##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 1-10671
 THE MERIDIAN RESOURCE CORPORATION
  TEXAS
(State of incorporation)
    
    76-0319553
(I.R.S. Employer Identification No.)1401 Enclave Parkway, Suite 300, Houston, Texas
(Address of principal executive offices)
    
    77077
(Zip Code)
 281-597-7000
 Securities registered pursuant to Section 12(b) of the Act:
 (Title of each class)
    
    (Name of each exchange on which registered)Common Stock, $0.01 par value
Rights to Purchase Preferred Shares
    
    New York Stock Exchange
New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act: None
 
 o þ
 o þ
 þ o
 o
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ
 Aggregate market value of shares of common stock held by non-affiliates
of the Registrant at June 30, 2008 $260,739,160
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



THE MERIDIAN RESOURCE CORPORATION
INDEX TO FORM 10-K
  
 PagePART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    14Item 1B.
    
    Unresolved Staff Comments
    
    
    22Item 2.
    
    Properties
    
    
    22Item 3.
    
    Legal Proceedings
    
    
    23Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    24PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
    
    
    25Item 6.
    
    Selected Financial Data
    
    
    27Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    28Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    47Item 8.
    
    Financial Statements and Supplementary Data
    
    
    52Item 9.
    
    Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    99Item 9A.
    
    Controls and Procedures
    
    
    99Item 9B.
    
    Other Information
    
    
    100PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    101Item 11.
    
    Executive Compensation
    
    
    101Item 12.
    
    Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
    
    
    101Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    101Item 14.
    
    Principal Accountant Fees and Services
    
    
    101PART IVItem 15.
    
    Exhibits
    
    
    101Signatures
    
    
    106EX-10.31EX-10.32EX-10.33EX-10.34EX-10.35EX-23.1EX-23.2EX-31.1EX-31.2EX-32.1EX-32.2
  -2-




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PART I
 
 Item 1. Business
 General
    Recent developments
      -3-




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Development of our oil and natural gas properties.
   -4-




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
    
    11 producing natural gas wells in East Texas with significant leaseholds available for
development;
    
    Geologic information to assist us in locating and defining the higher yielding areas
within our East Texas Austin Chalk holdings;
    
    Experience that has improved efficiencies in drilling and operating in the Austin Chalk,
which we have used to reduce costs;
    
    An additional portfolio of approximately 30,000 net acres in Karnes and Lavaca Counties
of South Central Texas covering the Austin Chalk, as well as the Eagle Ford Shale where
others have had successful drilling; and
    
    A significant library of 3-D and 2-D seismic data, much of which as been reprocessed and
utilized for the identification and development of new prospects.
   Current Plans.
     
    
    Reducing capital expenditures by shifting away from exploratory efforts on new wells to
recompletions and workovers of existing wells based on strict economic analysis focused on
increased production and cash flow;
    
    Renegotiation of drilling-related contractual commitments;
 -5-




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
    
    Cost reductions in the office, based on headcount reductions and close examination of
all other general and administrative expenses;
    
    Cost reductions in the field through close review of lease operating expenses and
implementation of more strict efficiency measures;
    
    Sale of non-strategic assets, including both developed and undeveloped properties; and
    
    Partial sale of our key exploratory and development assets in the East Texas Austin
Chalk, in order to raise cash and reduce risk through a reduced working interest.
 Strategy for preservation and exploitation of our assets.
   
    
    We will cease drilling activities after completion of the two wells in which we are
currently participating (one operated and one non-operated);
    
    We are seeking partners to assist us in developing our holdings in East Texas, with the
goal of reducing our working interests into the range of 25-35% for new wells;
    
    We have directed our staff to continue to analyze geological and seismic data, which we
believe enhances the value of our assets, as well as identifying the best opportunities for
capital expenditures under a limited resource scenario;
    
    We have taken steps to reduce or offset our cash obligations under drilling contracts;
    
    We are monitoring the exploration results of others, particularly in the Eagle Ford
trend in South Texas; although we cannot allocate funds to these areas currently, we intend
to test them when the opportunity arises; and
    
    Although staff reductions have been necessary, we have retained a well-qualified team of
exploratory and operational personnel.
 Oil and Natural Gas Properties
  Gulf ofLouisiana
    
    Texas
    
    Mexico
    
    TotalProduction for the year ended December
31, 2008Oil (MBbls)
    
    
    567
    
    
    
    154
    
    
    
    44
    
    
    
    765Natural Gas (MMcf)
    
    
    8,173
    
    
    
    842
    
    
    
    354
    
    
    
    9,369Reserves as of December 31, 2008Oil (MBbls) (1)
    
    
    3,580
    
    
    
    795
    
    
    
    528
    
    
    
    4,903Natural Gas (MMcf) (1)
    
    
    42,367
    
    
    
    3,406
    
    
    
    5,122
    
    
    
    50,895
 -6-




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Estimated future net cash flows ($000)(2)
    
    $
    239,576Present value of future net cash flows before income taxes ($000)(3)
    
    $
    179,437Standardized measure of discounted future net cash flows ($000)(4)
    
    $
    179,437
 
 (1)
    
    Includes 83 MBbls of oil and 226 MMcf of gas (724 MMcfe) in proved developed shut-in
reserves (PDSI); these reserves are for wells which have been shut-in primarily due to
hurricane damage, which we expect to repair.(2)
    
    Estimated Future Net Cash Flows represent the net undiscounted future revenues to be
generated from the production of proved reserves, net of estimated production and future
development costs, using expected realized prices at December 31, 2008, which averaged
$44.04 per Bbl of oil and $5.79 per Mcf of natural gas over the estimated life of the
properties and do not reflect the impact of hedges.(3)
    
    The Present Value of Future Net Cash Flows Before Taxes represents Estimated Future Net
Cash Flows discounted to present value using an annual discount rate of 10%.(4)
    
    The Standardized Measure of Discounted Future Net Cash Flows represents the Present
Value of Future Net Cash Flows after income taxes of zero. Income taxes are zero because
the tax basis of oil and natural gas properties exceeds the book basis. Productive Wells
  2008
    
    2007
    
    2006Gross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetOil Wells
    
    
    34
    
    
    
    20
    
    
    
    33
    
    
    
    19
    
    
    
    44
    
    
    
    28Natural Gas Wells
    
    
    66
    
    
    
    37
    
    
    
    88
    
    
    
    43
    
    
    
    77
    
    
    
    43Total
    
    
    100
    
    
    
    57
    
    
    
    121
    
    
    
    62
    
    
    
    121
    
    
    
    71
 -7-




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Oil and Natural Gas Reserves
  Proved Reserves at December 31, 2008DevelopedProducing
    
    Developed(1)
    
    Non-Producing
    
    Undeveloped
    
    Total(dollars in thousands)Net Proved Reserves:Oil (MBbls)
    
    
    1,431
    
    
    
    1,301
    
    
    
    2,171
    
    
    
    4,903Natural Gas (MMcf)
    
    
    19,239
    
    
    
    15,815
    
    
    
    15,842
    
    
    
    50,896Natural Gas Equivalent (MMcfe)
    
    
    27,825
    
    
    
    23,619
    
    
    
    28,869
    
    
    
    80,313Estimated Future Net Cash Flows(2)
    
    $
    239,576Present Value of Future Net Cash Flows (before income taxes)(3)
    
    $
    179,437Standardized Measure of Discounted Future Net Cash Flows(4)
    
    $
    179,437
 
 (1)
    
    Includes 83 MBbls of oil and 226 MMcf of gas (724 MMcfe) in proved developed shut-in
reserves (PDSI); these reserves are for wells which have been shut-in primarily due to
hurricane damage, which we expect to repair.(2)
    
    Estimated Future Net Cash Flows represent the net undiscounted future revenues to be
generated from the production of proved reserves, net of estimated production and future
development costs, using expected realized prices at December 31, 2008, which averaged
$44.04 per Bbl of oil and $5.79 per Mcf of natural gas over the estimated life of the
properties and do not reflect the impact of hedges.(3)
    
    The Present Value of Future Net Cash Flows Before Taxes represents Estimated Future Net
Cash Flows discounted to present value using an annual discount rate of 10%.(4)
    
    The Standardized Measure of Discounted Future Net Cash Flows represents the Present
Value of Future Net Cash Flows after income taxes of zero. Income taxes are zero because
we have estimated that we will not be in a tax paying position based on the low commodity
prices used in the computation.    -8-




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Oil and Natural Gas Drilling Activities
  Gross Wells
    
    Net WellsProductive
    
    Dry
    
    Total
    
    Productive
    
    Dry
    
    TotalExploratory WellsYear ended December 31, 2008
    
    
    6
    
    
    
    4
    
    
    
    10
    
    
    
    2.7
    
    
    
    3.1
    
    
    
    5.8Year ended December 31, 2007
    
    
    13
    
    
    
    12
    
    
    
    25
    
    
    
    4.2
    
    
    
    6.6
    
    
    
    10.8Year ended December 31, 2006
    
    
    7
    
    
    
    7
    
    
    
    14
    
    
    
    4.1
    
    
    
    5.4
    
    
    
    9.5Development WellsYear ended December 31, 2008
    
    
    7
    
    
    
    4
    
    
    
    11
    
    
    
    5.0
    
    
    
    3.2
    
    
    
    8.2Year ended December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Year ended December 31, 2006
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    0.7
    
    
    
    
    
    
    
    0.7
  Production
  -9-




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Year Ended December 31,2008
    
    2007
    
    2006Production:Oil (MBbls)
    
    
    765
    
    
    
    838
    
    
    
    859Natural gas (MMcf)
    
    
    9,369
    
    
    
    13,239
    
    
    
    18,170Natural gas equivalent (MMcfe)
    
    
    13,958
    
    
    
    18,269
    
    
    
    23,323Average Prices:Oil ($/Bbl)
    
    $
    83.13
    
    
    $
    64.70
    
    
    $
    55.73Natural gas ($/Mcf)
    
    $
    9.07
    
    
    $
    7.29
    
    
    $
    7.77Natural gas equivalent ($/Mcfe)
    
    $
    10.65
    
    
    $
    8.25
    
    
    $
    8.11Production Expenses:Lease operating expenses ($/Mcfe)
    
    $
    1.74
    
    
    $
    1.55
    
    
    $
    0.97Severance and ad valorem
taxes ($/Mcfe)
    
    $
    0.70
    
    
    $
    0.52
    
    
    $
    0.48
 Acreage
  December 31, 2008Developed
    
    UndevelopedRegion
    
    Gross
    
    Net
    
    Gross
    
    NetLouisiana
    
    
    30,082
    
    
    
    21,002
    
    
    
    16,142
    
    
    
    14,299Oklahoma
    
    
    1,809
    
    
    
    699
    
    
    
    
    
    
    
    Kentucky
    
    
    
    
    
    
    
    
    
    
    28,750
    
    
    
    24,236Texas
    
    
    10,842
    
    
    
    6,551
    
    
    
    139,991
    
    
    
    91,442Gulf of Mexico
    
    
    28,759
    
    
    
    5,613
    
    
    
    11,440
    
    
    
    3,976Total
    
    
    71,492
    
    
    
    33,865
    
    
    
    196,323
    
    
    
    133,953
  Geologic/Land and Operations Geophysical Expertise
  -10-




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Marketing of Production
   Year Ended December 31,Customer
    
    2008
    
    2007
    
    2006Shell Trading (U.S.)
    
