##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-K







|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2010

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to

Commission file no. 333-134748





Chaparral Energy, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 73-1590941                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|701 Cedar Lake Boulevard Oklahoma City, Oklahoma               |  | 73114                               
|(Address of principal executive offices)                       |  | (Zip code)                          

Registrants telephone number, including area code:

(405) 478-8770





Securities
registered pursuant to Section 12(b) of the Act:

None.

Securities registered pursuant to Section 12(g) of the Act:

None.





Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act.    Yes  x    No   ̈

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes   ̈    No  x

(Explanatory Note: The registrant is a voluntary filer and is not subject to the filing requirements of the Securities Exchange Act of
1934. However, during the preceding 12 months, the registrant has filed all reports that it would have been required to file by Section 13 or 15(d) of the Securities Act of 1934 if the registrant was subject to the filing requirements of the
Securities Exchange Act of 1934.)

Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).    Yes   ̈    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter)
is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large Accelerated Filer |  |  ̈ |  | Accelerated Filer         |  |  ̈
|                        |  |   | 
|Non-Accelerated Filer   |  | x |  | Smaller Reporting Company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

The aggregate market value of common equity held by non-affiliates of the registrant is not determinable as such shares were privately
placed and there is no public market for such shares.

1,410,235 shares of the registrants common stock were outstanding
as of March 29, 2011.









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##### Table of Contents

CHAPARRAL ENERGY, INC.

Index to Form 10-K



|                |  |                                                                                                              |  |  |     | 
|--------------- |  | ------------------------------------------------------------------------------------------------------------ |  |  | --- | 
|Part I          |  |                                                                                                              |  |  |     | 
|                |  |                                                                                                             
|Items 1. and 2. |  | Business and Properties                                                                                      |  |  | 8   | 
|                |  |                                                                                                             
|Item 1A.        |  | Risk Factors                                                                                                 |  |  | 34  | 
|                |  |                                                                                                             
|Item 1B.        |  | Unresolved Staff Comments                                                                                    |  |  | 51  | 
|                |  |                                                                                                             
|Item 2.         |  | Properties                                                                                                   |  |  | 51  | 
|                |  |                                                                                                             
|Item 3.         |  | Legal Proceedings                                                                                            |  |  | 51  | 
|                |  |                                                                                                             
|Item 4.         |  | [Reserved]                                                                                                   |  |  | 51  | 
|                |  |                                                                                                             
|Part II         |  |                                                                                                              |  |  |     | 
|                |  |                                                                                                             
|Item 5.         |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  |  | 52  | 
|                |  |                                                                                                             
|Item 6.         |  | Selected Financial Data                                                                                      |  |  | 53  | 
|                |  |                                                                                                             
|Item 7.         |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                        |  |  | 54  | 
|                |  |                                                                                                             
|Item 7A.        |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  |  | 79  | 
|                |  |                                                                                                             
|Item 8.         |  | Financial Statements and Supplementary Data                                                                  |  |  | 83  | 
|                |  |                                                                                                             
|Item 9.         |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  |  | 133 | 
|                |  |                                                                                                             
|Item 9A.        |  | Controls and Procedures                                                                                      |  |  | 133 | 
|                |  |                                                                                                             
|Item 9B.        |  | Other Information                                                                                            |  |  | 134 | 
|                |  |                                                                                                             
|Part III        |  |                                                                                                              |  |  |     | 
|                |  |                                                                                                             
|Item 10.        |  | Directors, Executive Officers and Corporate Governance                                                       |  |  | 134 | 
|                |  |                                                                                                             
|Item 11.        |  | Executive Compensation                                                                                       |  |  | 137 | 
|                |  |                                                                                                             
|Item 12.        |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters               |  |  | 156 | 
|                |  |                                                                                                             
|Item 13.        |  | Certain Relationships and Related Transactions, and Director Independence                                    |  |  | 159 | 
|                |  |                                                                                                             
|Item 14.        |  | Principal Accounting Fees and Services                                                                       |  |  | 162 | 
|                |  |                                                                                                             
|Part IV         |  |                                                                                                              |  |  |     | 
|                |  |                                                                                                             
|Item 15.        |  | Exhibits and Financial Statement Schedules                                                                   |  |  | 163 | 
|                |  |                                                                                                             
|Signatures      |  |                                                                                                              |  |  | 166 | 



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CAUTIONARY NOTE

REGARDING FORWARD-LOOKING STATEMENTS

This report includes statements that constitute forward-looking statements within the meaning of the federal securities law. These statements are subject to risks and uncertainties. These statements may
relate to, but are not limited to, information or assumptions about us, our capital and other expenditures, dividends, financing plans, capital structure, cash flow, pending legal and regulatory proceedings and claims, including environmental
matters, future economic performance, operating income, cost savings, managements plans, strategies, goals and objectives for future operations and growth. These forward-looking statements generally are accompanied by words such as
intend, anticipate, believe, estimate, expect, should, seek, project, plan or similar expressions. Any statement that is not an historical
fact is a forward-looking statement. It should be understood that these forward-looking statements are necessarily estimates reflecting the best judgment of senior management, not guarantees of future performance. They are subject to a number of
assumptions, risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements in this report may include, for example, statements about:



| |  |  | fluctuations in demand or the prices received for oil and natural gas;
| | - |  | ----------------------------------------------------------------------



| |  |  | the amount, nature and timing of capital expenditures;
| | - |  | ------------------------------------------------------



| |  |  | drilling, completion and performance of wells;
| | - |  | ----------------------------------------------



| |  |  | competition and government regulations;
| | - |  | ---------------------------------------



| |  |  | timing and amount of future production of oil and natural gas;
| | - |  | --------------------------------------------------------------



| |  |  | costs of exploiting and developing properties and conducting other operations, in the aggregate and on a per-unit equivalent basis;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases in proved reserves;
| | - |  | -----------------------------



| |  |  | operating costs and other expenses;
| | - |  | -----------------------------------



| |  |  | cash flow and anticipated liquidity;
| | - |  | ------------------------------------



| |  |  | estimates of proved reserves;
| | - |  | -----------------------------



| |  |  | exploitation of property acquisitions; and
| | - |  | ------------------------------------------



| |  |  | marketing of oil and natural gas.
| | - |  | ---------------------------------



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These forward-looking statements represent intentions, plans, expectations, assumptions and
beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those
forward-looking statements. In addition to the risk factors described under the heading Risk factors, the factors include:



| |  |  | the significant amount of our debt;
| | - |  | -----------------------------------



| |  |  | worldwide supply of and demand for oil and natural gas;
| | - |  | -------------------------------------------------------



| |  |  | volatility and declines in oil and natural gas prices;
| | - |  | ------------------------------------------------------



| |  |  | drilling plans (including scheduled and budgeted wells);
| | - |  | --------------------------------------------------------



| |  |  | the number, timing or results of any wells;
| | - |  | -------------------------------------------



| |  |  | changes in wells operated and in reserve estimates;
| | - |  | ---------------------------------------------------



| |  |  | supply of CO2;
| | - |  | --------------



| |  |  | future growth and expansion;
| | - |  | ----------------------------



| |  |  | future exploration;
| | - |  | -------------------



| |  |  | integration of existing and new technologies into operations;
| | - |  | -------------------------------------------------------------



| |  |  | future capital expenditures (or funding thereof) and working capital;
| | - |  | ---------------------------------------------------------------------



| |  |  | borrowings and capital resources and liquidity;
| | - |  | -----------------------------------------------



| |  |  | changes in strategy and business discipline;
| | - |  | --------------------------------------------



| |  |  | future tax matters;
| | - |  | -------------------



| |  |  | any loss of key personnel;
| | - |  | --------------------------



| |  |  | future seismic data (including timing and results);
| | - |  | ---------------------------------------------------



| |  |  | the plans for timing, interpretation and results of new or existing seismic surveys or seismic data;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | geopolitical events affecting oil and natural gas prices;
| | - |  | ---------------------------------------------------------



| |  |  | outcome, effects or timing of legal proceedings;
| | - |  | ------------------------------------------------



| |  |  | the effect of litigation and contingencies;
| | - |  | -------------------------------------------



| |  |  | the ability to generate additional prospects; and
| | - |  | -------------------------------------------------



| |  |  | the ability to successfully complete merger, acquisition or divestiture plans, regulatory or other limitations imposed as a result of a merger,
acquisition or divestiture, and the success of the business following a merger, acquisition or divestiture.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary
in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be
required under applicable securities laws. All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.



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Glossary of terms

The terms defined in this section are used throughout this Form 10-K:



|                            |  |                                                                                                                                                                                                                                                                                                             
|--------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Bbl                         |  | One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in reference to crude oil, condensate or natural gas liquids.                                                                                                                                                                          
|                            | 
|BBtu                        |  | One billion British thermal units.                                                                                                                                                                                                                                                                          
|                            | 
|Bcf                         |  | One billion cubic feet of natural gas.                                                                                                                                                                                                                                                                      
|                            | 
|Btu                         |  | British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.                                                                                                                                                                
|                            | 
|Basin                       |  | A large natural depression on the earths surface in which sediments generally brought by water accumulate.                                                                                                                                                                                                 
|                            | 
|Boe                         |  | Barrels of oil equivalent using the ratio of six thousand cubic feet of natural gas to one barrel of oil.                                                                                                                                                                                                   
|                            | 
|Boe/d                       |  | Barrels of oil equivalent per day.                                                                                                                                                                                                                                                                          
|                            | 
|Enhanced oil recovery (EOR) |  | The use of any improved recovery method, including injection of CO2or polymer, to remove additional oil after secondary recovery.                                                                                                                                                                           
|                            | 
|Field                       |  | An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The
field name refers to the surface area, although it may refer to both the surface and the underground productive formations.
|                            | 
|Horizontal drilling         |  | A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval.                                                                                                                                        
|                            | 
|Infill wells                |  | Wells drilled into the same pool as known producing wells so that oil or natural gas does not have to travel as far through the formation.                                                                                                                                                                  



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|                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|MBbls                       |  | One thousand barrels of crude oil, condensate, or natural gas liquids.                                                                                                                                                                                                                                                                                                                                                                                     
|                            | 
|MBoe                        |  | One thousand barrels of crude oil equivalent.                                                                                                                                                                                                                                                                                                                                                                                                              
|                            | 
|Mcf                         |  | One thousand cubic feet of natural gas.                                                                                                                                                                                                                                                                                                                                                                                                                    
|                            | 
|MMBbls                      |  | One million barrels of crude oil, condensate, or natural gas liquids.                                                                                                                                                                                                                                                                                                                                                                                      
|                            | 
|MMBoe                       |  | One million barrels of crude oil equivalent.                                                                                                                                                                                                                                                                                                                                                                                                               
|                            | 
|MMBtu                       |  | One million British thermal units.                                                                                                                                                                                                                                                                                                                                                                                                                         
|                            | 
|MMcf                        |  | One million cubic feet of natural gas.                                                                                                                                                                                                                                                                                                                                                                                                                     
|                            | 
|MMcf/d                      |  | Millions of cubic feet per day.                                                                                                                                                                                                                                                                                                                                                                                                                            
|                            | 
|NYMEX                       |  | The New York Mercantile Exchange.                                                                                                                                                                                                                                                                                                                                                                                                                          
|                            | 
|Net acres                   |  | The percentage of total acres an owner has out of a particular number of acres, or in a specified tract. An owner who has a 50% interest in 100 acres owns 50 net
acres.                                                                                                                                                                                                                                                                                   
|                            | 
|PDP                         |  | Proved developed producing.                                                                                                                                                                                                                                                                                                                                                                                                                                
|                            | 
|Play                        |  | A term describing an area of land following the identification by geologists and geophysicists of reservoirs with potential oil and natural gas reserves.                                                                                                                                                                                                                                                                                                  
|                            | 
|PV-10 value                 |  | When used with respect to oil and natural gas reserves, PV-10 value means the estimated future gross revenue to be generated from the production of proved reserves, net of estimated
production and future development costs, excluding escalations of prices and costs based upon future conditions, before income taxes, and without giving effect to non-property-related expenses, discounted to a present value using an annual discount
rate of 10%.
|                            | 
|Proved developed reserves   |  | Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods, or in which the cost of the required equipment is relatively
minor compared to the cost of a new well.                                                                                                                                                                                                                                 
|                            | 
|Proved reserves             |  | The quantities of oil and gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically produciblefrom a given date
forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulationsprior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is
reasonably certain.            
|                            | 
|Proved undeveloped reserves |  | Reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for
recompletion.                                                                                                                                                                                                                                                                                   
|                            | 
|Sand                        |  | A geological term for a formation beneath the surface of the earth from which hydrocarbons are produced. Its make-up is sufficiently homogeneous to differentiate it from other
formations.                                                                                                                                                                                                                                                                



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|                   |  |                                                                                                                                                                                                                                                                                                                                            
|------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|SEC                |  | The Securities and Exchange Commission.                                                                                                                                                                                                                                                                                                    
|                   | 
|Secondary recovery |  | The recovery of oil and natural gas through the injection of liquids or gases into the reservoir, supplementing its natural energy. Secondary recovery methods are often applied when
production slows due to depletion of the natural pressure.                                                                                           
|                   | 
|Seismic survey     |  | Also known as a seismograph survey, it is a survey of an area by means of an instrument which records the vibrations of the earth. By recording the time interval between the source
of the shock wave and the reflected or refracted shock waves from various formations, geophysicists are able to define the underground configurations.
|                   | 
|Spacing            |  | The distance between wells producing from the same reservoir. Spacing is often expressed in terms of acres, e.g., 40-acre spacing, and is often established by regulatory
agencies.                                                                                                                                                        
|                   | 
|Unit               |  | The joining of all or substantially all interests in a reservoir or field, rather than a single tract, to provide for development and operation without regard to separate property
interests. Also, the area covered by a unitization agreement.                                                                                          
|                   | 
|Waterflood         |  | The injection of water into an oil reservoir to push additional oil out of the reservoir rock and into the wellbores of producing wells. Typically a secondary recovery
process.                                                                                                                                                         
|                   | 
|Wellbore           |  | The hole drilled by the bit that is equipped for oil or natural gas production on a completed well. Also called well or borehole.                                                                                                                                                                                                          
|                   | 
|Working interest   |  | The right granted to the lessee of a property to explore for and to produce and own oil, natural gas, or other minerals. The working interest owners bear the exploration,
development, and operating costs on either a cash, penalty, or carried basis.                                                                                   
|                   | 
|Zone               |  | A layer of rock which has distinct characteristics that differ from nearby layers of rock.                                                                                                                                                                                                                                                 



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PART I

Unless the context requires otherwise, references in this annual report to the Company, we, our, ours and us refer to Chaparral Energy, Inc.
and its subsidiaries on a consolidated basis. We have provided definitions of terms commonly used in the oil and natural gas industry in the Glossary of terms at the beginning of this annual report.

