##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2011
 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:
 
 MILAGRO OIL & GAS, INC.
  Delaware
(State of Incorporation)
    
    26-1307173
(I.R.S. Employer Identification No.)1301 McKinney, Suite 500, Houston, Texas
    
    77010(Address of principal executive offices)
    
    (Zip code)
 
    o o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
  o þ




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##### 



TABLE OF CONTENTS
 PagePART I. Financial InformationItem 1. Financial Statements (Unaudited)
    
    
    3Unaudited Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31,
2010
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2011 and 2010
    
    
    4Unaudited Condensed Consolidated Statements of Changes in Deficit as of September 30, 2011
    
    
    5Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2011 and 2010
    
    
    6Notes to the Unaudited Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    38PART II. Other InformationItem 1. Legal Proceedings
    
    
    38Item 1A. Risk Factors
    
    
    38Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3. Defaults Upon Senior Securities
    
    
    40Item 4. [Removed and Reserved.]
    
    
    40Item 5. Other Information
    
    
    40Item 6. Exhibits
    
    
    40Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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MILAGRO OIL AND GAS, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2011
    
    
    2010(In thousands,except share data)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    5,643
    
    
    $
    17,734Accounts receivable:Oil and natural gas sales
    
    
    18,133
    
    
    
    18,480Joint interest billings and other  net of allowance
for doubtful accounts of $515 and $615 in 2011 and 2010,
respectively (Note 2)
    
    
    2,225
    
    
    
    2,530Derivative assets
    
    
    13,466
    
    
    
    18,834Prepaid expenses and other
    
    
    3,559
    
    
    
    2,518Total current assets
    
    
    43,026
    
    
    
    60,096PROPERTY, PLANT AND EQUIPMENT:Oil and natural gas properties  full cost method:Proved properties
    
    
    1,262,528
    
    
    
    1,181,948Unproved properties
    
    
    19,049
    
    
    
    13,156Less accumulated depreciation, depletion and amortization
    
    
    (780,591
    )
    
    
    (743,637
    )Net oil and natural gas properties
    
    
    500,986
    
    
    
    451,467Other property and equipment, net of accumulated
depreciation of $5,933 and $5,436 in 2011 and 2010,
respectively
    
    
    1,396
    
    
    
    1,718Net property, plant and equipment
    
    
    502,382
    
    
    
    453,185DERIVATIVE ASSETS
    
    
    8,950
    
    
    
    2,646OTHER ASSETS:Deferred financing costs
    
    
    8,357
    
    
    
    1,813Advance to affiliate
    
    
    2,226
    
    
    
    2,248Other
    
    
    2,590
    
    
    
    2,210Total other assets
    
    
    13,173
    
    
    
    6,271TOTAL
    
    $
    567,531
    
    
    $
    522,198LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIES:Accounts payable and accrued liabilities
    
    $
    37,972
    
    
    $
    39,672Current portion of debt
    
    
    
    
    
    
    244,580Accrued interest payable
    
    
    10,865
    
    
    
    1,959Derivative liabilities
    
    
    8
    
    
    
    9,427Asset retirement obligation
    
    
    2,921
    
    
    
    2,921Total current liabilities
    
    
    51,766
    
    
    
    298,559NONCURRENT LIABILITIES:Long-term debt
    
    
    371,032
    
    
    
    92,390Series A preferred stock (Note 7)
    
    
    
    
    
    
    223,630Asset retirement obligation
    
    
    37,523
    
    
    
    37,350Derivative liabilities
    
    
    
    
    
    
    2,926Other
    
    
    3,148
    
    
    
    3,173Total noncurrent liabilities
    
    
    411,703
    
    
    
    359,469Total liabilities
    
    
    463,469
    
    
    
    658,028MEZZANINE EQUITYRedeemable series A preferred stock (Note 9)
    
    
    234,274
    
    
    
    COMMITMENT AND CONTINGENCIES (Note 12)DEFICIT:Common shares, (par value, $.01 per share; shares
authorized: 1,000,000; shares issued and outstanding: 280,400
as of September 30, 2011 and December 31, 2010,
respectively
    
    
    3
    
    
    
    3Additional paid-in capital
    
    
    (66,813
    )
    
    
    (66,813
    )Accumulated deficit
    
    
    (63,402
    )
    
    
    (69,020
    )Total stockholders deficit
    
    
    (130,212
    )
    
    
    (135,830
    )TOTAL
    
    $
    567,531
    
    
    $
    522,198
   3




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MILAGRO OIL AND GAS, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2011
    
    
    2010
    
    
    2011
    
    
    2010REVENUES:Oil and natural gas revenues
    
    $
    32,112
    
    
    $
    32,761
    
    
    $
    101,577
    
    
    $
    101,431Gain on commodity derivatives, net
    
    
    25,883
    
    
    
    7,888
    
    
    
    22,318
    
    
    
    29,906Total revenues
    
    
    57,995
    
    
    
    40,649
    
    
    
    123,895
    
    
    
    131,337COSTS AND EXPENSES:Gathering and transportation
    
    
    371
    
    
    
    286
    
    
    
    1,068
    
    
    
    948Lease operating
    
    
    8,324
    
    
    
    8,995
    
    
    
    26,915
    
    
    
    25,396Environmental remediation
    
    
    5
    
    
    
    
    
    
    
    1,988
    
    
    
    Taxes other than income
    
    
    2,611
    
    
    
    2,580
    
    
    
    6,895
    
    
    
    8,160Depreciation, depletion and amortization
    
    
    12,320
    
    
    
    14,190
    
    
    
    37,451
    
    
    
    40,481General and administrative
    
    
    3,200
    
    
    
    4,127
    
    
    
    10,322
    
    
    
    12,816Accretion
    
    
    798
    
    
    
    642
    
    
    
    2,371
    
    
    
    1,878Total costs and expenses
    
    
    27,629
    
    
    
    30,820
    
    
    
    87,010
    
    
    
    89,679Operating income
    
    
    30,366
    
    
    
    9,829
    
    
    
    36,885
    
    
    
    41,658OTHER EXPENSE (INCOME):Net (gain)/loss on interest rate derivatives
    
    
    (2,767
    )
    
    
    813
    
    
    
    (1,854
    )
    
    
    2,072Other income
    
    
    (339
    )
    
    
    (23
    )
    
    
    (408
    )
    
    
    (633
    )Interest and related expenses, net of
amounts capitalized
    
    
    8,444
    
    
    
    12,130
    
    
    
    32,502
    
    
    
    36,211Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    1,027
    
    
    
    Total other expense
    
    
    5,338
    
    
    
    12,920
    
    
    
    31,267
    
    
    
