##### 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, 2007
 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
    
    New York Stock ExchangeRights to Purchase Preferred Shares
    
    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 o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
 Aggregate market value of shares of common stock held by non-affiliates
of the Registrant at June 30, 2007
    
    $
    266,718,455Number of shares of common stock outstanding at March 3, 2008:
    
    
    89,363,795
 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
    
    
    12Item 1B.
    
    Unresolved Staff Comments
    
    
    18Item 2.
    
    Properties
    
    
    18Item 3.
    
    Legal Proceedings
    
    
    18Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    20PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
    
    
    21Item 6.
    
    Selected Financial Data
    
    
    23Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    24Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    39Item 8.
    
    Financial Statements and Supplementary Data
    
    
    44Item 9.
    
    Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    80Item 9A.
    
    Controls and Procedures
    
    
    80Item 9B.
    
    Other Information
    
    
    81PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    82Item 11.
    
    Executive Compensation
    
    
    82Item 12.
    
    Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
    
    
    82Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    82Item 14.
    
    Principal Accountant Fees and Services
    
    
    82PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    82Signatures
    
    
    86Amended and Restated Credit AgreementSubsidiariesConsent of BDO Seidman, LLPConsent of T.J.Smith & Company, Inc.Certification of CEO Pursuant to Rule 13a-14(a)Certification of President Pursuant to Rule 13a-14(a)Certification of CAO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 1350Certification of President Pursuant to Section 1350Certification of CAO Pursuant to Section 1350
  -2-




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PART I
 
 Item 1. Business
 General
     
    
    Generate reserve additions through exploration, exploitation, development and acquisition
of a risk balanced portfolio of high potential projects;
 
    
    Supplement and balance our historical geographic focus in the mature south Louisiana and
south Texas Gulf Coast core producing areas, with newly-developed resource play opportunities
that can generate substantial reserve additions and increase the average reserve life for the
Company;
 
    
    Apply the latest technology to a rigorous process in the generation and development of
lower-risk exploration prospects, utilizing 3-D seismic and other technological advances to
maximize our probability of success, optimize well locations and reduce our finding costs;
 
    
    Maximize percentage ownership in each drilling prospect relative to the probability of
success, increasing the impact of discoveries on shareholder value; and
 
    
    Maintain operational control to manage quality, costs and timing of our drilling and
production activities.
  -3-




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Exploration Strategy
      -4-




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Oil and Natural Gas Properties
  Gulf ofLouisiana
    
    Texas
    
    Mexico
    
    TotalProduction for the year ended December 31, 2007Oil (MBbls)
    
    
    645
    
    
    
    124
    
    
    
    69
    
    
    
    838Natural Gas (MMcf)
    
    
    11,468
    
    
    
    1,095
    
    
    
    676
    
    
    
    13,239Reserves as of December 31, 2007Oil (MBbls)
    
    
    3,198
    
    
    
    724
    
    
    
    934
    
    
    
    4,856Natural Gas (MMcf)
    
    
    48,221
    
    
    
    6,922
    
    
    
    6,186
    
    
    
    61,329Estimated future net cash flows
($000)(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    576,562Present value of future net cash flows
before income taxes ($000)(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    414,918Standardized measure of discounted
future net cash flows ($000)(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    391,464
 
 (1)
    
    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, 2007, which averaged
$95.54 per Bbl of oil and $6.66 per Mcf of natural gas over the estimated life of the
properties and do not reflect the impact of hedges.(2)
    
    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%.(3)
    
    The Standardized Measure of Discounted Future Net Cash Flows represents the Present
Value of Future Net Cash Flows after income taxes of $23.4 million. Productive Wells
  2007
    
    2006
    
    2005Gross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetOil Wells
    
    
    33
    
    
    
    19
    
    
    
    44
    
    
    
    28
    
    
    
    35
    
    
    
    24Natural Gas Wells
    
    
    88
    
    
    
    43
    
    
    
    77
    
    
    
    43
    
    
    
    69
    
    
    
    39Total
    
    
    121
    
    
    
    62
    
    
    
    121
    
    
    
    71
    
    
    
    104
    
    
    
    63
 Oil and Natural Gas Reserves
  -5-




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Proved Reserves at December 31, 2007Developed
    
    DevelopedProducing
    
    Non-Producing
    
    Undeveloped
    
    Total(dollars in thousands)Net Proved Reserves:Oil (MBbls)
    
    
    1,502
    
    
    
    1,390
    
    
    
    1,964
    
    
    
    4,856Natural Gas (MMcf)
    
    
    24,182
    
    
    
    18,373
    
    
    
    18,774
    
    
    
    61,329Natural Gas Equivalent (MMcfe)
    
    
    33,194
    
    
    
    26,711
    
    
    
    30,559
    
    
    
    90,464Estimated Future Net Cash
Flows(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    576,562Present Value of Future Net
Cash Flows (before income
taxes)(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    414,918Standardized Measure of
Discounted Future Net Cash
Flows(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    391,464
 
 (1)
    
    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, 2007, which averaged
$95.54 per Bbl of oil and $6.66 per Mcf of natural gas over the estimated life of the
properties and do not reflect the impact of hedges.(2)
    
    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%.(3)
    
    The Standardized Measure of Discounted Future Net Cash Flows represents the Present
Value of Future Net Cash Flows after income taxes of $23.4 million.     Oil and Natural Gas Drilling Activities
  -6-




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Gross Wells
    
    Net WellsProductive
    
    Dry
    
    Total
    
    Productive
    
    Dry
    
    TotalExploratory WellsYear ended December 31, 2007
    
    
    13
    
    
    
    12
    
    
    
    25
    
    
    
    4.2
    
    
    
    6.6
    
    
    
    10.8Year ended December 31, 2006
    
    
    7
    
    
    
    7
    
    
    
    14
    
    
    
    4.1
    
    
    
    5.4
    
    
    
    9.5Year ended December 31, 2005
    
    
    10
    
    
    
    13
    
    
    
    23
    
    
    
    8.0
    
    
    
    10.8
    
    
    
    18.8Development WellsYear ended December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Year ended December 31, 2006
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    0.7
    
    
    
    
    
    
    
    0.7Year ended December 31, 2005
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    0.3
    
    
    
    
    
    
    
    0.3
  Production
  Year Ended December 31,2007
    
    2006
    
    2005Production:Oil (MBbls)
    
    
    838
    
    
    
    859
    
    
    
    882Natural gas (MMcf)
    
    
    13,239
    
    
    
    18,170
    
    
    
    20,490Natural gas equivalent (MMcfe)
    
    
    18,269
    
    
    
    23,323
    
    
    
    25,781Average Prices:Oil ($/Bbl)
    
    $
    64.70
    
    
    $
    55.73
    
    
    $
    39.29Natural gas ($/Mcf)
    
    $
    7.29
    
    
    $
    7.77
    
    
    $
    7.84Natural gas equivalent ($/Mcfe)
    
    $
    8.25
    
    
    $
    8.11
    
    
    $
    7.57Production Expenses:Lease operating expenses ($/Mcfe)
    
    $
    1.55
    
    
    $
    0.97
    
    
    $
    0.61Severance and ad valorem
taxes ($/Mcfe)
    
    $
    0.52
    
    
    $
    0.48
    
    
    $
    0.34
 -7-




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Acreage
  December 31, 2007Developed
    
    UndevelopedRegion
    
    Gross
    
    Net
    
    Gross
    
    NetLouisiana
    
    
    29,826
    
    
    
    20,950
    
    
    
    11,576
    
    
    
    9,059Oklahoma
    
    
    2,958
    
    
    
    1,397
    
    
    
    32,473
    
    
    
    25,206Kentucky
    
    
    
    
    
    
    
    
    
    
    46,676
    
    
    
    35,280Texas
    
    
    7,044
    
    
    
    4,278
    
    
    
    183,382
    
    
    
    93,510Gulf of Mexico
    
    
    33,759
    
    
    
    5,988
    
    
    
    14,908
    
    
    
    10,673Total
    
    
    73,587
    
    
    
    32,613
    
    
    
    289,015
    
    
    
    173,728
  Geologic/Land and Operations Geophysical Expertise
  -8-




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Marketing of Production
   Year Ended December 31,Customer
    
    2007
    
    2006
    
    2005Superior Natural Gas
    
    
    23
    %
    
    
    35
    %
    
    
    46
    %Crosstex/Louisiana Intrastate Gas
    
    
    16
    %
    
    
    21
    %
    
    
    19
    %Shell Trading (U.S.)
    