ITEMS 1. AND 2. BUSINESS AND PROPERTIES

Overview

We are an independent oil and natural gas company engaged in the
production, exploitation, and acquisition of oil and natural gas properties. Since our inception in 1988, we have increased reserves and production primarily through property acquisitions and development activities. In 2010, we reorganized our oil
and natural gas assets into enhanced oil recovery (EOR) project areas and non-EOR (conventional) productive basins. Our primary areas of operation using conventional recovery methods are the Anadarko Basin Area, Central
Oklahoma Area, and the Permian Basin Area. We maintain a portfolio of proved and unproved reserves, development and exploratory drilling opportunities, and EOR projects.

As of December 31, 2010, we had estimated proved reserves of 149.3 MMBoe, including EOR reserves of 30.5 MMBoe, with a PV-10 value of approximately $1.8 billion. Our reserves were 66% proved
developed and 63% crude oil. For the year ended December 31, 2010, our average daily production was 22.1 MBoe, our estimated reserve life was approximately 19 years, and our oil and natural gas revenues were $408.6 million. We set forth our
definition of PV-10 value (a non-GAAP measure) and a reconciliation of the standardized measure of discounted future net cash flows to PV-10 value on page 24.

From 2005 to 2010, our proved reserves and production grew at a compounded annual growth rate of 6% and 11%,
respectively. During this period, we have grown primarily through a combination of developmental drilling and a disciplined strategy of acquiring proved oil and natural gas reserves, followed by exploitation activities and the acquisition of
additional interests in or near these acquired properties. We typically pursue properties in the second half of their life with stable production, shallow decline rates and with particular producing trends and characteristics indicative of
production or reserve enhancement opportunities. In 1993, we began acquiring properties with CO2EOR potential, and we have initiated CO2injection in 11 of these units to date. In 2005 and 2006, we completed two larger acquisitions of $152.9 million and $480.5 million, respectively, of oil and natural gas properties which contained
substantial CO2EOR potential and complemented our existing
property base. We currently expect our future growth to continue through a combination of developmental drilling, exploitation projects, and acquisitions, complemented by a modest amount of exploration activities.

For the year ended December 31, 2010, we made capital investments in oil and natural gas properties of $327.3 million, including
$248.1 million for conventional drilling and development, $37.7 million for EOR drilling and development, and $41.5 million for acquisitions. The majority of our capital investments for conventional drilling in 2010 were allocated to our Anadarko
Basin and Permian Basin Areas. The wells we drill in these Areas are primarily infill or single step-out wells, which are characterized as lower-risk.

During 2010, we expended a significant portion of the proceeds from our sale of stock to CCMP (discussed below) for our oil and natural gas properties. We have accordingly reduced our capital expenditure
budget for 2011 to $250.0 million. Our 2011 capital budget allocates $157.0 million to conventional oil and gas exploration and production activities. The remaining $93.0 million, or 37%, of the capital budget is allocated to the development of our
EOR assets, and represents a substantial increase in capital being directed toward development of EOR assets. The increased focus on EOR reduces near term growth opportunities but enhances longer term growth and is consistent with our strategy of
driving near term growth with developmental drilling and long term growth through EOR development.



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Recent Capital Transactions

On April 12, 2010, we sold 475,043 shares of our common stock to CCMP Capital Investors II (AV-2), L.P., CCMP Energy I LTD., and CCMP Capital Investors (Cayman) II, L.P. (collectively,
CCMP) for a purchase price of $325.0 million. Fees and other expenses of the transaction were $11.8 million. In connection with the closing of the sale, we entered into and closed our senior secured revolving credit facility, which had
an initial borrowing base of $450.0 million, is collateralized by our oil and natural gas properties, and is scheduled to mature on April 12, 2014. We used the proceeds from the sale of common stock to CCMP, along with proceeds available under
our senior secured revolving credit facility, to repay the amounts owing under our prior credit facility.

CCMP Capital
Advisors, LLC, is a global private equity firm specializing in buyouts and growth equity investments in companies ranging from $500.0 million to more than $3.0 billion in size. CCMP Capital focuses on four primary industries: Consumer/Retail and
Media; Industrial; Energy; and Healthcare. Selected investments under management include: ARAMARK Corporation, Chaparral Energy, Edwards Limited, Francescas Collections, Generac Power Systems, Infogroup, Jetro Holdings, LHP Hospital Group, and
Warner Chilcott. CCMP Capitals founders have invested over $13.0 billion since 1984. CCMP Capitals latest fund, CCMP Capital Investors II, L.P., closed in September 2007 with commitments of approximately $3.4 billion.

CCMP Capital has offices in New York, Houston and London. CCMP Capitals founders have invested approximately $1.3 billion in energy
companies over 20 years in subsectors including: exploration and production, power generation, renewable energy, and services. Christopher Behrens and Karl Kurz lead CCMP Capitals energy investing efforts. Selected investments include:
Chaparral Energy, Northern Border Partners LP, Bill Barrett Corporation, Encore Acquisition Company, Vetco International, Carrizo Oil & Gas, and Latigo Petroleum.

On September 16, 2010, we issued $300.0 million aggregate principal amount of 9.875% Senior Notes maturing on October 1, 2020. We used the net proceeds from the 9.875% Senior Notes to pay down
outstanding amounts under our senior secured revolving credit facility and for working capital. As a result of the issuance of our 9.875% Senior Notes, the borrowing base under our senior secured revolving credit facility was reduced from $450.0
million to $375.0 million. As of March 29, 2011, we had $374.1 million of availability under our senior secured revolving credit facility.

On February 22, 2011, we issued $400.0 million aggregate principal amount of 8.25% Senior Notes maturing on September 1, 2021. We used the net proceeds from the 8.25% Senior Notes to consummate
a tender offer for all of our 8.5% Senior Notes due 2015, to redeem the 8.5% Senior Notes not purchased in the tender offer, and for general corporate purposes.



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Business Strategy

We seek to grow reserves and production profitably through a balanced mix of developmental drilling, enhancements, acquisitions, EOR projects, and a modest number of exploration projects. From 2005 to
2010, we have grown proved reserves and production by a compounded annual growth rate of 6% and 11%, respectively, through a combination of drilling and acquisition success. Our reserve replacement ratio, which reflects our reserve additions from
acquisitions, extensions and discoveries, and improved recoveries in a given period stated as a percentage of our production in the same period, has averaged 451% per year from 2005 through 2010. We replaced approximately 247% of our production
in 2010.

As part of our strategy to grow reserves and production profitably, we seek to serve as operator of the wells in
which we own a significant interest. As operator, we are better positioned to control the (1) timing and plans for future enhancement and exploitation efforts; (2) costs of enhancing, drilling, completing and producing the wells; and
(3) marketing negotiations for our oil and natural gas production to maximize both volumes and wellhead price. As of December 31, 2010, we operated properties comprising approximately 86% of our proved reserves. We also strive to minimize
commodity price risk through a conservative financial hedging program. The principal elements of our strategy are described further below.

Continue lower-risk drilling program. During the year ended December 31, 2010, we spent approximately $222.8 million on drilling. A majority of our drilling capital in 2010 was invested
in our Anadarko Basin and Permian Basin Areas. The wells we drill in these Areas are generally infill or single step-out wells, which are characterized as lower risk. Our drilling expenditures represented approximately 68% of our total capital
expenditures for oil and natural gas properties and approximately 56% of our increase in reserves related to purchases of minerals in place, extensions and discoveries, and improved recoveries for 2010.

Based on SEC pricing for the year ended December 31, 2010, we had an inventory of 1,169 proved undeveloped drilling locations, as
shown in the following table:



|                                    |  |                                              |       | 
|----------------------------------- |  | -------------------------------------------- | ----- | 
|                                    |  | Identifiedprovedundevelopeddrillinglocations |      
|Enhanced Oil Recovery Project Areas |  |                                              | 435   | 
|Anadarko Basin Area                 |  |                                              | 225   | 
|Central Oklahoma Area               |  |                                              | 287   | 
|Permian Basin Area                  |  |                                              | 66    | 
|Other                               |  |                                              | 156   | 
|                                    |  |                                              |       | 
|Total                               |  |                                              | 1,169 | 
|                                    |  |                                              |       | 

Identified drilling locations represent total gross drilling locations identified by our management as an
estimation of our multi-year drilling activities on existing acreage. We currently plan to spend a total of approximately $150.0 million, or approximately 60% of our capital expenditures, on drilling in 2011. As more fully discussed in the section
Risk factors, our actual drilling activities may change depending on the availability of financing and capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, drilling results and other factors.



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Acquire long-lived properties with enhancement opportunities. We continually
evaluate acquisition opportunities and expect that they will continue to play a role in increasing our reserve base and future drilling inventory. We have a dedicated team that conducts due diligence with reserve engineering on a well-by-well basis
to determine whether assets under consideration meet our acquisition criteria. We typically target properties where we can identify enhancements that we believe will increase production rates and extend the producing life of the well. The large
number of acquisition opportunities we review allows us to be selective and focus on properties that we believe have the most potential for value enhancement. During the year ended December 31, 2010, we made approximately $32.5 million of
proved reserve acquisitions. These acquisition capital expenditures represented approximately 10% of our total capital expenditures for oil and natural gas properties and approximately 21% of our increase in reserves related to purchases of minerals
in place, extensions and discoveries, and improved recoveries for 2010. We have budgeted $5.0 million, or 2% of our total capital expenditures, for acquisitions in 2011 and we continue to consider individual field acquisitions that would complement
our existing property base and EOR activities.

Apply technical expertise to enhance mature properties. Once we
acquire a property and become the operator, we seek to maximize production and economic value through enhancement techniques and the reduction of operating costs. We have built our business around a strong engineering team with expertise in the
areas where we operate. We believe retaining our own field staff and operating offices close to our properties allows us to maintain tight control over our operations. We have 26 field offices in Oklahoma, Texas, Kansas and Louisiana. Our personnel
possess a high degree of expertise in working with lower pressure or depleted reservoirs and, as a result, are able to identify enhancement opportunities with low capital requirements such as installing a plunger lift, pumping unit or compressor, as
well as returning inactive wells to production by repairing various mechanical problems. Minimal amounts of investment have significantly enhanced the value of many of our properties. As of December 31, 2010, our reserve report included 874
shut-in and behind-pipe enhancement projects requiring total estimated capital expenditures of $80.8 million over the life of the reserves.

Expand EOR activities. We define EOR activities as activities on properties that have proved EOR reserves, ongoing EOR operations, or that have an approved authorization for expenditure for EOR
operations. We expect to increase our spending and emphasis on CO2EOR projects in upcoming years. CO2used in EOR is an efficient method of producing crude oil. CO2EOR involves the injection of CO2, which mixes with the remaining oil in place in the producing reservoir, followed by the injection of water in cycles to drive the oil to producing wells. Since we commenced CO2injection in the Camrick Unit in 2001, we have gradually increased our
emphasis on EOR operations. Beginning in 2010, we have further heightened our focus on this aspect of our business. During the past decade, we have learned a significant amount about the production of CO2, transportation of CO2, and EOR operations. Our EOR operations accounted for approximately 7%
of our 2010 production and approximately 20% of our proved reserves at December 31, 2010. Approximately 37% of our 2011 planned capital expenditures are related to our EOR operations. We believe CO2-based EOR has many advantages, including: (1) it has a lower risk
since we are working in fields that have substantial production histories and other historic data; (2) it provides a reasonable rate of return even at relatively low oil prices; and (3) we have limited competition for this type of activity
in our primary EOR project areas.