    37,650INCOME/(LOSS) BEFORE INCOME TAX
    
    
    25,028
    
    
    
    (3,091
    )
    
    
    5,618
    
    
    
    4,008INCOME TAX EXPENSE
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,422NET INCOME / (LOSS)
    
    
    25,028
    
    
    
    (3,091
    )
    
    
    5,618
    
    
    
    (53,414
    )Preferred dividends
    
    
    7,318
    
    
    
    
    
    
    
    11,162
    
    
    
    NET INCOME /(LOSS) AVAILABLE TO COMMON SHAREHOLDERS
    
    $
    17,710
    
    
    $
    (3,091
    )
    
    $
    (5,544
    )
    
    $
    (53,414
    )
   4




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MILAGRO OIL & GAS, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT
 Additional
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Par Value
    
    
    Capital
    
    
    Deficit
    
    
    Deficit(In thousands, except for share amounts)BALANCE  December 31, 2010
    
    
    280,400
    
    
    $
    3
    
    
    $
    (66,813
    )
    
    $
    (69,020
    )
    
    $
    (135,830
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,618
    
    
    
    5,618BALANCE  September 30, 2011
    
    
    280,400
    
    
    $
    3
    
    
    $
    (66,813
    )
    
    $
    (63,402
    )
    
    $
    (130,212
    )
   5




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MILAGRO OIL AND GAS, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine months ended September 30,2011
    
    
    2010(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income/(loss)
    
    $
    5,618
    
    
    $
    (53,414
    )Adjustments to reconcile net income (loss) to cash provided by
operating activities:Depreciation, depletion and amortization
    
    
    37,451
    
    
    
    40,481Amortization of deferred financing costs
    
    
    1,422
    
    
    
    1,320Loss on extinguishment of debt
    
    
    1,027
    
    
    
    Accretion of asset retirement obligations
    
    
    2,371
    
    
    
    1,878Deferred income taxes
    
    
    
    
    
    
    57,422PIK note interest
    
    
    10,015
    
    
    
    21,200Accretion of financing costs
    
    
    1,429
    
    
    
    852Unrealized (gain)/loss on commodity derivatives
    
    
    (9,770
    )
    
    
    (3,873
    )Unrealized (gain)/loss on interest rate derivatives
    
    
    (3,510
    )
    
    
    (4,605
    )Stock based compensation
    
    
    
    
    
    
    1,341Changes in assets and liabilities:Accounts receivable and accrued revenue
    
    
    652
    
    
    
    763Prepaid expenses and other
    
    
    (1,041
    )
    
    
    (1,005
    )Accounts payable and accrued liabilities
    
    
    2,245
    
    
    
    859Net cash provided by operating activities
    
    
    47,909
    
    
    
    63,219CASH FLOWS FROM INVESTING ACTIVITIES:Acquisitions of oil and natural gas properties
    
    
    (29,696
    )
    
    
    (22,399
    )Additions to oil and natural gas properties
    
    
    (54,076
    )
    
    
    (17,299
    )Additions of other long-term assets
    
    
    (175
    )
    
    
    (406
    )Net sales of oil and natural gas properties
    
    
    37
    
    
    
    127Net cash used in investing activities
    
    
    (83,910
    )
    
    
    (39,977
    )CASH FLOWS FROM FINANCING ACTITVITIES:Proceeds from borrowings
    
    
    395,955
    
    
    
    49,000Credit facility payments
    
    
    (362,693
    )
    
    
    (42,933
    )Deferred financing costs paid
    
    
    (9.352
    )
    
    
    (43
    )Net cash provided by financing activities
    
    
    23,910
    
    
    
    6,024NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    $
    (12,091
    )
    
    $
    29,266CASH AND CASH EQUIVALENTS  Beginning of period
    
    $
    17,734
    
    
    $
    10,531CASH AND CASH EQUIVALENTS  End of period
    
    $
    5,643
    
    
    $
    39,797INCOME TAX PAID, Net of refunds
    
    $
    
    
    
    $
    INTEREST PAID  Net of interest capitalized of $803 and
$1,654 in 2011 and 2010, respectively
    
    $
    10,649
    
    
    $
    10,272SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:Recapitalization:Issuance of series A preferred stock
    
    $
    
    
    
    $
    198,712Interest paid in kind  series A preferred stock
    
    $
    9,800
    
    
    $
    17,565Forgiveness of forbearance fee
    
    $
    
    
    
    $
    4,000Settlement of second lien debt
    
    $
    
    
    
    $
    (194,712
    )Interest paid in kind  second lien
    
    $
    214
    
    
    $
    3,635Interest and fees converted to debt
    
    $
    
    
    
    $
    21,960Accrued capital and seismic costs included in proved properties
    
    $
    10,540
    
    
    $
    1,417Asset retirement obligations incurred
    
    $
    2,105
    
    
    $
    3,103
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MILAGRO OIL & GAS, INC.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. ORGANIZATION
     2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Use of Estimates
  7




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Oil and Natural Gas Properties:
 Full Cost Accounting
 Depreciation, Depletion, and Amortization
 Impairment
 Unproved Property Costs
   
    
    Leasehold costs for projects not yet evaluated; and
 
    
    Interest costs related to financing such activities.
 Sales of Properties
 Property, Plant and Equipment Other Than Oil and Natural Gas Properties
  8




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Revenue Recognition and Natural gas Imbalances
 Accounts Receivable
  Prepaid and Other Current Assets:
 Prepaid Expenses
 Other
 Cash and Cash Equivalents
 Derivative Financial Instruments
  9




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Asset Retirement Obligation
 Stock-Based Compensation
 Subsequent Events
 Recently Issued Accounting Pronouncements
 3. ASSET RETIREMENT OBLIGATION
   Liability for asset retirement obligation  December 31, 2010
    
    $
    40,271Revisions
    
    
    (3,141
    )Additions
    
    
    2,105Settlements
    
    
    (1,162
    )Accretion expense
    
    
    2,371Liability for asset retirement obligation  September 30, 2011
    
    $
    40,444
  4. STOCK-BASED COMPENSATION
   10




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5. DERIVATIVE FINANCIAL INSTRUMENTS
     Fair ValueSeptember 30,
    
    
    December 31,Description
    
    Location in Balance Sheet
    
    2011
    
    
    2010Asset derivatives:Natural gas collars and swaps  current portion
    
    Derivative assets  current
    
    $
    10,404
    
    
    $
    18,834Noncurrent portion
    
    Derivative assets  non-current
    
    
    2,012
    
    
    
    2,646Oil collars and swaps  current portion
    
    Derivative assets  current
    
    
    3,062
    
    
    
