from the valuations currently
      assigned.




42


**NGP
        CAPITAL RESOURCES COMPANY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**Securities
      Transactions, Interest and Dividend Income Recognition** ******




All
      securities transactions are accounted for on a trade-date basis. Interest income
      is recorded on the accrual basis to the extent that such amounts are expected
      to
      be collected. Premium and discount are accreted into interest income using
      the
      effective interest method. Detachable warrants, other equity securities or
      property interests such as overriding royalty interests obtained in conjunction
      with the acquisition of debt securities are recorded separately from the debt
      securities at their initial fair value, with a corresponding amount recorded
      as
      a discount to the associated debt security. Income from overriding royalty
      interests is recognized as received and the recorded assets are charged
      depletion using the unit of production depletion method. The portion of the
      loan
      origination fees paid that represent additional yield or discount on a loan
      are
      deferred and accreted into interest income over the life of the loan using
      the
      effective interest method. Upon the prepayment of a loan or debt security,
      any
      unamortized loan origination fees are recorded as interest income and any
      unamortized premium or discount is recorded as a realized gain or loss. Market
      premiums or discounts on acquired loans or fixed income investments are accreted
      into interest income using the effective interest method. Dividend income is
      recognized on the ex-dividend date. Accruing interest or dividends on
      investments is deferred when it is determined that the interest or dividend
      is
      not collectible. Collectibility of the interest and dividends is assessed,
      based
      on many factors including the portfolio company’s ability to service its loan
      based on current and projected cash flows as well as the current valuation
      of
      the company’s assets. For investments with payment-in-kind, or PIK, interest,
      the Manager bases income accruals on the valuation of the PIK notes or
      securities received from the borrower. If the portfolio company’s asset
      valuation indicates a value that is not sufficient to cover the contractual
      interest due on the PIK notes, management will not accrue interest income on
      the
      notes.




**Net
      Realized Gains or Losses and Net Change in Unrealized Appreciation or
      Depreciation**




Realized
      gains or losses are measured by the difference between the net proceeds from
      the
      repayment or sale and the amortized cost basis of the investment, considering
      unamortized fees and prepayment premiums and without regard to unrealized
      appreciation or depreciation previously recognized, and include investments
      charged off during the year, net of recoveries. Net unrealized appreciation
      or
      depreciation reflects the change in portfolio investment values during the
      reporting period including the reversal of previously recorded unrealized
      appreciation or depreciation, when capital gains or losses are
      realized.




**Fee
      Income Recognition**




Fees
      primarily include financial advisory, transaction structuring, loan
      administration, commitment and prepayment fees. Financial advisory fees
      represent amounts received for providing advice and analysis to companies and
      are recognized as earned when such services are performed provided collection
      is
      probable. Transaction structuring fees represent amounts received for
      structuring, financing, and executing transactions and are generally payable
      only if the transaction closes. Such fees are deferred and accreted into
      interest income over the life of the loan using the effective interest method.
      Commitment fees represent amounts received for committed funding and are
      generally payable whether or not the transaction closes. On transactions that
      close within the commitment period, commitment fees are deferred and accreted
      into interest income over the life of the loan using the effective interest
      method. Commitment fees on transactions that do not close are generally
      recognized over the time period the commitment is outstanding. Prepayment and
      loan administration fees are recognized as they are received. In 2005, the
      Company accreted approximately $1.1 million of fee income into interest income.




**Dividends**




Dividends
      to stockholders are recorded on the ex-dividend date. For tax purposes the
      Company intends to continue to qualify as a RIC under the Code for 2005 and
      later years. In order to maintain the Company’s status as a RIC, the Company is
      required to distribute at least 90% of its investment company taxable income.
      In
      addition, the Company must distribute at least 98% of its taxable income (both
      ordinary income and net capital gains) to avoid excise tax. The Company intends
      to make distributions to stockholders on a quarterly basis of substantially
      all
      net taxable income. The Company also intends to make distributions of net
      realized capital gains, if any, at least annually. However, the Company may
      in
      the future decide to retain capital gains for investment and designate such
      retained dividends as a deemed distribution. The amount to be paid out as a
      dividend is determined by the Board of Directors each quarter and is based
      on
      the annual taxable earnings estimated by the Manager. Based on that estimate,
      a
      dividend is declared each quarter and paid shortly thereafter.




For
      the
      period ending December 31, 2004, the Company was treated as a “C” corporation
      and had no taxable income and therefore did not declare a dividend for that
      period. On March 18, 2005, the Company declared a dividend of $0.12 per common
      share, which was paid in cash on April 15, 2005 to stockholders of record on
      March 31, 2005. On June 17, 2005, the Company declared a dividend of $0.125
      per
      common share, which was paid on July 15, 2005 to stockholders of record on
      June
      30, 2005. On September 19, 2005, the Company declared a dividend of $0.14 per
      common share, which was paid on October 14, 2005 to stockholders of record
      on
      September 30, 2005. On December 15, 2005, the Company declared a dividend of
      $0.275 per common share, which was paid on January 4, 2006 to stockholders
      of
      record on December 27, 2005.




43


**NGP
        CAPITAL RESOURCES COMPANY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




The
      Company has established an “opt out” dividend reinvestment plan for its common
      stockholders. As a result, if the Company declares a cash dividend, a
      stockholder’s cash dividend will be automatically reinvested in additional
      shares of the Company’s common stock unless the stockholder, or his or her
      broker, specifically “opts out” of the dividend reinvestment plan and elects to
      receive cash dividends. It is customary practice for many brokers to opt out
      of
      dividend reinvestment plans on behalf of their clients unless specifically
      instructed otherwise. As of December 31, 2005, holders of 1,660,140 shares,
      or
      approximately 9.5% of outstanding shares, were participants in the Company’s
      dividend reinvestment plan.