Our active EOR projects are located in the Burbank area of northeast
Oklahoma (Burbank), the Panhandle areas of Oklahoma and Texas (Panhandle), and Central Oklahoma (Central Oklahoma). We have also identified and own several high potential projects in the West Texas and Southeast
New Mexico area (Permian Area), and have a small ownership interest in one outside-operated active EOR property in this area. We currently have a total of 82 properties that we are analyzing in regard to their CO2EOR potential. To support our existing CO2EOR projects, we have CO2supply agreements in place in the Panhandle and Central Oklahoma, and
have developed a CO2pipeline infrastructure system with
ownership interests in 405 miles of CO2pipelines, of which
more than 325 miles are currently active. All of the CO2injected in our operated EOR units is anthropogenic (man-made) CO2which is captured from three different sources. We believe we are one of the few CO2EOR producers that uses exclusively anthropogenic CO2.

As of December 31, 2010, our active EOR projects include 11 units where
CO2EOR recovery methods are used and one EOR project at our
North Burbank Unit where polymer EOR is utilized. We plan to continue the polymer EOR program and introduce CO2injection into the North Burbank Unit after acquiring a source of
CO2in the area. During 2010, we spent $37.7 million,
including $16.7 million classified as exploration costs, on the development of our EOR assets, and we have budgeted $93.0 million for development of our EOR assets in 2011.



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Maintain an experienced management team and strong investor support. Mark
Fischer, our Chief Executive Officer and founder, has operated in the oil and natural gas industry for 39 years after starting his career at Exxon Mobil Corporation as a petroleum engineer. Joe Evans, our Chief Financial Officer, has over 34 years
of experience in the oil and natural gas industry. Earl Reynolds, who became our Chief Operating Officer in February 2011, has 27 years of oil and natural gas production experience. Individuals in our 19-person management team have an average of
over 30 years of experience in the oil and natural gas industry.

CCMP Capital is a leading global private equity firm with a
20-year history investing approximately $1.3 billion in energy. As part of the CCMP transaction, CCMP Managing Directors Chris Behrens and Karl Kurz joined our board of directors. Mr. Behrens has worked in private equity for sixteen years and
co-leads CCMP Capitals energy investment activities with Mr. Kurz. Mr. Kurz was chief operating officer of Anadarko Petroleum Corporation where he oversaw the companys global exploration and production, marketing, midstream,
land, technology and services and was a member of the companys executive committee from 2004 to 2009.

Hedge
production to stabilize cash flow. Our long-lived reserves provide us with relatively predictable production. To protect cash flows that we use for on-going operations, for capital investments, and to lock in returns on acquisitions, we enter
into commodity price swaps, costless collars, and basis protection swaps. Derivative positions are adjusted in response to changes in prices and market conditions as part of an ongoing dynamic process. As of December 31, 2010, we had derivative
contracts in place for approximately 61% and 52%, respectively, of our most recent internally estimated proved developed oil and natural gas production through 2012. For the years ended December 31, 2010 and 2009, we received net derivative
settlements of $40.0 million and $157.9 million, respectively, which included proceeds from early derivative monetizations of $7.1 million and $111.9 million, respectively. While our derivative activities protect our cash flows during periods of
commodity price declines, we paid net derivative settlements of $51.6 million, after proceeds from early derivative monetizations of $32.6 million, through a period of increasing commodity prices during the year ended December 31, 2008.



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Properties

The following table presents our proved reserves and PV-10 value as of December 31, 2010 and average daily production for the year ended December 31, 2010, by our areas of operation. Reserves as
of December 31, 2010 were estimated using SEC pricing, which was $79.43 per Bbl of oil and $4.38 per Mcf of gas.



|                                    |  |                                         |        |  |                                                                |  |         |             |  |  |                     |  |  |                 |       |   |  |   |         |  |  |  |      | 
|----------------------------------- |  | --------------------------------------- | ------ |  | -------------------------------------------------------------- |  | ------- | ----------- |  |  | ------------------- |  |  | --------------- | ----- | - |  | - | ------- |  |  |  | ---- | 
|                                    |  | Proved reserves as of December 31, 2010 |        |  | Averagedaily
production(MBoeper day)Year endedDecember 31,2010 | 
|                                    |  | Oil(MBbls)                              |        |  | Naturalgas(MMcf)                                               |  |         | Total(MBoe) |  |  | Percentof totalMBoe |  |  | PV-10value($MM) |       |  
|Enhanced Oil Recovery Project Areas |  |                                         | 45,242 |  |                                                                |  | 462     |             |  |  | 45,319              |  |  |                 | 30.4  | % |  | $ | 556.6   |  |  |  | 3.0  | 
|Anadarko Basin Area                 |  |                                         | 7,136  |  |                                                                |  | 156,114 |             |  |  | 33,155              |  |  |                 | 22.2  | % |  |   | 312.8   |  |  |  | 6.9  | 
|Central Oklahoma Area               |  |                                         | 24,621 |  |                                                                |  | 46,770  |             |  |  | 32,416              |  |  |                 | 21.7  | % |  |   | 474.3   |  |  |  | 5.3  | 
|Permian Basin Area                  |  |                                         | 8,605  |  |                                                                |  | 66,222  |             |  |  | 19,642              |  |  |                 | 13.2  | % |  |   | 210.3   |  |  |  | 4.1  | 
|Other                               |  |                                         | 7,808  |  |                                                                |  | 65,652  |             |  |  | 18,750              |  |  |                 | 12.5  | % |  |   | 216.1   |  |  |  | 2.8  | 
|                                    |  |                                         |        |  |                                                                |  |         |             |  |  |                     |  |  |                 |       |   |  |   |         |  |  |  |      | 
|Total                               |  |                                         | 93,412 |  |                                                                |  | 335,220 |             |  |  | 149,282             |  |  |                 | 100.0 | % |  | $ | 1,770.1 |  |  |  | 22.1 | 
|                                    |  |                                         |        |  |                                                                |  |         |             |  |  |                     |  |  |                 |       |   |  |   |         |  |  |  |      | 

Our properties have relatively long reserve lives and highly predictable production profiles. In general,
these properties have extensive production histories and production enhancement opportunities. As of December 31, 2010, we owned interests in 8,725 gross (3,000 net) producing wells and we operated wells representing approximately 86% of our
proved reserves. The high proportion of reserves in our operated properties allows us to exercise more control over expenses, capital allocations and the timing of development and exploitation activities in our fields.



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Enhanced Oil Recovery Project Areas

Our EOR project areas include both EOR activities and ongoing conventional activities, as reflected in the following table:



|                                               |  |     |        |  |              |   |        |                           |  |   |        | 
|---------------------------------------------- |  | --- | ------ |  | ------------ | - | ------ | ------------------------- |  | - | ------ | 
|As of and for the year ended December 31, 2010 |  | EOR |        |  | Conventional |   |        | Total forEOR ProjectAreas | 
|Reserves (MBoe)                                |  |     | 30,474 |  |              |   | 14,845 |                           |  |   | 45,319 | 
|Production (Boe/d)                             |  |     | 1,444  |  |              |   | 1,513  |                           |  |   | 2,957  | 
|Drilling and enhancements (in thousands)       |  | $   | 37,667 |  |              | $ | 7,855  |                           |  | $ | 45,522 | 

We have been actively implementing and managing CO2EOR in the Panhandle Area and in Central Oklahoma since 2001. We have CO2supply agreements in place in the Panhandle and Central Oklahoma, and we
have built and/or expanded CO2pipelines to reach our various
field locations in those Areas. Arrangements to secure additional sources of CO2for potential future projects are currently in process. The U.S. Department of Energy-Office of Fossil Energy provided a report in February 2006 estimating that significant oil reserves could be
economically recovered in Oklahoma and Texas through CO2EOR
processes. With our infrastructure, we believe that we will be well positioned to participate in the exploitation of those reserves.

CO2miscible
flooding is implemented and managed as a closed system consisting of the reservoir and surface piping. The physical material balance of the system means that the CO2is produced and recycled many times once it has been injected. Combined with the incoming purchased CO2supply, the recycled CO2supply allows us to systematically develop additional flood patterns in
contiguous acreage to the active patterns. If larger volumes of CO2are available, projects can be developed on shorter timelines, while a more limited supply dictates a prolonged expansion timeline. Due to the size of our EOR projects, the fixed rate of CO2availability which is secured for the long-term period, and the
limitation of third party services, we expect the development of our EOR projects will extend beyond five years. Our significant active EOR projects are discussed below.

North Burbank UnitBurbank Area. As of December 31, 2010, the North Burbank Unit, which is our largest property, accounted for 28.8 MMBoe, or 19% of our proved reserves, including
14.2 MMBoe of proved undeveloped EOR reserves. The producing zones are the Red Fork and Bartlesville formations and occur at a depth of approximately 3,000 feet. We own a 99% working interest in and are also the operator of this Unit. Our net
production from this Unit increased by 3% to approximately 1,395 Boe/d in 2010 from 1,350 Boe/d in 2009. As of December 31, 2010, we had 282 producing wells, 216 active service wells, and 463 temporarily abandoned wells in this unit. Upside
potential exists in restoring a majority of the temporarily abandoned wells to production and in expanding the polymer injection EOR program that Phillips Petroleum Company instituted during the early 1980s in their Block A polymer
project that originally covered 1,440 acres. Production increased from 500 Bbls of oil per day to 1,200 Bbls of oil per day in this original project area as a result of the Phillips polymer injection program. The Phillips project was shut down in
1986 due to low oil prices.

In December 2007, we expanded a polymer flood into the Phase I area of the North Burbank Unit,
which consists of 485 acres adjacent to Block A on a 19-well pattern. During 2010, we completed a review of this project, and the results of this review confirm that injection of polymer is successful in recovering commercial quantities of tertiary
oil from the North Burbank Unit. Production has increased in this pilot area from approximately 90 (78 net) Bbls of oil per day in 2008 to approximately 154 (134 net) Bbls of oil per day during 2010. Our review also indicated that additional oil
recovery may be obtained with additional volumes of polymer injected into the Phase I area. We will be implementing this additional injection into the Phase I area as a pilot project during 2011.

We are continuing to expand this polymer flood from the Phase I area into the Phase II area. Under current plans,
this Phase II area will be developed throughout 2011 and 2012, with development of the remaining phases in the following years. Due to the size of the North Burbank Unit and the limitation of available fresh water and third party services, we
believe this development program will be an ongoing project. We also plan to introduce CO2injection into this Unit, as we believe that this field may have additional upside with the injection of CO2. To that end, on March 24, 2011, we signed a contract to purchase up to 100% of CO2emissions from an existing nitrogen fertilizer plant that produces
approximately 40 MMcf/d of CO2. After construction of
compression facilities and an approximately 70-mile pipeline, we expect to begin CO2injection into the North Burbank Unit. The contract requires us to begin purchasing CO2for injection no later than July 2013.

During 2010, we invested $8.0 million in the North Burbank Unit to drill five service wells, return 24 production and injection wells to service, and complete associated service facilities work.
Approximately $35.0 million of our capital expenditures budget for 2011 has been allocated for EOR operations in the Burbank Area.



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Camrick Area UnitsPanhandle Area. As of
December 31, 2010, the Camrick Area Units accounted for 8.8 MMBoe, or 6% of our proved reserves, substantially all of which are considered EOR reserves. Approximately 4.7 MMBoe of the proved reserves in this area are undeveloped. The Camrick
Area Units consist of three units, which we operate: the Camrick Unit, where we began CO2injection in 2001; the North Perryton Unit, where we began CO2injection in 2006; and the NW Camrick Unit, which will be initiated as recycled
CO2volumes become available from the other two Units.
Currently, CO2injection operations are continuing in the
Phase I and II areas of the Camrick Unit and within the North Perryton Unit. CO2injection has improved production in these units from approximately 153 (74 net) Bbls of oil per day from 18 wells during 2000 to approximately 1,635 (845 net) Bbls of oil per day during 2010. We plan to
continue expansion of CO2injection operations across all
three units. As of December 31, 2010, we had 61 producing wells, 44 active water injection wells, and 46 temporarily abandoned wells in this area. During the third quarter of 2010, we acquired an additional 6% working interest in these three
units, thereby increasing our average working interest to 60%. Our net production from this area increased 32% to 902 Boe/d in 2010 compared to 685 Boe/d in 2009.

We have a long-term contract to purchase up to approximately 20 MMcf/d of CO2produced at an existing nitrogen fertilizer plant. We own 100% of and
operate the 74-mile Borger CO2Pipeline, which transports
CO2from the fertilizer plant to the Camrick Area Units. As
of December 31, 2010, we were injecting a combined 24 MMcf/d of purchased and recycled CO2in this area.

Our total investment in the Camrick Area
Units during 2010, including the acquisition of additional interest, the purchase of CO2for injection, the drilling and completion of three production and injection wells, and general well work, was $17.5 million. We have allocated approximately $17.0 million of our capital expenditures
budget for 2011 to this area for continued purchase of CO2,
drilling and completions, compression expansion, electrical upgrade, and remedial well work.

Farnsworth UnitPanhandle Area. The Farnsworth Unit, which lies to the southeast of and is
analogous to the Camrick Area Units, accounted for 4.5 MMBoe, or 3% of our proved reserves, at December 31, 2010. All of the reserves in this Unit, which includes 3.7 MMBoe of proved undeveloped reserves, are considered EOR reserves as of
December 31, 2010. We acquired a 99% working interest in the Farnsworth Unit in November 2009 and we began
CO2injection in December 2010. As of December 31, 2010,
we had 20 producing wells, 8 active water and CO2injection
wells, and 50 temporarily abandoned wells in the Unit. Our net production from this Unit, all of which was conventional, was 107 Boe/d in 2010 compared to 13 Boe/d in 2009.