    
    21
    %
    
    
    14
    %
    
    
    Superior Natural Gas
    
    
    17
    %
    
    
    23
    %
    
    
    35
    %Crosstex Gulfcoast Marketing
    
    
    14
    %
    
    
    16
    %
    
    
    21
    %
  Market Conditions
   Competition
  Regulation
  -11-




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Federal Regulation.
 Price Controls.
 State Regulation of Oil and Natural Gas Production
 Environmental Regulation.
 -12-




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OPA.
   CERCLA.
 Clean Water Act.
 -13-




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Resource Conservation and Recovery Act.
 Title to Properties
   
 Item 1A. Risk Factors
  -14-




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As a result of our current lack of financial liquidity, we have received a going concern
modification to our independent accountants opinion on our consolidated financial statements.
  Our Credit Facility has substantial restrictions and financial covenants. We are currently in
default under, and may have difficulty returning to compliance with, certain of the covenants in
our Credit Facility, including our covenant to maintain a ratio of current assets to current
liabilities of not less than 1.0 to 1.0, and our covenant to deliver to our lenders audited
financial statements for each fiscal year that do not have a going concern or like qualification
or exception.
     Our Credit Facility has periodic borrowing base redeterminations and we may have difficulty
maintaining our total borrowing base at the current level of $95 million at future
redeterminations, or maintaining or obtaining additional credit at similar terms, which could
adversely affect our operations.
  -15-




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Because of the recent deterioration of the credit and capital markets, we may be unable to obtain
financing from sources other than our Credit Facility on acceptable terms or at all.
    We have significant near-term contractual obligations, which we may not be able to meet; our
working capital is currently a net deficit.
  Our common stock could be delisted from the New York Stock Exchange.
  -16-




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If oil or natural gas prices decrease or exploration and development efforts are unsuccessful, we
may be required to take further write-downs.
      -17-




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Our indebtedness may adversely affect operations and limit our growth.
  The oil and natural gas markets are volatile and expose us to financial risks.
   Our hedging transactions may not adequately prevent losses.
  Our reserve estimates may prove to be inaccurate and future net cash flows are uncertain.
  -18-




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We depend on key personnel to execute our business plans.
  We compete against significant players in the oil and natural gas industry, and our failure in the
long-term to complete future acquisitions successfully and generate commercial exploration and
development drilling opportunities could reduce our earnings and cause revenues to decline.
  The oil and natural gas markets are heavily regulated.
   The nature of our operations exposes us to environmental liabilities.
  
    
    from a well or drilling equipment at a drill site,
    
    from a leak in storage tanks, pipelines or other gathering and transportation facilities,
    
    from damage to oil or natural gas wells resulting from accidents during normal
operations or natural disasters, or
    
    from blowouts, cratering or explosions.
 -19-




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Our operations entail inherent casualty risks for which we may not have adequate insurance.
     Our operations also entail significant operating risks.
  -20-




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We may not be able to effectively market our oil and natural gas production.
  We are dependent on other operators who influence our productivity.
  
    
    refuse to initiate exploration or development projects (in which case we may
propose desired exploration or development activities);
    
    initiate exploration or development projects on a slower schedule than we
prefer; or
    
    drill more wells or build more facilities on a project than we can adequately
finance, which may limit our participation in those projects or limit our percentage
of the revenues from those projects.
  Our working interest owners may face cash flow and liquidity concerns.
  Our drilling projects are based in part on seismic data, which is costly and cannot ensure the
commercial success of the project.
  -21-




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Our inability to acquire or integrate acquired companies or to develop new exploration prospects
may inhibit our growth.
  Terrorist attacks and threats or actual war may negatively affect our business, financial condition
and results of operations.
  Forward-Looking Information
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties
 Producing Properties
 -22-




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Item 3. Legal Proceedings
 H. L. Hawkins litigation Amoco
 Parsons Exploration litigation
 Title/lease disputes.
 Environmental litigation.
 -23-




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Litigation involving insurable issues
 
 Item 4. Submission of Matters to a Vote of Security Holders
  -24-




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases
of Equity Securities
 Price Range of Common Stock and Dividend Policy
  High
    
    Low2008:First quarter
    
    $
    1.86
    
    
    $
    1.36Second quarter
    
    
    3.09
    
    
    
    1.49Third quarter
    
    
    3.21
    
    
    
    1.82Fourth quarter
    
    
    1.81
    
    
    
    .562007:First quarter
    
    $
    3.01
    
    
    $
    2.28Second quarter
    
    
    3.38
    
    
    
    2.31Third quarter
    
    
    3.08
    
    
    
    2.24Fourth quarter
    
    
    2.58
    
    
    
    1.63
     -25-




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Securities Authorized for Issuance Under Equity Compensation Plans
  Number of securitiesremaining available forNumber of securities to
    
    
    Weighted-average
    
    
    future issuance underbe issued upon exercise
    
    
    exercise price of
    
    
    equity compensation plansof outstanding options,
    
    
    outstanding options,
    
    
    (excluding securitiesPlan Category
    
    warrants and rights
    
    
    warrants and rights
    
    
    reflected in column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    4,024,044
    
    
    $
    2.66
    
    
    
    3,970,000Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    4,024,044
    
    
    $
    2.66
    
    
    
    3,970,000
 -26-




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Item 6. Selected Financial Data
  Year Ended December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004(In thousands, except prices and per share information)A. Summary of Operating DataProduction:Oil (MBbls)
    
    
    765
    
    
    
    838
    
    
    
    859
    
    
    
    882
    
    
    
    1,270Natural gas (MMcf)
    
    
    9,369
    
    
    
    13,239
    
    
    
    18,170
    
    
    
    20,490
    
    
    
    27,839Natural gas equivalent (MMcfe)
    
    
    13,958
    
    
    
    18,269
    
    
    
    23,323
    
    
    
    25,781
    
    
    
    35,457Average prices:Oil ($/Bbl)
    
    $
    83.18
    
    
    $
    64.70
    
    
    $
    55.73
    
    
    $
    39.29
    
    
    $
    28.40Natural gas ($/Mcf)
    
    
    9.07
    
    
    
    7.29
    
    
    
    7.77
    
    
    
    7.84
    
    
    
    5.98Natural gas equivalent ($/Mcfe)
    
    
    10.65
    
    
    
    8.25
    
    
    
    8.11
    
    
    
    7.57
    
    
    
    5.71B. Summary of OperationsTotal revenues
    
    $
    149,165
    
    
    $
    152,178
    
    
    $
    190,957
    
    
    $
    195,696
    
    
    $
    203,118Depletion and depreciation
    
    
    72,072
    
    
    
    77,076
    
    
    
    106,067
    
    
    
    97,354
    
    
    
    102,915Net earnings (loss)(1)
    
    
    (209,886
    )
    
    
    7,137
    
    
    
    (73,884
    )
    
    
    27,849
    
    
    
    29,248Net earnings (loss) per share:(1)Basic
    
    $
    (2.30
    )
    
    $
    0.08
    
    
    $
    (0.84
    )
    
    $
    0.33
    
    
    $
    0.41Diluted
    
    
    (2.30
    )
    
    
    0.08
    
    
    
    (0.84
    )
    
    
    0.31
    
    
    
    0.37Dividends per:Common share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Redeemable preferred share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.60
    
    
    
    8.50Preferred share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common
shares outstanding  basic
    
    
    91,382
    
    
    
    89,307
    
    
    
    87,670
    
    
    
    84,527
    
    
    
    72,084C. Summary Balance Sheet DataTotal assets
    
    $
    304,575
    
    
    $
    483,775
    
    
    $
    467,895
    
    
    $
    555,802
    
    
    $
    513,274Long-term obligations, inclusive
of current maturities
    
    
    103,849
    
    
    
    75,000
    
    
    
    75,000
    
    
    
    75,000
    
    
    
    75,129Redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,589Stockholders equity
    
    
    122,511
    
    
    
    325,430
    
    
    
    320,797
    
    
    
    377,565
    
    
    
    316,041
 
 (1)
    
    Applicable to common stockholders. -27-




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
    Industry and economic conditions
   Credit agreements
  -28-




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Reserves
 Prices for oil and natural gas.
   Ceiling test.
 -29-




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Production
 Management team and non-routine contract settlement expenses.
 Expenses.
  Drilling rig obligations.
  -30-




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Exploration commitment .
 Tax Rate.
  Tax audit.
 Operations Overview
  -31-




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East Texas Austin Chalk
  Blackstone Minerals A-917 No. 1H
 Black Stone Minerals No. 5
 Freeman No. 1
 Blackstone Minerals A-507 No. 1
 Davis A-388 No. 1
 Blackstone Minerals A-507 No. 2
 Sutton A-574 No. 1
  South Louisiana
  Goodrich Cocke No. 7
 Avoca 8 No.1
 Myles Salt No. 27
 CL&F B1
 CL&F C1 
 Goodrich-Cocke No. 6 ST
 Myles Salt No. 31
 Myles Salt No. 46
 Weeks Bay No. 15
  -32-




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South Texas
  Capital Expenditure Plans for 2009.
 Results of Operations
 Year Ended December 31, 2008, Compared to Year Ended December 31, 2007
 Revenue.
  Year EndedDecember 31,
    
    
    Increase2008
    
    
    2007
    
    
    (Decrease)Production:Oil (MBbls)
    
    
    765
    
    
    
    838
    
    
    
    (9
    %)Natural gas (MMcf)
    
    
    9,369
    
    
    
    13,239
    
    
    
    (29
    %)Natural gas equivalent (MMcfe)
    
    
    13,958
    
    
    
    18,269
    
    
    
    (24
    %)Average Sales Price:Oil (per Bbl)
    
    $
    83.18
    
    
    $
    64.70
    
    
    
    29
    %Natural gas (per Mcf)
    
    
    9.07
    
    
    
    7.29
    
    
    
    24
    %
 -33-




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##### Table of Contents



Year EndedDecember 31,
    
    
    Increase2008
    
    
    2007
    
    
    (Decrease)Natural gas equivalent (per Mcfe)
    
    
    10.65
    
    
    
    8.25
    
    
    
    29
    %Operating Revenues (000s):Oil
    
    $
    63,636
    
    
    $
    54,218
    
    
    
    17
    %Natural gas
    
    
    84,998
    
    
    
    96,491
    
    
    
    (12
    %)Total
    
    $
    148,634
    
    
    $
    150,709
    
    
    