The
      Company’s plan provides for the plan agent to purchase shares in the open market
      for credit to the accounts of plan participants unless the average of the
      closing sales prices for the shares for the five days immediately preceding
      the
      payment date exceeds 110% of the most recently reported net asset value per
      share. To date, all shares credited to participants’ accounts have been
      purchased in the open market. No new shares have been issued pursuant to the
      dividend reinvestment plan.






For
      the
      June 2005 dividend, holders of 1,215,870 shares participated in the dividend
      reinvestment plan. As a result, of the $2,175,013 total amount distributed,
      $151,984 was used by the dividend reinvestment plan agent to acquire shares
      in
      the open market for credit to the accounts of the plan participants. For the
      September 2005 dividend, holders of 1,488,904 shares participated in the
      dividend reinvestment plan. As a result, of the $2,436,014 total amount
      distributed, $208,447 was used by the dividend reinvestment plan agent to
      acquire shares in the open market for credit to the accounts of the plan
      participants. For the December 2005 dividend, holders of 1,660,140 shares
      participated in the dividend reinvestment plan. As a result, of the $4,785,028
      total amount distributed, $456,540 was used by the dividend reinvestment plan
      agent to acquire shares in the open market for credit to the accounts of the
      plan participants.






**Note
      3: Credit Facility**




On
      May 17,
      2005, the Company entered into a Revolving Credit Agreement (the “Credit
      Agreement”), among the Company, the lenders party thereto and SunTrust Bank, as
      administrative agent for the lenders.




Under
      the
      Credit Agreement, the lenders agreed to extend credit to the Company in an
      initial aggregate principal or face amount not exceeding $60,000,000 at any
      one
      time outstanding. The Credit Agreement is a 364-day revolving credit facility
      (with a stated maturity date of May 15, 2006) and is secured by substantially
      all of the Company’s assets. The credit facility is guaranteed by certain of the
      Company’s subsidiaries. Initially, the credit facility is collateralized by and
      limited by the amount of cash and cash equivalent collateral. However, at such
      time as the Company’s consolidated ratio of net asset value to total
      indebtedness is at least 3.50:1.00, such cash collateral requirement may be
      released at the discretion of the administrative agent. During the time the
      credit facility is secured by cash collateral, pricing will be set at 25 basis
      points over LIBOR, and, after release of the cash collateral, pricing will
      be
      set at a spread of 125 to 250 basis points over LIBOR based on the ratio of
      total indebtedness to net asset value. The Credit Agreement contains affirmative
      and reporting covenants. The Credit Agreement also contains certain financial
      ratio and restrictive covenants, including: (a) maintaining a ratio of net
      asset
      value to total indebtedness (excluding hedging liabilities) of not less than
      2.25:1.0, (b) maintaining a ratio of net asset value to total indebtedness
      (including hedging liabilities) of not less than 2.0:1.0, (c) maintaining a
      ratio of net income plus interest, taxes, depreciation and amortization expenses
      (“EBITDA”) to interest expense of not less than 3.0:1.0, (d) if the maturity of
      the credit facility is extended, maintaining a ratio of total indebtedness
      to
      EBITDA to be determined, (e) limitations on additional indebtedness, (f)
      limitations on liens, (g) limitations on mergers and other fundamental changes,
      (h) limitations on dividends during events of default and material events of
      default, (i) limitations on disposition of assets other than in the normal
      course of business, (j) limitations on transactions with affiliates, (k)
      limitations on agreements that prohibit liens on properties of the Company
      and
      its subsidiary guarantors, (l) limitations on sale and leaseback transactions
      and (m) limitations on speculative hedging transactions.




The
      Company has not yet borrowed any amounts under the Credit Agreement. The Credit
      Agreement will be used to supplement the Company’s equity capital to make
      additional portfolio investments.




**Note
      4: Issuance of Common Stock**




On
      August
      6, 2004, the Company, in its initial capitalization transaction, sold 100 shares
      to Natural Gas Partners, LLC for $15.00 per share. On November 9, 2004, the
      Company’s Registration Statement (Registration No. 333-118279) was declared
      effective by the SEC in connection with the public offering of 16,000,000 shares
      of common stock (plus up to 2,400,000 additional shares of common stock upon
      the
      exercise of the underwriters’ over-allotment option), which commenced on
      November 10, 2004. The number of securities registered, including the shares
      of
      common stock subject to the underwriters’ over-allotment option, was 18,400,000,
      of which 17,400,000 were sold to the public at a price of $15.00 per share.




44






**NGP
        CAPITAL RESOURCES COMPANY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




The
      net
      proceeds from the initial public offering of the shares of common stock, after
      deducting expenses of approximately $2,308,000 and underwriting discounts and
      commissions of $0.825 per share, were approximately $244,337,000.




**Note
      5: Investment Management**




The
      Company has entered into an investment advisory agreement with the Manager
      under
      which the Manager, subject to the overall supervision of the Company’s Board of
      Directors, manages the day-to-day operations of, and provides investment
      advisory services to, the Company. For providing these services, the Manager
      receives a fee from the Company, consisting of two components — a base
      management fee and an incentive fee.




Under
      the
      investment advisory agreement, beginning on December 1, 2005 and thereafter,
      the
      base management fee is calculated quarterly as 0.45% of the average of total
      assets of the Company as of the end of the two previous quarters. Prior to
      December 1, 2005, the quarterly base management fee was equal to the lesser
      of
      $900,000 or 0.375% of such average. For services provided under the investment
      advisory agreement from November 9, 2004 through and including November 30,
      2005, the base management fee was payable monthly in arrears. For services
      provided under the investment advisory agreement after that time, the base
      management fee is payable quarterly in arrears. Until June 30, 2005 (completion
      of two full fiscal quarters after the closing of the offering), the total assets
      upon which the quarterly base management fee was calculated was equal to the
      net
      proceeds of the offering. Thereafter, the base management fee was calculated
      based on the average value of the Company’s total assets at the end of the two
      most recently completed fiscal quarters.





Of
      the
      $399,173 management fee payable to the Manager as of December 31, 2005, $369,518
      is the base management fee for the month of December 2005.