We have a long-term contract to purchase up to approximately 15 MMcf/d of CO2produced at the Arkalon ethanol plant near Liberal, Kansas. We have
installed compression and purification facilities that are capturing approximately nine MMcf/d of CO2from this plant as of December 31, 2010. We own 100% of and operate the 95-mile TexOk CO2Pipeline that includes a CO2pipeline located between Liberal, Kansas and Spearman, Texas. During 2010, we built a 14-mile pipeline extension through
the Farnsworth Unit, connecting the TexOk CO2Pipeline and
the Borger CO2Pipeline to allow flexibility in delivering
CO2to the Farnsworth Unit. We completed the final tie-in of
this extension in the first quarter of 2011. As of December 31, 2010, we were injecting approximately eight MMcf/d of purchased CO2in the Farnsworth Unit.

Our total investment in the Farnsworth Unit during 2010, including the construction of the pipeline extensions and general well work, was $4.6 million. We have allocated approximately $27.0 million of our
capital expenditures budget for 2011 to this Unit for the continued development of the CO2project and related field facilities.

Other EOR
Activities. Our EOR operations in the Central Oklahoma Area also include our three East Velma West Block Sand units, which we have been operating since 2001 with an average working interest of 29%, and our NW Velma Hoxbar Unit where we
began CO2injection in September 2010, and which we operate
with a 100% working interest. In the Panhandle Area, we also have an ownership interest in two outside operated units, and in September 2009, we began CO2injection into our three Booker area units, which we operate with an average working interest of 99%. We also have a small
working interest in an outside operated unit in the Permian area. Our other EOR activities accounted for 3.2 MMBoe, or 2% of our reserves at December 31, 2010, and contributed total production of 553 Boe/d in 2010. Our total capital investment in
these projects was $22.9 million in 2010, and we have allocated approximately $14.0 million of our capital expenditures budget for 2011 to these projects.



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Anadarko Basin Area

As of December 31, 2010, the Anadarko Basin Area accounted for 33.2 MMBoe, or 22% of our proved reserves. During the year ended
December 31, 2010, our net average daily production in the Anadarko Basin Area was approximately 6.9 MBoe per day, or 31% of our total net average daily production. This Area is characterized by stable, long-life, shallow decline reserves. We
produce and drill in most of the formations in the region and have significant holdings and activity in the areas described below.

Granite Wash Play AreaOklahoma and Texas.The Granite Wash Play area accounted for 4.4 MMBoe, or 3% of our proved reserves as of December 31, 2010. Objective targets in this area include
the Des Moinesian Granite Wash and Atoka Wash zones at average depths ranging from approximately 12,500 feet to 14,500 feet. The Granite Wash is a quartz rich alluvial wash containing high concentrations of feldspar that results in reducing
permeability and therefore reducing ultimate recoveries. Conventional vertical well bores in this area have recovered on average approximately 1.5 Bcfe. The Atoka Wash has a higher percentage of carbonate material. The technological advances of
horizontal drilling allow maximum exposure of this tight gas filled reservoir to the well bore (most horizontal wells are drilled up to 4,800 feet horizontally in the Granite Wash and Atoka Wash), resulting in substantially improved recoveries.

In 2009, we participated in the drilling of six Atoka Wash wells that were completed during the first quarter of 2010.
Primarily as a result of these new wells, our production in this area increased by 90% to approximately 1,839 Boe/d in 2010 from 970 Boe/d in 2009. Due to the normal decline curve on this type of well, our production in this area had
decreased to 1,763 Boe/d as of December 31, 2010. During 2010, our drilling investment in this area was $31.2 million and we drilled or participated in the drilling of nine wells in this area. We have allocated approximately $20.0 million of
our 2011 drilling budget to this area.

Cleveland Sand Play AreaOklahoma and Texas. The Cleveland Sand Play area
accounted for 3.6 MMBoe, or 2% of our proved reserves as of December 31, 2010. This area includes the West Shattuck Cleveland Sand Play and the Aledo Bray Cleveland Sand Play, both of which are considered tight gas sand reservoirs. During 2010,
our drilling investment in this area was $40.9 million and we drilled or participated in the drilling of 12 wells in this area. Our net production from this area increased 37% to approximately 961 Boe/d in 2010 compared to 701 Boe/d in 2009,
primarily due to our drilling activity in the area. We have allocated approximately $18.0 million of our 2011 drilling budget to this area. Our drilling activity for 2011 will focus on the West Shattuck Cleveland Sand Play that trends from Hansford
County in the Texas Panhandle across our acreage position to eastern Ellis County in Oklahoma. It is characterized by a tight, shaley sand sequence that lends itself to the benefits of horizontal drilling.

Anadarko Basin Woodford Shale Play AreaWestern Oklahoma. As of December 31, 2010, we own and control approximately
66,150 (22,270 net) acres in the emerging Woodford Shale resource play of western Oklahoma, which primarily are held by production from other formations. The horizontal development of this non-conventional resource play began in 2007 in Canadian
County and has expanded to include the nearby counties of Blaine, Dewey, Grady, and Caddo with approximately 140 Woodford Shale targeted wells drilled to date. Natural gas in place is estimated to be between 120 to 160 Bcf per section with initial
development well density to be four wells per section. The average recovery is expected to be four to six Bcf per well at an average cost of seven to nine million dollars. During 2010, our drilling investment in this area was $2.6 million and we
participated in the drilling of five wells in this area. We have allocated approximately $5.0 million of our 2011 drilling budget to this area.



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Central Oklahoma Area

As of December 31, 2010, the Central Oklahoma Area accounted for 32.4 MMBoe, or 22% of our proved reserves. During the year ended
December 31, 2010, our net average daily production in the Central Oklahoma Area was approximately 5.3 MBoe per day, or 24% of our total net average daily production.

Osage-Creek AreaOsage, Creek, and Kay Counties, Oklahoma. The Osage-Creek area accounted for 14.5 MMBoe, or 10%, of our proved reserves as of December 31, 2010. Our net production from
this area increased 17% to an average of 2,376 Boe/d in 2010 from 2,025 Boe/d in 2009. The majority of our recent activity has been in Osage County, with the largest portion of that being in our South Burbank Unit, which is the southward extension
of the Stanley Stringer sand development and lies to the south of the North Burbank Unit. Any well drilled inside the South Burbank Unit is being developed with a pattern and spacing plan that will maximize any future EOR efforts.

Numerous other properties throughout Osage and Creek Counties are held by production and hold significant upside development
potential. Many of our Osage County units in which we have a large working interest also hold promise for future EOR efforts. Recently, we have been drilling infill and step-out locations for both the Mississippi Chat and the Burbank Sand. We
have a Company-owned drilling rig working full time in this area, and we drilled 52 wells during 2010. Our drilling investment was $23.6 million in 2010, and we have allocated approximately $13.0 million of our 2011 drilling budget to this area.

Northern Oklahoma Mississippi PlayVarious Counties, Oklahoma. The Northern Oklahoma Mississippi Play, as
currently defined, spans from Woods County, Oklahoma on the west to Osage, Noble, and Payne counties on the east and northward into Kansas. Several companies are devoting large amounts of capital toward leasing and drilling activity in this
developing play. Horizontal drilling of the Mississippi formation across the area is yielding encouraging early results. We are currently evaluating our significant acreage position in this area. During 2010, our drilling investment in this area was
$2.9 million, and we drilled and/or participated in the drilling of four wells in this area.

Permian Basin Area

As of December 31, 2010, the Permian Basin Area accounted for 19.6 MMBoe, or 13% of our proved reserves. During
the year ended December 31, 2010, our net average daily production in the Permian Basin Area was approximately 4.1 MBoe per day, or 19% of our total net average daily production.

Haley AreaLoving County, Texas. The Haley area accounted for 5.7 MMBoe, or 4% of our proved reserves at
December 31, 2010. Our net production from this area, which is primarily dry gas, decreased by 20% to approximately 1,905 Boe/d in 2010 compared to 2,381 Boe/d in 2009, primarily due to the decline in production from the Bowdle 47 No. 2
well, which began selling natural gas in late November 2008 and produced an average of 720 net Boe/d in December 2010 compared to an average of 1,236 net Boe/d in December 2009. In April 2010, we completed an offset to the Bowdle 47 No. 2, the
Bowdle 47 No. 4 well, which produced an average of 402 net Boe/d in December 2010. Due to prevailing low natural gas prices, we do not plan to invest significant amounts in drilling in this area in 2011.

Tunstill Field PlayLoving and Reeves Counties, Texas. The Tunstill Field Play represented 3.4 MMBoe, or 2% of our
proved reserves at December 31, 2010. Our net production from this area increased by 29% to approximately 669 Boe/d in 2010 from 517 Boe/d in 2009, primarily due to our drilling activity. During 2010, our drilling investment was $17.9 million,
and we drilled 14 wells. We have allocated approximately $7.0 million of our 2011 drilling budget to this area.

Avalon
Shale/Bone Spring AreaWest Texas.We own approximately 17,020 (14,540 net) acres in the Avalon/Bone Spring oil play developing in West Texas. Operators have recently begun to switch from vertical to horizontal drilling to improve
hydrocarbon recovery from this formation, and approximately 305 horizontal wells have been drilled to date. The average recovery is expected to be 200 to 550 MBoe per well at an average cost of three to six million dollars. Our acreage is
attractively located on trend within the play, with active horizontal drilling recently offsetting us in two directions. Recent Avalon/Bone Spring production has been established immediately adjacent to our acreage block, and industry activity,
which is drilling towards our acreage position from both directions, is continuing to prove up the value of our position. We are currently developing our geologic mapping and evaluating the drilling activity in the area. Depending on the results of
this analysis, we may initiate our drilling program in the second quarter of 2011.



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Other Areas

Ark-La-Tex. The Ark-La-Tex area accounted for 8.5 MMBoe, or 6% of our proved reserves as of December 31, 2010. Our net
production from this area increased slightly to approximately 1,178 Boe/d in 2010 from 1,166 Boe/d in 2009, primarily due to acquisitions.

Gulf Coast. The Gulf Coast area accounted for 3.6 MMBoe, or 2% of our proved reserves as of December 31, 2010. Our net production from this area decreased by 7% to approximately 763 Boe/d
in 2010 compared to 818 Boe/d in 2009. During 2010, our drilling investment in this area was $25.0 million. We drilled two wells in this area, including one exploratory well, during 2010, and the results of these wells are still developing. We
currently have limited amounts budgeted for drilling in this area during 2011.

North Texas. The North Texas area
accounted for 3.9 MMBoe, or 3% of our proved reserves as of December 31, 2010. Our net production from this area increased by 7% to approximately 515 Boe/d in 2010 from 482 Boe/d in 2009. We drilled eight North Texas wells during the year ended
December 31, 2010.

Rocky Mountains. The Rocky Mountains area accounted for 2.8 MMBoe, or 2% of our proved
reserves as of December 31, 2010. Our net production from this area decreased slightly to approximately 364 Boe/d in 2010 compared to 381 Boe/d in 2009. We drilled and/or participated in the drilling of 13 Rocky Mountain wells during 2010,
including three operated wells late in the year. Production from these wells is expected to come online in the first and second quarters of 2011.

Oil and Natural Gas Reserves

Proved reserves are those quantities of oil
and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically produciblefrom a given date forward, from known reservoirs, and under existing economic conditions, operating
methods, and government regulationsprior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain. Existing economic conditions include prices and costs at which
economic producibility from a reservoir is to be determined, and exclude escalations based upon future conditions.

Our
policies regarding internal controls over the recording of reserves are structured to objectively estimate our oil and natural gas reserve quantities and values in compliance with SEC regulations. Users of this information should be aware that
the process of estimating quantities of crude oil and natural gas reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering, and economic data for each reservoir. The data for a
given reservoir may also change substantially over time as a result of numerous factors, including additional development activity, evolving production history, and continual reassessment of the viability of production under varying economic
conditions. Consequently, material revisions to existing reserve estimates occur from time to time. Responsibility for preparation of our reserve estimates is delegated to our reservoir engineering group, which is led by our Senior Vice President of
Reservoir Engineering and Business Development who is a registered Professional Engineer with 38 years of diversified management and operational and technical engineering experience.

Technical reviews are performed throughout the year by our geologic and engineering staff who evaluate pertinent geological and
engineering data. This data, in conjunction with economic data and ownership information, is used in making a determination of proved reserve quantities. We have internal auditing guidelines and controls in place to monitor the reservoir data
and reporting parameters used in preparing the year-end reserves. Technologies and economic data used include updated production data, well performance, formation logs, geological maps, reservoir pressure tests, and wellbore mechanical integrity
information.

This data is then provided to the independent petroleum engineering firms of Cawley, Gillespie &
Associates, Inc. and Ryder Scott Company, L.P. who prepare reserve estimates for the majority of our properties using their own engineering assumptions and the economic data which we provide. The person responsible for overseeing the
preparation of our reserve estimates at Cawley, Gillespie & Associates, Inc. is a registered Professional Engineer with 27 years of petroleum consulting experience. The person responsible for overseeing the preparation of our reserve
estimates at Ryder Scott Company, L.P. is a registered Professional Engineer with over 27 years of reservoir engineering experience.