    
    14
    %
    
    
    
    
    
    
    
  Market Conditions
   Competition
  Regulation
  -9-




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Federal Regulation.
 Price Controls.
 State Regulation of Oil and Natural Gas Production
 Environmental Regulation.
 -10-




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OPA.
   CERCLA.
 -11-




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Clean Water Act.
 Resource Conservation and Recovery Act.
 Title to Properties
   
 Item 1A. Risk Factors
  -12-




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Our indebtedness may adversely affect operations and limit our growth.
  Borrowing limits under our credit facility are subject to redetermination.
  Our lenders impose restrictions on us that limit our ability to conduct business and could
adversely affect operations.
   The oil and natural gas markets are volatile and expose us to financial risks.
  -13-




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Our hedging transactions may not adequately prevent losses.
  Our reserve estimates may prove to be inaccurate and future net cash flows are uncertain.
  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.
  -14-




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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.
    We require substantial capital requirements to finance our operations.
   -15-




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##### Table of Contents




    
    cash provided by operating activities;
    
    available cash and cash investments;
    
    capital raised through debt and equity offerings; and
    
    funds received under our bank line of credit.
  Our operations entail inherent casualty risks for which we may not have adequate insurance.
    Our operations also entail significant operating risks.
  We may not be able to market effectively our oil and natural gas production.
  -16-




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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 exploratory drilling projects are based in part on seismic data, which is costly and cannot
ensure the commercial success of the project.
  Our inability to acquire or integrate acquired companies or to develop new exploration prospects
may inhibit our growth.
  -17-




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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
  
 Item 3. Legal Proceedings
 H. L. Hawkins litigation
 -18-




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Title/lease disputes.
 Environmental litigation.
 Consent Decree .
 Litigation involving insurable issues
 -19-




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Item 4. Submission of Matters to a Vote of Security Holders
  -20-




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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
    
    Low2007:First quarter
    
    $
    3.01
    
    
    $
    2.28Second quarter
    
    
    3.38
    
    
    
    2.31Third quarter
    
    
    3.08
    
    
    
    2.24Fourth quarter
    
    
    2.58
    
    
    
    1.632006:First quarter
    
    $
    5.09
    
    
    $
    3.75Second quarter
    
    
    4.22
    
    
    
    3.04Third quarter
    
    
    3.55
    
    
    
    3.04Fourth quarter
    
    
    3.70
    
    
    
    2.91
   Repurchase of Common Stock
  Total
    
    
    
    
    
    
    
    
    
    Approximate Dollar ValueNumber of
    
    Average Price
    
    Total Number of Shares
    
    of Shares That May BeShares
    
    Paid Per
    
    Purchased as Part of a
    
    Purchased Under thePeriod
    
    Purchased
    
    Share
    
    Publicly Announced Plan (a)
    
    Plan During 2008October 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    November 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    December 2007
    
    
    142,000
    
    
    $
    1.76
    
    
    
    142,000
    
    
    $
    5,000,000Total
    
    
    142,000
    
    
    $
    1.76
    
    
    
    142,000
    
    
    $
    5,000,000
 (a)
    
    In March 2007, our Board of Directors authorized the repurchase in the open market or through
privately negotiated transactions of up to $5 million worth of common shares per year over
three years. The timing, volume, and nature of share repurchases will be at the discretion of
management, depending on market conditions, applicable securities laws, and other factors. As of
December 31, 2007, the Company had repurchased 501,300 common shares in the open market at an
aggregate cost of $1,158,000 of which 342,617 shares have been issued for 401(k) contributions, for
contract services and for compensation. Such shares are reflected in the accompanying Consolidated
Balance Sheet as treasury stock. See Note 10 of the Notes to Consolidated Financial Statements.
It is our intent to continue this program through this and future
years subject to certain limitations within our Credit Facility. -21-




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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)(1))(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    6,636,204
    
    
    $
    3.11
    
    
    
    3,850,000Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    6,636,204
    
    
    $
    3.11
    
    
    
    3,850,000
 
 (1)
    
    Does not include 4,650,000 shares which have been reserved for issuance in lieu of cash
compensation under the Companys deferred compensation plan, which plan was approved by security
holders. -22-




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Item 6. Selected Financial Data
  Year Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(In thousands, except prices and per share information)A. Summary of Operating DataProduction:Oil (MBbls)
    
    
    838
    
    
    
    859
    
    
    
    882
    
    
    
    1,270
    
    
    
    1,403Natural gas (MMcf)
    
    
    13,239
    
    
    
    18,170
    
    
    
    20,490
    
    
    
    27,839
    
    
    
    20,142Natural gas equivalent (MMcfe)
    
    
    18,269
    
    
    
    23,323
    
    
    
    25,781
    
    
    
    35,457
    
    
    
    28,563Average prices:Oil ($/Bbl)
    
    $
    64.70
    
    
    $
    55.73
    
    
    $
    39.29
    
    
    $
    28.40
    
    
    $
    24.97Natural gas ($/Mcf)
    
    
    7.29
    
    
    
    7.77
    
    
    
    7.84
    
    
    
    5.98
    
    
    
    5.07Natural gas equivalent ($/Mcfe)
    
    
    8.25
    
    
    
    8.11
    
    
    
    7.57
    
    
    
    5.71
    
    
    
    4.80B. Summary of OperationsTotal revenues
    
    $
    152,178
    
    
    $
    190,957
    
    
    $
    195,696
    
    
    $
    203,118
    
    
    $
    137,479Depletion and depreciation
    
    
    77,076
    
    
    
    106,067
    
    
    
    97,354
    
    
    
    102,915
    
    
    
    75,441Net earnings (loss)(1)
    
    
    7,137
    
    
    
    (73,884
    )
    
    
    27,849
    
    
    
    29,248
    
    
    
    7,246Net earnings (loss) per share:(1)Basic
    
    $
    0.08
    
    
    $
    (0.84
    )
    
    $
    0.33
    
    
    $
    0.41
    
    
    $
    0.14Diluted
    
    
    0.08
    
    
    
    (0.84
    )
    
    
    0.31
    
    
    
    0.37
    
    
    
    0.13Dividends per:Common share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Redeemable preferred share
    
    
    
    
    
    
    
    
    
    
    2.60
    
    
    
    8.50
    
    
    
    8.50Preferred share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common
shares outstanding  basic
    
    
    89,307
    
    
    
    87,670
    
    
    
    84,527
    
    
    
    72,084
    
    
    
    53,325C. Summary Balance Sheet DataTotal assets
    
    $
    483,775
    
    
    $
    467,895
    
    
    $
    555,802
    
    
    $
    513,274
    
    
    $
    448,400Long-term obligations, inclusive
of current maturities
    
    
    75,000
    
    
    
    75,000
    
    
    
    75,000
    
    
    
    75,129
    
    
    
    152,320Redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,589
    
    
    
    60,446Stockholders equity
    
    
    325,430
    
    
    