    (1
    %)
 Operating Expenses.
  Severance and Ad Valorem Taxes.
  Depletion and Depreciation.
  Impairment of Long-Lived Assets.
  General and Administrative Expense.
  -34-




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Contract Settlement Expense .
  Accretion Expense.
  Hurricane Damage Repairs.
  Interest Expense.
  Taxes on Income.
  -35-




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##### Table of Contents



Year Ended December 31, 2007, Compared to Year Ended December 31, 2006
  Year EndedDecember 31,
    
    
    Increase2007
    
    
    2006
    
    
    (Decrease)Production:Oil (MBbls)
    
    
    838
    
    
    
    859
    
    
    
    (2
    %)Natural gas (MMcf)
    
    
    13,239
    
    
    
    18,170
    
    
    
    (27
    %)Natural gas equivalent (MMcfe)
    
    
    18,269
    
    
    
    23,323
    
    
    
    (22
    %)Average Sales Price:Oil (per Bbl)
    
    $
    64.70
    
    
    $
    55.73
    
    
    
    16
    %Natural gas (per Mcf)
    
    
    7.29
    
    
    
    7.77
    
    
    
    (6
    %)Natural gas equivalent (per Mcfe)
    
    
    8.25
    
    
    
    8.11
    
    
    
    2
    %Operating Revenues (000s):Oil
    
    $
    54,218
    
    
    $
    47,859
    
    
    
    13
    %Natural gas
    
    
    96,491
    
    
    
    141,182
    
    
    
    (32
    %)Total
    
    $
    150,709
    
    
    $
    189,041
    
    
    
    (20
    %)
 Operating Expenses.
  -36-




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##### Table of Contents



Severance and Ad Valorem Taxes.
  Depletion and Depreciation.
  Impairment of Long-Lived Assets.
  General and Administrative Expense.
  Accretion Expense.
  -37-




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Hurricane Damage Repairs.
  Interest Expense.
  Taxes on Income.
  -38-




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##### Table of Contents



Liquidity and Capital Resources
 Cash Flows .
   2008
    
    
    2007
    
    
    2006Cash provided byOperating activities
    
    $
    92,767
    
    
    $
    96,991
    
    
    $
    137,272Net drawdown under credit facility
    
    
    20,000
    
    
    
    
    
    
    
    New debt for drilling rig
    
    
    10,000
    
    
    
    
    
    
    
    Sales of property
    
    
    7,171
    
    
    
    3,060
    
    
    
    11,032129,938
    
    
    
    100,051
    
    
    
    148,304Cash utilized inAdditions to property and equipment
    
    
    124,059
    
    
    
    116,696
    
    
    
    141,796Repurchase of common stock
    
    
    75
    
    
    
    1,158
    
    
    
    Reductions of drilling rig debt
    
    
    1,150
    
    
    
    
    
    
    
    125,284
    
    
    
    117,854
    
    
    
    141,796Other source (uses), net
    
    
    (4,826
    )
    
    
    (95
    )
    
    
    1,651Net increase (decrease) in cash
    
    $
    (172
    )
    
    $
    (17,898
    )
    
    $
    8,159
   -39-




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##### Table of Contents



Cash Obligations
 Less Than
    
    
    1-3
    
    
    AfterOne Year
    
    
    Years
    
    
    3 Years
    
    
    TotalShort and long term debt
    
    $
    105,624
    
    
    $
    
    
    
    $
    
    
    
    $
    105,624Interest (6)
    
    
    261
    
    
    
    
    
    
    
    
    
    
    
    261Drilling rigs (1) (2)
    
    
    19,586
    
    
    
    13,734
    
    
    
    
    
    
    
    33,320Drilling obligation (3)
    
    
    2,666
    
    
    
    
    
    
    
    
    
    
    
    2,666Contract settlement obligation (4)
    
    
    9,894
    
    
    
    
    
    
    
    
    
    
    
    9,894Retention incentive compensation
plan (5)
    
    
    2,946
    
    
    
    
    
    
    
    
    
    
    
    2,946Non-cancelable operating leases
    
    
    2,170
    
    
    
    3,700
    
    
    
    
    
    
    
    5,870Total contractual cash obligations
    
    $
    143,147
    
    
    $
    17,434
    
    
    $
    
    
    
    $
    160,581
 
 (1)
    
    Commitments for drilling rigs include $11.4 million ($9.1 million and $2.3 million in 2009
and 2010, respectively) for a dayrate contract for operation of a rig owned by Meridian. The
rig is leased to the operator with whom we have the dayrate contract. Offsetting this
obligation for the dayrate contract, but not included above, are the payments we receive from
the operator for his lease of the rig, which are based on a percentage of the monthly net
profits of rig operation. The total rental income related to the rig in 2008, for nine months
of rig operation, was $2,621,000. We have a dayrate contract for an additional rig which we
do not own; the obligation under that dayrate contract is $10.5 million, $10.6 million, and
$0.9 million in each of the years 2009, 2010, and 2011, respectively.(2)
    
    Actual net cash outflow for rig obligations will be impacted by the outcome of events which
are currently uncertain. Under each of these contracts, when the rig is drilling for the
Company, the entire dayrate is payable, but can be expected to be partially recovered if other
working interest owners share costs of the well. When the Company is unable to utilize the
rig, the Company is liable for the entire dayrate. However, the operator has been willing to
credit our obligation to some extent, based on revenues from other parties who utilize the rig
when the Company is unable to. During the first quarter of 2009, one rig has been effectively
subleased to others, but for short duration; the resulting reduction in our net obligation has
not been included in the table above. The other rig was utilized in the first quarter of 2009
drilling a Meridian-operated well in which the Companys working interest is approximately
60%; the resulting reduction in our net obligation has not been included in the table above.(3)
    
    This obligation relates to an exploration commitment under a contract regarding exploration
in an area which management no longer believes has potential.(4)
    
    This compensation-related obligation is to certain executives and is expected to be paid in
June 2009 with funds currently set aside in a Rabbi Trust account. See Note 12 of the Notes
to Consolidated Financial Statements included herein for further details. Until distribution,
the assets of the trust belong to the Company, but are effectively restricted due to the
obligation to the officers.(5)
    
    These contractually-obligated retention payments are to be paid to our non-executive
employees who continue their employment with the Company through March 31, 2009. See Note 12
of the Notes to Consolidated Financial Statements included herein for further details. Payment
is expected to be made in the first quarter of 2009 using general funds. As of December 31,
2008, we had accrued $2.0 million of this liability. Current Credit Facility .
 -40-




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-41-




---



##### Table of Contents



1 2
 Rig Note .
   Capital Expenditures .
  Dividends
 -42-




---



##### Table of Contents



Off-Balance Sheet Arrangements
 Share Repurchase Program.
   Critical Accounting Policies and Estimates
  Use of Estimates
 Property and Equipment
 -43-




---



##### Table of Contents



Full-Cost Ceiling Test
   -44-




---



##### Table of Contents



Price Risk Management Activities
     Fair Value of Financial Instruments
 -45-




---



##### Table of Contents



Deferred Tax Asset Valuation Allowance
 New Accounting Pronouncements
    -46-




---



##### Table of Contents



Modernization of Oil and Gas
Reporting a b c
 not
 
 ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
  Interest Rates
  -47-




---



##### Table of Contents



Hedging Contracts
     -48-




---



##### Table of Contents



EstimatedFair ValueAsset (Liability)Notional
    
    
    Floor Price
    
    
    Ceiling Price
    
    
    December 31, 2008Type
    
    
    Amount
    
    
    ($ per unit)
    
    
    ($ per unit)
    
    
    (in thousands)Natural Gas (mmbtu)Jan 2009 - Dec 2009
    
    Collar
    
    
    1,230,000
    
    
    $
    7.50
    
    
    $
    10.45
    
    
    $
    2,070Jan 2009 - Dec 2009
    
    Collar
    
    
    760,000
    
    
    $
    8.00
    
    
    $
    10.30
    
    
    
    1,592Jan 2009 - Dec 2009
    
    Collar
    
    
    540,000
    
    
    $
    8.00
    
    
    $
    13.35
    
    
    
    1,166Total Natural Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,828Crude Oil (bbls)Jan 2009 - Dec 2009
    
    Collar
    
    
    23,000
    
    
    $
    70.00
    
    
    $
    93.55
    
    
    $
    434Jan 2009 - Dec 2009
    
    Collar
    
    
    43,000
    
    
    $
    80.00
    
    
    $
    111.00
    
    
    
    1,236Jan 2009 - Dec 2009
    
    Collar
    
    
    49,000
    
    
    $
    85.00
    
    
    $
    128.50
    
    
    
    1,638Total Crude Oil
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,308$
    8,136
 -49-




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##### Table of Contents



GLOSSARY OF CERTAIN OIL AND NATURAL GAS TERMS
                         -50-




---



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-51-




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Index to Financial Statements
  PageReport of Independent Registered Public Accounting Firm
    
    
    54Consolidated Statements of Operations
    
    
    55Consolidated Balance Sheets
    
    
    56Consolidated Statements of Cash Flows
    
    
    58Consolidated Statements of Stockholders Equity
    
    
    59Consolidated Statements of Comprehensive Income (Loss)
    
    
    60Notes to Consolidated Financial Statements
    
    
    611. Organization and Basis of Presentation
    
    
    612. Summary of Significant Accounting Policies
    
    
    623. Asset Retirement Obligations
    
    
    684. Impairment of Long-Lived Assets
    
    
    695. Debt
    
    
    706. Contractual Obligations
    
    
    727. Commitments and Contingencies
    
    
    728. Taxes on Income
    
    
    749. Fair Value Measurement
    
    
    7710. Stockholders Equity
    
    
    8011. Profit Sharing and Savings Plan
    
    
    8512. Contract Settlement, Rabbi Trust, and Employee Retention
    
    
    8613. Oil and Natural Gas Hedging Activities
    
    
    8714. Major Customers
    
    
    8915. Related Party Transactions
    
    
    9016. Earnings Per Share
    
    
    9117. Accrued Liabilities
    
    
    9218. Quarterly Results of Operations (Unaudited)
    
    
    9319. Supplemental Oil and Natural Gas Disclosures (Unaudited)
    
    
    94
 
 -52-




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##### Table of Contents



CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
  -53-




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Internal Control  Integrated
Framework
 
 -54-




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##### Table of Contents



THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31,2008
    
    
    2007
    
    
    2006REVENUES:Oil and natural gas
    
    $
    148,634
    
    
    $
    150,709
    
    
    $
    189,041Price risk management activities
    
    
    (18
    )
    
    
    21
    
    
    
    128Interest and other
    
    
    549
    
    
    
    1,448
    
    
    
    1,788149,165
    
    
    
    152,178
    
    
    
    190,957OPERATING COSTS AND EXPENSES:Oil and natural gas operating
    
    
    24,280
    
    
    
    28,338
    
    
    