    Noncurrent portion
    
    Derivative assets  non-current
    
    
    6,891
    
    
    
    Natural gas liquids swaps  noncurrent portion
    
    Derivative assets  non-current
    
    
    47
    
    
    
    $
    22,416
    
    
    $
    21,480Liability derivatives:Oil collars and swaps  current portion
    
    Derivative liabilities  current
    
    $
    
    
    
    $
    5,917Noncurrent portion
    
    Derivative liabilities  non-current
    
    
    
    
    
    
    2,926Natural gas liquids swaps  current portion
    
    Derivative liabilities  current
    
    
    8
    
    
    
    $
    8
    
    
    $
    8,843Interest rate collars:Current portion
    
    Derivative liabilities  current
    
    
    
    
    
    
    3,510$
    
    
    
    $
    3,510
  11




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Three  months ended
    
    
    Nine months endedLocation in Statements
    
    September 30,
    
    
    September 30,Description
    
    of Operations
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010(In thousands)
    
    
    (In thousands)Commodity contracts:Realized gain/(loss) on commodity contracts
    
    Gain/(Loss) on commodity derivatives
    
    $
    1,815
    
    
    $
    8,589
    
    
    $
    12,548
    
    
    $
    26,033Unrealized gain/(loss) on commodity contracts
    
    Gain/(Loss) on commodity derivatives
    
    
    24,068
    
    
    
    (701
    )
    
    
    9,770
    
    
    
    3,873Total net gain/(loss) on commodity contracts
    
    
    
    $
    25,883
    
    
    $
    7,888
    
    
    $
    22,318
    
    
    $
    29,906Interest rate swaps:Realized (gain)/loss on interest rate swaps
    
    Net (gain)/loss on interest rate derivatives
    
    $
    (1,069
    )
    
    $
    2,001
    
    
    $
    1,656
    
    
    $
    6,677Unrealized gain on interest rate swaps
    
    Net (gain) loss interest rate derivatives
    
    
    (1,698
    )
    
    
    (1,188
    )
    
    
    (3,510
    )
    
    
    (4,605
    )Total net (gain)/loss on interest rate swaps
    
    
    
    
    (2,767
    )
    
    
    813
    
    
    
    (1,854
    )
    
    
    2,072Total net gain on derivative contracts
    
    
    
    $
    28,650
    
    
    $
    7,075
    
    
    $
    24,172
    
    
    $
    27,834
   CollarsFloors
    
    
    CeilingsWeighted-
    
    
    
    
    
    
    Weighted-Volume in
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AveragePeriod
    
    MMbtus
    
    
    Price Range
    
    
    Price
    
    
    Price Range
    
    
    PriceOctober 2011  December 2011
    
    
    1,360,164
    
    
    $
    3.50-7.00
    
    
    $
    5.68
    
    
    $
    5.25-10.60
    
    
    $
    8.25January 2012  December 2012
    
    
    2,400,000
    
    
    
    4.25-6.50
    
    
    
    5.94
    
    
    
    5.35-8.10
    
    
    
    7.41January 2013  December 2013
    
    
    2,040,000
    
    
    
    4.70-5.00
    
    
    
    4.80
    
    
    
    5.75-5.85
    
    
    
    5.77January 2014  December 2014
    
    
    1,292,020
    
    
    
    4.50-5.10
    
    
    
    4.72
    
    
    
    6.15-6.20
    
    
    
    6.17
  SwapsWeighted-Volume in
    
    
    Price/
    
    
    AveragePeriod
    
    MMbtus
    
    
    Price Range
    
    
    PriceOctober 2011  December 2011
    
    
    514,781
    
    
    $
    7.93-8.43
    
    
    $
    8.26January 2012  December 2012
    
    
    2,496,914
    
    
    
    5.00-5.15
    
    
    
    5.05January 2013  December 2013
    
    
    1,200,000
    
    
    
    5.20
    
    
    
    5.20January 2014  December 2014
    
    
    1,200,000
    
    
    
    5.20
    
    
    
    5.20
  CollarsFloors
    
    
    CeilingsWeighted-
    
    
    
    
    
    
    Weighted-Volume in
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AveragePeriod
    
    Bbls
    
    
    Price Range
    
    
    Price
    
    
    Price Range
    
    
    PriceOctober 2011  December 2011
    
    
    117,322
    
    
    $
    68.00-80.00
    
    
    $
    71.99
    
    
    $
    80.71-93.24
    
    
    $
    84.57January 2012  December 2012
    
    
    481,563
    
    
    
    80.00-90.00
    
    
    
    81.25
    
    
    
    86.00-96.50
    
    
    
    91.44January 2013  December 2013
    
    
    348,000
    
    
    
    90.00-93.00
    
    
    
    91.41
    
    
    
    97.00-102.95
    
    
    
    102.71January 2014  December 2014
    
    
    276,000
    
    
    
    90.00-93.00
    
    
    
    92.13
    
    
    
    97.00-101.00
    
    
    
    99.24
  SwapsWeighted-Volume in
    
    
    Price/
    
    
    AveragePeriod
    
    Bbls
    
    
    Price Range
    
    
    PriceOctober 2011  December 2011
    
    
    27,181
    
    
    $
    99.85-101.60
    
    
    $
    99.93January 2012  December 2012
    
    
    29,021
    
    
    
    101.60
    
    
    
    101.60January 2013  December 2013
    
    
    24,000
    
    
    
    91.00-91.50
    
    
    
    91.25January 2014  December 2014
    
    
    24,000
    
    
    
    91.00-91.50
    
    
    
    91.25
  12




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SwapsWeighted-Volume in
    
    
    Price/
    
    
    AveragePeriod
    
    Bbls
    
    
    Price Range
    
    
    PriceOctober 2011  December 2011
    
    
    45,000
    
    
    $
    56.79
    
    
    $
    56.79January 2012  December 2012
    
    
    132,000
    
    
    
    51.00 - 51.25
    
    
    
    51.14January 2013  December 2013
    
    
    87,600
    
    
    
    46.25 - 47.00
    
    
    
    46.66January 2014  December 2014
    
    
    78,000
    
    
    
    43.75
    
    
    
    43.75
 6. FAIR VALUES OF FINANCIAL INSTRUMENTS
   Assets and Liabilities Measured atFair Value on a Recurring BasisQuoted Once
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Total(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    BalanceSeptember 30, 2011:Commodity derivatives  natural gas
    
    $
    
    
    
    $
    12,416
    
    
    $
    
    
    
    $
    12,416Commodity derivatives  oil
    
    
    
    
    
    
    9,953
    
    
    
    
    
    
    
    9,953Commodity derivatives  natural gas liquids
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    39December 31, 2010:Commodity derivatives  natural gas
    
