##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 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, 2008
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number: 0-20100
 BELDEN & BLAKE CORPORATION
  Ohio
    
    34-1686642(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1001 Fannin Street, Suite 800Houston, Texas
    
    77002(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 Yes o No þ




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##### 



PagePART I Financial InformationItem 1. Financial Statements (unaudited)Balance Sheets as of September 30, 2008 and December 31, 2007
    
    
    1Statements of Operations:
Three and nine months ended September 30, 2008 and 2007
    
    
    2Statements of Cash Flows:
Nine months ended September 30, 2008 and 2007
    
    
    3Notes to Financial Statements (unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    20PART II Other InformationItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits
    
    
    21Signatures
    
    
    22Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 BELDEN & BLAKE CORPORATION
 
 BALANCE SHEETS
(unaudited, in thousands, except number of shares)
 September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    24,439
    
    
    $
    16,014Accounts receivable (less accumulated provision for doubtful
accounts: September 30, 2008  $526; December 31, 2007  $806)
    
    
    20,649
    
    
    
    18,071Inventories
    
    
    979
    
    
    
    1,084Deferred income taxes
    
    
    16,201
    
    
    
    17,282Other current assets
    
    
    113
    
    
    
    370Fair value of derivatives
    
    
    12
    
    
    
    37Total current assets
    
    
    62,393
    
    
    
    52,858Property and equipment, at costOil and gas properties (successful efforts method)
    
    
    729,358
    
    
    
    713,912Gas gathering systems
    
    
    1,351
    
    
    
    1,308Land, buildings, machinery and equipment
    
    
    2,832
    
    
    
    2,761733,541
    
    
    
    717,981Less accumulated depreciation, depletion and amortization
    
    
    114,446
    
    
    
    88,549Property and equipment, net
    
    
    619,095
    
    
    
    629,432Goodwill
    
    
    90,076
    
    
    
    90,076Fair value of derivatives
    
    
    85
    
    
    
    29Other assets
    
    
    1,435
    
    
    
    1,830$
    773,084
    
    
    $
    774,225LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    2,829
    
    
    $
    1,148Accounts payable  related party
    
    
    667
    
    
    
    1,508Accrued expenses
    
    
    21,346
    
    
    
    20,363Current portion of long-term liabilities
    
    
    341
    
    
    
    367Fair value of derivatives
    
    
    40,976
    
    
    
    43,696Total current liabilities
    
    
    66,159
    
    
    
    67,082Long-term liabilitiesBank and other long-term debt
    
    
    99,940
    
    
    
    99,947Senior secured notes
    
    
    163,543
    
    
    
    164,240Subordinated promissory note  related party
    
    
    26,946
    
    
    
    26,931Asset retirement obligations and other long-term liabilities
    
    
    23,129
    
    
    
    22,164Fair value of derivatives
    
    
    153,997
    
    
    
    192,661Deferred income taxes
    
    
    114,410
    
    
    
    98,977Total long-term liabilities
    
    
    581,965
    
    
    
    604,920Shareholders equityCommon stock: without par value; 3,000 shares authorized and 1,534 shares issued
    
    
    
    
    
    
    Paid in capital
    
    
    122,500
    
    
    
    125,000Retained earnings/deficit
    
    
    17,354
    
    
    
    (3,810
    )Accumulated other comprehensive loss
    
    
    (14,894
    )
    
    
    (18,967
    )Total shareholders equity
    
    
    124,960
    
    
    
    102,223$
    773,084
    
    
    $
    774,225
   1




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BELDEN & BLAKE CORPORATION
 
 STATEMENTS OF OPERATIONS
(unaudited, in thousands)
 Three months ended
    
    
    Three months ended
    
    
    Nine months ended
    
    
    Nine months endedSeptember 30, 2008
    
    
    September 30, 2007
    
    
    September 30, 2008
    
    
    September 30, 2007RevenuesOil and gas sales
    
    $
    41,765
    
    
    $
    27,086
    
    
    $
    119,691
    
    
    $
    85,915Gas gathering and marketing
    
    
    3,571
    
    
    
    2,334
    
    
    
    9,949
    
    
    
    7,728Other
    
    
    127
    
    
    
    (139
    )
    
    
    432
    
    
    
    30845,463
    
    
    
    29,281
    
    
    
    130,072
    
    
    
    93,951ExpensesProduction expense
    
    
    6,565
    
    
    
    5,994
    
    
    
    19,543
    
    
    
    18,253Production taxes
    
    
    895
    
    
    
    494
    
    
    
    2,491
    
    
    
    1,687Gas gathering and marketing
    
    
    2,819
    
    
    
    1,957
    
    
    
    8,221
    
    
    
    6,431Exploration expense
    
    
    1,614
    
    
    
    264
    
    
    
    2,173
    
    
    