The
      incentive fee under the investment advisory agreement consists of two parts.
      The
      first part, which is calculated and payable quarterly in arrears, equals 20%
      of
      the excess, if any, of the Company’s net investment income for the quarter that
      exceeds a quarterly hurdle rate equal to 2% (8% annualized) of the Company’s net
      assets.




For
      this
      purpose, net investment income means interest income, dividend income, and
      any
      other income (including any other fees, such as commitment, origination,
      syndication, structuring, diligence, managerial assistance, monitoring, and
      consulting fees or other fees that the Company receives from portfolio
      companies) accrued during the fiscal quarter, minus the Company’s operating
      expenses for the quarter (including the base management fee, expenses payable
      under the administration agreement, any interest expense and dividends paid
      on
      issued and outstanding preferred stock, if any, but excluding the incentive
      fee). Net investment income includes, in the case of investments with a deferred
      interest feature (such as premium and discount, debt instruments with
      payment-in-kind interest and zero coupon securities), accrued income that the
      Company has not yet received in cash. Net investment income does not include
      any
      realized capital gains, realized capital losses, or unrealized capital
      appreciation or depreciation.




The
      Manager agreed that payment of the investment income related portion of the
      incentive fee would not commence until December 1, 2005. There were no
      investment income incentive fees earned in December 2005. The incentive fees
      due
      in any fiscal quarter thereafter will be calculated as follows:




•
            no
                incentive fee in any fiscal quarter in which our net investment income
                does not exceed the hurdle rate.•
            20%
                of the amount of the Company’s net investment income, if any, that exceeds
                the hurdle rate in any fiscal quarter.




These
      calculations are appropriately pro rated for any period of less than three
      months.




The
      second
      part of the incentive fee (the “Capital Gains Fee”) is determined and payable in
      arrears as of the end of each fiscal year (or upon termination of the investment
      advisory agreement, as of the termination date), and equals (1) 20% of (a)
      the
      Company’s net realized capital gain (realized capital gains less realized
      capital losses) on a cumulative basis from the closing date of the Company’s
      initial public offering to the end of such fiscal year, less (b) any unrealized
      capital depreciation at the end of such fiscal year, less (2) the aggregate
      amount of all Capital Gains Fees paid to the Manager in prior fiscal years.  Of
      the
      $399,173 management fee payable to the Manager as of December 31, 2005, $29,655
      is the capital gains incentive fee earned for the year 2005.




45






**NGP
        CAPITAL RESOURCES COMPANY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




Realized
      capital gains on a security are calculated as the excess of the net amount
      realized from the sale or other disposition of such security over the amortized
      cost for the security. Realized capital losses on a security are calculated
      as
      the amount by which the net amount realized from the sale or other disposition
      of such security is less than the amortized cost of such security. Unrealized
      capital depreciation on a security is calculated as the amount by which the
      original cost of such security exceeds the fair value of such security at the
      end of a fiscal year. All period-end valuations are determined by the Company
      in
      accordance with GAAP and the 1940 Act.




The
      Manager has agreed that, beginning on November 9, 2006, and to the extent
      permissible under federal securities laws and regulations, including Regulation
      M, it will utilize 30% of the fees it receives from the capital gains portion
      of
      the incentive fee (up to a maximum of $5 million of fees received in the
      aggregate) to purchase shares of the Company’s common stock in open market
      purchases through an independent trustee or agent. Any sales of such stock
      will
      comply with any applicable six-month holding period under Section 16(b) of
      the
      Securities Act of 1933 and all other restrictions contained in any law or
      regulation, to the fullest extent applicable to any such sale. Any change in
      this voluntary agreement will not be implemented without at least 90 days prior
      notice to stockholders and compliance with all applicable laws and regulations.




The
      Company has entered into an administration agreement with the Administrator,
      under which the Administrator furnishes the Company with office facilities,
      equipment and clerical, bookkeeping and record keeping services at such
      facilities and performs, or oversees the performance of, administrative
      services, which include being responsible for the financial records that the
      Company is required to maintain and preparing reports to the Company’s
      stockholders and reports filed with the SEC.




In
      addition, the Manager assists in determining and publishing the Company’s net
      asset value, oversees the preparation and filing of the Company’s tax returns
      and the printing and dissemination of reports to the Company’s stockholders and
      generally oversees the payment of the Company’s expenses and the performance of
      administrative and professional services rendered to the Company by others.
      Payments under the administration agreement are equal to amounts based upon
      the
      allocable portion of the Administrator’s costs and expenses in performing its
      obligations under the administration agreement. The Administrator bills the
      Company for charges under the administration agreement monthly in arrears.




Of
      the
      $407,580 in accounts payable as of December 31, 2005, $127,166 is due to the
      Administrator for expenses incurred on the Company’s behalf for the month of
      December 2005.




**Note
      6: Organizational Expenses and Offering Costs**




A
      portion
      of the net proceeds of the offering were used for organizational expenses and
      offering costs of approximately $705,000 and $2,308,000, respectively,
      recognized in fiscal year 2004. For the twelve months ended December 31, 2005,
      the Company recognized organizational expenses and offering costs of
      approximately $1,100 and $7,600, respectively. Organizational expenses were
      expensed as incurred. Offering costs were charged to paid-in capital in excess
      of par.




**Note
      7: Federal Income Taxes**




The
      Company intends to qualify for tax purposes as a RIC under the Code for 2005
      and
      later years. As a RIC, the Company generally will not be subject to federal
      income tax on the portion of its investment company taxable income and gains
      distributed to stockholders. To qualify as a RIC, the Company is required,
      among
      other things, to distribute to its stockholders at least 90% of investment
      company taxable income, as defined by the Code, and to meet certain asset
      diversification requirements.  At
      December 31, 2004, the Company’s temporary investments included commercial paper
      of certain issuers that exceeded 5% of the value of its total assets. These
      investments were classified as cash equivalents for financial statement
      purposes. The Company was advised, however, that for purposes of the federal
      income tax rules governing RIC status, these commercial paper investments could
      not be classified as cash items, in which case the Company did not meet the
      RIC
      asset diversification requirements at December 31, 2004 and was instead treated
      as a “C” corporation for tax purposes for 2004.