    
    
    
    
    $
    21,480
    
    
    
    
    
    
    $
    21,480Commodity derivatives  oil
    
    
    
    
    
    
    (8,843
    )
    
    
    
    
    
    
    (8,843
    )Interest rate collars
    
    
    
    
    
    
    (3,510
    )
    
    
    
    
    
    
    (3,510
    )
  Derivative Financial Instruments
 Debt Instruments
  13




---



##### Table of Contents



Cash and Cash Equivalents, Trade Receivables, and Payables
 7. DEBT
  September 30,
    
    
    December 31,2011
    
    
    2010Revolver  current
    
    $
    
    
    
    $
    184,580Revolver   non-current
    
    
    127,500
    
    
    
    Second lien  current
    
    
    
    
    
    
    60,000Second lien   non-current
    
    
    
    
    
    
    92,390Senior Secured Second Lien Notes   non-current
    
    
    243,532
    
    
    
    Series A preferred stock   non-current
    
    
    
    
    
    
    223,630Total debt
    
    $
    371,032
    
    
    $
    560,600
  Years Ending December 31
    
    Amount2011
    
    $
    2012
    
    
    2013
    
    
    2014
    
    
    127,5002015
    
    
    2016
    
    
    243,532$
    371,032
  First Lien Credit
    14




---



##### Table of Contents



Second Lien
  Series A Preferred Stock
 Capitalization of Debt Costs
  Senior Secured Second Lien Notes
  15




---



##### Table of Contents



8. GUARANTOR AND NON-GUARANTOR
  9. MEZZANINE EQUITY
     16




---



##### Table of Contents



10. COMMON STOCK
  11. INCOME TAXES
   12. COMMITMENTS AND CONTINGENCIES
 Commitments
   2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    Thereafter
    
    
    TotalOffice lease
    
    $
    442
    
    
    $
    1,798
    
    
    $
    1,884
    
    
    $
    1,913
    
    
    $
    1,913
    
    
    $
    3,188
    
    
    $
    11,138Other
    
    
    700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    700
 Contingencies:
  13. EMPLOYEE BENEFIT PLANS
   17




---



##### Table of Contents



14. RELATED PARTY TRANSACTIONS
  15. SEGMENT INFORMATION
    18




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 You should read the following discussion and analysis of our financial condition and results
of operations together with our unaudited condensed consolidated financial statements and the
related notes and other financial information included elsewhere in this report. Some of the
information contained in this discussion and analysis or set forth elsewhere in this report,
including information with respect to our plans and strategy for our business and related
financing, include forward-looking statements that involve risks and uncertainties. You should
review the section entitled Risk Factors included in our registration statement on Form S-4 , File
No. 333-177534 filed on October 27, 2011 and this report for a discussion of important factors that
could cause actual results to differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion and analysis
 Overview
      Sources of Our Revenues
  % of PDP HedgedYear
    
    Oil
    
    
    Natural gas
    
    
    NGLs2011
    
    
    81
    %
    
    
    78
    %
    
    
    88
    %2012
    
    
    86
    %
    
    
    62
    %
    
    
    74
    %2013
    
    
    79
    %
    
    
    53
    %
    
    
    60
    %2014
    
    
    77
    %
    
    
    51
    %
    
    
    63
    %
  19




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##### Table of Contents



Components of Our Cost Structure
 Production Costs.
 
    
    Lease operating expenses are generally composed of several components, including the cost
of: labor and supervision to operate our wells and related equipment; repairs and
maintenance; fluid treatment and disposal; related materials, supplies, and fuel; and
insurance applicable to our wells and related facilities and equipment. Lease operating
expenses also include the cost for workover expense and gathering and transportation. Lease
operating expenses are driven in part by the type of commodity produced, the level of
workover activity and the geographical location of the properties.
 
    
    Environmental remediation expenses are costs related to environmental remediation
activity associated with our ongoing operations.
 
    
    In the U.S., there are a variety of state and federal taxes levied on the production of
oil and natural gas. These are commonly grouped together and referred to as taxes other than
income. The majority of our production tax expense is based on a percent of gross value
realized at the wellhead at the time the production is sold or removed from the lease. As a
result, our production tax expense increases when oil and natural gas prices rise.
 
    
    Historically, taxing authorities have from time to time encouraged the oil and natural
gas industry to explore for new oil and natural gas reserves, or to develop high cost
reserves, through reduced tax rates or tax credits. These incentives have been narrow in
scope and short-lived. A number of our wells have qualified for reduced production taxes
because they are high cost wells.
 
    
    Taxes other than income include production taxes and ad valorem taxes, which are imposed
by local taxing authorities such as school districts, cities, and counties or boroughs. The
amount of tax we pay is based on a percent of value of the property assessed or determined
by the taxing authority on an annual basis. When oil and natural gas prices rise, the value
of our underlying property interests increase, which results in higher ad valorem taxes.
 Depreciation, Depletion and Amortization.
  20




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##### Table of Contents



Asset Retirement Accretion Expense.
 General and Administrative Expense.
 Interest.
  Income Taxes.
  Oil and Natural Gas Reserves
  As of September 30,2011
    
    

% Chg
    
    
    2010Estimated Proved Reserves:Oil and NGLs (MMBbls)
    
    
    13.9
    
    
    
    28
    %
    
    
    10.9Natural gas (Bcf)
    
    
    141.0
    
    
    
    15
    %
    
    
    122.9Total oil equivalent (MMBoe)
    
    
    37.4
    
    
    
    19
    %
    
    
    31.4Proved developed reserves as a percentage of net proved reserves
    
    
    64
    %
    
    
    
    
    
    
    72
    %
  Results of Operations
  Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010
 Sales Volumes
 Three Months Ended September 30,2011
    
    

% Change
    
    
    2010Oil and NGLs (MBbls)
    
    
    245
    
    
    
    (2
    )%
    
    
    251Natural gas (MMcf)
    
    
    2,726
    
    
    
    (21
    )%
    
    
    3,436Total (MBoe)
    
    
    699
    
    
    
    (15
    )%
    
    
    824Average daily production volumes (MBoe/d)(a)
    
    
    7.60
    
    
    
    (15
    )%
    
    
    8.96
 
 (a)
    
    Average daily production volumes calculated based on 365-day year  21




---



##### Table of Contents



Revenues.
 Three Months Ended September 30,2011
    
    

% Change
    
    
    2010Oil revenues:Oil price per Bbl
    
    $
    85.78
    
    
    
    21
    %
    
    $
    70.86Oil derivative settlement gains (losses) per Bbl
    
    
    (2.11
    )
    