    22,614Severance and ad valorem taxes
    
    
    9,727
    
    
    
    9,409
    
    
    
    11,259Depletion and depreciation
    
    
    72,072
    
    
    
    77,076
    
    
    
    106,067General and administrative
    
    
    19,063
    
    
    
    16,221
    
    
    
    16,674Contract settlement
    
    
    9,894
    
    
    
    
    
    
    
    Accretion expense
    
    
    2,064
    
    
    
    2,230
    
    
    
    1,588Impairment of long-lived assets
    
    
    223,543
    
    
    
    
    
    
    
    134,865Hurricane damage repairs
    
    
    1,462
    
    
    
    
    
    
    
    4,314362,105
    
    
    
    133,274
    
    
    
    297,381EARNINGS (LOSS) BEFORE OTHER EXPENSES &
INCOME TAXES
    
    
    (212,940
    )
    
    
    18,904
    
    
    
    (106,424
    )OTHER EXPENSES:Interest expense
    
    
    5,408
    
    
    
    6,090
    
    
    
    5,982EARNINGS (LOSS) BEFORE INCOME TAXES
    
    
    (218,348
    )
    
    
    12,814
    
    
    
    (112,406
    )INCOME TAXES:Current
    
    
    (269
    )
    
    
    650
    
    
    
    369Deferred
    
    
    (8,193
    )
    
    
    5,027
    
    
    
    (38,891
    )(8,462
    )
    
    
    5,677
    
    
    
    (38,522
    )NET EARNINGS (LOSS)
    
    
    (209,886
    )
    
    
    7,137
    
    
    
    (73,884
    )NET EARNINGS (LOSS) APPLICABLE
TO COMMON STOCKHOLDERS
    
    $
    (209,886
    )
    
    $
    7,137
    
    
    $
    (73,884
    )NET EARNINGS (LOSS) PER SHARE:Basic
    
    $
    (2.30
    )
    
    $
    0.08
    
    
    $
    (0.84
    )Diluted
    
    $
    (2.30
    )
    
    $
    0.08
    
    
    $
    (0.84
    )WEIGHTED AVERAGE NUMBER OF COMMON SHARES:Basic
    
    
    91,382
    
    
    
    89,307
    
    
    
    87,670Diluted
    
    
    91,382
    
    
    
    94,944
    
    
    
    87,670
  -55-




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##### Table of Contents



THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 December 31,2008
    
    
    2007ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    13,354
    
    
    $
    13,526Restricted cash
    
    
    9,971
    
    
    
    30Accounts receivable, less allowance for doubtful accounts
of $210 [2008] and $210 [2007]
    
    
    16,980
    
    
    
    19,874Due from affiliates
    
    
    
    
    
    
    2,580Prepaid expenses and other
    
    
    3,292
    
    
    
    4,538Assets from price risk management activities
    
    
    8,447
    
    
    
    2,453Deferred tax asset
    
    
    
    
    
    
    164Total current assets
    
    
    52,044
    
    
    
    43,165PROPERTY AND EQUIPMENT:Oil and natural gas properties, full cost method (including
$39,927 [2008] and $53,645 [2007] not subject to depletion)
    
    
    1,877,925
    
    
    
    1,771,768Land
    
    
    48
    
    
    
    48Equipment and other
    
    
    21,371
    
    
    
    18,5031,899,344
    
    
    
    1,790,319Less accumulated depletion and depreciation
    
    
    1,647,496
    
    
    
    1,350,577Total property and equipment, net
    
    
    251,848
    
    
    
    439,742OTHER ASSETS:Assets from price risk management activities
    
    
    
    
    
    
    865Other
    
    
    683
    
    
    
    3Total other assets
    
    
    683
    
    
    
    868TOTAL ASSETS
    
    $
    304,575
    
    
    $
    483,775
  -56-




---



##### Table of Contents



THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 December 31,2008
    
    
    2007LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    15,097
    
    
    $
    9,583Advances from non-operators
    
    
    5,517
    
    
    
    6,996Revenues and royalties payable
    
    
    6,267
    
    
    
    6,592Due to affiliates
    
    
    8,145
    
    
    
    Notes payable
    
    
    1,775
    
    
    
    2,662Accrued liabilities
    
    
    18,831
    
    
    
    22,011Liabilities from price risk management activities
    
    
    311
    
    
    
    2,772Asset retirement obligations
    
    
    1,457
    
    
    
    3,365Current income taxes payable
    
    
    47
    
    
    
    147Current maturities of long-term debt
    
    
    103,849
    
    
    
    Total current liabilities
    
    
    161,296
    
    
    
    54,128LONG-TERM DEBT
    
    
    
    
    
    
    75,000OTHER:Deferred income taxes
    
    
    
    
    
    
    8,238Liabilities from price risk management activities
    
    
    
    
    
    
    861Asset retirement obligations
    
    
    20,768
    
    
    
    20,11820,768
    
    
    
    29,217COMMITMENTS AND CONTINGENCIES (Notes 6, 7, 11, and 12)STOCKHOLDERS EQUITY:Common stock, $0.01 par value (200,000,000 shares authorized,
93,045,592 [2008] and 89,450,466 [2007] shares issued)
07] and 89,139,600 [2006] issued)
    
    
    948
    
    
    
    936Additional paid-in capital
    
    
    538,561
    
    
    
    537,145Accumulated deficit
    
    
    (422,028
    )
    
    
    (212,142
    )Accumulated other comprehensive income (loss)
    
    
    8,129
    
    
    
    (221
    )125,610
    
    
    
    325,718Less treasury stock, at cost, 1,712,114 [2008] and 158,683
[2007] shares
    
    
    3,099
    
    
    
    288Total stockholders equity
    
    
    122,511
    
    
    
    325,430TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    304,575
    
    
    $
    483,775
  -57-




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##### Table of Contents



THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net earnings (loss)
    
    $
    (209,886
    )
    
    $
    7,137
    
    
    $
    (73,884
    )Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:Depletion and depreciation
    
    
    72,072
    
    
    
    77,076
    
    
    
    106,067Impairment of long-lived assets
    
    
    223,543
    
    
    
    
    
    
    
    134,865Amortization of other assets
    
    
    224
    
    
    
    436
    
    
    
    443Non-cash compensation
    
    
    1,728
    
    
    
    2,549
    
    
    
    2,300Non-cash price risk management activities
    
    
    18
    
    
    
    (21
    )
    
    
    (128
    )Accretion expense
    
    
    2,064
    
    
    
    2,230
    
    
    
    1,588Deferred income taxes
    
    
    (8,193
    )
    
    
    5,027
    
    
    
    (38,891
    )Changes in assets and liabilities:Restricted cash
    
    
    (9,941
    )
    
    
    1,252
    
    
    
    (48
    )Accounts receivable
    
    
    3,645
    
    
    
    4,411
    
    
    
    16,903Prepaid expenses and other
    
    
    1,246
    
    
    
    (1,081
    )
    
    
    (2,163
    )Accounts payable
    
    
    4,629
    
    
    
    (946
    )
    
    
    362Advances from non-operators
    
    
    (1,480
    )
    
    
    3,945
    
    
    
    3,051Due to (from) affiliates
    
    
    10,725
    
    
    
    (1,910
    )
    
    
    (5,308
    )Revenues and royalties payable
    
    
    (325
    )
    
    
    (1,341
    )
    
    
    (1,216
    )Asset retirement obligations
    
    
    (613
    )
    
    
    (2,055
    )
    
    
    (6,026
    )Other assets and liabilities
    
    
    3,311
    
    
    
    282
    
    
    
    (643
    )Net cash provided by operating activities
    
    
    92,767
    
    
    
    96,991
    
    
    
    137,272CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property and equipment
    
    
    (124,059
    )
    
    
    (116,696
    )
    
    
    (130,062
    )Acquisition of properties
    
    
    
    
    
    
    
    
    
    
    (11,734
    )Proceeds from (settlements on) sale of property
    
    
    7,171
    
    
    
    3,060
    
    
    
    11,032Net cash used in investing activities
    
    
    (116,888
    )
    
    
    (113,636
    )
    
    
    (130,764
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term debt
    
    
    48,000
    
    
    
    3,000
    
    
    
    10,000Reductions in long-term debt
    
    
    (19,150
    )
    
    
    (3,000
    )
    
    
    (10,000
    )Proceeds  Notes payable
    
    
    5,684
    
    
    
    9,540
    
    
    
    9,248Reductions  Notes payable
    
    
    (6,571
    )
    
    
    (9,632
    )
    
    
    (7,597
    )Repurchase of common stock
    
    
    (75
    )
    
    
    (1,158
    )
    
    
    Payment of taxes due on vested stock
    
    
    (3,035
    )
    
    
    
    
    
    
    Additions to deferred loan costs
    
    
    (904
    )
    
    
    (3
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    23,949
    
    
    
    (1,253
    )
    
    
    1,651NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (172
    )
    
    
    (17,898
    )
    
    
    8,159Cash and cash equivalents at beginning of year
    
    
    13,526
    
    
    
    31,424
    
    
    
    23,265CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    13,354
    
    
    $
    13,526
    
    
    $
    31,424SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONNon-cash activities:Issuance of shares for contract services
    
    $
    144
    
    
    $
    (1,033
    )
    
    $
    (795
    )Issuance of shares for acquisition of properties
    
    $
    
    
    
    $
    
    
    
    $
    (7,000
    )Accrual of capital expenditures
    
    $
    (6,460
    )
    
    $
    4,799
    
    
    $
    (259
    )Rig depreciation capitalized to oil and natural gas properties
    
    $
    1,538
    
    
    $
    
    
    
    $
    ARO Liability  new wells drilled
    
    $
    451
    
    
    $
    476
    
    
    $
    4,559ARO Liability  changes in estimates
    
    $
    (3,160
    )
    
    $
    24
    
    
    $
    10,723
  -58-




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##### Table of Contents



THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended December 31, 2006, 2007 and 2008
 AccumulatedAdditional
    
    
    Accumulated
    
    
    Other
    
    
    UnamortizedCommon Stock
    
    
    Paid-In
    
    
    Earnings
    
    
    Comprehensive
    
    
    Deferred
    
    
    Treasury StockShares
    
    
    Par Value
    
    
    Capital
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    Compensation
    
    
    Shares
    
    
    Cost
    
    
    TotalBalance, December 31, 2005
    
    
    86,818
    
    
    $
    900
    
    
    $
    524,692
    
    
    $
    (145,395
    )
    
    $
    (2,314
    )
    
    $
    (318
    )
    
    
    
    
    
    $
    
    
    
    $
    377,565Effect of adoption of SFAS 123(R)
    
    
    
    
    
    
    
    
    
    
    (318
    )
    
    
    
    
    
    
    
    
    
    
    318
    
    
    
    
    
    
    
    
    
    
    
    Issuance of rights to common stock
    
    
    
    
    
    
    5
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Companys 401(k) plan contribution
    
    
    92
    
    
    
    1
    
    
    
    335
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    336Share-based compensation
    
    
    
    
    
    
    
    
    
    
    372
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    372Compensation expense
    
    
    
    
    
    
    
    
    
    
    1,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,592Accum. other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,021
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,021Issuance of shares for contract
services
    
    
    224
    
    
    
    2
    
    
    
    793
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    795Issuance of sharesVintage acq.
    