For
      the
      year ending December 31, 2005, the Company met all RIC requirements. The Company
      distributed substantially all of its investment company taxable income for
      2005.
      Thus, the Company did not incur any federal income tax liability for the period.




46






**NGP
        CAPITAL RESOURCES COMPANY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




Differences
      between the effective income tax rate and the statutory Federal tax rate were
      as
      follows:




Year
                        ended
                    December
                      31, 2005
              
              Period
                      August 6, 2004
                    (commencement
                        of operations) through
                        December
                          31, 2004Statutory
                  federal rate on loss from continuing operations
              
              
              34
              %
              
              34
              %Effect
                  of net deferred tax assets
              
              
              (34
              %)
              
              (34
              %)Effective
                  tax rate on earnings from continuing operations
              
              
              0
              %
              
              0
              %






The
      tax
      effects of temporary differences that give rise to the deferred tax assets
      and
      liabilities are as follows:




Year
                        ended
                    December
                      31, 2005
              
              Period
                      August 6, 2004
                    (commencement
                        of operations) through
                        December
                          31, 2004Deferred
                  tax assets:Net
                  operating loss carryforwards
              
              $
              157,862
              
              $
              142,471Net
                  organization costs
              
              
              171,739
              
              
              225,347Total
                  gross deferred tax assets
              
              
              329,601
              
              
              367,818Less
                valuation allowance
              
              
              (329,601
              )
              
              (101,805
              )Net
                  deferred tax assets
              
              
              -
              
              
              266,013Deferred
                  tax liabilities:Unrealized
                  gains, net
              
              
              -
              
              
              (98,868
              )Prepaid
                  expenses
              
              
              -
              
              
              (167,145
              )Total
                  gross deferred tax liabilities
              
              
              -
              
              
              (266,013
              )Net
                  deferred tax assets
              
              $
              -
              
              $
              -


When
        a C
        corporation qualifies to be taxed as a RIC, it is subject to corporate-level
        tax
        on appreciation inherent in its assets on the date it becomes a RIC (i.e.,
        built-in gain) that it recognizes within the first 10 years of its RIC status.
        A
        RIC generally may use loss carryforwards arising in taxable years while it
        was a
        C corporation to reduce its net recognized built-in gain, although a RIC
        is not
        otherwise allowed to utilize such loss carryforwards. Because the Company
        intends to qualify as a RIC under Subchapter M of the Code for 2005 and later
        years, it is uncertain whether the Company will fully utilize the tax benefit
        of
        its loss carryforward of approximately $142,000 at December 31, 2004. The
        valuation allowance for deferred tax assets for the period August 6, 2004
        (commencement of operations) through December 31, 2004 was primarily included
        to
        reflect this uncertainty. After reducing the deferred tax asset by this
        allowance, the amount of the remaining deferred tax asset of $266,013 would
        entirely offset the deferred tax liability of $266,013 estimated as of December
        31, 2004 should the Company recognize its built-in gain in future years.
        Because
        the loss carryforward is expected to offset the built-in gain, no provision
        for
        Federal income taxes has been recorded for the period August 6, 2004
        (commencement of operations) through December 31, 2004. The loss carryforward
        will expire in the year 2024.
 
 The
        Company’s consolidated subsidiary, NGPC Asset Holdings, LP, (“NGPCAH”) is
        subject to federal income taxes. For the year ended December 31, 2005 (its
        first
        year of operations), NGPCAH operated at a loss and thus, at December 31,
        2005,
        NGPCAH had a deferred tax asset of approximately $15,000, composed of net
        operating loss carry forwards. Management believes that the realization of
        the
        net deferred tax asset is less likely than not based on expectations as to
        future taxable income and, accordingly, NGPCAH recorded a valuation allowance
        of
        approximately $15,000 at December 31, 2005.
  **Note
        8: Commitments and Contingencies**




As
      of
      December 31, 2005, the Company had investments in or commitments to fund loan
      facilities to six portfolio companies totaling $97.5 million, on which $93.1
      million was drawn. In addition, **t** he
      Company
      has continuing obligations under the investment advisory agreement with the
      Manager and the administration agreement with the Administrator. The agreements
      provide that, absent willful misfeasance, bad faith or gross negligence in
      the
      performance of its duties or by reason of the reckless disregard of its duties
      and obligations, the Manager, the Administrator and its officers, managers,
      agents, employees, controlling persons, members and any other person or entity
      affiliated with them will be entitled to indemnification from the Company for
      any damages, liabilities, costs and expenses (including reasonable attorneys’
fees and amounts reasonably paid in settlement) arising from the rendering
      of
      the Manager’s or Administrator’s services under the agreements or otherwise as
      the Company’s investment adviser or administrator. The agreements also provide
      that the Manager, the Administrator and their affiliates will not be liable
      to
      the Company or any stockholder for any error of judgment, mistake of law, any
      loss or damage with respect to any of the Company’s investments, or any action
      taken or omitted to be taken by the Manager or the Administrator in connection
      with the performance of any of their duties or obligations under the agreements
      or otherwise as investment adviser or administrator to the Company, except
      to
      the extent specified in Section 36(b) of the 1940 Act concerning loss resulting
      from a breach of fiduciary duty with respect to the receipt of compensation
      for
      services. In the normal course of business, the Company enters into a variety
      of
      undertakings containing a variety of representations that may expose the Company
      to some risk of loss. The amount of future loss, if any arising from such
      undertakings, while not quantifiable, is not expected to be significant.





47






**NGP
        CAPITAL RESOURCES COMPANY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**Note
      9: Dividends and Distributions**




The
        Company declared dividends for the year ending December 31, 2005 totaling
        $11,484,066, or $0.66 per share. For tax purposes, all of the dividends declared
        for the year ending December 31, 2005 were paid from ordinary income. The
        Company did not declare any dividends for the period August 6, 2004
        (commencement of operations) through December 31, 2004.