    
    (484
    )%
    
    
    0.55Oil revenues including oil derivative settlements per Bbl
    
    $
    83.67
    
    
    
    17
    %
    
    $
    71.41Natural gas revenues:Natural gas per Mcf
    
    $
    4.07
    
    
    
    (7
    )%
    
    $
    4.36Natural gas derivative settlement gains (losses) per Mcf
    
    
    0.86
    
    
    
    (65
    )%
    
    
    2.46Natural gas revenues including derivative settlements per Mcf
    
    $
    4.93
    
    
    
    (28
    )%
    
    $
    6.82Oil and natural gas revenues:Oil and natural gas per BOE
    
    $
    45.94
    
    
    
    16
    %
    
    $
    39.76Oil and natural gas derivative settlement gains (losses) per BOE
    
    
    2.60
    
    
    
    (75
    )%
    
    
    10.42Oil and natural gas revenues including derivative settlement gains (losses) per BOE
    
    $
    48.54
    
    
    
    (3
    )%
    
    $
    50.18Oil and natural gas derivative unrealized gains (losses) per BOE
    
    
    34.43
    
    
    
    (4150
    )%
    
    
    (0.85
    )Oil and natural gas revenues including derivative settlements and unrealized gains (losses) per BOE
    
    $
    82.97
    
    
    
    68
    %
    
    $
    49.33Total price per BOE
    
    $
    82.97
    
    
    
    68
    %
    
    $
    49.33
 Three months ended September 30,2011
    
    
    % Change
    
    
    2010(In thousands)Oil revenues:Oil revenues
    
    $
    21,014
    
    
    
    18
    %
    
    $
    17,787Oil derivative settlements
    
    
    (516
    )
    
    
    (476
    )%
    
    
    137Oil revenues including oil derivative settlements
    
    
    20,498
    
    
    
    14
    %
    
    
    17,924Natural gas revenues:Natural gas revenues
    
    
    11,098
    
    
    
    (26
    )%
    
    
    14,974Natural gas derivative settlements
    
    
    2,331
    
    
    
    (72
    )%
    
    
    8,452Natural gas revenues including derivative settlements
    
    
    13,429
    
    
    
    (43
    )%
    
    
    23,426Oil and natural gas revenues:Oil and natural gas revenues
    
    
    32,112
    
    
    
    (2
    )%
    
    
    32,761Oil and natural gas derivative settlements
    
    
    1,815
    
    
    
    (79
    )%
    
    
    8,589Oil and natural gas revenues including derivative settlement gains (losses)
    
    
    33,927
    
    
    
    (18
    )%
    
    
    41,350Oil and natural gas derivative unrealized gains (losses)
    
    
    24,068
    
    
    
    3534
    %
    
    
    (701
    )Oil and natural gas revenues including derivative settlements and unrealized gains (losses)
    
    
    57,995
    
    
    
    43
    %
    
    
    40,649Total revenues
    
    $
    57,995
    
    
    
    43
    %
    
    $
    40,649
  22




---



##### Table of Contents



Change from Three MonthsEnded September 30, 2010 to ThreeMonths Ended September 30, 2011(In thousands)Change in revenues from the sale of oil:Price variance impact
    
    $
    3,694Sales volume variance impact
    
    
    (467
    )Total change
    
    
    3,227Change in revenues from the sale of natural gas:Price variance impact
    
    $
    (779
    )Sales volume variance impact
    
    
    (3,097
    )Total change
    
    
    (3,876
    )Change in revenues from the sale of oil and natural
gas:Price variance impact
    
    $
    2,915Volume variance impact
    
    
    (3,564
    )Cash settlement of derivative hedging contracts
    
    
    (6,774
    )Unrealized gains due to derivative hedging contracts
    
    
    24,768Total change
    
    $
    17,345
  Production costs.
 Unit-of-Production(Per Boe Based on Sales Volumes)Three months ended September 30,2011
    
    

% Change
    
    
    2010Production costs:Gathering & transportation
    
    $
    0.53
    
    
    
    51
    %
    
    $
    0.35Operating & maintenance
    
    
    10.70
    
    
    
    10
    %
    
    
    9.70Workover expenses
    
    
    1.21
    
    
    
    0
    %
    
    
    1.21Lease operating expenses
    
    
    12.44
    
    
    
    10
    %
    
    
    11.26Remediation expenses
    
    
    0.01
    
    
    
    100
    %
    
    
    Taxes other than income
    
    
    3.74
    
    
    
    19
    %
    
    
    3.13Production costs
    
    $
    16.19
    
    
    
    13
    %
    
    $
    14.39
  23




---



##### Table of Contents



Production CostsThree months ended September 30,2011
    
    

% Change
    
    
    2010(In thousands)Production costs:Gathering & transportation
    
    $
    371
    
    
    
    30
    %
    
    $
    286Operating & maintenance
    
    
    7,477
    
    
    
    (6
    )%
    
    
    7,996Workover expenses
    
    
    847
    
    
    
    (15
    )%
    
    
    999Lease operating expenses
    
    
    8,695
    
    
    
    (6
    )%
    
    
    9,281Remediation expenses
    
    
    5
    
    
    
    100
    %
    
    
    Taxes other than income
    
    
    2,611
    
    
    
    1
    %
    
    
    2,580Production costs
    
    $
    11,311
    
    
    
    (5
    )%
    
    $
    11,861
     General and administrative expenses.
 Three months ended September 30,2011
    
    

% Change
    
    
    2010(In thousands, except per unit measurements which are based on sales volumes)General and administrative expenses  gross
    
    $
    4,328
    
    
    
    (15
    )%
    
    $
    5,069Capitalized general and administrative expenses
    
    
    1,128
    
    
    
    20
    %
    
    
    942General and administrative costs  net
    
    $
    3,200
    
    
    
    (22
    )%
    
    $
    4,127General and administrative expenses  gross $
per Boe
    
    $
    6.19
    
    
    
    1
    %
    
    $
    6.15
  Depletion of oil and natural gas properties.
 Three months ended September 30,2011
    
    

% Change
    
    
    2010(In thousands, except per unit measurements which are based on sales volumes)Depletion of oil and natural gas properties
    
    $
    12,119
    
    
    
    (10
    )%
    
    $
    13,447Depletion of oil and natural gas properties (per Boe)
    
    $
    17.34
    
    
    
    6
    %
    
    $
    16.32
  24




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##### Table of Contents



Net interest expense.
 Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010
 Sales Volumes
 Nine Months Ended September 30,2011
    
    

% Change
    
    
    2010Oil and NGLs (MBbls)
    
    
    750
    
    
    
    1
    %
    
    
    740Natural gas (MMcf)
    
    
    8,616
    
    
    