    
    2,006
    
    
    
    20
    
    
    
    6,980
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73,884
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73,884
    )Balance, December 31, 2006
    
    
    89,140
    
    
    $
    928
    
    
    $
    534,441
    
    
    $
    (219,279
    )
    
    $
    4,707
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    320,797Shares repurchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    501
    
    
    
    (1,158
    )
    
    
    (1,158
    )Issuance of rights to common stock
    
    
    
    
    
    
    5
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Companys 401(k) plan contribution
    
    
    42
    
    
    
    1
    
    
    
    155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (157
    )
    
    
    390
    
    
    
    546Share-based compensation
    
    
    
    
    
    
    
    
    
    
    294
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    294Compensation expense
    
    
    
    
    
    
    
    
    
    
    1,598
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,598Accum. other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,928
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,928
    )Issuance of shares for contract
services
    
    
    237
    
    
    
    2
    
    
    
    584
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (175
    )
    
    
    447
    
    
    
    1,033Issuance of shares as compensation
    
    
    31
    
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    33
    
    
    
    111Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,137Balance, December 31, 2007
    
    
    89,450
    
    
    $
    936
    
    
    $
    537,145
    
    
    $
    (212,142
    )
    
    $
    (221
    )
    
    $
    
    
    
    
    159
    
    
    $
    (288
    )
    
    $
    325,430Issuance of rights to common stock
    
    
    
    
    
    
    4
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compensation expensestock rights
    
    
    
    
    
    
    
    
    
    
    968
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    968Issuance of shares for rights to
common stock
    
    
    3,515
    
    
    
    17
    
    
    
    3,082
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,712
    )
    
    
    (3,099
    )
    
    
    Reductions of rights to common
stock
    
    
    
    
    
    
    (10
    )
    
    
    (3,025
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,035
    )Companys 401(k) plan contributions
    
    
    103
    
    
    
    1
    
    
    
    240
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (99
    )
    
    
    181
    
    
    
    422Share-based compensation
    
    
    
    
    
    
    
    
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    193Accum. other comprehensive income
activity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,350Issuance of shares for contract
services
    
    
    11
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (60
    )
    
    
    107
    
    
    
    144Shares repurchased and retired
    
    
    (34
    )
    
    
    
    
    
    
    (75
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (75
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (209,886
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (209,886
    )Balance, December 31, 2008
    
    
    93,045
    
    
    
    948
    
    
    
    538,561
    
    
    
    (422,028
    )
    
    
    8,129
    
    
    $
    
    
    
    
    (1,712
    )
    
    
    (3,099
    )
    
    
    122,511
  -59-




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##### Table of Contents



THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Net earnings (loss) applicable to common stockholders
    
    $
    (209,886
    )
    
    $
    7,137
    
    
    $
    (73,884
    )Other comprehensive income (loss), net of tax, for
unrealized gains (losses) from hedging activities:Unrealized holding gains (losses) arising during period (1)
    
    
    3,806
    
    
    
    (2,814
    )
    
    
    9,505Reclassification adjustments on settlement of contracts (2)
    
    
    4,544
    
    
    
    (2,114
    )
    
    
    (2,484
    )8,350
    
    
    
    (4,928
    )
    
    
    7,021Total comprehensive income (loss)
    
    $
    (201,536
    )
    
    $
    2,209
    
    
    $
    (66,863
    )(1) Net income tax (expense) benefit
    
    $
    0
    
    
    $
    1,515
    
    
    $
    (5,118
    )(2) Net income tax (expense) benefit
    
    $
    (119
    )
    
    $
    1,138
    
    
    $
    1,337
  -60-




---



##### Table of Contents



THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 1. ORGANIZATION,
BASIS OF PRESENTATION AND GOING CONCERN
         -61-




---



##### Table of Contents



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Restricted Cash
  Property and Equipment
     Drilling Rig
 -62-




---



##### Table of Contents



Statement of Cash Flows
  Concentrations of Credit Risk
    Revenue Recognition and Accounts Receivable
   -63-




---



##### Table of Contents



Hurricane Damage Repairs
  Capitalized Interest
  Earnings Per Share
  Stock Options
   Fair Value of Financial Instruments
  -64-




---



##### Table of Contents



Notes Payable.
  Lease Accounting.
  Derivative Financial Instruments
      -65-




---



##### Table of Contents



Income Taxes
    Environmental Expenditures
  Recent Accounting Pronouncements
  -66-




---



##### Table of Contents



-67-




---



##### Table of Contents



Modernization of Oil and Gas
Reporting a b c
 not
 Use of Estimates
  Reclassification of Prior Period Statements
  
 3. ASSET RETIREMENT OBLIGATIONS
    -68-




---



##### Table of Contents



Asset retirement obligation at December 31, 2006
    
    $
    22,808Additional retirement obligations recorded in 2007
    
    
    476Settlements during 2007
    
    
    (2,055
    )Revisions to estimates and other changes during 2007
    
    
    24Accretion expense for 2007
    
    
    2,230Asset retirement obligation at December 31, 2007
    
    
    23,483Additional retirement obligations recorded in 2008
    
    
    451Settlements during 2008
    
    
    (613
    )Revisions to estimates and other changes during 2008
    
    
    (3,160
    )Accretion expense for 2008
    
    
    2,064Asset retirement obligation at December 31, 2008
    
    $
    22,225
  
 4. IMPAIRMENT OF LONG-LIVED ASSETS
     -69-




---



##### Table of Contents



5. DEBT
 Revolving Credit Agreement
      -70-




---



##### Table of Contents



1 2
 Rig Note .
   -71-




---



##### Table of Contents



Current Debt Maturities
  
 6. CONTRACTUAL OBLIGATIONS
   
 7. COMMITMENTS AND CONTINGENCIES
 Default under Credit Agreement
  Litigation
 H. L. Hawkins litigation
 -72-




---



##### Table of Contents



Amoco
 Parsons Exploration litigation
 Title/lease disputes.
 Environmental litigation.
 Consent Decree .
 -73-




---



##### Table of Contents



Litigation involving insurable issues
 Hurricane damages .
 Tax audit .
 Drilling rigs.
 Exploration commitment .
 
 8. TAXES ON INCOME
  -74-




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    (304
    )
    
    $
    560
    
    
    $
    334State
    
    
    35
    
    
    
    90
    
    
    
    35Deferred:Federal
    
    
    (7,984
    )
    
    
    4,470
    
    
    
    (39,108
    )State
    
    
    (209
    )
    
    
    557
    
    
    
    217Income tax expense (benefit)
    
    $
    (8,462
    )
    
    $
    5,677
    
    
    $
    (38,522
    )
  -75-




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006Income tax provision (benefit) computed at statutory rate
    
    $
    (76,422
    )
    
    $
    4,485
    
    
    $
    (39,342
    )Nondeductible costs
    
    
    1,956
    
    
    
    577
    
    
    
    415State income tax, net of federal tax benefit
    
    
    (1,475
    )
    
    
    615
    
    
    
    240Decrease in net operating loss carryover due to expiration
    
    
    
    
    
    
    
    
    
    
    165Tax on other comprehensive income
    
    
    2,846
    
    
    
    
    
    
    
    Change in valuation allowance
    
    
    64,633
    
    
    
    
    
    
    
    Income tax expense (benefit)
    
    $
    (8,462
    )
    
    $
    5,677
    
    
    $
    (38,522
    )
  December 31,2008
    
    
    2007Deferred tax assets:Net operating tax loss carryforward
    
    $
    32,745
    
    
    $
    27,391Statutory depletion carryforward
    
    
    950
    
    
    
    950Tax credits
    
    
    1,901
    
    
    
    2,205Unrealized hedge loss
    
    
    
    
    
    
    119Deferred compensation
    
    
    5,474
    
    
    
    6,232Tax basis in excess of book basis in property and equipment
    
    
    25,655
    
    
    
    Valuation allowance
    
    
    (64,633
    )
    
    
    Other
    
    
    754
    
    
    
    44Total deferred tax assets
    
    
    2,846
    
    
    
    36,941Deferred tax liabilities:Book basis in excess of tax basis in oil and natural gas properties
    
    
    
    
    
    
    45,015Unrealized hedge gain
    
    
    2,846
    
    
    
    Total deferred tax liabilities
    
    
    2,846
    
    
    
    45,015Net deferred tax liability
    
    $
    
    
    
    $
    (8,074
    )
    -76-




---



##### Table of Contents



Year of
    
    Net
    
    
    AMTExpiration
    
    Operating Loss
    
    
    Operating Loss2018
    
    $
    5,493
    
    
    $
    9,4162019
    
    
    47,730
    
    
    
    48,6302020
    
    
    31
    
    
    
    312021
    
    
    36
    
    
    
    362022
    
    
    3,719
    
    
    
    6,1892023
    
    
    36,376
    
    
    
    44,5162025
    
    
    42
    
    
    
    122026
    
    
    52
    
    
    
    422027
    
    
    77
    
    
    
    2028
    
    
    
    
    
    
    369Total
    
    $
    93,556
    
    
    $
    109,241
    
 9. FAIR VALUE MEASUREMENT
    -77-




---



##### Table of Contents




    
    Level 1 fair values are based on observable inputs. Observable inputs are quoted active
market prices for assets and liabilities identical to those being valued.
    
    Level 2 fair values are based on observable inputs for similar assets and liabilities to
those being valued. Level 2 fair values often rely on valuation models for which the
significant inputs are observable Level 1 inputs or inputs which can be derived from Level
1 inputs through correlation.
    