    1,292Impairment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    2,011
    
    
    
    General and administrative expense
    
    
    2,225
    
    
    
    1,675
    
    
    
    6,240
    
    
    
    5,535Depreciation, depletion and
amortization
    
    
    8,517
    
    
    
    9,156
    
    
    
    25,876
    
    
    
    27,169Accretion expense
    
    
    359
    
    
    
    328
    
    
    
    1,047
    
    
    
    958Derivative fair value (gain) loss
    
    
    (134,829
    )
    
    
    (8,695
    )
    
    
    10,397
    
    
    
    37,446(111,835
    )
    
    
    11,173
    
    
    
    77,999
    
    
    
    98,771Operating income (loss)
    
    
    157,298
    
    
    
    18,108
    
    
    
    52,073
    
    
    
    (4,820
    )Other expense (income)Interest expense
    
    
    5,753
    
    
    
    6,002
    
    
    
    17,411
    
    
    
    17,837Other income, net
    
    
    (119
    )
    
    
    (149
    )
    
    
    (349
    )
    
    
    (364
    )Income (loss) before income taxes
    
    
    151,664
    
    
    
    12,255
    
    
    
    35,011
    
    
    
    (22,293
    )Provision (benefit) for income taxes
    
    
    59,959
    
    
    
    4,987
    
    
    
    13,847
    
    
    
    (8,677
    )Net income (loss)
    
    $
    91,705
    
    
    $
    7,268
    
    
    $
    21,164
    
    
    $
    (13,616
    )
   2




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BELDEN & BLAKE CORPORATION
 
 STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 Nine months ended
    
    
    Nine months endedSeptember 30, 2008
    
    
    September 30, 2007Cash flows from operating activities:Net income (loss)
    
    $
    21,164
    
    
    $
    (13,616
    )Adjustments to reconcile net
income (loss)
to net cash provided by operating activities:Depreciation, depletion and amortization
    
    
    25,876
    
    
    
    27,169Accretion expense
    
    
    1,047
    
    
    
    958Gain on disposal of property and equipment
    
    
    
    
    
    
    (57
    )Amortization of derivatives and other non-cash hedging activities
    
    
    16,685
    
    
    
    41,652Exploration expense
    
    
    1,788
    
    
    
    571Deferred income taxes
    
    
    13,847
    
    
    
    (8,854
    )Impairment of oil and gas properties
    
    
    2,011
    
    
    
    Other non-cash items
    
    
    21
    
    
    
    1,665Change in operating assets and liabilitiesAccounts receivable and other current assets
    
    
    (2,321
    )
    
    
    5,000Inventories
    
    
    127
    
    
    
    6Accounts payable and accrued expenses
    
    
    (569
    )
    
    
    (3,326
    )Net cash provided by operating activities
    
    
    79,676
    
    
    
    51,168Cash flows from investing activities:Additions to property and equipment
    
    
    (18,722
    )
    
    
    (17,265
    )Proceeds from property and equipment disposals
    
    
    3,049
    
    
    
    270Exploration expense
    
    
    (1,788
    )
    
    
    (571
    )Decrease (increase) in other assets
    
    
    77
    
    
    
    (44
    )Net cash used in investing activities
    
    
    (17,384
    )
    
    
    (17,610
    )Cash flows from financing activities:Proceeds from revolving line of credit
    
    
    
    
    
    
    6,500Repayment of revolving credit line
    
    
    
    
    
    
    (2,000
    )Repayment of long-term debt and other obligations
    
    
    (7
    )
    
    
    (22
    )Settlement of derivative liabilities recorded in purchase accounting
    
    
    (51,360
    )
    
    
    (20,723
    )Dividends paid
    
    
    (2,500
    )
    
    
    (9,750
    )Net cash used in financing activities
    
    
    (53,867
    )
    
    
    (25,995
    )Net increase in cash and cash equivalents
    
    
    8,425
    
    
    
    7,563Cash and cash equivalents at beginning of period
    
    
    16,014
    
    
    
    5,927Cash and cash equivalents at end of period
    
    $
    24,439
    
    
    $
    13,490
   3




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BELDEN & BLAKE CORPORATION
 
 NOTES TO FINANCIAL STATEMENTS
(unaudited)
 September 30, 2008
 (1) Basis of Presentation
   (2) Derivatives and Hedging
    4




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Natural Gas Swaps
    
    
    Crude Oil Swaps
    
    
    Natural Gas Basis SwapsNYMEX
    
    
    
    
    
    
    NYMEXPrice per
    
    
    
    
    
    
    Price per
    
    
    
    
    
    
    BasisBbtu
    
    
    Mmbtu
    
    
    Mbbls
    
    
    Bbl
    
    
    Bbtu
    
    
    DifferentialQuarter EndingDecember 31, 2008
    
    
    2,532
    
    
    