    320,797
    
    
    
    377,565
    
    
    
    316,041
    
    
    
    184,335
 
 (1)
    
    Applicable to common stockholders. -23-




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
      -24-




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Operations Overview
  East Texas Austin Chalk
     South Louisiana
  -25-




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th
 North Louisiana
  New Albany Shale Play
  Oklahoma
  Rig Status
  Capital Expenditure Plans for 2008.
 -26-




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Industry Conditions
 -27-




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##### Table of Contents



Results of Operations
 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.
  -28-




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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.
  Hurricane Damage Repairs.
  -29-




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##### Table of Contents



Interest Expense.
  Taxes on Income.
  -30-




---



##### Table of Contents



Year Ended December 31, 2006, Compared to Year Ended December 31, 2005
  Year EndedDecember 31,
    
    
    Increase2006
    
    
    2005
    
    
    (Decrease)Production:Oil (MBbls)
    
    
    859
    
    
    
    882
    
    
    
    (3
    %)Natural gas (MMcf)
    
    
    18,170
    
    
    
    20,490
    
    
    
    (11
    %)Natural gas equivalent (MMcfe)
    
    
    23,323
    
    
    
    25,781
    
    
    
    (10
    %)Average Sales Price:Oil (per Bbl)
    
    $
    55.73
    
    
    $
    39.29
    
    
    
    42
    %Natural gas (per Mcf)
    
    
    7.77
    
    
    
    7.84
    
    
    
    (1
    %)Natural gas equivalent (per Mcfe)
    
    
    8.11
    
    
    
    7.57
    
    
    
    7
    %Operating Revenues (000s):Oil
    
    $
    47,859
    
    
    $
    34,647
    
    
    
    38
    %Natural gas
    
    
    141,182
    
    
    
    160,608
    
    
    
    (12
    %)Total
    
    $
    189,041
    
    
    $
    195,255
    
    
    
    (3
    %)
 Operating Expenses.
  -31-




---



##### Table of Contents



Severance and Ad Valorem Taxes.
  Depletion and Depreciation.
  Impairment of Long-Lived Assets.
  General and Administrative Expense.
  Accretion Expense.
  Hurricane Damage Repairs.
  -32-




---



##### Table of Contents



Interest Expense.
  Taxes on Income.
  -33-




---



##### Table of Contents



Liquidity and Capital Resources
 Cash Flows .
   Current Credit Facility .
   1 2
 -34-




---



##### Table of Contents



1 2
 Capital Expenditures .
  Cash Obligations
 Less Than
    
    
    1-3
    
    
    AfterOne Year
    
    
    Years
    
    
    3 Years
    
    
    TotalShort and long term debt
    
    $
    2,662
    
    
    $
    
    
    
    $
    75,000
    
    
    $
    77,662Interest
    
    
    5,223
    
    
    
    10,400
    
    
    
    5,994
    
    
    
    21,617Drilling rigs
    
    
    16,400
    
    
    
    11,975
    
    
    
    
    
    
    
    28,375Non-cancelable operating leases
    
    
    1,990
    
    
    
    4,060
    
    
    
    1,580
    
    
    
    7,630Total contractual cash obligations
    
    $
    26,275
    
    
    $
    26,435
    
    
    $
    82,574
    
    
    $
    135,284
 Dividends
 -35-




---



##### Table of Contents



Off-Balance Sheet Arrangements
 Share Repurchase Program.
   Critical Accounting Policies and Estimates
  Use of Estimates
 Property and Equipment
 -36-




---



##### Table of Contents



Full-Cost Ceiling Test
    -37-




---



##### Table of Contents



Price Risk Management Activities
     Fair Value of Financial Instruments
 New Accounting Pronouncements
 -38-




---



##### Table of Contents



ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
  Interest Rates
  -39-




---



##### Table of Contents



Hedging Contracts
     -40-




---



##### Table of Contents



EstimatedFair ValueAsset (Liability)Notional
    
    
    Floor Price
    
    
    Ceiling Price
    
    
    December 31, 2007Type
    
    
    Amount
    
    
    ($ per unit)
    
    
    ($ per unit)
    
    
    (in thousands)Natural Gas (mmbtu)Jan 2008 - Dec 2008
    
    Collar
    
    
    2,230,000
    
    
    $
    7.00
    
    
    $
    12.15
    
    
    $
    606Jan 2008 - Dec 2008
    
    Collar
    
    
    1,010,000
    
    
    $
    7.50
    
    
    $
    11.50
    
    
    
    479Jan 2008 - Dec 2008
    
    Collar
    
    
    1,830,000
    
    
    $
    7.50
    
    
    $
    10.10
    
    
    
    655Jan 2009 - Dec 2009
    
    Collar
    
    
    1,230,000
    
    
    $
    7.50
    
    
    $
    10.45
    
    
    
    108Total Natural Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,848Crude Oil (bbls)Jan 2008 - Dec 2008
    
    Collar
    
    
    40,000
    
    
    $
    55.00
    
    
    $
    83.00
    
    
    
    (492
    )Jan 2008 - Dec 2008
    
    Collar
    
    
    20,000
    
    
    $
    65.00
    
    
    $
    80.60
    
    
    
    (280
    )Jan 2008 - Dec 2008
    
    Collar
    
    
    30,000
    
    
    $
    65.00
    
    
    $
    85.00
    
    
    
    (319
    )Jan 2008 - April 2008
    
    Collar
    
    
    24,000
    
    
    $
    60.00
    
    
    $
    82.00
    
    
    
    (341
    )May 2008 - July 2008
    
    Collar
    
    
    15,000
    
    
    $
    60.00
    
    
    $
    82.00
    
    
    
    (198
    )Jan 2008 - July 2008
    
    Collar
    
    
    28,000
    
    
    $
    65.00
    
    
    $
    93.15
    
    
    
    (183
    )Jan 2008 - July 2008
    
    Collar
    
    
    21,000
    
    
    $
    70.00
    
    
    $
    87.40
    
    
    
    (204
    )Jan 2008 - Dec 2008
    
    Collar
    
    
    19,000
    
    
    $
    75.00
    
    
    $
    102.50
    
    
    
    (42
    )Jan 2009 - Dec 2009
    
    Collar
    
    
    23,000
    
    
    $
    70.00
    
    
    $
    93.55
    
    
    
    (104
    )Total Crude Oil
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,163
    )$
    (315
    )
 -41-




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##### Table of Contents



GLOSSARY OF CERTAIN OIL AND NATURAL GAS TERMS
                         -42-




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##### Table of Contents



-43-




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Index to Financial Statements
  PageReport of Independent Registered Public Accounting Firm
    
    
    45Consolidated Statements of Operations
    
    
    46Consolidated Balance Sheets
    
    
    47Consolidated Statements of Cash Flows
    
    
    49Consolidated Statements of Stockholders Equity
    
    
    50Consolidated Statements of Comprehensive Income (Loss)
    
    
    51Notes to Consolidated Financial Statements
    
    
    521. Organization and Basis of Presentation
    
    
    522. Summary of Significant Accounting Policies
    
    
    523. Asset Retirement Obligations
    
    
    574. Impairment of Long-Lived Assets
    
    
    595. Debt
    
    
    596. Lease Obligations
    
    
    607. Commitments and Contingencies
    
    
    608. Taxes on Income
    
    
    629. Redeemable Convertible Preferred Stock
    
    
    6310. Stockholders Equity
    
    
    6311. Profit Sharing and Savings Plan
    
    
    6712. Oil and Natural Gas Hedging Activities
    
    
    6813. Major Customers
    
    
    7014. Related Party Transactions
    
    
    7015. Earnings Per Share
    
    
    7216. Accrued Liabilities
    
    
    7217. Subsequent Events
    
    
    7318. Quarterly Results of Operations (Unaudited)
    
    
    7419. Supplemental Oil and Natural Gas Disclosures (Unaudited)
    
    
    71
 CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
  -44-




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Internal Control  Integrated Framework
  