The
        following table summarizes the differences between financial statement net
        increase in net assets resulting from operations and taxable income available
        for distribution to shareholders for the year ending December 31, 2005 and
        for
        the period August 6, 2004 (commencement of operations) through December 31,
        2004:




Year
                        ended
                    December
                      31, 2005
              
              Period
                            August 6, 2004
                          (commencement
                              of operations) through
                              December
                                31, 2004Net
                  increase (decrease) in net assets resulting from
                  operations
              
              $
              11,351,327
              
              $
              (299,428
              )Adjustments:Net
                  change in unrealized (appreciation) depreciation
              
              
              394,933
              
              
              (290,789
              )Amortization
                  of organization costs
              
              
              (140,962
              )
              
              646,074Amortization
                  of insurance premiums
              
              
              (570,891
              )
              
              (491,602
              )Insurance
                  premiums deducted in prior year
              
              
              570,880
              
              
              -Net
                  income from consolidating affiliate
              
              
              (113,500
              )
              
              -Administrative
                  fees from affiliate
              
              
              158,769
              
              
              -Other
              
              
              14,580
              
              
              614Taxable
                  income available for distribution to shareholders
              
              $
              11,665,136
              
              $
              (435,131
              )




As
      of
      December 31, 2005, the $181,070 of undistributed taxable earnings was comprised
      entirely of undistributed ordinary income. At
      December 31, 2005, the aggregate net unrealized depreciation of the
      Company’s investments below cost for federal income tax purposes was $0.1
      million. At December 31, 2004, the aggregate net unrealized appreciation of
      the
      Company’s investments over cost for federal income tax purposes was
      $0.3 million. At December 31, 2005 and 2004, the aggregate cost of
      securities for federal income tax purposes was $235.0 million and
      $107.1 million, respectively.




**Note
      10: Reclassifications**




Certain
      reclassifications have been made to the 2004 financial statements in order
      for
      them to conform to the 2005 presentation. In addition, GAAP requires that
      certain components of net assets be adjusted to reflect permanent differences
      between financial and tax reporting. These reclassifications have no effect
      on
      total net assets or net asset value per share. During the year ended December
      31, 2005, $586,225 has been reclassified from Undistributed net investment
      income (loss) to Paid-in capital in excess of par. These reclassifications
      are
      primarily due to non-deductible meal expenses, orginization costs, and income
      and expenses from a wholly owned subsidiary.




**Note
      11: Subsequent Events**




On
      March
      10, 2006, the Company declared a quarterly dividend of $0.16 per common share
      payable on April 14, 2006 to shareholders of record as of March 31, 2006. In
      addition, in January 2006, the Company closed a $16.9 million Senior Secured
      Credit Facility with Piceance Basin Properties, LLC, a Houston, Texas based
      developer of Rocky Mountain region oil and gas properties. The initial funding
      under the facility totaled approximately $2.8 million. Also, since the beginning
      of the 2006 fiscal year, existing portfolio companies have drawn approximately
      $6.5 million under their respective facilities as of the filing date of this
      Annual Report on Form 10-K.





**Note
      12: Supplemental Disclosure of Cash Flow Information**





Non-cash
      operating activities for the year ended December 31, 2005, included amortization
      of original issue discount of $1,132,319, of depletion of basis in overriding
      royalty interests of $2,704, and of prepaid credit facility fees and insurance
      premiums of $84,817. Non-cash operating activities for the period August 6,
      2004
      (commencement of operations) through December 31, 2004, included amortization
      of
      prepaid insurance premiums of $79,829.




48






**NGP
        CAPITAL RESOURCES COMPANY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
  **Note
      13: Financial Highlights**





**NGP
        CAPITAL RESOURCES COMPANY**
 **CONSOLIDATED
        FINANCIAL HIGHLIGHTS**
  Year
                        ended
                    December
                      31, 2005
              
              Period
                      August 6, 2004
                    (commencement
                        of operations) through
                        December
                          31, 2004**Per
                  Share Data**Net
                  asset value, beginning of period
              
              $
              14.03
              
              $
              15.00Underwriting
                  discounts, commissions relatedto
                  initial public offering
              
              
              -
              
              
              (0.82
              )Other
                  costs related to initial public offering
              
              
              -
              
              
              (0.13
              )Net
                  asset value after initial public offering
              
              
              14.03
              
              
              14.05Net
                  investment income
              
              
              0.60
              
              
              (0.03
              )Net
                  realized and unrealized gain (loss) on portfolio securities and
                  corporate
                  notes
              
              
              0.05
              
              
              0.01Net
                  increase in net assets resulting from operations
              
              
              0.65
              
              
              (0.02
              )Dividends
                  declared
              
              
              (0.66
              )
              
              -Net
                  asset value, end of period
              
              $
              14.02
              
              $
              14.03Market
                  value, beginning of period
              
              $
              15.37
              
              $
              15.00Market
                  value, end of period
              
              $
              13.13
              
              $
              15.37Market
                  value return (1)
              
              
              (10.67
              %)
              
              2.47
              %Net
                  asset value return (1)
              
              
              4.49
              %
              
              (6.47
              %)**Ratios
                  and Supplemental Data**($
                  and shares in thousands)Net
                  assets, end of period
              
              $
              243,898
              
              $
              244,039Average
                  net assets
              
              $
              243,969
              
              $
              76,367Common
                  shares outstanding at end of period
              
              
              17,400
              
              
              17,400General
                  and administrative expenses/average net assets
              
              
              1.31
              %
              
              0.37
              %Total
                  operating expenses/average net assets
              
              
              2.83
              %
              
              1.89
              %Net
                  investment income (loss)/average net assets
              
              
              4.27
              %
              
              (0.77
              %)Net
                  increase (decrease) in net assets resulting fromoperations/average
                  net assets
              