18



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##### Table of Contents

Our reserves are reviewed by senior management. Senior management, which includes the
President and Chief Executive Officer, the Senior Vice President of Reservoir Engineering and Business Development and the Chief Financial Officer, is responsible for reviewing and verifying that the estimate of proved reserves is reasonable,
complete, and accurate. Members of senior management may also meet with the key representative from Cawley, Gillespie & Associates, Inc. and Ryder Scott Company, L.P. to discuss their process and findings. Final approval of the
reserves is required by our Senior Vice President of Reservoir Engineering and Business Development and our President and Chief Executive Officer.

The table below summarizes our net proved oil and natural gas reserves and PV-10 values at December 31, 2010. Information in the table is derived from reserve reports of estimated proved reserves
prepared by Cawley, Gillespie & Associates, Inc. (52% of PV-10 value) and by Ryder Scott Company, L.P. (31% of PV-10 value). Copies of the summary reserve reports prepared by these independent reserve engineers are attached as exhibits to
this annual report. Our internal engineering staff has prepared a report of estimated proved reserves on the remaining smaller value properties (17% of PV-10 value) at December 31, 2010. We set forth our definition of PV-10 value (a non-GAAP
measure) and a reconciliation of the standardized measure of discounted future net cash flows to PV-10 value on page 24.



|                        |  |                                             |        |  |                  |  |         |             |  |  |                           |  |  |   |           | 
|----------------------- |  | ------------------------------------------- | ------ |  | ---------------- |  | ------- | ----------- |  |  | ------------------------- |  |  | - | --------- | 
|                        |  | Net proved reserves as of December 31, 2010 |       
|                        |  | Oil(MBbls)                                  |        |  | Naturalgas(MMcf) |  |         | Total(MBoe) |  |  | PV-10
value(In thousands) | 
|Developedproducing     |  |                                             | 42,365 |  |                  |  | 211,212 |             |  |  | 77,567                    |  |  | $ | 1,130,946 | 
|Developednon-producing |  |                                             | 13,242 |  |                  |  | 46,542  |             |  |  | 20,999                    |  |  |   | 235,447   | 
|Undeveloped             |  |                                             | 37,805 |  |                  |  | 77,466  |             |  |  | 50,716                    |  |  |   | 403,668   | 
|                        |  |                                             |        |  |                  |  |         |             |  |  |                           |  |  |   |           | 
|Total proved            |  |                                             | 93,412 |  |                  |  | 335,220 |             |  |  | 149,282                   |  |  | $ | 1,770,061 | 
|                        |  |                                             |        |  |                  |  |         |             |  |  |                           |  |  |   |           | 

The following table shows material changes in proved undeveloped reserves that occurred during the year
ended December 31, 2010.



|                                                       |  |  |        |  
|------------------------------------------------------ |  |  | ------ | -
|Proved undeveloped reserves (MBoe)                     |  |  |       
|Proved undeveloped reserves as of January 1, 2010      |  |  | 48,012 |  
|Undeveloped reserves transferred to developed(1)       |  |  | (6,210 | )
|Purchases of minerals in place                         |  |  | 434    |  
|Extensions and discoveries                             |  |  | 6,983  |  
|Improved recoveries                                    |  |  | 4,656  |  
|Revisions and other                                    |  |  | (3,159 | )
|                                                       |  |  |        |  
|Proved undeveloped reserves as of December 31, 2010(2) |  |  | 50,716 |  
|                                                       |  |  |        |  



|(1) | Approximately $87.5 million of developmental drilling costs during the year ended December 31, 2010 related to undeveloped reserves that were transferred to
developed.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes 4.7 MMBoe of reserves that have been reported for more than five years that relate specifically to our Camrick area CO2EOR projects. Development of these projects is ongoing. See
PropertiesEnhanced Oil Recovery Project Areas for additional discussion of our CO2EOR projects.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



19



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##### Table of Contents

The following table details our gross and net interest in producing wells in which we have a
working interest and the number of wells we operated at December 31, 2010 by area. We also hold royalty interests in units and acreage in addition to the wells in which we have a working interest. Wells are classified as oil or natural gas
according to their predominant production stream. Gross wells is the total number of producing wells in which we have a working interest, and net wells is the sum of our working interest in all producing wells.



|                                    |  |                     |       |  |                     |  |       |       |  |  |       |  |  |       |     |  |     |  |       |  |  |  |       | 
|----------------------------------- |  | ------------------- | ----- |  | ------------------- |  | ----- | ----- |  |  | ----- |  |  | ----- | --- |  | --- |  | ----- |  |  |  | ----- | 
|                                    |  | Producing Oil Wells |       |  | Producing Gas Wells |  |       | Total | 
|                                    |  | Gross               |       |  | Net                 |  |       | Gross |  |  | Net   |  |  | Gross |     |  | Net | 
|Operated Wells:                     |  |                     |       |  |                     |  |       |       |  |  |       |  |  |       |     |  |     |  |       |  |  |  |       | 
|Enhanced Oil Recovery Project Areas |  |                     | 464   |  |                     |  | 390   |       |  |  |      |  |  |       |    |  |     |  | 464   |  |  |  | 390   | 
|Anadarko Basin Area                 |  |                     | 260   |  |                     |  | 217   |       |  |  | 429   |  |  |       | 321 |  |     |  | 689   |  |  |  | 538   | 
|Central Oklahoma Area               |  |                     | 988   |  |                     |  | 871   |       |  |  | 67    |  |  |       | 53  |  |     |  | 1,055 |  |  |  | 924   | 
|Permian Basin Area                  |  |                     | 330   |  |                     |  | 310   |       |  |  | 62    |  |  |       | 51  |  |     |  | 392   |  |  |  | 361   | 
|Other                               |  |                     | 195   |  |                     |  | 167   |       |  |  | 136   |  |  |       | 112 |  |     |  | 331   |  |  |  | 279   | 
|                                    |  |                     |       |  |                     |  |       |       |  |  |       |  |  |       |     |  |     |  |       |  |  |  |       | 
|Total                               |  |                     | 2,237 |  |                     |  | 1,955 |       |  |  | 694   |  |  |       | 537 |  |     |  | 2,931 |  |  |  | 2,492 | 
|                                    |  |                     |       |  |                     |  |       |       |  |  |       |  |  |       |     |  |     |  |       |  |  |  |       | 
|Non-Operated Wells:                 |  |                     |       |  |                     |  |       |       |  |  |       |  |  |       |     |  |     |  |       |  |  |  |       | 
|Enhanced Oil Recovery Project Areas |  |                     | 252   |  |                     |  | 8     |       |  |  |      |  |  |       |    |  |     |  | 252   |  |  |  | 8     | 
|Anadarko Basin Area                 |  |                     | 396   |  |                     |  | 22    |       |  |  | 1,041 |  |  |       | 111 |  |     |  | 1,437 |  |  |  | 133   | 
|Central Oklahoma Area               |  |                     | 1,885 |  |                     |  | 237   |       |  |  | 190   |  |  |       | 18  |  |     |  | 2,075 |  |  |  | 255   | 
|Permian Basin Area                  |  |                     | 1,047 |  |                     |  | 47    |       |  |  | 91    |  |  |       | 21  |  |     |  | 1,138 |  |  |  | 68    | 
|Other                               |  |                     | 649   |  |                     |  | 24    |       |  |  | 243   |  |  |       | 20  |  |     |  | 892   |  |  |  | 44    | 
|                                    |  |                     |       |  |                     |  |       |       |  |  |       |  |  |       |     |  |     |  |       |  |  |  |       | 
|Total                               |  |                     | 4,229 |  |                     |  | 338   |       |  |  | 1,565 |  |  |       | 170 |  |     |  | 5,794 |  |  |  | 508   | 
|                                    |  |                     |       |  |                     |  |       |       |  |  |       |  |  |       |     |  |     |  |       |  |  |  |       | 
|Total Wells:                        |  |                     |       |  |                     |  |       |       |  |  |       |  |  |       |     |  |     |  |       |  |  |  |       | 
|Enhanced Oil Recovery Project Areas |  |                     | 716   |  |                     |  | 398   |       |  |  |      |  |  |       |    |  |     |  | 716   |  |  |  | 398   | 
|Anadarko Basin Area                 |  |                     | 656   |  |                     |  | 239   |       |  |  | 1,470 |  |  |       | 432 |  |     |  | 2,126 |  |  |  | 671   | 
|Central Oklahoma Area               |  |                     | 2,873 |  |                     |  | 1,108 |       |  |  | 257   |  |  |       | 71  |  |     |  | 3,130 |  |  |  | 1,179 | 
|Permian Basin Area                  |  |                     | 1,377 |  |                     |  | 357   |       |  |  | 153   |  |  |       | 72  |  |     |  | 1,530 |  |  |  | 429   | 
|Other                               |  |                     | 844   |  |                     |  | 191   |       |  |  | 379   |  |  |       | 132 |  |     |  | 1,223 |  |  |  | 323   | 
|                                    |  |                     |       |  |                     |  |       |       |  |  |       |  |  |       |     |  |     |  |       |  |  |  |       | 
|Total                               |  |                     | 6,466 |  |                     |  | 2,293 |       |  |  | 2,259 |  |  |       | 707 |  |     |  | 8,725 |  |  |  | 3,000 | 
|                                    |  |                     |       |  |                     |  |       |       |  |  |       |  |  |       |     |  |     |  |       |  |  |  |       | 

The following table sets forth information with respect to wells drilled during the periods indicated. The
information should not be considered indicative of future performance, nor should a correlation be assumed between the number of productive wells drilled, quantities of reserves found, or economic value. Development wells are wells drilled within
the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive. Exploratory wells are wells drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil
or natural gas in another reservoir. Productive wells are those that produce commercial quantities of hydrocarbons, exclusive of their capacity to produce at a reasonable rate of return.



|                   |  |       |       |   |      |  |       |       |  |  |       |   |  |       |      |   |     |  |       |   |  |  |      |  
|------------------ |  | ----- | ----- | - | ---- |  | ----- | ----- |  |  | ----- | - |  | ----- | ---- | - | --- |  | ----- | - |  |  | ---- | -
|                   |  | 2010  |       |   | 2009 |  |       | 2008  | 
|                   |  | Gross |       |   | Net  |  |       | Gross |  |  | Net   |   |  | Gross |      |   | Net | 
|Development wells  |  |       |       |   |      |  |       |       |  |  |       |   |  |       |      |   |     |  |       |   |  |  |      |  
|Productive         |  |       | 234.0 |   |      |  | 100.0 |       |  |  | 168.0 |   |  |       | 49.5 |   |     |  | 319.0 |   |  |  | 74.9 |  
|Dry                |  |       | 5.0   |   |      |  | 1.9   |       |  |  | 2.0   |   |  |       | 1.9  |   |     |  | 4.0   |   |  |  | 2.0  |  
|Exploratory wells  |  |       |       |   |      |  |       |       |  |  |       |   |  |       |      |   |     |  |       |   |  |  |      |  
|Productive         |  |       | 18.0  |   |      |  | 18.0  |       |  |  | 2.0   |   |  |       | 1.0  |   |     |  | 3.0   |   |  |  | 2.2  |  
|Dry                |  |       | 1.0   |   |      |  | 1.0   |       |  |  | 0.0   |   |  |       | 0.0  |   |     |  | 0.0   |   |  |  | 0.0  |  
|Total wells        |  |       |       |   |      |  |       |       |  |  |       |   |  |       |      |   |     |  |       |   |  |  |      |  
|Productive         |  |       | 252.0 |   |      |  | 118.0 |       |  |  | 170.0 |   |  |       | 50.5 |   |     |  | 322.0 |   |  |  | 77.1 |  
|Dry                |  |       | 6.0   |   |      |  | 2.9   |       |  |  | 2.0   |   |  |       | 1.9  |   |     |  | 4.0   |   |  |  | 2.0  |  
|                   |  |       |       |   |      |  |       |       |  |  |       |   |  |       |      |   |     |  |       |   |  |  |      |  
|Total              |  |       | 258.0 |   |      |  | 120.9 |       |  |  | 172.0 |   |  |       | 52.4 |   |     |  | 326.0 |   |  |  | 79.1 |  
|                   |  |       |       |   |      |  |       |       |  |  |       |   |  |       |      |   |     |  |       |   |  |  |      |  
|Percent productive |  |       | 98    | % |      |  | 98    | %     |  |  | 99    | % |  |       | 96   | % |     |  | 99    | % |  |  | 97   | %



20



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##### Table of Contents

The following table details our gross and net interest in developed and undeveloped acreage
at December 31, 2010 by state. This does not include acreage in which we hold only royalty interests.