 -45-




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##### Table of Contents



THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31,2007
    
    
    2006
    
    
    2005REVENUES:Oil and natural gas
    
    $
    150,709
    
    
    $
    189,041
    
    
    $
    195,255Price risk management activities
    
    
    21
    
    
    
    128
    
    
    
    (251
    )Interest and other
    
    
    1,448
    
    
    
    1,788
    
    
    
    692152,178
    
    
    
    190,957
    
    
    
    195,696OPERATING COSTS AND EXPENSES:Oil and natural gas operating
    
    
    28,338
    
    
    
    22,614
    
    
    
    15,860Severance and ad valorem taxes
    
    
    9,409
    
    
    
    11,259
    
    
    
    8,811Depletion and depreciation
    
    
    77,076
    
    
    
    106,067
    
    
    
    97,354General and administrative
    
    
    16,221
    
    
    
    16,674
    
    
    
    18,010Accretion expense
    
    
    2,230
    
    
    
    1,588
    
    
    
    1,120Impairment of long-lived assets
    
    
    
    
    
    
    134,865
    
    
    
    Hurricane damage repairs
    
    
    
    
    
    
    4,314
    
    
    
    3,066133,274
    
    
    
    297,381
    
    
    
    144,221EARNINGS (LOSS) BEFORE OTHER EXPENSES &
INCOME TAXES
    
    
    18,904
    
    
    
    (106,424
    )
    
    
    51,475OTHER EXPENSES:Interest expense
    
    
    6,090
    
    
    
    5,982
    
    
    
    4,724EARNINGS (LOSS) BEFORE INCOME TAXES
    
    
    12,814
    
    
    
    (112,406
    )
    
    
    46,751INCOME TAXES:Current
    
    
    650
    
    
    
    369
    
    
    
    (568
    )Deferred
    
    
    5,027
    
    
    
    (38,891
    )
    
    
    18,5685,677
    
    
    
    (38,522
    )
    
    
    18,000NET EARNINGS (LOSS)
    
    
    7,137
    
    
    
    (73,884
    )
    
    
    28,751Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    902NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCKHOLDERS
    
    $
    7,137
    
    
    $
    (73,884
    )
    
    $
    27,849NET EARNINGS (LOSS) PER SHARE:Basic
    
    $
    0.08
    
    
    $
    (0.84
    )
    
    $
    0.33Diluted
    
    $
    0.08
    
    
    $
    (0.84
    )
    
    $
    0.31WEIGHTED AVERAGE NUMBER OF COMMON SHARES:Basic
    
    
    89,307
    
    
    
    87,670
    
    
    
    84,527Diluted
    
    
    94,944
    
    
    
    87,670
    
    
    
    90,090
  -46-




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##### Table of Contents



THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 December 31,2007
    
    
    2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    13,526
    
    
    $
    31,424Restricted cash
    
    
    30
    
    
    
    1,282Accounts receivable, less allowance for doubtful accounts
of $210 [2007] and $232 [2006]
    
    
    19,874
    
    
    
    24,285Due from affiliates
    
    
    2,580
    
    
    
    670Prepaid expenses and other
    
    
    4,538
    
    
    
    3,457Assets from price risk management activities
    
    
    2,453
    
    
    
    7,968Deferred tax asset
    
    
    164
    
    
    
    Total current assets
    
    
    43,165
    
    
    
    69,086PROPERTY AND EQUIPMENT:Oil and natural gas properties, full cost method (including
$53,645 [2007] and $54,356 [2006] not subject to depletion)
    
    
    1,771,768
    
    
    
    1,663,865Land
    
    
    48
    
    
    
    48Equipment and other
    
    
    18,503
    
    
    
    7,4921,790,319
    
    
    
    1,671,405Less accumulated depletion and depreciation
    
    
    1,350,577
    
    
    
    1,273,522Total property and equipment, net
    
    
    439,742
    
    
    
    397,883OTHER ASSETS:Assets from price risk management activities
    
    
    865
    
    
    
    490Other
    
    
    3
    
    
    
    436Total other assets
    
    
    868
    
    
    
    926TOTAL ASSETS
    
    $
    483,775
    
    
    $
    467,895
  -47-




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##### Table of Contents



THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 December 31,2007
    
    
    2006LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    9,583
    
    
    $
    6,700Advances from non-operators
    
    
    6,996
    
    
    
    3,051Revenues and royalties payable
    
    
    6,592
    
    
    
    7,933Notes payable
    
    
    2,662
    
    
    
    2,754Accrued liabilities
    
    
    22,011
    
    
    
    21,938Liabilities from price risk management activities
    
    
    2,772
    
    
    
    1,024Asset retirement obligations
    
    
    3,365
    
    
    
    4,803Deferred income taxes payable
    
    
    
    
    
    
    2,336Current income taxes payable
    
    
    147
    
    
    
    Total current liabilities
    
    
    54,128
    
    
    
    50,539LONG-TERM DEBT
    
    
    75,000
    
    
    
    75,000OTHER:Deferred income taxes
    
    
    8,238
    
    
    
    3,364Liabilities from price risk management activities
    
    
    861
    
    
    
    190Asset retirement obligations
    
    
    20,118
    
    
    
    18,00529,217
    
    
    
    21,559COMMITMENTS AND CONTINGENCIES (Notes 6, 7, and 11)STOCKHOLDERS EQUITY:Common stock, $0.01 par value (200,000,000 shares authorized,
89,450,466 [2007] and 89,139,600 [2006] shares issued)
    
    
    936
    
    
    
    928Additional paid-in capital
    
    
    537,145
    
    
    
    534,441Accumulated deficit
    
    
    (212,142
    )
    
    
    (219,279
    )Accumulated other comprehensive income (loss)
    
    
    (221
    )
    
    
    4,707325,718
    
    
    
    320,797Less treasury stock, at cost 158,683 [2007] shares
    
    
    288
    
    
    
    Total stockholders equity
    
    
    325,430
    
    
    
    320,797TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    483,775
    
    
    $
    467,895
  -48-




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##### Table of Contents



THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net earnings (loss)
    
    $
    7,137
    
    
    $
    (73,884
    )
    
    $
    28,751Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:Depletion and depreciation
    
    
    77,076
    
    
    
    106,067
    
    
    
    97,354Impairment of long-lived assets
    
    
    
    
    
    
    134,865
    
    
    
    Amortization of other assets
    
    
    436
    
    
    
    443
    
    
    
    446Non-cash compensation
    
    
    2,549
    
    
    
    2,300
    
    
    
    1,845Non-cash price risk management activities
    
    
    (21
    )
    
    
    (128
    )
    
    
    251Accretion expense
    
    
    2,230
    
    
    
    1,588
    
    
    
    1,120Deferred income taxes
    
    
    5,027
    
    
    
    (38,891
    )
    
    
    18,568Changes in assets and liabilities:Restricted cash
    
    
    1,252
    
    
    
    (48
    )
    
    
    (343
    )Accounts receivable
    
    
    4,411
    
    
    
    16,903
    
    
    
    (13,425
    )Prepaid expenses and other
    
    
    (1,081
    )
    
    
    (2,163
    )
    
    
    969Accounts payable
    
    
    (946
    )
    
    
    362
    
    
    
    (118
    )Advances from non-operators
    
    
    3,945
    
    
    
    3,051
    
    
    
    Due to (from) affiliates
    
    
    (1,910
    )
    
    
    (5,308
    )
    
    
    772Revenues and royalties payable
    
    
    (1,341
    )
    