    4.59
    
    
    
    52
    
    
    
    29.68
    
    
    
    
    
    
    
    2,532
    
    
    $
    4.59
    
    
    
    52
    
    
    $
    29.68
    
    
    
    
    
    
    $
    Year EndingDecember 31, 2009
    
    
    9,529
    
    
    
    4.43
    
    
    
    191
    
    
    
    29.34
    
    
    
    3,650
    
    
    
    0.345December 31, 2010
    
    
    8,938
    
    
    
    4.28
    
    
    
    175
    
    
    
    28.86
    
    
    
    3,650
    
    
    
    0.325December 31, 2011
    
    
    8,231
    
    
    
    4.19
    
    
    
    157
    
    
    
    28.77
    
    
    
    3,285
    
    
    
    0.325December 31, 2012
    
    
    7,005
    
    
    
    4.09
    
    
    
    138
    
    
    
    28.70
    
    
    
    
    
    
    
    December 31, 2013
    
    
    6,528
    
    
    
    4.04
    
    
    
    127
    
    
    
    28.70
    
    
    
    
    
    
    
    
  (3) Industry Segment Financial Information
  (4) Supplemental Disclosure of Cash Flow Information
 Nine months ended
    
    
    Nine months ended(in thousands)
    
    September 30, 2008
    
    
    September 30, 2007Cash paid during the period for:Interest
    
    $
    21,372
    
    
    $
    15,951Income taxes
    
    
    
    
    
    
    177Non-cash investing and financing activities:Non-cash additions to property and equipment
    
    
    2,392
    
    
    
    1,206Non-cash additions to debt
    
    
    (15
    )
    
    
    (1,269
    )
 (5) Contingencies
   5




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(6) Comprehensive Income
  Nine months ended
    
    
    Nine months endedSeptember 30, 2008
    
    
    September 30, 2007Comprehensive income (loss):Net income (loss)
    
    $
    21,164
    
    
    $
    (13,616
    )Other comprehensive income (loss), net of tax:Unrealized gain in derivative fair value
    
    
    409
    
    
    
    289Reclassification adjustment for derivative (loss) gain
reclassified into earnings
    
    
    (4,482
    )
    
    
    (2,532
    )Change in accumulated other comprehensive income (loss)
    
    
    (4,073
    )
    
    
    (2,243
    )$
    17,091
    
    
    $
    (15,859
    )
 (7) Related Party Transactions
  (8) Impairment of Oil and Gas Properties
  (9) New Accounting Standards
   6




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
 
 
   Disclosures about Derivative Instruments and
Hedging Activitiesan amendment of FASB Statement No. 133.
 The Hierarchy of Generally Accepted Accounting
Principles. The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting Principles
  7




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##### Table of Contents



(10) Fair Value Measurements
  
 
 
   Fair Value Measurements at September 30, 2008 Using:Quoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsTotal Carrying Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Derivative instruments
    
    $
    (194,876
    )
    
    $
    
    
    
    $
    (194,876
    )
    
    $
    
    8




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(11) Asset Retirement Obligations
  Balance as of December 31, 2007
    
    $
    22,264Accretion expense
    
    
    1,047Liabilities incurred
    
    
    174Liabilities settled
    
    
    (259
    )Revisions in estimated cash flows
    
    
    43Balance as of September 30, 2008
    
    $
    23,269
  (12) Dividends
   9




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Forward-Looking Information
    
 
 
 
   10




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11




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Results of Operations
  Three months ended September 30,
    
    
    Nine months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007ProductionGas (Mmcf)
    
    
    3,308
    
    
    
    3,310
    
    
    
    9,902
    
    
    
    10,042Oil (Mbbls)
    
    
    80
    
    
    
    91
    
    
    
    246
    
    
    
    272Total production (Mmcfe)
    
    
    3,789
    
    
    
    3,854
    
    
    
    11,377
    
    
    
    11,676Average price (1)Gas (per Mcf)
    
    $
    9.83
    
    
    $
    6.25
    
    
    $
    9.40
    
    
    $
    6.86Oil (per Bbl)
    
    
    115.10
    
    
    
    70.75
    
    
    
    108.19
    
    
    
    62.39Mcfe
    
    
    11.02
    
    
    
    7.03
    
    
    
    10.52
    
    
    
    7.36Average costs (per Mcfe)Production expense
    
    $
    1.73
    
    
    $
    1.56
    
    
    $
    1.72
    
    
    $
    1.56Production taxes
    
    
    0.24
    
    
    
    0.13
    
    
    
    0.22
    
    
    
    0.14Depletion
    
    
    2.22
    
    
    
    2.35
    
    
    
    2.25
    
    
    
    2.30
 (1)
    