|             |  |           |           |  |             |  |         |       |  |  |        |  |  |       |        |  |     |  |           |  |  |  |         | 
|------------ |  | --------- | --------- |  | ----------- |  | ------- | ----- |  |  | ------ |  |  | ----- | ------ |  | --- |  | --------- |  |  |  | ------- | 
|             |  | Developed |           |  | Undeveloped |  |         | Total | 
|             |  | Gross     |           |  | Net         |  |         | Gross |  |  | Net    |  |  | Gross |        |  | Net | 
|Arkansas     |  |           | 13,257    |  |             |  | 3,656   |       |  |  |       |  |  |       |       |  |     |  | 13,257    |  |  |  | 3,656   | 
|Kansas       |  |           | 11,956    |  |             |  | 9,511   |       |  |  |       |  |  |       |       |  |     |  | 11,956    |  |  |  | 9,511   | 
|Louisiana    |  |           | 22,659    |  |             |  | 10,718  |       |  |  | 1,487  |  |  |       | 1,144  |  |     |  | 24,146    |  |  |  | 11,862  | 
|Mississippi  |  |           | 790       |  |             |  | 36      |       |  |  |       |  |  |       |       |  |     |  | 790       |  |  |  | 36      | 
|Montana      |  |           | 10,153    |  |             |  | 3,113   |       |  |  | 1,650  |  |  |       | 1,650  |  |     |  | 11,803    |  |  |  | 4,763   | 
|North Dakota |  |           | 6,408     |  |             |  | 4,325   |       |  |  |       |  |  |       |       |  |     |  | 6,408     |  |  |  | 4,325   | 
|New Mexico   |  |           | 17,057    |  |             |  | 10,833  |       |  |  | 240    |  |  |       | 240    |  |     |  | 17,297    |  |  |  | 11,073  | 
|Oklahoma     |  |           | 806,904   |  |             |  | 342,379 |       |  |  | 44,503 |  |  |       | 36,306 |  |     |  | 851,407   |  |  |  | 378,685 | 
|Texas        |  |           | 228,119   |  |             |  | 144,883 |       |  |  | 30,214 |  |  |       | 26,702 |  |     |  | 258,333   |  |  |  | 171,585 | 
|Utah         |  |           | 40        |  |             |  | 5       |       |  |  |       |  |  |       |       |  |     |  | 40        |  |  |  | 5       | 
|Wyoming      |  |           | 23,048    |  |             |  | 3,568   |       |  |  |       |  |  |       |       |  |     |  | 23,048    |  |  |  | 3,568   | 
|             |  |           |           |  |             |  |         |       |  |  |        |  |  |       |        |  |     |  |           |  |  |  |         | 
|Total        |  |           | 1,140,391 |  |             |  | 533,027 |       |  |  | 78,094 |  |  |       | 66,042 |  |     |  | 1,218,485 |  |  |  | 599,069 | 
|             |  |           |           |  |             |  |         |       |  |  |        |  |  |       |        |  |     |  |           |  |  |  |         | 

The following table summarizes our estimates of net proved oil and natural gas reserves, estimated future
net revenues from proved reserves, the PV-10 value, the standardized measure of discounted future net cash flows, and the prices used in projecting those measures over the past three years. Estimates of our net proved oil and natural gas reserves as
of December 31, 2010, 2009, and 2008 were prepared by Cawley, Gillespie & Associates, Inc. (52%, 59%, and 68% of PV-10 value, respectively) and Ryder Scott Company, L.P. (31%, 23% and 7% of PV-10 value, respectively). Our internal
engineering staff has prepared a report of estimated proved reserves on our remaining smaller value properties (17%, 18%, and 25% of PV-10 value in 2010, 2009, and 2008, respectively).



|                                                         |  |                    |           |   |      |   |           |      |  |   |           |  
|-------------------------------------------------------- |  | ------------------ | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                         |  | As of December 31, |          
|                                                         |  | 2010               |           |   | 2009 |   |           | 2008 | 
|Estimated proved reserve volumes:                        |  |                    |           |   |      |   |           |      |  |   |           |  
|Oil (Mbbls)                                              |  |                    | 93,412    |   |      |   | 89,469    |      |  |   | 51,283    |  
|Natural gas (MMcf)                                       |  |                    | 335,220   |   |      |   | 314,430   |      |  |   | 372,366   |  
|Oil equivalent (MBoe)                                    |  |                    | 149,282   |   |      |   | 141,874   |      |  |   | 113,344   |  
|Proved developed reserve percentage                      |  |                    | 66        | % |      |   | 66        | %    |  |   | 74        | %
|Estimated proved reserve values (in thousands):          |  |                    |           |   |      |   |           |      |  |   |           |  
|Future net revenue                                       |  | $                  | 4,110,844 |   |      | $ | 3,080,410 |      |  | $ | 1,918,270 |  
|PV-10 value                                              |  | $                  | 1,770,061 |   |      | $ | 1,323,541 |      |  | $ | 932,692   |  
|Standardized measure of discounted future net cash flows |  | $                  | 1,236,026 |   |      | $ | 971,364   |      |  | $ | 755,013   |  
|Oil and natural gas prices:(1)                           |  |                    |           |   |      |   |           |      |  |   |           |  
|Oil price (per Bbl)                                      |  | $                  | 79.43     |   |      | $ | 61.18     |      |  | $ | 44.60     |  
|Natural gas price (per Mcf)                              |  | $                  | 4.38      |   |      | $ | 3.87      |      |  | $ | 5.62      |  
|Estimated reserve life in years(2)                       |  |                    | 18.5      |   |      |   | 18.6      |      |  |   | 16.0      |  



|(1) | Prices for 2010 and 2009 were based upon the average first day of the month prices for each month during the respective year. The prices for 2008 were based upon the
prices in effect on December 31, 2008. In all three years, the prices shown were adjusted for location differentials to reflect the net prices we receive.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Calculated by dividing net proved reserves by net production volumes for the year indicated.
|--- | --------------------------------------------------------------------------------------------



21



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##### Table of Contents

The following table summarizes our costs incurred for oil and natural gas properties and our
reserve replacement ratio for each of the last three years.



|                                    |  |                    |         |   |      |   |         |      |  |   |         |  
|----------------------------------- |  | ------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                    |  | As of December 31, |        
|(dollars in thousands)              |  | 2010               |         |   | 2009 |   |         | 2008 | 
|Property acquisition costs          |  |                    |         |   |      |   |         |      |  |   |         |  
|Proved properties                   |  | $                  | 32,458  |   |      | $ | 14,552  |      |  | $ | 39,201  |  
|Unproved properties                 |  |                    | 9,062   |   |      |   | 3,781   |      |  |   | 6,677   |  
|                                    |  |                    |         |   |      |   |         |      |  |   |         |  
|Total acquisition costs             |  |                    | 41,520  |   |      |   | 18,333  |      |  |   | 45,878  |  
|Development costs(1)                |  |                    | 251,564 |   |      |   | 127,640 |      |  |   | 251,690 |  
|Exploration costs(2)                |  |                    | 34,180  |   |      |   | 4,942   |      |  |   | 5,108   |  
|                                    |  |                    |         |   |      |   |         |      |  |   |         |  
|Total                               |  | $                  | 327,264 |   |      | $ | 150,915 |      |  | $ | 302,676 |  
|                                    |  |                    |         |   |      |   |         |      |  |   |         |  
|Annual reserve replacement ratio(3) |  |                    | 247     | % |      |   | 243     | %    |  |   | 200     | %



|(1) | Includes $9.8 million, $5.8 million and $17.9 million of costs related to CO2support facilities and pipelines in 2010, 2009 and 2008, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes $16.7 million of EOR costs in 2010.
|--- | --------------------------------------------

|(3) | Calculated by dividing the sum of reserve additions (from purchases of minerals in place, extensions and discoveries, and improved recoveries) by the production for the
corresponding period. The values for these reserve additions are derived directly from the proved reserves table located in Note 16 of the notes to our consolidated financial statements. In calculating the reserve replacement ratio, we do not use
unproved reserve quantities. Management uses the reserve replacement ratio as an indicator of our ability to replenish annual production volumes and grow reserves, thereby providing some information of the sources of future production. It should be
noted that the reserve replacement ratio is a statistical indicator that has limitations. As an annual measure, the ratio is limited because it typically varies widely based on the extent and timing of new discoveries and property acquisitions. Its
predictive and comparative value is also limited for the same reasons. The reserve replacement ratio is comprised of the following:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                               |  |                         |     |   |                 |  |       |                  |  |  |                 |   |  |                  |       |   |                 |  |     |   |  |  |       |  
|------------------------------ |  | ----------------------- | --- | - | --------------- |  | ----- | ---------------- |  |  | --------------- | - |  | ---------------- | ----- | - | --------------- |  | --- | - |  |  | ----- | -
|                               |  | Year ended December 31, |    
|                               |  | 2010                    |     |   | 2009            |  |       | 2008             | 
|                               |  | Reservesreplaced        |     |   | Percentof total |  |       | Reservesreplaced |  |  | Percentof total |   |  | Reservesreplaced |       |   | Percentof total | 
|Purchases of minerals in place |  |                         | 52  | % |                 |  | 21.2  | %                |  |  | 9               | % |  |                  | 3.5   | % |                 |  | 35  | % |  |  | 17.2  | %
|Extensions and discoveries     |  |                         | 138 | % |                 |  | 55.7  | %                |  |  | 195             | % |  |                  | 80.4  | % |                 |  | 155 | % |  |  | 77.6  | %
|Improved recoveries            |  |                         | 57  | % |                 |  | 23.1  | %                |  |  | 39              | % |  |                  | 16.1  | % |                 |  | 10  | % |  |  | 5.2   | %
|                               |  |                         |     |   |                 |  |       |                  |  |  |                 |   |  |                  |       |   |                 |  |     |   |  |  |       |  
|Total                          |  |                         | 247 | % |                 |  | 100.0 | %                |  |  | 243             | % |  |                  | 100.0 | % |                 |  | 200 | % |  |  | 100.0 | %
|                               |  |                         |     |   |                 |  |       |                  |  |  |                 |   |  |                  |       |   |                 |  |     |   |  |  |       |  



22



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##### Table of Contents

The following table sets forth certain information regarding our historical net production
volumes, average prices realized and production costs associated with sales of oil and natural gas for the periods indicated.



|                                                   |  |                         |        |  |      |   |        |      |  |   |        | 
|-------------------------------------------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                   |  | Year ended December 31, |       
|                                                   |  | 2010                    |        |  | 2009 |   |        | 2008 | 
|Production:(1)                                     |  |                         |        |  |      |   |        |      |  |   |        | 
|Oil (MBbls)                                        |  |                         | 4,093  |  |      |   | 3,874  |      |  |   | 3,773  | 
|Natural gas (MMcf)                                 |  |                         | 23,742 |  |      |   | 22,584 |      |  |   | 19,795 | 
|                                                   |  |                         |        |  |      |   |        |      |  |   |        | 
|Combined (MBoe)                                    |  |                         | 8,050  |  |      |   | 7,638  |      |  |   | 7,072  | 
|Average daily production:                          |  |                         |        |  |      |   |        |      |  |   |        | 
|Oil (Bbls)                                         |  |                         | 11,214 |  |      |   | 10,614 |      |  |   | 10,309 | 
|Natural gas (Mcf)                                  |  |                         | 65,046 |  |      |   | 61,874 |      |  |   | 54,085 | 
|                                                   |  |                         |        |  |      |   |        |      |  |   |        | 
|Combined (Boe)                                     |  |                         | 22,055 |  |      |   | 20,926 |      |  |   | 19,323 | 
|Average prices (excluding derivative settlements): |  |                         |        |  |      |   |        |      |  |   |        | 
|Oil (per Bbl)                                      |  | $                       | 74.53  |  |      | $ | 55.04  |      |  | $ | 92.47  | 
|Natural gas (per Mcf)                              |  |                         | 4.36   |  |      |   | 3.51   |      |  |   | 7.72   | 
|                                                   |  |                         |        |  |      |   |        |      |  |   |        | 
|Combined (per Boe)                                 |  | $                       | 50.75  |  |      | $ | 38.28  |      |  | $ | 70.95  | 
|Average costs per Boe:                             |  |                         |        |  |      |   |        |      |  |   |        | 
|Lease operating expenses                           |  | $                       | 13.18  |  |      | $ | 12.32  |      |  | $ | 17.04  | 
|Production taxes                                   |  |                         | 3.29   |  |      |   | 2.66   |      |  |   | 4.78   | 
|Depreciation, depletion, and amortization          |  |                         | 13.60  |  |      |   | 13.64  |      |  |   | 14.29  | 
|General and administrative                         |  |                         | 3.72   |  |      |   | 3.11   |      |  |   | 3.16   | 



| | (1) | The North Burbank Unit is the only field that contained 15% or more of our total proved reserve volumes at December 31, 2010. Production from this Unit, all of which
was oil, was 509 MBbls, 492 MBbls, and 454 MBbls of our net production during 2010, 2009, and 2008, respectively.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Non-GAAP Financial Measures and Reconciliations

The PV-10 value is derived from the standardized measure of discounted future net cash flows, which is the most directly comparable
financial measure computed using generally accepted accounting principles (GAAP). PV-10 value is a computation of the standardized measure of discounted future net cash flows on a pre-tax basis. PV-10 value is equal to the standardized
measure of discounted future net cash flows at December 31, 2010 before deducting future income taxes, discounted at 10%. We believe that the presentation of the PV-10 value is relevant and useful to investors because it presents the discounted
future net cash flows attributable to our proved reserves prior to taking into account future corporate income taxes, and it is a useful measure of evaluating the relative monetary significance of our oil and natural gas properties. Further,
investors may utilize the measure as a basis for comparison of the relative size and value of our reserves to other companies. We use this measure when assessing the potential return on investment related to our oil and natural gas properties.
However, PV-10 value is not a substitute for the standardized measure of discounted future net cash flows. Our PV-10 value measure and the standardized measure of discounted future net cash flows do not purport to present the fair value of our oil
and natural gas reserves.