    
    (1,216
    )
    
    
    1,032Asset retirement obligations
    
    
    (2,055
    )
    
    
    (6,026
    )
    
    
    (469
    )Other assets and liabilities
    
    
    282
    
    
    
    (643
    )
    
    
    3,936Net cash provided by operating activities
    
    
    96,991
    
    
    
    137,272
    
    
    
    140,689CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property and equipment
    
    
    (116,696
    )
    
    
    (130,062
    )
    
    
    (139,522
    )Acquisition of properties
    
    
    
    
    
    
    (11,734
    )
    
    
    Proceeds from (settlements on) sale of property
    
    
    3,060
    
    
    
    11,032
    
    
    
    (51
    )Net cash used in investing activities
    
    
    (113,636
    )
    
    
    (130,764
    )
    
    
    (139,573
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term debt
    
    
    3,000
    
    
    
    10,000
    
    
    
    10,000Reductions in long-term debt
    
    
    (3,000
    )
    
    
    (10,000
    )
    
    
    (10,129
    )Proceeds  Notes payable
    
    
    9,540
    
    
    
    9,248
    
    
    
    3,142Reductions  Notes payable
    
    
    (9,632
    )
    
    
    (7,597
    )
    
    
    (2,909
    )Repurchase of common stock
    
    
    (1,158
    )
    
    
    
    
    
    
    Issuance of stock/exercise of stock options
    
    
    
    
    
    
    
    
    
    
    13Preferred dividends
    
    
    
    
    
    
    
    
    
    
    (2,166
    )Additions to deferred loan costs
    
    
    (3
    )
    
    
    
    
    
    
    (99
    )Net cash provided by (used in) financing activities
    
    
    (1,253
    )
    
    
    1,651
    
    
    
    (2,148
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (17,898
    )
    
    
    8,159
    
    
    
    (1,032
    )Cash and cash equivalents at beginning of year
    
    
    31,424
    
    
    
    23,265
    
    
    
    24,297CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    13,526
    
    
    $
    31,424
    
    
    $
    23,265SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONNon-cash activities:Conversion of preferred stock
    
    $
    
    
    
    $
    
    
    
    $
    (30,625
    )Issuance of shares for contract services
    
    $
    (1,033
    )
    
    $
    (795
    )
    
    $
    (1,932
    )Issuance of shares for acquisition of properties
    
    $
    
    
    
    $
    (7,000
    )
    
    $
    Accrual of capital expenditures
    
    $
    4,799
    
    
    $
    (259
    )
    
    $
    (7,079
    )ARO Liability  new wells drilled
    
    $
    476
    
    
    $
    4,559
    
    
    $
    883ARO Liability  changes in estimates
    
    $
    24
    
    
    $
    10,723
    
    
    $
    806
  -49-




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##### Table of Contents



THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended December 31, 2005, 2006 and 2007
 AccumulatedAdditional
    
    
    Accumulated
    
    
    Other
    
    
    UnamortizedCommon Stock
    
    
    Paid-In
    
    
    Earnings
    
    
    Comprehensive
    
    
    Deferred
    
    
    Treasury StockShares
    
    
    Par Value
    
    
    Capital
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    Compensation
    
    
    Shares
    
    
    Cost
    
    
    TotalBalance, December 31, 2004
    
    
    79,215
    
    
    $
    821
    
    
    $
    490,351
    
    
    $
    (173,244
    )
    
    $
    (1,574
    )
    
    $
    (313
    )
    
    
    
    
    
    $
    
    
    
    $
    316,041Issuance of rights to common stock
    
    
    
    
    
    
    3
    
    
    
    1,597
    
    
    
    
    
    
    
    
    
    
    
    (1,600
    )
    
    
    
    
    
    
    
    
    
    
    Companys 401(k) plan contribution
    
    
    53
    
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250Exercise of stock options
    
    
    49
    
    
    
    
    
    
    
    163
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163Compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,595
    
    
    
    
    
    
    
    
    
    
    
    1,595Accum. other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (740
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (740
    )Issuance for conversion of pref
stock
    
    
    7,099
    
    
    
    71
    
    
    
    30,554
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,625Issuance cost  2004 stock offering
    
    
    
    
    
    
    
    
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )Issuance of shares for contract
services
    
    
    402
    
    
    
    5
    
    
    
    1,927
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,932Preferred dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (902
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (902
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,751
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,751Balance, 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    336Stock-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
    
    
    
    546Stock-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
    )
    
    $
    325,430
  -50-




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##### Table of Contents



THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Net earnings (loss) applicable to common stockholders
    
    $
    7,137
    
    
    $
    (73,884
    )
    
    $
    27,849Other comprehensive income (loss), net of tax, for
unrealized gains (losses) from hedging activities:Unrealized holding gains (losses) arising during period (1)
    
    
    (2,814
    )
    
    
    9,505
    
    
    
    (14,116
    )Reclassification adjustments on settlement of contracts (2)
    
    
    (2,114
    )
    
    
    (2,484
    )
    
    
    13,376(4,928
    )
    
    
    7,021
    
    
    
    (740
    )Total comprehensive income (loss)
    
    $
    2,209
    
    
    $
    (66,863
    )
    
    $
    27,109(1) Net income tax (expense) benefit
    
    $
    1,515
    
    
    $
    (5,118
    )
    
    $
    7,601(2) Net income tax (expense) benefit
    
    $
    1,138
    
    
    $
    1,337
    
    
    $
    (7,202
    )
  -51-




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##### Table of Contents



THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 1. ORGANIZATION AND BASIS OF PRESENTATION
  
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Restricted Cash
  Property and Equipment
     -52-




---



##### Table of Contents



Statement of Cash Flows
  Concentrations of Credit Risk
   Revenue Recognition and Accounts Receivable
   Hurricane Damage Repairs
  Capitalized Interest
  Earnings Per Share
 -53-




---



##### Table of Contents



Stock Options
    2005Net earnings applicable to common stockholders as reported
    
    $
    27,849Stock-based compensation expense determined under fair
method for all awards, net of tax
    
    
    (237
    )Net earnings applicable to common stockholders (pro forma)
    
    $
    27,612Basic earnings per share:As reported
    
    $
    0.33Pro forma
    
    $
    0.33Diluted earnings per share:As reported
    
    $
    0.31Pro forma
    
    $
    0.31
  -54-




---



##### Table of Contents



Fair Value of Financial Instruments
  Notes Payable.
  Lease Accounting.
  Derivative Financial Instruments
     -55-




---



##### Table of Contents



Income Taxes
   Environmental Expenditures
  New Accounting Pronouncements
  -56-




---



##### Table of Contents



Use of Estimates
  Reclassification of Prior Period Statements
  
 3. ASSET RETIREMENT OBLIGATIONS
 -57-




---



##### Table of Contents



Asset retirement obligation at December 31, 2005
    
    $
    11,964Additional retirement obligations recorded in 2006
    
    
    4,559Settlements during 2006
    
    
    (6,026
    )Revisions to estimates and other changes during 2006
    
    
    10,723Accretion expense for 2006
    
    
    1,588Asset 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
    
    $
    23,483
  -58-




---



##### Table of Contents



4. IMPAIRMENT OF LONG-LIVED ASSETS
    
 5. DEBT
 Current Revolving Credit Agreement
    -59-




---



##### Table of Contents



1 2
  1 2
 Current Debt Maturities
  
 6. CONTRACTUAL OBLIGATIONS
  
 7. COMMITMENTS AND CONTINGENCIES
 Litigation
 H. L. Hawkins litigation
 -60-




---



##### Table of Contents



Title/lease disputes.
 Environmental litigation.
 Consent Decree .
 Litigation involving insurable issues
 -61-