    The average prices presented above include non-cash amounts related to purchase accounting
for the Transaction. Excluding these non-cash amounts from oil and gas sales revenues would
result in the following average prices: Three months ended September 30,
    
    
    Nine months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Gas (per Mcf)
    
    $
    10.18
    
    
    $
    6.62
    
    
    $
    10.04
    
    
    $
    7.28Oil (per Bbl)
    
    
    115.10
    
    
    
    70.75
    
    
    
    108.19
    
    
    
    62.39Mcfe
    
    
    11.33
    
    
    
    7.35
    
    
    
    11.08
    
    
    
    7.72
 Results of Operations  Third Quarters of 2008 and 2007 Compared
 Revenues
  .
  12




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Costs and Expenses
           13




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Results of Operations  Nine Months of 2008 and 2007 Compared
 Revenues
     Costs and Expenses
     14




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Liquidity and Capital Resources
     15




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Cash Flows
      Capital Expenditures
    16




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Financing and Credit Facilities
      New Accounting Standards
    17




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
 
 
   Disclosures about Derivative Instruments and
Hedging Activitiesan amendment of FASB Statement No. 133.
 The Hierarchy of Generally Accepted Accounting
Principles. The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles
  18




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
      Natural Gas Swaps
    
    
    Crude Oil Swaps
    
    
    Natural Gas Basis SwapsNYMEXPrice per
    
    
    
    
    
    
    NYMEX
    
    
    
    
    
    
    BasisBbtu
    
    
    Mmbtu
    
    
    Mbbls
    
    
    Price per Bbl
    
    
    Bbtu
    
    
    DifferentialQuarter EndingDecember 31, 2008
    
    
    2,532
    
    
    
    4.59
    
    
    
    52
    
    
    
    29.68
    
    
    
    
    
    
    
    2,532
    
    
    $
    4.59
    
    
    
    52
    
    
    $
    29.68
    
    
    
    
    
    
    $
    Year EndingDecember 31, 2009
    
    
    9,529
    
    
    
    4.43
    
    
    
    191
    
    
    
    29.34
    
    
    
    3,650
    
    
    
    0.345December 31, 2010
    
    
    8,938
    
    
    
    4.28
    
    
    
    175
    
    
    
    28.86
    
    
    
    3,650
    
    
    
    0.325December 31, 2011
    
    
    8,231
    
    
    
    4.19
    
    
    
    157
    
    
    
    28.77
    
    
    
    3,285
    
    
    
    0.325December 31, 2012
    
    
    7,005
    
    
    
    4.09
    
    
    
    138
    
    
    
    28.70
    
    
    
    
    
    
    
    December 31, 2013
    
    
    6,528
    
    
    
    4.04
    
    
    
    127
    
    
    
    28.70
    
    
    
    
    
    
    
    
  19




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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Change in Internal Controls Over Financial Reporting
  
 PART II OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Oil and natural gas prices have recently declined substantially. If there is a sustained
economic downturn or recession in the United States or globally, oil and natural gas prices may
continue to fall and may become and remain depressed for a long period of time, which may adversely
affect our results of operations
   20




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  31.1
    *
    
    Certification of Principal Executive Officer of Belden & Blake Corporation as required by
Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.31.2
    *
    
    Certification of Principal Financial Officer of Belden & Blake Corporation as required by
Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.32.1
    *
    
    Certification of Chief Executive Officer of Belden & Blake Corporation pursuant to 18 U.S.C.
Section 1350.32.2
    *
    
    Certification of Chief Financial Officer of Belden & Blake Corporation pursuant to 18 U.S.C.
Section 1350.
 *
    
    Filed herewith.  21




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##### Table of Contents



BELDEN & BLAKE CORPORATIONDate: November 13, 2008
    By:

/s/
Mark A. HouserMark A. Houser, Chief Executive Officer,Chairman of the Board of Directors and Director
(Principal Executive Officer)Date: November 13, 2008
    By:

/s/
James M. VanderhiderJames M. Vanderhider, President,Chief Financial Officer and Director 
(Principal
Financial Officer)  22




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##### Table of Contents



ExhibitNo.
    
    Description31.1
    *
    
    Certification of Principal Executive Officer of Belden & Blake Corporation as required by Rule 13a-14(a)
or Rule 15d-14(a) of the Securities Exchange Act of 193431.2
    *
    
    Certification of Principal Financial Officer of Belden & Blake Corporation as required by Rule 13a-14(a)
or Rule 15d-14(a) of the Securities Exchange Act of 193432.1
    *
    
    Certification of Chief Executive Officer of Belden & Blake Corporation pursuant to 18 U.S.C. Section 1350.32.2
    *
    
    Certification of Chief Financial Officer of Belden & Blake Corporation pursuant to 18 U.S.C. Section 1350.
 *
    
    Filed herewith.  23