    (18
    )%
    
    
    10,527Total (MBoe)
    
    
    2,186
    
    
    
    (12
    )%
    
    
    2,495Average daily production volumes (MBoe/d)(a)
    
    
    8.01
    
    
    
    (12
    )%
    
    
    9.14
 
 (a)
    
    Average daily production volumes calculated based on 365-day year  Revenues.
 Nine Months Ended September 30,2011
    
    

% Change
    
    
    2010Oil revenues:Oil price per Bbl
    
    $
    88.06
    
    
    
    23
    %
    
    $
    71.81Oil derivative settlement gains (losses) per Bbl
    
    
    (7.32
    )
    
    
    (2,915
    )%
    
    
    0.26Oil revenues including oil derivative settlements per Bbl
    
    $
    80.74
    
    
    
    12
    %
    
    $
    72.07Natural gas revenues:Natural gas per Mcf
    
    $
    4.12
    
    
    
    (10
    )%
    
    $
    4.59Natural gas derivative settlement gains (losses) per Mcf
    
    
    2.09
    
    
    
    (15
    )%
    
    
    2.45Natural gas revenues including derivative settlements per Mcf
    
    $
    6.21
    
    
    
    (12
    )%
    
    $
    7.04Oil and natural gas revenues:Oil and natural gas per BOE
    
    $
    46.46
    
    
    
    14
    %
    
    $
    40.65Oil and natural gas derivative settlement gains (losses) per BOE
    
    
    5.74
    
    
    
    (45
    )%
    
    
    10.43Oil and natural gas revenues including derivative settlement
gains (losses) per BOE
    
    $
    52.20
    
    
    
    2
    %
    
    $
    51.08Oil and natural gas derivative unrealized gains (losses) per BOE
    
    
    4.47
    
    
    
    188
    %
    
    
    1.55Oil and natural gas revenues including derivative settlements
and unrealized gains (losses) per BOE
    
    $
    56.67
    
    
    
    8
    %
    
    $
    52.63Total price per BOE
    
    $
    56.67
    
    
    
    8
    %
    
    $
    52.63
  25




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##### Table of Contents



Nine months ended September 30,2011
    
    
    % Change
    
    
    2010(In thousands)Oil revenues:Oil revenues
    
    $
    66,047
    
    
    
    24
    %
    
    $
    53,140Oil derivative settlements
    
    
    (5,491
    )
    
    
    (2,916
    )%
    
    
    195Oil revenues including oil derivative settlements
    
    
    60,556
    
    
    
    14
    %
    
    
    53,335Natural gas revenues:Natural gas revenues
    
    
    35,530
    
    
    
    (26
    )%
    
    
    48,291Natural gas derivative settlements
    
    
    18,039
    
    
    
    (30
    )%
    
    
    25,838Natural gas revenues including derivative settlements
    
    
    53,569
    
    
    
    (28
    )%
    
    
    74,129Oil and natural gas revenues:Oil and natural gas revenues
    
    
    101,577
    
    
    
    0
    %
    
    
    101,431Oil and natural gas derivative settlements
    
    
    12,548
    
    
    
    (52
    )%
    
    
    26,033Oil and natural gas revenues including derivative settlement gains (losses)
    
    
    114,125
    
    
    
    (10
    )%
    
    
    127,464Oil and natural gas derivative unrealized gains (losses)
    
    
    9,770
    
    
    
    152
    %
    
    
    3,873Oil and natural gas revenues including derivative settlements and unrealized gains (losses)
    
    
    123,895
    
    
    
    (6
    )%
    
    
    131,337Total revenues
    
    $
    123,895
    
    
    
    (6
    )%
    
    $
    131,337
 Change from Nine MonthsEnded September 30, 2010 to NineMonths Ended September 30, 2011(In thousands)Change in revenues from the sale of oil:Price variance impact
    
    $
    12,175Sales volume variance impact
    
    
    733Total change
    
    
    12,908Change in revenues from the sale of natural gas:Price variance impact
    
    $
    (3,996
    )Sales volume variance impact
    
    
    (8,766
    )Total change
    
    
    (12,762
    )Change in revenues from the sale of oil and natural gas:Price variance impact
    
    $
    8,179Volume variance impact
    
    
    (8,033
    )Cash settlement of derivative hedging contracts
    
    
    (13,485
    )Unrealized gains due to derivative hedging contracts
    
    
    5,897Total change
    
    $
    (7,442
    )
   26




---



##### Table of Contents



Production costs.
 Unit-of-Production(Per Boe Based on Sales Volumes)Nine months ended September 30,2011
    
    

% Change
    
    
    2010Production costs:Gathering & transportation
    
    $
    0.49
    
    
    
    29
    %
    
    $
    0.38Operating & maintenance
    
    
    11.33
    
    
    
    25
    %
    
    
    9.07Workover expenses
    
    
    0.98
    
    
    
    (12
    )%
    
    
    1.11Lease operating expenses
    
    
    12.80
    
    
    
    21
    %
    
    
    10.56Remediation expenses
    
    
    0.91
    
    
    
    100
    %
    
    
    Taxes other than income
    
    
    3.15
    
    
    
    (4
    )%
    
    
    3.27Production costs
    
    $
    16.86
    
    
    
    22
    %
    
    $
    13.83
 Production CostsNine months ended September 30,2011
    
    

% Change
    
    
    2010(In thousands)Production costs:Gathering & transportation
    
    $
    1,068
    
    
    
    13
    %
    
    $
    948Operating & maintenance
    
    
    24,766
    
    
    
    9
    %
    
    
    22,623Workover expenses
    
    
    2,149
    
    
    
    (23
    )%
    
    
    2,773Lease operating expenses
    
    
    27,983
    
    
    
    6
    %
    
    
    26,344Remediation expenses
    
    
    1,988
    
    
    
    100
    %
    
    
    Taxes other than income
    
    
    6,895
    
    
    
    (16
    )%
    
    
    8,160Production costs
    
    $
    36,866
    
    
    
    7
    %
    
    $
    34,504
    General and administrative expenses.
 Nine months ended September 30,2011
    
    

% Change
    
    
    2010(In thousands, except per unit measurements which are based on sales volumes)General and administrative expenses  gross
    
    $
    13,841
    
    
    
    (11
    )%
    
    $
    15,601Capitalized general and administrative expenses
    
    
    3,519
    
    
    
    26
    %
    
    
    2,785General and administrative costs  net
    
    $
    10,322
    
    
    
    (19
    )%
    
    $
    12,816General and administrative expenses  gross $  per Boe
    
    $
    6.33
    
    
    