              
              4.65
              %
              
              (0.39
              %)Portfolio
                  turnover rate
              
              
              13.77
              %
              
              0.00
              %(1)
                  Return calculations assume reinvestment of dividends and are not
                  annualized.*(See
                  accompanying notes to consolidated financial
                  statements)*






49






**NGP
        CAPITAL RESOURCES COMPANY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS
        (CONTINUED)**


**Note
      14: Selected Quarterly Financial Data (unaudited)**


**(in
      thousands, except per share amounts)**




Net
                  Realized
              
              Net
                  Increaseand
                  Unrealized
              
              (Decrease)
                  InGain
                  (Loss) on
              
              Net
                  Assets FromInvestment
                    Income
              
              Net
                    Investment Income
              
              Portfolio
                  Securities
                and
                  corporate notes
              
              OperationsPer
              
              
              
              Per
              
              
              
              Per
              
              
              
              PerQuarter
                  Ended
              
              Total
              
              Share
              
              Total
              
              Share
              
              Total
              
              Share
              
              Total
              
              ShareMarch
                  31, 2005
              
              $
              4,182
              
              $
              0.24
              
              $
              2,600
              
              $
              0.15
              
              $
              (1,299
              )
              $
              (0.07
              )
              $
              1,301
              
              $
              0.07June
                  30, 2005
              
              $
              3,666
              
              $
              0.21
              
              $
              1,890
              
              $
              0.11
              
              $
              52
              
              $
              0.00
              
              $
              1,942
              
              $
              0.11September
                  30, 2005
              
              $
              4,439
              
              $
              0.26
              
              $
              2,817
              
              $
              0.16
              
              $
              576
              
              $
              0.03
              
              $
              3,393
              
              $
              0.20December
                  31, 2005
              
              $
              5,023
              
              $
              0.29
              
              $
              3,105
              
              $
              0.18
              
              $
              1,610
              
              $
              0.09
              
              $
              4,715
              
              $
              0.27




**Item
      9.** **Changes
      in and Disagreements with Accountants on Accounting and
      Financial Disclosure.**




Effective
        April 19, 2005, KPMG LLP (“KPMG”) was dismissed as principal accountants for the
        Company. Also effective April 19, 2005, PricewaterhouseCoopers LLP (“PWC”) was
        appointed as principal accountants for the Company. The dismissal of KPMG
        and
        the appointment of PWC were approved by the Audit Committee of the Board
        of
        Directors of the Company.
  The
        audit
        report of KPMG on the financial statements of the Company as of December
        31,
        2004 and for the period August 6, 2004 through December 31, 2004, did not
        contain any adverse opinion or a disclaimer of opinion, nor were they qualified
        or modified as to uncertainty, audit scope or accounting
        principles.
  In
        connection with the audit as of December 31, 2004 and for the period August
        6,
        2004 through December 31, 2004, and through the subsequent interim period
        through April 19, 2005, there were no disagreements with KPMG on any matter
        of
        accounting principles or practices, financial statement disclosure or auditing
        scope or procedures, which disagreements if not resolved to KPMG’s satisfaction
        would have caused KPMG to make reference to such disagreements in connection
        with their opinion to the subject matter of the disagreements.
  Since
        the
        commencement of the Company’s operations on August 6, 2004 and through the date
        of the appointment of PWC by the Company, the Company did not consult with
        PWC
        regarding any of the matters or events set forth in Item 304(a)(2) of Regulation
        S-K. Since the commencement of the Company’s operations on August 6, 2004
        through April 19, 2005 there were no “reportable events” as described in Item
        304(a)(1)(v) of Regulation S-K.




**Item
      9A.****Controls
      and Procedures.******




**Disclosure
      Controls and Procedures**




We
      maintain controls and procedures designed to ensure that
      information required to be disclosed in our reports under the Exchange Act
      is
      recorded, processed, summarized and reported on a timely basis and accumulated
      and made known to management, including the chief executive officer and chief
      financial officer, to allow timely decisions regarding required
      disclosures. Based on
      an evaluation of our disclosure controls and procedures (as such
      term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
      Act) as of the
      end of the period covered by this report conducted by our management, with
      the
      participation of the Chief Executive and Chief Financial Officers, the Chief
      Executive and Chief Financial Officers believe that these controls and
      procedures were effective as of December 31, 2005.





In
      evaluating changes in internal control over financial reporting during the
      year
      ended December 31, 2005, management identified no changes in its internal
      control over financial reporting that occurred during the year ended December
      31, 2005 that have materially affected, or are reasonably likely to materially
      affect, its internal control over financial reporting, other than the changes
      implemented as remedial steps for the material weakness in internal control
      over
      financial reporting as first disclosed in our Form 10-K/A for the year ended
      December 31, 2004, relating to the incorrect recording and reporting of (i)
      the
      market price for our common stock at December 31, 2004 as $15.07 as opposed
      to
      $15.37 and (ii) the total return on our common stock for the period then ended
      as 0.47% as opposed to 2.47%.





As
      described in Item 4 (b) on Forms 10-Q for the periods ending March 31, 2005
      and
      June 30, 2005, management identified various remedial steps that were in the
      process of being implemented with respect to the previously disclosed material
      weakness. As of December 31, 2005, management has evaluated the remedial action,
      reviewed each of the remediated controls and found the controls to be operating
      effectively. As a result of these new control processes and procedures,
      management believes it has remediated the material weakness in its internal
      control over financial reporting.





50






**Management’s
      Report on Internal Control over Financial Reporting**





Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting, as such term is defined in Rule 13a-15(f) promulgated
      under
      the Exchange Act.





The
      Company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. The Company’s internal control
      over financial reporting includes those policies and procedures that (1) pertain
      to the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the Company; (2)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the Company are
      being made only in accordance with authorizations of management and the Board
      of
      Directors of the Company; and (3) provide reasonable assurance regarding
      prevention or timely detection of unauthorized acquisition, use or disposition
      of the Company’s assets that could have a material effect on the financial
      statements.