---



##### Table of Contents



8. TAXES ON INCOME
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    560
    
    
    $
    334
    
    
    $
    (676
    )State
    
    
    90
    
    
    
    35
    
    
    
    108Deferred:Federal
    
    
    4,470
    
    
    
    (39,108
    )
    
    
    17,480State
    
    
    557
    
    
    
    217
    
    
    
    1,088Income tax expense (benefit)
    
    $
    5,677
    
    
    $
    (38,522
    )
    
    $
    18,000
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Income tax provision (benefit) computed at statutory rate
    
    $
    4,485
    
    
    $
    (39,342
    )
    
    $
    16,363Nondeductible costs
    
    
    577
    
    
    
    415
    
    
    
    479State income tax, net of federal tax benefit
    
    
    615
    
    
    
    240
    
    
    
    1,158Decrease in net operating loss carryover due to expiration
    
    
    
    
    
    
    165
    
    
    
    Income tax expense (benefit)
    
    $
    5,677
    
    
    $
    (38,522
    )
    
    $
    18,000
  December 31,2007
    
    
    2006Deferred tax assets:Net operating tax loss carryforward
    
    $
    27,391
    
    
    $
    40,085Statutory depletion carryforward
    
    
    950
    
    
    
    950Tax credits
    
    
    2,205
    
    
    
    1,644Unrealized hedge loss
    
    
    119
    
    
    
    Deferred compensation
    
    
    6,232
    
    
    
    5,673Other
    
    
    44
    
    
    
    187Total deferred tax assets
    
    
    36,941
    
    
    
    48,539Deferred tax liabilities:Book basis in excess of tax basis in oil and natural gas properties
    
    
    45,015
    
    
    
    51,705Unrealized hedge gain
    
    
    
    
    
    
    2,534Total deferred tax liabilities
    
    
    45,015
    
    
    
    54,239Net deferred tax liability
    
    $
    (8,074
    )
    
    $
    (5,700
    )
  -62-




---



##### Table of Contents



Net
    
    
    AMTOperating
    
    
    OperatingYear of Expiration
    
    Loss
    
    
    Loss2019
    
    $
    20,379
    
    
    $
    44,1702020
    
    
    30
    
    
    
    302021
    
    
    36
    
    
    
    362022
    
    
    13,053
    
    
    
    6,5022023
    
    
    44,669
    
    
    
    44,5162025
    
    
    42
    
    
    
    542026
    
    
    52
    
    
    
    Total
    
    $
    78,261
    
    
    $
    95,308
   
 9. REDEEMABLE CONVERTIBLE PREFERRED STOCK
  
 10. STOCKHOLDERS EQUITY
 Common Stock
  -63-




---



##### Table of Contents



Warrants
  Number of
    
    
    ExerciseWarrants
    
    Shares
    
    
    Price
    
    
    Expiration DateExecutive Officers
    
    
    1,428,000
    
    
    $
    5.85
    
    
    
    *General Partner
    
    
    1,808,516
    
    
    $
    0.10
    
    
    December 31, 2015
 
 *
    
    A date one year following the date on which the respective officer ceases to be an employee
of the Company.    -64-




---



##### Table of Contents



Stock Options
  WeightedNumber
    
    
    Averageof Shares
    
    
    Exercise PriceOutstanding at December 31, 2004
    
    
    3,693,050
    
    
    $
    4.25Granted
    
    
    45,000
    
    
    
    4.68Exercised
    
    
    (48,500
    )
    
    
    3.37Canceled
    
    
    (94,500
    )
    
    
    9.93Outstanding 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
    
    
    $
    3.55Shares exercisable:December 31, 2005
    
    
    3,430,050
    
    
    $
    3.97December 31, 2006
    
    
    3,285,465
    
    
    $
    3.76December 31, 2007
    
    
    3,252,001
    
    
    $
    3.57
 -65-




---



##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    
    
    
    
    WeightedRange of
    
    Outstanding at
    
    
    Average
    
    
    Exercisable at
    
    
    AverageExercisable Prices
    
    December 31, 2007
    
    
    Exercise Price
    
    
    December 31, 2007
    
    
    Exercise Price$1.79 - $2.71
    
    
    55,000
    
    
    $
    2.34
    
    
    
    17,083
    
    
    $
    2.36$3.00 - $3.99
    
    
    3,173,947
    
    
    
    3.37
    
    
    
    3,076,048
    
    
    
    3.37$4.01 - 8.42
    
    
    170,741
    
    
    
    7.36
    
    
    
    158,870
    
    
    
    7.543,399,688
    
    
    $
    3.55
    
    
    
    3,252,001
    
    
    $
    3.57
    Deferred Compensation
 st th
  -66-




---



##### Table of Contents



Stockholder Rights Plan
    
 11. PROFIT SHARING AND SAVINGS PLAN
   -67-




---



##### Table of Contents



12. OIL AND NATURAL GAS HEDGING ACTIVITIES
   -68-




---



##### Table of Contents



-69-




---



##### Table of Contents



EstimatedFair ValueAsset (Liability)Notional

    
    
    Floor Price

    
    
    Ceiling Price

    
    
    December 31, 2007Type

    
    Amount

    
    
    ($ per unit)

    
    
    ($ per unit)

    
    
    (in thousands)Natural Gas (mmbtu)Jan 2008 - Dec 2008
    
    Collar
    
    
    2,230,000
    
    
    $
    7.00
    
    
    $
    12.15
    
    
    $
    606Jan 2008 - Dec 2008
    
    Collar
    
    
    1,010,000
    
    
    $
    7.50
    
    
    $
    11.50
    
    
    
    479Jan 2008 - Dec 2008
    
    Collar
    
    
    1,830,000
    
    
    $
    7.50
    
    
    $
    10.10
    
    
    
    655Jan 2009 - Dec 2009
    
    Collar
    
    
    1,230,000
    
    
    $
    7.50
    
    
    $
    10.45
    
    
    
    108Total Natural Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,848Crude Oil (bbls)Jan 2008 - Dec 2008
    
    Collar
    
    
    40,000
    
    
    $
    55.00
    
    
    $
    83.00
    
    
    
    (492
    )Jan 2008 - Dec 2008
    
    Collar
    
    
    20,000
    
    
    $
    65.00
    
    
    $
    80.60
    
    
    
    (280
    )Jan 2008 - Dec 2008
    
    Collar
    
    
    30,000
    
    
    $
    65.00
    
    
    $
    85.00
    
    
    
    (319
    )Jan 2008 - April
2008
    
    Collar
    
    
    24,000
    
    
    $
    60.00
    
    
    $
    82.00
    
    
    
    (341
    )May 2008 - July 2008
    
    Collar
    
    
    15,000
    
    
    $
    60.00
    
    
    $
    82.00
    
    
    
    (198
    )Jan 2008 - July 2008
    
    Collar
    
    
    28,000
    
    
    $
    65.00
    
    
    $
    93.15
    
    
    
    (183
    )Jan 2008 - July 2008
    
    Collar
    
    
    21,000
    
    
    $
    70.00
    
    
    $
    87.40
    
    
    
    (204
    )Jan 2008 - Dec 2008
    
    Collar
    
    
    19,000
    
    
    $
    75.00
    
    
    $
    102.50
    
    
    
    (42
    )Jan 2009 - Dec 2009
    
    Collar
    
    
    23,000
    
    
    $
    70.00
    
    
    $
    93.55
    
    
    
    (104
    )Total Crude Oil
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,163
    )$
    (315
    )
 
 13. MAJOR CUSTOMERS
  Year Ended December 31,Customer
    
    2007
    
    2006
    
    2005Superior Natural Gas
    
    
    23
    %
    
    
    35
    %
    
    
    46
    %Crosstex/Louisiana Intrastate Gas
    
    
    16
    %
    
    
    21
    %
    
    
    19
    %Shell Trading (U.S.)
    