    Level 3 fair values are based on at least one significant unobservable input, and may
also utilize observable inputs. Unobservable inputs must be utilized when the asset or
liability being valued is not actively traded. Level 3 fair values rely on valuation
models that may utilize company-specific information or other unobservable inputs,
developed based on the best information available in the circumstances.
  Assets and liabilities measured at fair value on a recurring basis
 Fair Value Measurements at December 31, 2008 UsingQuoted Prices inActive Markets for
    
    Significant Other
    
    Significant OtherIdentical Assets
    
    Observable Inputs
    
    Unobservable InputsDescription
    
    December 31, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Assets from price
risk management
activities (1)
    
    $
    8,447
    
    
    
    
    
    
    $
    8,447
 -78-




---



##### Table of Contents



Fair Value Measurements at December 31, 2008 UsingQuoted Prices inActive Markets for
    
    Significant Other
    
    Significant OtherIdentical Assets
    
    Observable Inputs
    
    Unobservable InputsDescription
    
    December 31, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Liabilities from
price risk
management
activities(1)
    
    $
    311
    
    
    
    
    
    
    $
    311
 
 (1)
    
    Assets and liabilities from price risk management activities are oil and natural gas
derivative contracts, in the form of costless collars to sell oil and natural gas within specific
future time periods. These contracts are more fully described in Note 13. -79-




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##### Table of Contents



10. STOCKHOLDERS EQUITY
 Common Stock
   Warrants
  Number of
    
    ExerciseWarrants
    
    Shares
    
    Price
    
    Expiration DateExecutive Officers
    
    
    1,428,000
    
    
    $
    5.85
    
    
    December 29, 2009General Partner
    
    
    1,884,544
    
    
    $
    0.10
    
    
    December 31, 2015
   -80-




---



##### Table of Contents



Share-based Compensation
   -81-




---



##### Table of Contents



WeightedNumber
    
    
    Averageof Share Options
    
    
    Exercise PriceOutstanding at December 31, 2005
    
    
    3,595,050
    
    
    $
    4.12Granted
    
    
    109,668
    
    
    
    3.40Exercised
    
    
    
    
    
    
    Canceled
    
    
    (245,750
    )
    
    
    7.72Outstanding at December 31, 2006
    
    
    3,458,968
    
    
    $
    3.84Granted
    
    
    115,000
    
    
    
    2.69Exercised
    
    
    
    
    
    
    Canceled
    
    
    (174,280
    )
    
    
    8.80Outstanding at December 31, 2007
    
    
    3,399,688
    
    
    $
    3.55Granted
    
    
    365,000
    
    
    
    1.12Exercised
    
    
    
    
    
    
    Canceled or Expired
    
    
    (3,053,188
    )
    
    
    3.37Outstanding at December 31, 2008
    
    
    711,500
    
    
    $
    3.06Share options exercisable:December 31, 2006
    
    
    3,285,465
    
    
    $
    3.76December 31, 2007
    
    
    3,252,001
    
    
    $
    3.57December 31, 2008
    
    
    265,875
    
    
    $
    5.74
 WeightedNumber
    
    
    Averageof Non-Vested
    
    
    Grant DateShares
    
    
    Fair ValueOutstanding non-vested at December 31, 2007
    
    
    
    
    
    $
    Granted
    
    
    40,873
    
    
    
    2.32Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding non-vested at December 31, 2008
    
    
    40,873
    
    
    $
    2.32
   -82-




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##### Table of Contents



Options Outstanding
    
    Options ExercisableWeighted
    
    
    
    
    
    WeightedRange of
    
    Outstanding at
    
    Average
    
    Exercisable at
    
    AverageExercisable Prices
    
    December 31, 2008
    
    Exercise Price
    
    December 31, 2008
    
    Exercise Price$0.56  $1.93
    
    
    295,000
    
    
    
    0.75
    
    
    
    3,334
    
    
    
    1.79$2.27  $3.99
    
    
    249,500
    
    
    
    2.86
    
    
    
    96,166
    
    
    
    2.92$4.125  8.42
    
    
    167,000
    
    
    
    7.44
    
    
    
    166,375
    
    
    
    7.45711,500
    
    
    
    3.06
    
    
    
    265,875
    
    
    
    5.74
    Deferred Compensation
 st th
 -83-




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##### Table of Contents



WeightedAverageNumber
    
    Grant Dateof Share Rights*
    
    Fair ValueOutstanding at December 31, 2005
    
    
    3,225,988
    
    
    
    4.63Granted
    
    
    414,200
    
    
    
    3.86Outstanding at December 31, 2006
    
    
    3,640,188
    
    
    
    4.54Granted
    
    
    523,144
    
    
    
    3.06Outstanding at December 31, 2007
    
    
    4,163,332
    
    
    
    4.36Granted
    
    
    353,584
    
    
    
    1.81Converted to shares of common stock
    
    
    (4,516,916
    )
    
    
    4.16Outstanding at December 31, 2008
    
    
    
    
    
    
    
 
 *
    
    For simplicity, share rights vesting on a routine schedule are not separately shown; only the
original granting of the share rights is presented, and outstanding year-end balances include both
vested and unvested shares. As the Company matching portion of share rights vested monthly over a
one year period, each years activity actually included vesting of approximately one-half of the
prior years matching rights, and non-vesting of approximately one-half of the current years
matching rights. When the plan was discontinued in 2008, all remaining unvested rights
(approximately 180,478 rights) were vested on an accelerated basis, then all rights were converted
to shares of common stock. As of December 31, 2008, there were no rights remaining in the notional
accounts and no cost related to any rights granted which had not yet been recognized.  Stockholder Rights Plan
  -84-




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11. PROFIT SHARING AND SAVINGS PLAN
    -85-




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##### Table of Contents



12. CONTRACT SETTLEMENTS, RABBI TRUST, AND EMPLOYEE RETENTION
    -86-




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##### Table of Contents



13. OIL AND NATURAL GAS HEDGING ACTIVITIES
   -87-




---



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-88-




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##### Table of Contents



EstimatedFair ValueAsset (Liability)Notional
    
    
    Floor Price
    
    
    Ceiling Price
    
    
    December 31, 2008Type
    
    
    Amount
    
    
    ($ per unit)
    
    
    ($ per unit)
    
    
    (in thousands)Natural Gas (mmbtu)Jan 2009 - Dec 2009
    
    Collar
    
    
    1,230,000
    
    
    $
    7.50
    
    
    $
    10.45
    
    
    $
    2,070Jan 2009 - Dec 2009
    
    Collar
    
    
    760,000
    
    
    $
    8.00
    
    
    $
    10.30
    
    
    
    1,592Jan 2009 - Dec 2009
    
    Collar
    
    
    540,000
    
    
    $
    8.00
    
    
    $
    13.35
    
    
    
    1,166Total Natural Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,828Crude Oil (bbls)Jan 2009 - Dec 2009
    
    Collar
    
    
    23,000
    
    
    $
    70.00
    
    
    $
    93.55
    
    
    $
    434Jan 2009 - Dec 2009
    
    Collar
    
    
    43,000
    
    
    $
    80.00
    
    
    $
    111.00
    
    
    
    1,236Jan 2009 - Dec 2009
    
    Collar
    
    
    49,000
    
    
    $
    85.00
    
    
    $
    128.50
    
    
    
    1,638Total Crude Oil
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,308$
    8,136
 
 14. MAJOR CUSTOMERS
  Year Ended December 31,Customer
    
    2008
    
    2007
    
    2006Shell Trading (U.S.)
    
    
    21
    %
    
    
    14
    %
    
    
    Superior Natural Gas
    
    
    17
    %
    
    
    23
    %
    
    
    35
    %Crosstex Gulfcoast Marketing
    
    
    14
    %
    
    
    16
    %
    
    
    21
    %
 -89-




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15. RELATED PARTY TRANSACTIONS
         -90-




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##### Table of Contents



16. EARNINGS PER SHARE
  (in thousands, except per share)Year Ended December 31,2008
    
    
    2007
    
    
    2006Numerator:Net earnings (loss) applicable to common stockholders
    
    $
    (209,886)
    
    
    $
    7,137
    
    
    $
    (73,884
    )Denominator:Denominator for basic earnings (loss) per
share  weighted-average shares outstanding
    
    
    91,382
    
    
    
    89,307
    
    
    
    87,670Effect of potentially dilutive common shares:Warrants and rights (a)
    
    
    NA
    
    
    
    5,637
    
    
    
    NAEmployee and director stock options (b)
    
    
    NA
    
    
    
    
    
    
    
    NADenominator for diluted earnings (loss) per share
 weighted-average shares outstanding and
assumed conversions
    
    
    91,382
    
    
    
    94,944
    
    
    
    87,670Basic earnings (loss) per share
    
    $
    (2.30
    )
    
    $
    0.08
    
    
    $
    (0.84
    )Diluted earnings (loss) per share
    
    $
    (2.30
    )
    
    $
    0.08
    
    
    $
    (0.84
    )
  
 (a)
    
    The number of warrants excluded totaled approximately 3.3 million, 1.4 million, and 3.2
million, in 2008, 2007 and 2006, respectively. The number of stock rights excluded totaled
approximately 3.6 million in 2006.(b)
    
    The number of stock options excluded totaled approximately 0.7 million, 3.6 million, and 3.7
million, in 2008, 2007 and 2006, respectively. -91-




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17. ACCRUED LIABILITIES
  2008
    
    
    2007Capital expenditures
    
    $
    8,227
    
    
    $
    14,821Operating expenses/Taxes
    
    
    4,452
    
    
    
    3,881Hurricane damage repairs
    
    
    1,555
    
    
    
    Compensation
    
    
    2,478
    
    
    
    853Interest
    
    
    261
    
    
    
    460Other
    
    
    1,858
    
    
    
    1,996Total
    
    $
    18,831
    
    
    $
    22,011
 -92-




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18. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
  Quarter EndedMarch 31
    
    June 30
    
    Sept. 30
    
    Dec. 312008Revenues
    
    $
    38,448
    
    
    $
    46,534
    
    
    $
    36,806
    
    
    $
    26,846Results of operations from exploration
and production activities(1) (2)
    
    
    11,586
    
    
    
    18,136
    
    
    
    10,595
    
    
    
    (224,406
    )Net earnings
    
    $
    3,563
    
    
    $
    839
    
    
    $
    699
    
    
    $
    (214,987
    )Net earnings per share:Basic
    
    $
    0.04
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    (2.33
    )Diluted
    
    $
    0.04
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    (2.33
    )
  Quarter EndedMarch 31
    
    June 30
    
    Sept. 30
    
    Dec. 312007Revenues
    
    $
    40,143
    
    
    $
    39,716
    
    
    $
    33,709
    
    
    $
    37,141Results of operations from exploration
and production activities(1)
    
    
    8,107
    
    
    
    10,033
    
    
    
    6,557
    
    
    
    9,375Net earnings
    
    $
    1,668
    
    
    $
    2,705
    
    
    $
    750
    
    
    $
    2,014Net earnings per share:Basic
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.02Diluted
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.02
 
 (1)
    
    Results of operations from exploration and production activities, which approximate gross
profit, are computed as operating revenues less lease operating expenses, severance and ad
valorem taxes, depletion, impairment of long-lived assets, accretion and hurricane damage
repairs.(2)
    
    Includes impairment of long-lived assets of $223.5 million in the fourth quarter. -93-




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##### Table of Contents



19. SUPPLEMENTAL OIL AND NATURAL GAS DISCLOSURES (Unaudited)
  Costs Incurred in Oil and Natural Gas Acquisition, Exploration and Development Activities
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Costs
incurred during the
year:(1)(2)Property acquisition costsUnproved
    
    $
    21,879
    
    
    $
    9,589
    
    
    $
    35,728Proved
    
    
    
    
    
    
    
    
    