Because
      of
      its inherent limitations, internal control over financial reporting may not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies and procedures may deteriorate.





Management
      has evaluated the effectiveness of its internal control over financial reporting
      using the criteria established by the Committee of Sponsoring Organizations
      of
      the Treadway Commissions (COSO) in Internal Control - Integrated Framework.
      Based on the results of this evaluation, management has determined that our
      internal control over financial reporting was effective as of December 31,
      2005.
      Our independent registered public accounting firm that has audited our financial
      statements has also audited management’s assessment of our internal control over
      financial reporting as of December 31, 2005, as stated in their report included
      under Item 8.





**Report
      of Independent Registered Public Accounting Firm on Internal Control over
      Financial Reporting**





See **Report
      of Independent Registered Public Accounting Firm** above.





**Item
      9B.****Other
      Information.**




None.




**Part
      III.**




**Item
      10.** **Directors
      and Executive Officers of the Registrant.**




The
      information required by Item 10 of Form 10-K is hereby incorporated by reference
      from the information appearing under the captions “Governance of the Fund,”
“Executive Officers of the Fund” and “Section 16(a) Beneficial Ownership
      Reporting Compliance” in the Company’s definitive Proxy Statement relating to
      its 2006 annual meeting of stockholders, which will be filed pursuant to
      Regulation 14A within 120 days after the Company’s fiscal year ended December
      31, 2005.





**Code
      of Ethics**





We
      have
      adopted a code of business conduct and ethics applicable to our directors,
      officers (including our principal executive officer, principal compliance
      officer, principal financial officer, and controller, or persons performing
      similar functions) and employees. In addition, we and our Manager have adopted
      a
      joint code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes
      procedures for personal investments and restricts certain personal securities
      transactions. Personnel subject to such code may invest in securities for their
      personal investment accounts, including securities that may be purchased or
      held
      by us, so long as such investments are made in accordance with the code’s
      requirements. Copies of our code of business conduct and ethics and joint code
      of ethics will be provided to any person, without charge, upon request. Contact
      Stephen K. Gardner at 713-752-0062 to request a copy or send the request to
      NGP
      Capital Resources Company, Attn: Stephen K. Gardner, 1221 McKinney St. Suite
      2975, Houston, Texas 77010. If any substantive amendments are made to our code
      of business conduct and ethics or if we grant any waiver, including any implicit
      waiver, from a provision of the code to any of our executive officers and
      directors, we will disclose the nature of such amendment or waiver in a report
      on Form 8-K.




51






**Item
      11.****Executive
      Compensation.**




The
      information required by Item 11 of Form 10-K is hereby incorporated by reference
      from the information appearing under the caption “Governance of the Fund --
      Compensation” in the Company’s definitive Proxy Statement relating to its 2006
      annual meeting of stockholders, which will be filed pursuant to Regulation
      14A
      within 120 days after the Company’s fiscal year ended December 31,
      2005.





**Item
      12.****Security
      Ownership of Certain Beneficial Owners and Management.**




The
      information required by Item 12 of Form 10-K is hereby incorporated by reference
      from the information appearing under the caption “Stock Ownership” in the
      Company’s definitive Proxy Statement relating to its 2006 annual meeting of
      stockholders, which will be filed pursuant to Regulation 14A within 120 days
      after the Company’s fiscal year ended December 31, 2005.





**Item
      13.****Certain
      Relationships and Related Transactions.**




The
      information, if any, required by Item 13 of Form 10-K is hereby incorporated
      by
      reference from the information appearing under the caption “Certain
      Transactions,” if any, in the Company’s definitive Proxy Statement relating to
      its 2006 annual meeting of stockholders, which will be filed pursuant to
      Regulation 14A within 120 days after the Company’s fiscal year ended December
      31, 2005.





**Item
      14.****Principal
      Accountant Fees and Services.**




The
      information required by Item 14 of Form 10-K is hereby incorporated by reference
      from the information appearing under the caption “Ratification of the Selection
      of the Independent Auditor for the Fund - Audit Fees and All Other Fees” in the
      Company’s definitive Proxy Statement relating to its 2006 annual meeting of
      stockholders, which will be filed pursuant to Regulation 14A within 120 days
      after the Company’s fiscal year ended December 31, 2005.





**PART
      IV.**




**Item
      15.** **Exhibits,
      Financial Statement Schedules.**




(a)
      The
      following documents are filed as a part of this report:




**Financial
      Statements**




See
      Index
      to Financial Statements on page 32 of this report.




**Financial
      Statement Schedules**




Financial
      statement schedules are omitted because of the absence of conditions under
      which
      they are required or because the required information is included in the
      financial statements and notes thereto.