    
    14
    %
    
    
    
    
    
    
    
 
 14. RELATED PARTY TRANSACTIONS
  -70-




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-71-




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##### Table of Contents



15. EARNINGS PER SHARE
  (in thousands, except per share)Year Ended December 31,2007
    
    
    2006
    
    
    2005Numerator:Net earnings (loss) applicable to common stockholders
    
    $
    7,137
    
    
    $
    (73,884
    )
    
    $
    27,849Plus income impact of assumed conversions:Preferred stock dividends (c)
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss) applicable to common stockholders
plus assumed conversions
    
    $
    7,137
    
    
    $
    (73,884
    )
    
    $
    27,849Denominator:Denominator for basic earnings (loss) per
share  weighted-average shares outstanding
    
    
    89,307
    
    
    
    87,670
    
    
    
    84,527Effect of potentially dilutive common shares:Warrants and rights (a)
    
    
    5,637
    
    
    
    N/A
    
    
    
    4,755Employee and director stock options (b)
    
    
    
    
    
    
    N/A
    
    
    
    808Redeemable preferred stock (c)
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted earnings (loss) per share
 weighted-average shares outstanding and
assumed conversions
    
    
    94,944
    
    
    
    87,670
    
    
    
    90,090Basic earnings (loss) per share
    
    $
    0.08
    
    
    $
    (0.84
    )
    
    $
    0.33Diluted earnings (loss) per share
    
    $
    0.08
    
    
    $
    (0.84
    )
    
    $
    0.31
  
 (a)
    
    The number of warrants excluded totaled approximately 1.4 million, 3.2 million, and 1.4
million in 2007, 2006 and 2005, respectively. The number of stock rights excluded totaled
approximately 3.6 million in 2006.(b)
    
    The number of stock options excluded totaled approximately 3.6 million, 3.7 million,
and 0.5 million in 2007, 2006 and 2005, respectively.(c)
    
    A weighted average of approximately 2.1 million redeemable preferred shares were
excluded in 2005. 
 16. ACCRUED LIABILITIES
  -72-




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##### Table of Contents



2007
    
    
    2006Capital expenditures
    
    $
    14,821
    
    
    $
    13,851Operating expenses/Taxes
    
    
    3,881
    
    
    
    4,024Hurricane damage repairs
    
    
    
    
    
    
    71Compensation
    
    
    853
    
    
    
    1,197Interest
    
    
    460
    
    
    
    506Other
    
    
    1,996
    
    
    
    2,289Total
    
    $
    22,011
    
    
    $
    21,938
 
 17. SUBSEQUENT EVENTS
  Notional
    
    Floor Price
    
    Ceiling PriceAmount
    
    ($ per unit)
    
    ($ per unit)Natural Gas (mmbtu)Mar 2008 - Dec 2008
    
    
    200,000
    
    
    $
    8.00
    
    
    $
    10.50Jan 2009 - Dec 2009
    
    
    760,000
    
    
    $
    8.00
    
    
    $
    10.30Crude Oil (bbls)Mar 2008 - Dec 2008
    
    
    66,000
    
    
    $
    85.00
    
    
    $
    111.40Jan 2009 - Dec 2009
    
    
    43,000
    
    
    $
    80.00
    
    
    $
    111.00
 -73-




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##### Table of Contents



18. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
  Quarter Ended2007
    
    March 31
    
    June 30
    
    Sept. 30
    
    Dec. 31Revenues
    
    $
    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 (2)
    
    $
    1,668
    
    
    $
    2,705
    
    
    $
    750
    
    
    $
    2,014Net earnings per share:(2)Basic
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.02Diluted
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.02
  Quarter Ended2006
    
    March 31
    
    June 30
    
    Sept. 30
    
    Dec. 31Revenues
    
    $
    57,506
    
    
    $
    46,540
    
    
    $
    46,059
    
    
    $
    40,852Results of operations from exploration
and production activities(1)
    
    
    18,973
    
    
    
    9,320
    
    
    
    (127,773
    )
    
    
    8,671Net earnings (loss) (2) (3)(4)
    
    $
    7,331
    
    
    $
    2,843
    
    
    $
    (86,879
    )
    
    $
    2,821Net earnings (loss) per share:(2) (3)(4)Basic
    
    $
    0.08
    
    
    $
    0.03
    
    
    $
    (0.99
    )
    
    $
    0.03Diluted
    
    $
    0.08
    
    
    $
    0.03
    
    
    $
    (0.99
    )
    
    $
    0.03
 
 (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)
    
    Applicable to common stockholders.(3)
    
    Adopted SFAS 123(R) effective January 1, 2006.(4)
    
    Includes impairment of long-lived assets of $134.9 million in the third quarter. -74-




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19. SUPPLEMENTAL OIL AND NATURAL GAS DISCLOSURES (Unaudited)
  Costs Incurred in Oil and Natural Gas Acquisition, Exploration and Development Activities
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Costs incurred during the year:(1)Property acquisition costsUnproved
    
    $
    9,589
    
    
    $
    35,728
    
    
    $
    7,097Proved
    
    
    
    
    
    
    8,239
    
    
    
    Exploration
    
    
    92,320
    
    
    
    95,486
    
    
    
    110,669Development
    
    
    9,026
    
    
    
    23,405
    
    
    
    16,136$
    110,935
    
    
    $
    162,858
    
    
    $
    133,902
 
 (1)
    
    Costs incurred during the years ended December 31, 2007, 2006 and 2005 include
general and administrative costs related to acquisition, exploration and development of oil
and natural gas properties, net of third party reimbursements, of $16,492,000, $15,375,000,
and $13,814,000 respectively. Capitalized Costs Relating to Oil and Natural Gas Producing Activities
 December 31,2007
    
    
    2006Capitalized costs
    
    $
    1,771,768
    
    
    $
    1,663,865Accumulated depletion
    
    
    1,344,164
    
    
    
    1,267,504Net capitalized costs
    
    $
    427,604
    
    
    $
    396,361
  -75-




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##### Table of Contents



Costs Not Being Amortized
  Total
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004&PriorLeasehold and Geological & Geophysical
    
    $
    39,478
    
    
    $
    21,443
    
    
    $
    16,621
    
    
    $
    1,409
    
    
    $
    5Exploration Drilling
    
    
    14,167
    
    
    
    13,693
    
    
    
    272
    
    
    
    202
    
    
    
    Total
    
    $
    53,645
    
    
    $
    35,136
    
    
    $
    16,893
    
    
    $
    1,611
    
    
    $
    5
 -76-




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##### Table of Contents



Results of Operations from Oil and Natural Gas Producing Activities
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Operating Revenues:Oil
    
    $
    54,218
    
    
    $
    47,859
    
    
    $
    34,647Natural Gas
    
    
    96,491
    
    
    
    141,182
    
    
    
    160,608150,709
    
    
    
    189,041
    
    
    
    195,255Less:Oil and natural gas operating costs
    
    
    28,338
    
    
    
    22,614
    
    
    
    15,860Severance and ad valorem taxes
    
    
    9,409
    
    
    
    11,259
    
    
    
    8,811Depletion
    
    
    76,660
    
    
    
    105,210
    
    
    
    96,396Accretion expense
    
    
    2,230
    
    
    
    1,588
    
    
    
    1,120Impairment of long-lived assets
    
    
    
    
    
    
    134,865
    
    
    
    Hurricane damage repairs
    
    
    
    
    
    
    4,314
    
    
    
    3,066Income tax expense (benefit)
    
    
    14,992
    
    
    