The following table provides a reconciliation of PV-10 value to the standardized measure of
discounted future net cash flows for the periods shown:



|                                                         |  |                    |           |   |      |   |           |      |  |   |          |  
|-------------------------------------------------------- |  | ------------------ | --------- | - | ---- | - | --------- | ---- |  | - | -------- | -
|                                                         |  | As of December 31, |          
|(dollars in thousands)                                   |  | 2010               |           |   | 2009 |   |           | 2008 | 
|PV-10 value                                              |  | $                  | 1,770,061 |   |      | $ | 1,323,541 |      |  | $ | 932,692  |  
|Present value of future income tax discounted at 10%     |  |                    | (534,035  | ) |      |   | (352,177  | )    |  |   | (177,679 | )
|                                                         |  |                    |           |   |      |   |           |      |  |   |          |  
|Standardized measure of discounted future net cash flows |  | $                  | 1,236,026 |   |      | $ | 971,364   |      |  | $ | 755,013  |  
|                                                         |  |                    |           |   |      |   |           |      |  |   |          |  



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##### Table of Contents

Management uses adjusted EBITDA as a supplemental financial measurement to evaluate our
operational trends. Items excluded generally represent non-cash adjustments, the timing and amount of which cannot be reasonably estimated and are not considered by management when measuring our overall operating performance. In addition, adjusted
EBITDA is generally consistent with the Consolidated EBITDAX calculation that is used in the covenant ratio required under our senior secured revolving credit facility described in the Liquidity and Capital Resources section of Managements
Discussion and Analysis of Financial Condition and Results of Operations. We consider compliance with this covenant to be material. Adjusted EBITDA is used as a supplemental financial measurement in the evaluation of our business and should not be
considered as an alternative to net income, as an indicator of our operating performance, as an alternative to cash flows from operating activities, or as a measure of liquidity. Adjusted EBITDA is not defined under GAAP and, accordingly, it may not
be a comparable measurement to those used by other companies.

We define adjusted EBITDA as net income (loss), adjusted to
exclude (1) interest and other financing costs, net of capitalized interest, (2) income taxes, (3) depreciation, depletion and amortization, (4) unrealized (gain) loss on ineffective portion of hedges and reclassification
adjustments, (5) non-cash change in fair value of non-hedge derivative instruments, (6) interest income, (7) deferred compensation expense (gain), (8) gain or loss on disposed assets, and (9) impairment charges and other
significant, unusual non-cash charges. Through March 31, 2010, our calculation of adjusted EBITDA excluded any cash proceeds received from the monetization of derivatives with a scheduled maturity date more than 12 months following the date of
such monetization, in accordance with the terms of our prior credit facility.

In July 2010, we amended the definition of
Consolidated EBITDAX in our senior secured revolving credit facility to (1) permit cash proceeds received from the monetization of derivatives to be included in the calculation of Consolidated EBITDAX, to the extent that such monetizations, in
any period between scheduled redeterminations, do not exceed 5% of the borrowing base then in effect, and (2) permit the exclusion from the calculation of Consolidated EBITDAX of up to $4.5 million in one-time cash expenses associated with our
financing transactions that were incurred and paid during the second quarter of 2010. As a result, beginning with the second quarter of 2010, we have changed our calculation of adjusted EBITDA to include cash proceeds received from the monetization
of derivatives with a scheduled maturity date more than 12 months following the date of such monetization, to the extent permitted by our senior secured revolving credit facility. However, we have not changed our calculation of adjusted EBITDA to
exclude approximately $2.3 million of one-time cash expenses associated with our financing transactions. As a result of the permitted exclusion of these expenses, our Consolidated EBITDAX as calculated for covenant compliance purposes is higher than
our adjusted EBITDA for the year ended December 31, 2010.

The following table provides a reconciliation of net income
(loss) to adjusted EBITDA for the specified periods:



|                                                                                                                                         |  |                         |         |   |      |   |          |      |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                                                                                                         |  | Year Ended December 31, |        
|(dollars in thousands)                                                                                                                   |  | 2010                    |         |   | 2009 |   |          | 2008 | 
|Net income (loss)                                                                                                                        |  | $                       | 33,713  |   |      | $ | (144,318 | )    |  | $ | (54,750 | )
|Interest expense                                                                                                                         |  |                         | 83,611  |   |      |   | 90,102   |      |  |   | 86,038  |  
|Income tax expense (benefit)                                                                                                             |  |                         | 23,803  |   |      |   | (85,936  | )    |  |   | (34,386 | )
|Depreciation, depletion, and amortization                                                                                                |  |                         | 109,503 |   |      |   | 104,734  |      |  |   | 101,973 |  
|Unrealized (gain) loss on ineffective portion of hedges and reclassification adjustments                                                 |  |                         | 23,889  |   |      |   | (21,752  | )    |  |   | (12,549 | )
|Non-cash change in fair value of non-hedge derivative instruments                                                                        |  |                         | (2,523  | ) |      |   | 149,106  |      |  |   | (89,554 | )
|Proceeds from monetization of derivatives with a scheduled maturity date more than 12 months from monetization date included in
EBITDA   |  |                         | 9,418   |   |      |   |         |      |  |   |        |  
|Proceeds from monetization of derivatives with a scheduled maturity date more than 12 months from monetization date excluded from
EBITDA |  |                         |        |   |      |   | (102,352 | )    |  |   |        |  
|Interest income                                                                                                                          |  |                         | (144    | ) |      |   | (283     | )    |  |   | (409    | )
|Deferred compensation expense (gain)                                                                                                     |  |                         | 2,600   |   |      |   | 1,145    |      |  |   | (306    | )
|Gain on disposed assets                                                                                                                  |  |                         | (184    | ) |      |   | (10,463  | )    |  |   | (177    | )
|Loss on impairment of oil and natural gas properties                                                                                     |  |                         |        |   |      |   | 240,790  |      |  |   | 281,393 |  
|Other non-cash charges                                                                                                                   |  |                         | 4,150   |   |      |   | 2,928    |      |  |   | 2,900   |  
|                                                                                                                                         |  |                         |         |   |      |   |          |      |  |   |         |  
|Adjusted EBITDA                                                                                                                          |  | $                       | 287,836 |   |      | $ | 223,701  |      |  | $ | 280,173 |  
|                                                                                                                                         |  |                         |         |   |      |   |          |      |  |   |         |  



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Competition

The oil and natural gas industry is highly competitive. We encounter strong competition from other independent operators and from major oil companies in acquiring properties, contracting for drilling
equipment and securing trained personnel. Many of these competitors have financial and technical resources and staffs substantially larger than ours. As a result, our competitors may be able to pay more for desirable leases, or to evaluate, bid for
and purchase a greater number of properties or prospects than our financial or personnel resources will permit.

We are also
affected by competition for drilling rigs and the availability of related equipment. In the past, the oil and natural gas industry has experienced shortages of drilling rigs, equipment, pipe and personnel, which have delayed developmental drilling
and other exploitation activities and have caused significant price increases. We are unable to predict when, or if, such shortages may again occur or how they would affect our development and exploitation program.

Competition is also strong for attractive oil and natural gas producing properties, undeveloped leases and drilling rights, and we cannot
assure you that we will be able to compete satisfactorily. Many large oil companies have been actively marketing some of their existing producing properties for sale to independent producers. Although we regularly evaluate acquisition opportunities
and submit bids as part of our growth strategy, we do not have any current agreements, understandings or arrangements with respect to any material acquisition.

Markets

The marketing of oil and natural gas we produce will be affected
by a number of factors that are beyond our control and whose exact effect cannot be accurately predicted. These factors include:



| |  |  | the amount of crude oil and natural gas imports;
| | - |  | ------------------------------------------------



| |  |  | the availability, proximity and cost of adequate pipeline and other transportation facilities;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | the success of efforts to market competitive fuels, such as coal and nuclear energy and the growth and/or success of alternative energy sources such as
wind power;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the effect of federal and state regulation of production, refining, transportation and sales;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | the laws of foreign jurisdictions and the laws and regulations affecting foreign markets;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | other matters affecting the availability of a ready market, such as fluctuating supply and demand; and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | general economic conditions in the United States and around the world.
| | - |  | ----------------------------------------------------------------------

The supply and demand balance of crude oil and natural gas in world markets has caused significant variations in the prices of these
products over recent years. The North American Free Trade Agreement eliminated most trade and investment barriers between the United States, Canada and Mexico, resulting in increased foreign competition for domestic natural gas production. New
pipeline projects recently approved by, or presently pending before the Federal Energy Regulatory Commission (FERC), as well as nondiscriminatory access requirements, could further increase the availability of natural gas imports to certain U.S.
markets. Such imports could have an adverse effect on both the price and volume of natural gas sales from our wells.

Members
of the Organization of Petroleum Exporting Countries establish prices and production quotas from time to time with the intent of reducing the current global oversupply and maintaining, lowering or increasing certain price levels. We are unable to
predict what effect, if any, such actions will have on both the price and volume of crude oil sales from our wells.

In
several initiatives, FERC has required pipeline transportation companies to develop electronic communication and to provide standardized access via the Internet to information concerning capacity and prices on a nationwide basis, so as to create a
national market. Parallel developments toward an electronic marketplace for electric power, mandated by FERC, are serving to create multi-national markets for energy products generally. These systems will allow rapid consummation of natural gas
transactions. Although this system may initially lower prices due to increased competition, it is anticipated it will ultimately expand natural gas markets and improve their reliability.



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##### Table of Contents

Environmental Matters and Regulation

We believe that our properties and operations are in substantial compliance with applicable environmental laws and regulations, and our
operations to date have not resulted in any material environmental liabilities. To reduce our exposure to potential environmental risk, we typically have our field personnel inspect operated properties prior to completing each acquisition.

General

Our operations, like the operations of other companies in our industry, are subject to stringent federal, state and local laws and regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. These laws and regulations may:



| |  |  | require the acquisition of various permits before drilling commences;
| | - |  | ---------------------------------------------------------------------



| |  |  | require the installation of expensive emission monitoring and/or pollution control equipment;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | restrict the types, quantities and concentration of various substances that can be released into the environment in connection with drilling and
production activities;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit or prohibit drilling activities on lands lying within wilderness, wetlands and other protected areas;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | require remedial measures to prevent pollution from former operations, such as pit closure and plugging of abandoned wells;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | impose substantial liabilities for pollution resulting from our operations; and
| | - |  | -------------------------------------------------------------------------------



| |  |  | with respect to operations affecting federal lands or leases, require preparation of a Resource Management Plan, an Environmental Assessment, and/or an
Environmental Impact Statement.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These laws, rules and regulations may also restrict the rate of oil and
natural gas production below the rate that would otherwise be possible. The regulatory burden on the oil and natural gas industry increases the cost of doing business in the industry and consequently affects profitability. Additionally, Congress and
federal and state agencies frequently revise environmental laws and regulations, and any changes that result in more stringent and costly waste handling, disposal and clean-up requirements for the oil and natural gas industry could have a
significant impact on our operating costs.

We monitor our properties and operations in an effort to
ensure that our properties and operations are, and remain, in substantial compliance with all current applicable environmental laws and regulations. If, at any time, we determine that our properties and/or operations do not substantially comply with
all current applicable environmental laws and regulations, we take action to remedy such noncompliance on our own volition and do not delay taking action until ordered to do so by a regulatory authority. We cannot predict how future environmental
laws and regulations may affect our properties or operations. For the years ended December 31, 2010 and 2009, we did not incur any material capital expenditures for installation of remediation or pollution control equipment at any of our
facilities. As of the date of this report, we are not aware of any other environmental issues or claims that will require material capital expenditures during 2011 or that will otherwise have a material impact on our financial position or results of
operations.

Environmental laws and regulations that could have a material impact on the oil and natural gas exploration and
production industry include the following:

National Environmental Policy Act

Oil and natural gas exploration and production activities on federal lands are subject to the National Environmental Policy Act (NEPA).
NEPA requires federal agencies, including the Department of Interior, to evaluate major agency actions having the potential to significantly impact the environment. In the course of such evaluations, an agency will typically prepare an Environmental
Assessment to assess the potential direct, indirect and cumulative impacts of a proposed project and, if necessary, will prepare a more detailed Environmental Impact Statement that may be made available for public review and comment.

All of our current exploration and production activities, as well as proposed exploration and development plans, on federal lands require
governmental permits that are subject to the requirements of NEPA. This process has the potential to delay the development of oil and natural gas projects.



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##### Table of Contents

Waste Handling

The Resource Conservation and Recovery Act (RCRA), and comparable state statutes, regulate the generation, transportation, treatment,
storage, disposal and cleanup of hazardous wastes and the disposal of non-hazardous wastes. Under the auspices of the federal Environmental Protection Agency (EPA), individual states administer some or all of the provisions of RCRA,
sometimes in conjunction with their own, more stringent requirements. Drilling fluids, produced waters, and most of the other wastes associated with the exploration, development, and production of crude oil, natural gas, or geothermal energy
constitute solid wastes, which are regulated under the less stringent non-hazardous waste provisions. However, there is no guarantee that the U.S. Congress, EPA or individual states will not adopt more stringent requirements for the
handling of non-hazardous wastes or categorize some non-hazardous wastes as hazardous for future regulation.

We believe that
we are currently in substantial compliance with the requirements of RCRA and related state and local laws and regulations, and that we hold all necessary and up-to-date permits, registrations and other authorizations to the extent that our
operations require them under such laws and regulations. Although we do not believe the current costs of managing our presently classified wastes to be significant, any legislative or regulatory reclassification of oil and natural gas exploration
and production wastes could increase our costs to manage and dispose of such wastes.