52






**Exhibits**




**No.**
            
            **Exhibit**3.1
            —
            Articles
                of Incorporation of NGP Capital Resources Company dated as of July
                15,
                2004 (filed as Exhibit (a)(1) to the Company’s Registration Statement on
                Form N-2 dated November 9, 2004 (Registration No. 333-118279) and
                incorporated herein by reference)3.2
            —
            Articles
                of Amendment and Restatement of NGP Capital Resources Company dated
                as of
                October 29, 2004 (filed as Exhibit 3.2 to the Company’s Annual Report on
                Form 10-K for the year ended December 31, 2004, and incorporated
                herein by reference)3.3
            —
            Bylaws
                of NGP Capital Resources Company (filed as Exhibit (b) to the Company’s
                Registration Statement on Form N-2 dated August 16, 2004 (Registration
                No.
                333-118279) and incorporated herein by reference)10.1
            —
            Investment
                Advisory Agreement dated as of November 9, 2004, between NGP Capital
                Resources Company and NGP Investment Advisor, LP (filed as Exhibit
                10.1 to
                the Company’s Annual Report on Form 10-K for the year ended December
                31, 2004, and incorporated herein by reference)10.2
            —
            Administration
                Agreement dated as of November 9, 2004, by and between NGP Capital
                Resources Company and NGP Administration, LLC (filed as Exhibit 10.2
                to
                the Company’s Annual Report on Form 10-K for the year ended December
                31, 2004, and incorporated herein by reference)10.3
            —
            License
                Agreement dated as of November 9, 2004, by and between NGP Capital
                Resources Company and Natural Gas Partners, L.L.C. (filed as Exhibit
                10.3
                to the Company’s Annual Report on Form 10-K for the year ended
                December 31, 2004, and incorporated herein by
                reference)10.4
            —
            Joint
              Code of Ethics (filed as Exhibit (r) to the Company’s Registration
              Statement on Form N-2 dated November 9, 2004 (Registration No. 333-118279)
              and incorporated herein by reference)10.5
            —
            Form
              of Indemnity Agreement (filed as Exhibit 10.5 to the Company’s Annual
              Report on Form 10-K for the year ended December 31, 2004, and
              incorporated herein by reference)10.6
            —
            Revolving
                Credit Agreement dated as of May 16, 2005, by and between NGP Capital
                Resources Company, the lenders from time to time party thereto and
                SunTrust Bank (filed as Exhibit 10.4 to the Company’s Quarterly Report on
                Form 10-Q for the quarterly period ended June 30, 2005, and
                incorporated herein by reference)14.1
            —
            Code
                of Business Conduct and Ethics for members of the Board of Directors,
                Officers and Employees (filed as Exhibit 14.1 to the Company’s Annual
                Report on Form 10-K for the year ended December 31, 2004, and
                incorporated herein by reference)21.1
            —
            Subsidiaries31.1
            —
            Certification
                required by Rule 13a-14(a)/15d-14(a) by the Chief Executive
                Officer31.2
            —
            Certification
                required by Rule 13a-14(a)/15d-14(a) by the Chief Financial
                Officer32.1
            —
            Section
                1350 Certification by the Chief Executive Officer32.2
            —
            Section
                1350 Certification by the Chief Financial Officer







53


**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




NGP
              CAPITAL RESOURCES COMPANYBy:**John
              H. Homier****President
              and Chief Executive Officer**


Date:
      March 13, 2006




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated. This document may be executed by the
      signatories hereto on any number of counterparts, all of which constitute one
      and the same instrument.




**Signature**
            **Title**President
                and Chief Executive Officer
              (Principal
                Executive Officer)John
                H. HomierChief
                Operating Officer and Secretary
              (Principal
                Operating and Compliance Officer)Richard
                A. BernardyChief
                Financial Officer and Treasurer
              (Principal
                Financial and Accounting Officer)Stephen
                K. GardnerDirector
                and Chairman of the BoardKenneth
                A. HershDirectorDavid
                R. AlbinDirectorEdward
                W. BlessingDirectorC.
                Kent ConineDirectorJames
                R. Latimer, III







54





**Index
      to Exhibits**




**No.**
            
            **Exhibit**3.1
            —
            Articles
                of Incorporation of NGP Capital Resources Company dated as of July
                15,
                2004 (filed as Exhibit (a)(1) to the Company’s Registration Statement on
                Form N-2 dated November 9, 2004 (Registration No. 333-118279) and
                incorporated herein by reference)3.2
            —
            Articles
                of Amendment and Restatement of NGP Capital Resources Company dated
                as of
                October 29, 2004 (filed as Exhibit 3.2 to the Company’s Annual Report on
                Form 10-K for the year ended December 31, 2004, and incorporated
                herein by reference)3.3
            —
            Bylaws
                of NGP Capital Resources Company (filed as Exhibit (b) to the Company’s
                Registration Statement on Form N-2 dated August 16, 2004 (Registration
                No.
                333-118279) and incorporated herein by reference)10.1
            —
            Investment
                Advisory Agreement dated as of November 9, 2004, between NGP Capital
                Resources Company and NGP Investment Advisor, LP (filed as Exhibit
                10.1 to
                the Company’s Annual Report on Form 10-K for the year ended December
                31, 2004, and incorporated herein by reference)10.2
            —
            Administration
                Agreement dated as of November 9, 2004, by and between NGP Capital
                Resources Company and NGP Administration, LLC (filed as Exhibit 10.2
                to
                the Company’s Annual Report on Form 10-K for the year ended December
                31, 2004, and incorporated herein by reference)10.3
            —
            License
                Agreement dated as of November 9, 2004, by and between NGP Capital
                Resources Company and Natural Gas Partners, L.L.C. (filed as Exhibit
                10.3
                to the Company’s Annual Report on Form 10-K for the year ended
                December 31, 2004, and incorporated herein by
                reference)10.4
            —
            Joint
              Code of Ethics (filed as Exhibit (r) to the Company’s Registration
              Statement on Form N-2 dated November 9, 2004 (Registration No. 333-118279)
              and incorporated herein by reference)10.5
            —
            Form
              of Indemnity Agreement (filed as Exhibit 10.5 to the Company’s Annual
              Report on Form 10-K for the year ended December 31, 2004, and
              incorporated herein by reference)10.6
            —
            Revolving
                Credit Agreement dated as of May 16, 2005, by and between NGP Capital
                Resources Company, the lenders from time to time party thereto and
                SunTrust Bank (filed as Exhibit 10.4 to the Company’s Quarterly Report on
                Form 10-Q for the quarterly period ended June 30, 2005, and
                incorporated herein by reference)14.1
            —
            Code
                of Business Conduct and Ethics for members of the Board of Directors,
                Officers and Employees (filed as Exhibit 14.1 to the Company’s Annual
                Report on Form 10-K for the year ended December 31, 2004, and
                incorporated herein by reference)21.1
            —
            Subsidiaries31.1
            —
            Certification
                required by Rule 13a-14(a)/15d-14(a) by the Chief Executive
                Officer31.2
            —
            Certification
                required by Rule 13a-14(a)/15d-14(a) by the Chief Financial
                Officer32.1
            —
            Section
                1350 Certification by the Chief Executive Officer32.2
            —
            Section
                1350 Certification by the Chief Financial
                Officer


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