    (31,783
    )
    
    
    24,501131,629
    
    
    
    248,067
    
    
    
    149,754Results of operations from oil and
natural gas producing activities
    
    $
    19,080
    
    
    $
    (59,026
    )
    
    $
    45,501Depletion expense per Mcfe
    
    $
    4.20
    
    
    $
    4.51
    
    
    $
    3.74
 -77-




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##### Table of Contents



Estimated Quantities of Proved Reserves
  Oil
    
    
    Gas(MBbls)
    
    
    (MMcf)Total Proved Reserves:Balance at December 31, 2004
    
    
    6,364
    
    
    
    100,999Production during 2005
    
    
    (882
    )
    
    
    (20,490
    )Discoveries and extensions
    
    
    366
    
    
    
    15,283Revisions of previous quantity estimates and other
    
    
    (671
    )
    
    
    (15,875
    )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
    
    
    
    61,329Proved Developed Reserves:Balance at December 31, 2004
    
    
    4,716
    
    
    
    85,507Balance at December 31, 2005
    
    
    3,492
    
    
    
    62,524Balance at December 31, 2006
    
    
    3,151
    
    
    
    49,253Balance at December 31, 2007
    
    
    2,892
    
    
    
    42,555
 Standardized Measure of Discounted Future Net Cash Flows
   -78-




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At December 31,2007
    
    
    2006
    
    
    2005Future cash flows
    
    $
    842,986
    
    
    $
    657,584
    
    
    $
    1,122,282Future production costs
    
    
    (185,768
    )
    
    
    (150,462
    )
    
    
    (163,804
    )Future development costs
    
    
    (80,656
    )
    
    
    (64,417
    )
    
    
    (55,212
    )Future taxes on income
    
    
    (80,029
    )
    
    
    (46,034
    )
    
    
    (201,582
    )Future net cash flows
    
    
    496,533
    
    
    
    396,671
    
    
    
    701,684Discount to present value at 10 percent per annum
    
    
    (105,069
    )
    
    
    (68,772
    )
    
    
    (144,481
    )Standardized measure of discounted future net
cash flows
    
    $
    391,464
    
    
    $
    327,899
    
    
    $
    557,203
  Changes in Standardized Measure of Discounted Future Net Cash Flows
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Balance at Beginning of Period
    
    $
    327,899
    
    
    $
    557,203
    
    
    $
    470,357Sales of oil and natural gas, net of production costs
    
    
    (112,962
    )
    
    
    (155,167
    )
    
    
    (170,584
    )Changes in sales & transfer prices, net of
production costs
    
    
    125,623
    
    
    
    (243,150
    )
    
    
    293,294Revisions of previous quantity estimates
    
    
    25,751
    
    
    
    (11,022
    )
    
    
    (130,813
    )Purchase of reserves-in-place
    
    
    
    
    
    
    2,393
    
    
    
    Sale of reserves in-place
    
    
    (2,233
    )
    
    
    
    
    
    
    Current year discoveries, extensions
and improved recovery
    
    
    32,939
    
    
    
    30,710
    
    
    
    107,393Changes in estimated future
development costs
    
    
    (7,917
    )
    
    
    (13,016
    )
    
    
    (16,764
    )Development costs incurred during the period
    
    
    8,526
    
    
    
    18,051
    
    
    
    10,654Accretion of discount
    
    
    32,790
    
    
    
    55,720
    
    
    
    47,036Net change in income taxes
    
    
    (14,451
    )
    
    
    114,782
    
    
    
    (49,453
    )Change in production rates (timing) and other
    
    
    (24,501
    )
    
    
    (28,605
    )
    
    
    (3,917
    )Net change
    
    
    63,565
    
    
    
    (229,304
    )
    
    
    86,846Balance at End of Period
    
    $
    391,464
    
    
    $
    327,899
    
    
    $
    557,203
 -79-




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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
 -80-




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.
  
 
 Item 9B. Other Information.
  -81-




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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, 2007(iii)
    
    Consolidated Balance Sheets as of December 31, 2007 and 2006(iv)
    
    Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 2007(v)
    
    Consolidated Statements of Changes in Stockholders Equity for each of
the three years in the period ended December 31, 2007(vi)
    
    Consolidated Statements of Comprehensive Income (Loss) for each of the
three years in the period ended December 31, 2007(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).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)).
 -82-




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##### Table of Contents



*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. Reeves, Jr. (incorporated by reference from the Companys Annual Report on
Form 10-K for the year ended December 31, 1995).
 -83-




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##### Table of Contents



*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 Meridian Resource Corporation, Fortis Capital Corp., as administrative agent, sole lead
arranger and bookrunner, Comerica Bank, as syndication agent, and Union Bank of
 -84-




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##### Table of Contents



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.**21.1
    
    Subsidiaries of the Company**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 President pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the
Securities Exchange Act of 1934, as amended.**31.3
    
    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 President 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.**32.3
    
    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. -85-




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##### Table of Contents



SIGNATURES
  THE MERIDIAN RESOURCE CORPORATIONBY:
    /s/ JOSEPH A. REEVES, JR.Chief Executive Officer(Principal Executive Officer)
Director and Chairman of the Board   Name
    
    Title
    
    DateBY:
    
    /s/ JOSEPH A. REEVES, JR.

Joseph A. Reeves, Jr.
    
    Chief Executive Officer
(Principal Executive Officer) 
Director and Chairman
of the Board
    
    March 14, 2008BY:
    
    /s/ MICHAEL J. MAYELL
    
    President and Director
    
    March 14, 2008Michael J. MayellBY:
    
    /s/ LLOYD V. DELANO
    
    Chief Accounting Officer
    
    March 14, 2008Lloyd V. DeLanoBY:
    
    
    
    Director
    
    March 14, 2008E. L. HenryBY:
    
    /s/ JOE E. KARES
    
    Director
    
    March 14, 2008Joe E. KaresBY:
    
    /s/ GARY A. MESSERSMITH
    
    Director
    
    March 14, 2008Gary A. MessersmithBY:
    
    /s/ DAVID W. TAUBER
    
    Director
    
    March 14, 2008David W. TauberBY:
    
    /s/ JOHN B. SIMMONS
    
    Director
    
    March 14, 2008John B. SimmonsBY:
    
    
    
    Director
    
    March 14, 2008Fenner R. Weller, Jr.BY:
    
    
    
    Director
    
    March 14, 2008C. Mark Pearson
 -86-




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##### Table of Contents



Name
    
    Title
    
    DateBY:
    
    /s/ PAUL D. CHING
    
    Director
    
    March 14, 2008Paul D. ChingBY:
    
    /s/ G.M. LARBERG
    
    Director
    
    March 14, 2008G.M. Larberg
 -87-




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##### Table of Contents



Exhibit
Index


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).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)).




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##### Table of Contents



*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).4.7
    
    Amended and Restated Credit Agreement, dated December 23, 2004, among
the Company, Fortis Capital Corp., as Administrative Agent, Sole Lead Arranger and
Bookrunner, Comerica Bank, as Syndication Agent, Union Bank of California, N.A., as
Documentation Agent, and the several lenders from time to time parties thereto
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K dated December 23, 2004).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. Reeves, Jr. (incorporated by reference from the Companys Annual Report on
Form 10-K for the year ended December 31, 1995).




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##### Table of Contents



*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 Meridian Resource Corporation, Fortis Capital Corp., as administrative agent, sole lead
arranger and bookrunner, Comerica Bank, as syndication agent, and Union Bank of




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##### Table of Contents



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
    
    Amended and Restated 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.**21.1
    
    Subsidiaries of the Company**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 President pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the
Securities Exchange Act of 1934, as amended.**31.3
    
    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 President 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.**32.3
    
    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.