    
    8,239Exploration
    
    
    51,752
    
    
    
    92,320
    
    
    
    95,486Development
    
    
    38,159
    
    
    
    9,026
    
    
    
    23,405$
    111,790
    
    
    $
    110,935
    
    
    $
    162,858
 
 (1)
    
    Costs incurred during the years ended December 31, 2008, 2007 and 2006 include
general and administrative costs related to acquisition, exploration and development of oil
and natural gas properties, net of third party reimbursements, of $17,390,000,
$16,492,000, and $15,375,000, respectively.(2)
    
    Costs incurred during the year ended December 31, 2008 include $1.1 million in net
profit (loss) related to the lease of a drilling rig by TMRD. The rig was used to drill
wells which the Company owns and operates. The amount transferred to the full cost pool
represents the portion of profits (losses) on the lease related to services performed on
behalf of others, primarily our joint interest partners. Capitalized Costs Relating to Oil and Natural Gas Producing Activities
 December 31,2008
    
    
    2007Capitalized costs
    
    $
    1,877,925
    
    
    $
    1,771,768Accumulated depletion
    
    
    1,632,622
    
    
    
    1,344,164Net capitalized costs
    
    $
    245,303
    
    
    $
    427,604
  Costs Not Being Amortized
   -94-




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##### Table of Contents



Total
    
    2008
    
    2007
    
    2006
    
    2005 & PriorLeasehold and Geological & Geophysical
    
    $
    30,964
    
    
    $
    16,604
    
    
    $
    11,388
    
    
    $
    2,942
    
    
    $
    30Exploration Drilling
    
    
    8,963
    
    
    
    8,319
    
    
    
    564
    
    
    
    80
    
    
    
    Total
    
    $
    39,927
    
    
    $
    24,923
    
    
    $
    11,952
    
    
    $
    3,022
    
    
    $
    30
 Results of Operations from Oil and Natural Gas Producing Activities
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Operating Revenues:Oil
    
    $
    63,636
    
    
    $
    54,218
    
    
    $
    47,859Natural Gas
    
    
    84,998
    
    
    
    96,491
    
    
    
    141,182148,634
    
    
    
    150,709
    
    
    
    189,041Less:Oil and natural gas operating costs
    
    
    24,280
    
    
    
    28,338
    
    
    
    22,614Severance and ad valorem taxes
    
    
    9,727
    
    
    
    9,409
    
    
    
    11,259Depletion
    
    
    71,647
    
    
    
    76,660
    
    
    
    105,210Accretion expense
    
    
    2,064
    
    
    
    2,230
    
    
    
    1,588Impairment of long-lived assets (1)
    
    
    223,543
    
    
    
    
    
    
    
    134,865Hurricane damage repairs
    
    
    1,462
    
    
    
    
    
    
    
    4,314Income tax expense (benefit)
    
    
    (8,462
    )
    
    
    14,992
    
    
    
    (31,783
    )324,261
    
    
    
    131,629
    
    
    
    248,067Results of operations from oil and
natural gas producing activities
    
    
    (175,627
    )
    
    $
    19,080
    
    
    $
    (59,026
    )Depletion expense per Mcfe
    
    $
    5.13
    
    
    $
    4.20
    
    
    $
    4.51
 
 (1)
    
    For 2008, includes impairment of oil and natural gas properties of $216,811,000 million and
impairment of drilling rig of $6,732,000; for 2006, all impairments are to oil and natural gas
properties. -95-




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Estimated Quantities of Proved Reserves
  Oil
    
    Gas(MBbls)
    
    (MMcf)Total Proved Reserves:Balance at December 31, 2005
    
    
    5,177
    
    
    
    79,917Production during 2006
    
    
    (859
    )
    
    
    (18,170
    )Purchase of reserves in-place
    
    
    24
    
    
    
    1,390Discoveries and extensions
    
    
    270
    
    
    
    7,138Revisions of previous quantity estimates and other
    
    
    124
    
    
    
    (3,460
    )Balance at December 31, 2006
    
    
    4,736
    
    
    
    66,815Production during 2007
    
    
    (838
    )
    
    
    (13,239
    )Sale of reserves in-place
    
    
    (3
    )
    
    
    (413
    )Discoveries and extensions
    
    
    634
    
    
    
    5,465Revisions of previous quantity estimates and other
    
    
    327
    
    
    
    2,701Balance at December 31, 2007
    
    
    4,856
    
    
    
    61,329Production during 2008
    
    
    (765
    )
    
    
    (9,369
    )Sale of reserves in-place
    
    
    (3
    )
    
    
    (170
    )Discoveries and extensions
    
    
    1,934
    
    
    
    3,817Revisions of previous quantity estimates and other
    
    
    (1,119
    )
    
    
    (4,711
    )Balance at December 31, 2008
    
    
    4,903
    
    
    
    50,896Proved Developed Reserves:Balance at December 31, 2005
    
    
    3,492
    
    
    
    62,524Balance at December 31, 2006
    
    
    3,151
    
    
    
    49,253Balance at December 31, 2007
    
    
    2,892
    
    
    
    42,555Balance at December 31, 2008
    
    
    2,732
    
    
    
    35,054
 Standardized Measure of Discounted Future Net Cash Flows
   -96-




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At December 31,2008
    
    
    2007
    
    
    2006Future cash flows
    
    $
    490,602
    
    
    $
    842,986
    
    
    $
    657,584Future production costs
    
    
    (168,160
    )
    
    
    (185,768
    )
    
    
    (150,462
    )Future development costs
    
    
    (82,866
    )
    
    
    (80,656
    )
    
    
    (64,417
    )Future taxes on income
    
    
    
    
    
    
    (80,029
    )
    
    
    (46,034
    )Future net cash flows
    
    
    239,576
    
    
    
    496,533
    
    
    
    396,671Discount to present value at 10 percent per annum
    
    
    (60,139
    )
    
    
    (105,069
    )
    
    
    (68,772
    )Standardized measure of discounted future net
cash flows
    
    $
    179,437
    
    
    $
    391,464
    
    
    $
    327,899
  -97-




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##### Table of Contents



Changes in Standardized Measure of Discounted Future Net Cash Flows
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Balance at Beginning of Period
    
    $
    391,464
    
    
    $
    327,899
    
    
    $
    557,203Sales of oil and natural gas, net of production costs
    
    
    (114,626
    )
    
    
    (112,962
    )
    
    
    (155,167
    )Changes in sales & transfer prices, net of
production costs
    
    
    (165,125
    )
    
    
    125,623
    
    
    
    (243,150
    )Revisions of previous quantity estimates
    
    
    (32,842
    )
    
    
    25,751
    
    
    
    (11,022
    )Purchase of reserves-in-place
    
    
    
    
    
    
    
    
    
    
    2,393Sale of reserves in-place
    
    
    177
    
    
    
    (2,233
    )
    
    
    Current year discoveries, extensions
and improved recovery
    
    
    44,112
    
    
    
    32,939
    
    
    
    30,710Changes in estimated future
development costs
    
    
    (1,417
    )
    
    
    (7,917
    )
    
    
    (13,016
    )Development costs incurred during the period
    
    
    8,298
    
    
    
    8,526
    
    
    
    18,051Accretion of discount
    
    
    39,146
    
    
    
    32,790
    
    
    
    55,720Net change in income taxes
    
    
    23,453
    
    
    
    (14,451
    )
    
    
    114,782Change in production rates (timing) and other
    
    
    (13,203
    )
    
    
    (24,501
    )
    
    
    (28,605
    )Net change
    
    
    (212,027
    )
    
    
    63,565
    
    
    
    (229,304
    )Balance at End of Period
    
    $
    179,437
    
    
    $
    391,464
    
    
    $
    327,899
 -98-




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
     Report of Independent Registered Public Accounting Firm on Internal Control Over Financial
Reporting
 
 Internal Control  Integrated Framework
 -99-




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.
  
 
 Item 9B. Other Information.
  -100-




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##### Table of Contents



PART III
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)
    
    Documents filed as part of this report:1.
    
    Financial Statements included in Item 8:
 (i)
    
    Independent Registered Public Accounting Firms Report(ii)
    
    Consolidated Statements of Operations for each of the three years in
the period ended December 31, 2008(iii)
    
    Consolidated Balance Sheets as of December 31, 2008 and 2007(iv)
    
    Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 2008(v)
    
    Consolidated Statements of Changes in Stockholders Equity for each of
the three years in the period ended December 31, 2008(vi)
    
    Consolidated Statements of Comprehensive Income (Loss) for each of the
three years in the period ended December 31, 2008(vii)
    
    Notes to Consolidated Financial Statements(viii)
    
    Supplemental Oil and Natural Gas Information (Unaudited)
 2.
    
    Financial Statement Schedules:
 (i)
    
    All schedules are omitted as they are not applicable, not required or
the required information is included in the consolidated financial statements or
notes thereto.
 3.
    
    Exhibits:
 3.1
    
    Third Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to the Companys Quarterly Report on Form 10-Q for the
three months ended September 30, 1998).3.2
    
    Amended and Restated Bylaws of the Company (incorporated by reference
to the Companys Quarterly Report on Form 10-Q for the three months ended September
30, 1998).3.3
    
    Amendment No. 1 to Amended and Restated Bylaws (incorporated by
reference to Exhibit 3.1 of the Companys Report on Form 8-K dated May 5, 1999).3.4
    
    Certificate of Designation for Series C Redeemable Convertible
Preferred Stock dated March 28, 2002 (incorporated by reference to Exhibit 3.1 of
the Companys Quarterly Report on Form 10-Q for the three months ended March 31,
2002).3.5
    
    Amendment No. 2 to Amended and Restated Bylaws of The Meridian Resource
Corporation, adopted April 29, 2008 (incorporated by reference to Exhibit 3.1 of
the
 -101-




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##### Table of Contents



Companys Current Report on Form 8-K filed May 2, 2008).3.6
    
    Amendment No. 3 to Amended and Restated Bylaws of The Meridian Resource
Corporation, adopted December 22, 2008 (incorporated by reference to Exhibit 3.1 of
the Companys Current Report on Form 8-K filed December 29, 2008).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 of the Companys Registration Statement on Form S-1, as amended (Reg. No.
33-65504)).*4.2
    
    Common Stock Purchase Warrant of the Company dated October 16, 1990, issued to
Joseph A. Reeves, Jr. (incorporated by reference to Exhibit 10.8 of the Companys
Annual Report on Form 10-K for the year ended December 31, 1991, as amended by the
Companys Form 8 filed March 4, 1993).*4.3
    
    Common Stock Purchase Warrant of the Company dated October 16, 1990, issued to
Michael J. Mayell (incorporated by reference to Exhibit 10.9 of the Companys Annual
Report on Form 10-K for the year ended December 31, 1991, as amended by the
Companys Form 8 filed March 4, 1993).*4.4
    