    1
    %
    
    $
    6.25
  27




---



##### Table of Contents



Depletion of oil and natural gas properties.
 Nine months ended September 30,2011
    
    

% Change
    
    
    2010(In thousands, except per unit measurements which are based on sales volumes)Depletion of oil and natural gas properties
    
    $
    36,898
    
    
    
    (5
    )%
    
    $
    38,709Depletion of oil and natural gas properties (per Boe)
    
    $
    16.88
    
    
    
    9
    %
    
    $
    15.52
  Net interest expense.
 Liquidity and Capital Resources
  Sources and Uses of Cash
  Nine months ended September 30,2011
    
    

% Change
    
    
    2010(In thousands)Net income / (loss)
    
    $
    5,618
    
    
    
    111
    %
    
    $
    (53,414
    )Non-cash items
    
    
    40,435
    
    
    
    (65
    )%
    
    
    116,016Changes in working capital and other items
    
    
    1,856
    
    
    
    201
    %
    
    
    617Cash flows provided by operating activities
    
    
    47,909
    
    
    
    (24
    )%
    
    
    63,219Cash flows used in investing activities
    
    
    (83,910
    )
    
    
    110
    %
    
    
    (39,977
    )Cash flows provided by financing activities
    
    
    23,910
    
    
    
    297
    %
    
    
    6,024Net (decrease) / increase in cash and cash equivalents
    
    $
    (12,091
    )
    
    
    (141
    )%
    
    $
    29,266
 Analysis of cash flows provided by operating activities
   28




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Analysis of cash flows used in investing activities
  Analysis of cash flows provided in financing activities
  Capital expenditures
    Capital resources
 Cash.
 First Lien Credit.
  29




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Second Lien.
  Series A Preferred Stock.
  Capitalization of Debt Costs.
 Senior Secured Second Lien Notes.
   30




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Outlook
      Amount Spent2011
    
    
    Through September 30,
    
    
    AmountBudget(a)
    
    
    2011
    
    
    Remaining(b)(In millions)Drilling
    
    $
    32.6
    
    
    $
    34.1
    
    
    $
    (1.5
    )Acquisitions
    
    
    36.0
    
    
    
    29.7
    
    
    
    6.3Workovers and recompletions
    
    
    5.0
    
    
    
    7.6
    
    
    
    (2.6
    )Geological, geophysical, leasing and seismic
    
    
    4.3
    
    
    
    11.2
    
    
    
    (6.9
    )Plugging and abandonment
    
    
    2.6
    
    
    
    1.2
    
    
    
    1.4Facilities, vehicles and other
    
    
    4.8
    
    
    
    0.6
    
    
    
    4.2Total operations capital budget
    
    $
    85.3
    
    
    $
    84.4
    
    
    $
    0.9
 
 (a)
    
    2011 capital budget approved by our Board of Directors.(b)
    
    Calculated based upon the 2011 capital budget less amounts spent
through September 30, 2011. We anticipate spending approximately
$94.0 million in 2011. The additional capital spend in 2011 relates
to carryover projects approved in 2010, an additional well, not
originally budgeted and capital repairs to properties affected by the
Mississippi river flooding.  31




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
    
    changes in commodity prices;
 
    
    changes in service and materials costs, including from the sharing of costs through the
formation of joint ventures with other oil and natural gas companies;
 
    
    production from our existing producing wells;
 
    
    the results of our current exploitation and development drilling efforts;
 
    
    economic and industry conditions at the time of drilling;
 
    
    our liquidity and the availability of financing; and
 
    
    properties for sale at an attractive price and rate of return.
 Off Balance Sheet Arrangements
  Critical Accounting Policies
  Use of Estimates
  Oil and Natural Gas Properties
 Full Cost Accounting
  32




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##### Table of Contents



Depreciation, Depletion, and Amortization
 Impairment
 Unproved Property Costs
   
    
    leasehold costs for projects not yet evaluated;and
 
    
    interest costs related to financing such activities.
 Revenue Recognition and Natural Gas Imbalances
   Income Taxes
   33




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Derivative Financial Instruments
     34




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Asset Retirement Obligation
  Recently Issued Accounting Pronouncements
 Fair Value Measurement (Topic 820): Amendments
to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.
 
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Commodity Price Risk
     35




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As of September 30, 2011(In thousands, except for unit prices)Oil collarsVolumes (MBbls)
    
    
    449Average floor price (per Bbl)
    
    $
    75.86Average ceiling price (per Bbl)
    
    $
    88.48Gain/(loss) upon settlement
    
    $
    (5,726
    )Oil swapsVolumes (MBbls)
    
    
    96Average swap price (per Bbl)
    
    $
    79.30Gain/(loss) upon settlement
    
    $
    234Total oil gain/(loss) upon settlement
    
    $
    (5,492
    )Natural gas collarsVolumes (MMcf)
    
    
    1,200Average floor price (per Mcf)
    
    $
    3.75Average ceiling price (per Mcf)
    
    $
    5.29Gain/(loss) upon settlement
    
    $
    232Natural gas swapsVolumes (MMcf)
    
    
    1,923Average swap price (per Mcf)
    
    $
    8.13Gain/(loss) upon settlement
    
    $
    17,807Total natural gas gain/(loss) upon settlement
    
    $
    18,039
  Natural gas
    
    Type
    
    
    MMbtu / Mo. or Avg.
    