    Registration Rights Agreement dated October 16, 1990, among the Company,
Joseph A. Reeves, Jr. and Michael J. Mayell (incorporated by reference to Exhibit
10.7 of the Companys Registration Statement on Form S-4, as amended (Reg. No.
33-37488)).*4.5
    
    Warrant Agreement dated June 7, 1994, between the Company and Joseph A.
Reeves, Jr. (incorporated by reference to Exhibit 4.1 of the Companys Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994).*4.6
    
    Warrant Agreement dated June 7, 1994, between the Company and Michael J.
Mayell (incorporated by reference to Exhibit 4.1 of the Companys Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994).4.8
    
    The Meridian Resource Corporation Directors Stock Option Plan
(incorporated by
reference to Exhibit 10.5 of the Companys Annual Report on Form 10-K for the
year ended December 31, 1991, as amended by the Companys Form 8 filed March 4,
1993).4.9
    
    The Meridian Resource Corporation 2006 Non-Employee Directors
Incentive Plan (incorporated by reference to Exhibit A of the Companys Proxy
Statement on Schedule 14A filed May 19, 2006).4.10
    
    Amendment No. 1, dated as of January 29, 2001, to Rights Agreement, dated
as of May 5, 1999, by and between the Company and American Stock Transfer & Trust
Co., as rights agent (incorporated by reference from the Companys Current Report on
Form 8-K dated January 29, 2001).10.1
    
    See exhibits 4.2 through 4.10 for additional material contracts.*10.2
    
    The Meridian Resource Corporation 1990 Stock Option Plan (incorporated
by reference to Exhibit 10.6 of the Companys Annual Report on Form 10-K for the
year ended December 31, 1991, as amended by the Companys Form 8 filed March 4,
1993).*10.3
    
    Employment Agreement dated August 18, 1993, between the Company and
Joseph A.
 -102-




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##### Table of Contents



Reeves, Jr. (incorporated by reference from the Companys Annual Report on
Form 10-K for the year ended December 31, 1995).*10.4
    
    Employment Agreement dated August 18, 1993, between the Company and
Michael J. Mayell (incorporated by reference from the Companys Annual Report on
Form 10-K for the year ended December 31, 1995).*10.5
    
    Form of Indemnification Agreement between the Company and its executive
officers and directors (incorporated by reference to Exhibit 10.6 of the Companys
Annual Report on Form 10-K for the year ended December 31, 1994).*10.6
    
    Deferred Compensation agreement dated July 31, 1996, between the Company
and Joseph A. Reeves, Jr. (incorporated by reference to Exhibit 10.1 of the
Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 1996).*10.7
    
    Deferred Compensation agreement dated July 31, 1996, between the Company
and Michael J. Mayell (incorporated by reference to Exhibit 10.1 of the Companys
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996).*10.8
    
    Texas Meridian Resources Corporation 1995 Long-Term Incentive Plan
(incorporated by reference to the Companys Annual Report on Form 10-K for the
year-ended December 31, 1996).*10.9
    
    Texas Meridian Resources Corporation 1997 Long-Term Incentive Plan
(incorporated by reference from the Companys Quarterly Report on Form 10-Q for the
three months ended June 30, 1997).*10.14
    
    Employment Agreement with Lloyd V. DeLano effective November 5, 1997 (incorporated
by reference from the Companys Quarterly Report on Form 10-Q for the three months
ended September 30, 1998).*10.15
    
    The Meridian Resource Corporation TMR Employee Trust Well Bonus Plan (incorporated
by reference from the Companys Annual Report on Form 10-K for the year ended
December 31, 1998).*10.16
    
    The Meridian Resource Corporation Management Well Bonus Plan (incorporated by
reference from the Companys Annual Report on Form 10-K for the year ended December
31, 1998).*10.17
    
    The Meridian Resource Corporation Geoscientist Well Bonus Plan (incorporated by
reference from the Companys Annual Report on Form 10-K for the year ended December
31, 1998).*10.18
    
    Modification Agreement effective January 2, 1999, by and among the Company and
affiliates of Joseph A. Reeves, Jr. (incorporated by reference from the Companys
Annual Report on Form 10-K for the year ended December 31, 1998).*10.19
    
    Modification Agreement effective January 2, 1999, by and among the Company and
affiliates of Michael J. Mayell (incorporated by reference from the Companys Annual
Report on Form 10-K for the year ended December 31, 1998).10.20
    
    Amended and Restated Credit Agreement, dated December 23, 2004, among
The
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Meridian Resource Corporation, Fortis Capital Corp., as administrative agent,
sole lead arranger and
bookrunner, Comerica Bank, as syndication agent, and Union Bank of California,
N.A., as documentation agent, and the several lenders from time to time parties
thereto (incorporated by reference from the Companys Current Report on Form 8-K
dated December 23, 2004).10.21
    
    First Amendment to Credit Agreement, dated February 21, 2008, among The
Meridian Resource Corporation, Fortis Capital Corp., as administrative agent,
co-lead arranger and bookrunner; The Bank of Nova Scotia, as co-lead arranger and
syndication agent; Comerica Bank, US Bank NA, and Allied Irish Bank plc each in
their respective capacities as lenders (incorporated by reference from the Companys
Annual Report on Form 10-K for the year ended December 31, 2007).10.22
    
    Second Amendment to Credit Agreement, dated as of December 19, 2008, among
the Company, the several banks, financial institutions and other entities from time
to time parties to the Credit Agreement (collectively, the Lenders), and Fortis
Capital Corp., as administrative agent for the Lenders (incorporated by reference to
Exhibit 10.1 of the Companys Current Report on Form 8-K filed December 29, 2008).*10.23
    
    Employment Agreement, dated April 29, 2008, by and between The Meridian Resources
Corporation and Joseph A. Reeves, Jr. (incorporated by reference to Exhibit 10.1 to
the Companys Annual Report on Form 10-K/A for the year ended December 31, 2007).*10.24
    
    Employment Agreement, dated April 29, 2008, by and between The Meridian Resources
Corporation and Michael J. Mayell (incorporated by reference to Exhibit 10.2 to the
Companys Annual Report on Form 10-K/A for the year ended December 31, 2007).*10.25
    
    Termination Agreement, dated April 29, 2008, by and between The Meridian Resources
Corporation and Joseph A. Reeves, Jr. (incorporated by reference to Exhibit 10.3 to
the Companys Annual Report on Form 10-K/A for the year ended December 31, 2007).*10.26
    
    Termination Agreement, dated April 29, 2008, by and between The Meridian Resources
Corporation and Michael J. Mayell (incorporated by reference to Exhibit 10.4 to the
Companys Annual Report on Form 10-K/A for the year ended December 31, 2007).*10.27
    
    Agreement (regarding Net Profits Interests), effective January 1, 1994, between
Joseph A. Reeves, Jr. and Texas Meridian Resources Corporation (n/k/a The Meridian
Resource Corporation), incorporated by reference to Exhibit 10.5 to the Companys
Annual Report on Form 10-K/A for the year ended December 31, 2007.*10.28
    
    Agreement (regarding Net Profits Interests), effective January 1, 1994, between
Michael J. Mayell and Texas Meridian Resources Corporation (n/k/a The Meridian
Resource Corporation), incorporated by reference to Exhibit 10.6 to the Companys
Annual Report on Form 10-K/A for the year ended December 31, 2007.*10.29
    
    Consulting Agreement, dated effective as of December 30, 2008, between the Company
and Joseph A. Reeves, Jr. (incorporated by reference to Exhibit 10.2 of the Companys
Current Report on Form 8-K filed December 29, 2008).*10.30
    
    Consulting Agreement, dated effective as of December 30, 2008, between the Company
and Michael J. Mayell (incorporated by reference to Exhibit 10.3 of the Companys
Current Report on Form 8-K filed December 29, 2008).
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*,**10.31
    
    Employment Agreement, dated effective as of December 30, 2008, by and between The
Company and Paul D. Ching.*,**10.32
    
    Employment Agreement, dated effective as of December 17, 2008, by and between The
Company and Lloyd V. DeLano.*,**10.33
    
    Employment Agreement, dated effective as of December 17, 2008, by and between The
Company and Stephen G. Ives.*,**10.34
    
    Employment Agreement, dated effective as of December 17, 2008, by and between The
Company and Allen D. Breaux.*,**10.35
    
    Employment Agreement, dated effective as of December 17, 2008, by and between The
Company and Alan S. Pennington.21.1
    
    Subsidiaries of the Company (incorporated by reference to Exhibit 2.1 of
the Companys annual report on Form 10-K for the year ended December 31, 2007).**23.1
    
    Consent of BDO Seidman, LLP.**23.2
    
    Consent of T. J. Smith & Company, Inc.**31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) under the Securities Exchange Act of 1934, as amended.**31.2
    
    Certification of Chief Accounting Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) under the Securities Exchange Act of 1934, as amended.**32.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule
15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C.
Section 1350.**32.2
    
    Certification of Chief Accounting Officer pursuant Rule 13a-14(b) or Rule 15d-14(b)
under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
 
 *
    
    Management contract or compensation plan.**
    
    Filed herewith. -105-




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##### Table of Contents



SIGNATURES
  THE MERIDIAN RESOURCE CORPORATIONBY:
    /s/           PAUL D. CHINGChief Executive Officer(Principal Executive Officer)
President
Director and Chairman of the Board   Name
    
    Title
    
    DateBY:
    
    /s/ PAUL D. CHING

Paul D. Ching
    
    Chief Executive Officer
(Principal Executive Officer) 

President 

Director and Chairman 

of the Board
    
    March 16, 2009BY:
    
    /s/ LLOYD V. DELANO

Lloyd V. DeLano
    
    Senior Vice President
(Chief Accounting Officer)
    
    March 16, 2009BY:
    
    /s/ E. L. HENRY

E. L. Henry
    
    Director
    
    March 16, 2009BY:
    
    /s/ JOE E. KARES

Joe E. Kares
    
    Director
    
    March 16, 2009BY:
    
    /s/ G.M. LARBERG

G.M. Larberg
    
    Director
    
    March 16, 2009BY:
    
    /s/ MICHAEL J. MAYELL

Michael J. Mayell
    
    Director
    
    March 16, 2009BY:
    
    /s/ GARY A. MESSERSMITH

Gary A. Messersmith
    
    Director
    
    March 16, 2009BY:
    
    /s/ C. MARK PEARSON

C. Mark Pearson
    
    Director
    
    March 16, 2009BY:
    
    /s/ JOSEPH A. REEVES, JR.

Joseph A. Reeves, Jr.
    
    Director
    
    March 16, 2009BY:
    
    /s/ DAVID W. TAUBER

David W. Tauber
    
    Director
    
    March 16, 2009BY:
    
    /s/ JOHN B. SIMMONS

John B. Simmons
    
    Director
    
    March 16, 2009BY:
    
    /s/ FENNER R. WELLER, JR.

Fenner R. Weller, Jr.
    
    Director
    
    March 16, 2009
 -106-