    
    Price / MMbtuOct-11 to Oct-11
    
    Collar
    
    
    300,000
    
    
    $
    4.50 - 5.25Oct-11 to Oct-11
    
    Swap
    
    
    174,525
    
    
    $
    7.93Oct-11 to Dec-11
    
    Collar
    
    
    100,000
    
    
    $
    3.50 - 5.30Nov-11to Dec-11
    
    Collar
    
    
    380,082
    
    
    $
    7.00 - 10.60Nov-11to Dec-11
    
    Swap
    
    
    170,128
    
    
    $
    8.43Jan-12 to Dec-12
    
    Collar
    
    
    150,000
    
    
    $
    6.50 - 8.10Jan-12 to Dec-12
    
    Swap
    
    
    133,076
    
    
    $
    5.00Jan-12 to Dec-12
    
    Collar
    
    
    50,000
    
    
    $
    4.25 - 5.35Jan-12 to Dec-12
    
    Swap
    
    
    75,000
    
    
    $
    5.15Jan-13 to Dec-14
    
    Swap
    
    
    100,000
    
    
    $
    5.20Jan-13 to Dec-13
    
    Collar
    
    
    40,000
    
    
    $
    5.00 - 5.85Jan-13 to Dec-13
    
    Collar
    
    
    90,000
    
    
    $
    4.75 - 5.75Jan-13 to Dec-13
    
    Collar
    
    
    40,000
    
    
    $
    4.70 - 5.75Jan-14 to Dec-14
    
    Collar
    
    
    40,000
    
    
    $
    5.10 - 6.20Jan-14 to Nov-14
    
    Collar
    
    
    73,820
    
    
    $
    4.50 - 6.15
  36




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##### Table of Contents



Oil
    
    Type
    
    
    Bbl / Mo. or Avg. Bbl /
    
    
    Price / BblOct-11 to Dec-11
    
    Collar
    
    
    26,107
    
    
    $
    68.00 - 80.71Oct-11 to Dec-11
    
    Collar
    
    
    3,000
    
    
    $
    80.00 - 89.25Oct-11 to Oct-11
    
    Swap
    
    
    1,181
    
    
    $
    101.60Oct-11 to Dec-11
    
    Swap
    
    
    8,667
    
    
    $
    99.85Oct-11 to Dec-12
    
    Collar
    
    
    10,000
    
    
    $
    80.00 - 93.24Jan-12 to Aug-12
    
    Collar
    
    
    25,000
    
    
    $
    80.00 - 91.60Sep-12 to Dec-12
    
    Collar
    
    
    25,391
    
    
    $
    80.00 - 86.00Jan-12 to Aug-12
    
    Swap
    
    
    3,628
    
    
    $
    101.60Jan-12 to Dec-12
    
    Collar
    
    
    5,000
    
    
    $
    90.00 - 96.50Jan-13 to Dec-13
    
    Collar
    
    
    6,000
    
    
    $
    90.00 - 111.85Jan-13 to Dec-13
    
    Collar
    
    
    8,000
    
    
    $
    92.00 - 102.95Jan-13 to Dec-13
    
    Collar
    
    
    2,000
    
    
    $
    93.00 - 102.00Jan-13 to Dec-14
    
    Collar
    
    
    3,000
    
    
    $
    91.00 - 98.00Jan-13 to Dec-14
    
    Collar
    
    
    2,000
    
    
    $
    90.00 - 97.00Jan-13 to Dec-14
    
    Collar
    
    
    2,000
    
    
    $
    91.00 - 97.00Jan-13 to Dec-14
    
    Collar
    
    
    2,000
    
    
    $
    92.00 - 98.00Jan-13 to Dec-14
    
    Collar
    
    
    2,000
    
    
    $
    92.00 - 100.00Jan-13 to Dec-14
    
    Collar
    
    
    2,000
    
    
    $
    93.00 - 101.00Jan-13 to Dec-14
    
    Swap
    
    
    1,000
    
    
    $
    91.00Jan-13 to Dec-14
    
    Swap
    
    
    1,000
    
    
    $
    91.50Jan-14 to Dec-14
    
    Collar
    
    
    10,000
    
    
    $
    93.00 - 100.25
 NGL
    
    Type
    
    
    Bbl / Mo. or Avg. Bbl /
    
    
    Price / BblOct-11 to Dec-11
    
    Swap
    
    
    15,000
    
    
    $
    56.79Jan-12 to Dec-12
    
    Swap
    
    
    5,000
    
    
    $
    51.00Jan-12 to Dec-12
    
    Swap
    
    
    6,000
    
    
    $
    51.25Jan-13 to Dec-13
    
    Swap
    
    
    3,300
    
    
    $
    46.25Jan-13 to Dec-13
    
    Swap
    
    
    4,000
    
    
    $
    47.00Jan-14 to Dec-14
    
    Swap
    
    
    6,500
    
    
    $
    43.75
 Concentration of Credit Risk
  Counterparty Risk
   37




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Item 4.
    
    Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  
 PART II
 
 Item 1.
    
    Legal Proceedings.
  
 Item 1A.
    
    Risk Factors.
 We have had losses in the past and there is no assurance of our profitability for the future.
  Economic uncertainty could negatively impact the prices for oil and natural gas, limit access to
the credit and equity markets, increase the cost of capital, and may have other negative
consequences that we cannot predict.
   38




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We are subject to various governmental regulations and environmental risks that may cause us
to incur substantial costs.
      39




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##### Table of Contents



Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3.
    
    Defaults Upon Senior Securities.
  
 Item 4.
    
    [Removed and Reserved.]
 
 Item 5.
    
    Other Information.
  
 Item 6.
    
    Exhibits. 31.1*
  
  Certification of Chief Executive Officer
pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act
of 1934, as amended.31.2*
  
  Certification of Chief Financial Officer
pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act
of 1934, as amended.32.1*
  
  Certification of Chief Executive Officer
pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act
of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of
the United States Code.32.2*
  
  Certification of Chief Financial Officer
pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act
of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of
the United States Code.
 Forward-Looking Statements
  
    
    our ability to finance our planned capital expenditures;
 
    
    the volatility in commodity prices for oil and natural gas;
 
    
    demand for oil and natural gas;
 
    
    future profitability;
 
    
    our ability to continue as a going concern;
 
    
    accuracy of reserve estimates;
 
    
    the need to take ceiling test impairments due to lower commodity prices;
 
    
    significant dependence on equity financing for acquisitions;
 
    
    the ability to replace our oil and natural gas reserves;
 
    
    general economic conditions;
 
    
    our ability to control activities on properties that we do not operate;
 
    
    pricing risks;
 
    
    availability of rigs, crews, equipment and oilfield services;
 
    
    our ability to retain key members of our senior management and key technical employees;
  40




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##### Table of Contents




    
    geographic concentration of our assets;
 
    
    expiration of undeveloped leasehold acreage;
 
    
    exploitation, development, drilling and operating risks;
 
    
    the presence or recoverability of estimated oil and natural gas reserves and the actual
future production rates and associated costs;
 
    
    availability of pipeline capacity and other means of transporting our oil and natural gas
production;
 
    
    reliance on independent experts;
 
    
    our ability to integrate acquisitions with existing operations;
 
    
    the sufficiency of our insurance coverage;
 
    
    competition;
 
    
    the possibility that the industry may be subject to future regulatory or legislative
actions (including changes to existing tax rules and regulations and changes in
environmental regulation);
 
    
    environmental risks; and
 
    
    additional staffing requirements and other increased costs associated with being a
reporting company.
   41




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##### Table of Contents



SIGNATURES
  MILAGRO OIL & GAS, INC.Date:  November 17, 2011
    By:
    /s/ James G. IveyJames G. IveyPresident and Chief Executive OfficerDate:  November 17, 2011
    By:
    /s/ Robert D. LaRocqueRobert D. LaRocqueVice President of Finance and TreasurerDate:  November 17, 2011
    By:
    /s/ Mark StirlMark E. StirlVice President and Controller  42