Comprehensive Environmental Response,
Compensation and Liability Act

The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also
known as the Superfund law, imposes strict, and in certain circumstances joint and several liability, on persons who are considered to be responsible for the release of a hazardous substance into the environment. Responsible
parties include the current, as well as former, owner or operator of the site where the release occurred and persons that disposed or arranged for the disposal of the hazardous substance at the site. Under CERCLA, such persons may be liable for the
costs of cleaning up the hazardous substances released into the environment, for damages to natural resources and for the costs of certain health studies. In addition, neighboring landowners and other third parties may file claims for personal
injury and property damage allegedly caused by the hazardous substances released into the environment.

We currently own,
lease, or operate numerous properties that have produced oil and natural gas for many years. Although we believe we have utilized operating and waste disposal practices that were standard in the industry at the time, hazardous substances, wastes, or
hydrocarbons may have been released on, under, or from the properties owned or leased by us, or on or under other locations, including off-site locations, where such substances have been taken for disposal. In addition, some of these properties have
been operated by third parties or by previous owners or operators whose treatment and disposal of hazardous substances, wastes, or hydrocarbons was not under our control. These properties and the substances disposed or released on them may be
subject to CERCLA, RCRA, and analogous state laws. Under such laws, we could be required to remove previously disposed substances and wastes, remediate contaminated property, or perform remedial plugging or pit closure operations to prevent future
contamination.



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##### Table of Contents

Water Discharges

The Federal Water Pollution Control Act, also known as the Clean Water Act, and analogous state laws impose restrictions and strict
controls on the discharge of pollutants, including produced waters and other oil and natural gas wastes, into waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a
permit issued by EPA or the relevant state. The Clean Water Act also prohibits the discharge of dredge and fill material in regulated waters, including wetlands, unless authorized by a permit issued by the U.S. Army Corps of Engineers. Federal and
state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the federal Clean Water Act and analogous state laws and regulations. We believe we are in
substantial compliance with the requirements of the Clean Water Act.

The Safe Drinking Water Act, Groundwater Protection,
and the Underground Injection Control Program

The federal Safe Drinking Water Act (SDWA) and the Underground Injection
Control (UIC) program promulgated under the SDWA and state programs regulate the drilling and operation of salt water disposal wells. EPA directly administers the UIC program in some states and in others it is delegated to the state for
administering. Permits must be obtained before drilling salt water disposal wells, and casing integrity monitoring must be conducted periodically to ensure the casing is not leaking saltwater to groundwater.

Contamination of groundwater by oil and natural gas drilling, production, and related operations may result in fines, penalties, and
remediation costs, among other sanctions and liabilities under the SDWA and state laws. In addition, third party claims may be filed by landowners and other parties claiming damages for alternative water supplies, property damages, and bodily
injury.

We engage third parties to provide hydraulic fracturing or other well stimulation services to us in connection with
many of the wells for which we are the operator. The U.S. Congress has considered legislation that would repeal the exemption for hydraulic fracturing from the SDWA, which would have the effect of allowing the EPA to promulgate regulations requiring
permits and implementing potential new requirements of hydraulic fracturing under the SDWA. This could, in turn, require state regulatory agencies in states with programs delegated under the SDWA to impose additional requirements on hydraulic
fracturing operations.

Further, in 2010, EPA initiated a Hydraulic Fracturing Research Study to address concerns that
hydraulic fracturing may affect the safety of drinking water. As part of that process, EPA requested and received information from the major fracturing service providers regarding the chemical composition of fluids, standard operating procedures,
and the sites where they engage in hydraulic fracturing. In February 2011, EPA released its Draft Plan to Study the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources, proposing to study the lifecycle of hydraulic fracturing fluid
and providing a comprehensive list of chemicals identified in fracturing fluid and flowback/produced waste. These developments, as well as increased scrutiny of hydraulic fracturing activities by state authorities, municipal location prohibitions
and recent Clean Water Act citizen suit litigation activities arising from discharge of recovered wastewater from hydraulic fracturing operations to municipal wastewater treatment works may result in additional levels of regulation or level of
complexity with respect to existing regulation at the federal and state levels.



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##### Table of Contents

The Clean Air Act

The federal Clean Air Act and comparable state laws regulate emissions of various air pollutants through air emissions permitting programs
and the imposition of other requirements. In addition, the EPA has developed and continues to develop stringent regulations governing emissions of toxic air pollutants at specified sources. Federal and state regulatory agencies can impose
administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the federal Clean Air Act and associated state laws and regulations. The EPA proposed in a consent decree, which has not been approved by a
federal court, that it will issue by January 31, 2011 a proposal to revise its national emissions standards for hazardous air pollution for crude oil and natural gas production, as well as gas transmission and storage and its new source
performance standards for oil and natural gas production. The EPA has not issued such a proposal at this time.

Some of our
new facilities may be required to obtain permits before work can begin, and existing facilities may be required to incur capital costs in order to comply with new monitoring and reporting requirements and/or emission limitations. In December 2009,
the EPA promulgated a finding that serves as the foundation under the Clean Air Act to issue other rules that would result in federal greenhouse gas regulations and emissions limits under the Clean Air Act, even without Congressional action. As part
of this array of new regulations, in September 2009, the EPA also promulgated a greenhouse gas monitoring and reporting rule that requires certain parties, including participants in the oil and natural gas industry, to monitor and report their
greenhouse gas emissions, including methane and carbon dioxide, to the EPA. In May 2010, EPA promulgated final rules subjecting greenhouse gas to regulation under the Clean Air Act, triggering application of other provisions of the Clean Air Act to
major stationary sources of greenhouse gas emissions. In June 2010, EPA promulgated final rules limiting the scope of certain provisions of the Clean Air Act as applied to greenhouse gas emission sources. Additionally, in November 2010, EPA
promulgated mandatory greenhouse gas emission reporting rules specifically applying to oil and natural gas exploration and production. These rules are published in the federal register and available on the Internet. These regulations govern our
operations to the extent applicable. See Risk factorsRegulation related to global warming and climate change could have an adverse effect on our operations and demand for oil and natural gas. These regulations may increase the
costs of compliance for some facilities, and federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance. We believe we are in substantial compliance with the current requirements of the Clean Air
Act.

Other Laws and Regulation

The Kyoto Protocol to the United Nations Framework Convention on Climate Change became effective in February 2005. Under the Protocol, participating nations are required to implement programs to reduce
emissions of greenhouse gases that are suspected of contributing to global warming. The United States is not currently a participant in the Protocol, and Congress is considering proposed legislation directed at reducing greenhouse gas emissions.
Also, there has been support in various regions of the country for legislation that requires reductions in greenhouse gas emissions, and some states have already adopted legislation addressing greenhouse gas emissions from various sources, primarily
power plants. The oil and natural gas industry is a direct source of certain greenhouse gas emissions, namely carbon dioxide and methane, and future restrictions on such emissions could impact our future operations. Our operations are not adversely
impacted by current state and local climate change initiatives and, at this time, it is not possible to accurately estimate how potential future laws or regulations limiting or otherwise addressing greenhouse gas emissions would impact our business.



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##### Table of Contents

Other Regulation of the Oil and Natural Gas Industry

The oil and natural gas industry is extensively regulated by numerous federal, state and local authorities. Legislation affecting the oil
and natural gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden. Also, numerous departments and agencies, both federal and state, are authorized by statute to issue rules and regulations
binding on the oil and natural gas industry and its individual members, some of which carry substantial penalties for failure to comply. Although the regulatory burden on the oil and natural gas industry increases our cost of doing business and,
consequently, affects our profitability, these burdens generally do not affect us any differently or to any greater or lesser extent than they affect other companies in the industry with similar types, quantities and locations of production.

Legislation continues to be introduced in Congress and development of regulations continues in the Department of Homeland
Security and other agencies concerning the security of industrial facilities, including oil and natural gas facilities. Our operations may be subject to such laws and regulations. It is not possible to accurately estimate the costs we could incur to
comply with any such facility security laws or regulations, but such expenditures could be substantial.

Drilling and
Production

Our operations are subject to various types of regulation at the federal, state and local levels. These types
of regulation include requiring permits for the drilling of wells, drilling bonds, and reports concerning operations. Most states, and some counties and municipalities, in which we operate also regulate one or more of the following:



| |  |  | the location of wells;
| | - |  | ----------------------



| |  |  | the method of drilling and casing wells;
| | - |  | ----------------------------------------



| |  |  | the rates of production or allowables;
| | - |  | ----------------------------------------



| |  |  | the surface use and restoration of properties upon which wells are drilled;
| | - |  | ---------------------------------------------------------------------------



| |  |  | the plugging and abandoning of wells; and
| | - |  | -----------------------------------------



| |  |  | notice to surface owners and other third parties.
| | - |  | -------------------------------------------------

State laws regulate the size and shape of drilling and spacing units or proration units governing the pooling of oil and natural gas properties. Some states allow forced pooling or integration of tracts
to facilitate exploration while other states rely on voluntary pooling of lands and leases. In some instances, forced pooling or unitization may be implemented by third parties and may reduce our interest in the unitized properties. In addition,
state conservation laws establish maximum rates of production from oil and natural gas wells, generally prohibit the venting or flaring of natural gas, and impose requirements regarding the ratability of production. These laws and regulations may
limit the amount of oil and natural gas we can produce from our wells or limit the number of wells or the locations at which we can drill. Moreover, each state generally imposes a production or severance tax with respect to the production and sale
of oil, natural gas, and natural gas liquids within its jurisdiction.



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Natural Gas Sales Transportation

Historically, federal legislation and regulatory controls have affected the price of the natural gas we produce and the manner in which we
market our production. FERC has jurisdiction over the transportation and sale for resale of natural gas in interstate commerce by natural gas companies under the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978. Since 1978, various
federal laws have been enacted which have resulted in the complete removal of all price and non-price controls for sales of domestic natural gas sold in first sales, which include all of our sales of our own production.

FERC also regulates interstate natural gas transportation rates and service conditions, which affects the marketing of natural gas that
we produce, as well as the revenues we receive for sales of our natural gas. Commencing in 1985, FERC promulgated a series of orders, regulations and rule makings that significantly fostered competition in the business of transporting and marketing
gas. Today, interstate pipeline companies are required to provide nondiscriminatory transportation services to producers, marketers and other shippers, regardless of whether such shippers are affiliated with an interstate pipeline company.
FERCs initiatives have led to the development of a competitive, unregulated, open access market for gas purchases and sales that permits all purchasers of gas to buy gas directly from third-party sellers other than pipelines. However, the
natural gas industry historically has been very heavily regulated; therefore, we cannot guarantee that the less stringent regulatory approach recently pursued by FERC and Congress will continue indefinitely into the future nor can we determine what
effect, if any, future regulatory changes might have on our natural gas related activities.

Under FERCs current
regulatory regime, transmission services must be provided on an open-access, non-discriminatory basis at cost-based rates or at market-based rates if the transportation market at issue is sufficiently competitive. Gathering service, which occurs
upstream of jurisdictional transmission services, is regulated by the states onshore and instate waters. Although its policy is still in flux, FERC recently has reclassified certain jurisdictional transmission facilities as non-jurisdictional
gathering facilities, which has the tendency to increase our costs of getting natural gas to point-of-sale locations.

Natural Gas Pipeline Safety

The Department of Transportation, specifically the Pipeline and Hazardous Materials Safety Administration, regulates transportation of natural and other gas by pipeline and imposes minimum federal safety
standards pursuant to the pipeline safety laws codified at 49 U.S.C. 60101, et seq. and the hazardous material transportation laws codified at 49 U.S.C. 5101, et seq.

Natural Gas Gathering Regulations

State regulation of natural gas
gathering facilities generally includes various safety, environmental and, in some circumstances, nondiscriminatory-take requirements. Although such regulation has not generally been affirmatively applied by state agencies, natural gas gathering is
addressed in EPAs proposed greenhouse gas monitoring and reporting rule and may receive greater regulatory scrutiny in the future.

State Regulation

The various states regulate the drilling for, and the
production, gathering, and sale of, oil and natural gas, including imposing severance taxes and requirements for obtaining drilling permits. States also regulate the method of developing new fields, the spacing and operation of wells, and the
prevention of waste of oil and natural gas resources. States may regulate rates of production and may establish maximum daily production allowables from oil and natural gas wells based on market demand or resource conservation, or both. States do
not regulate wellhead prices or engage in other similar direct economic regulation, but there can be no assurance that they will not do so in the future. The effect of these regulations may be to limit the amounts of oil and natural gas that may be
produced from our wells, and to limit the number of wells or locations we can drill.

The petroleum industry is also subject
to compliance with various other federal, state and local regulations and laws. Some of those laws relate to occupational safety, resource conservation, and equal employment opportunity. We do not believe that compliance with these laws will have a
material adverse effect on us.



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Seasonality

While our limited operations located in the Gulf Coast and the Rocky Mountains may experience seasonal fluctuations, we do not believe these fluctuations have had, or will have, a material impact on our
consolidated results of operations.

Legal proceedings

In the opinion of management, there are no material pending legal proceedings to which we or any of our subsidiaries are a party or of which any of our property is the subject. However, due to the nature
of our business, certain legal or administrative proceedings may arise from time to time in the ordinary course of business.

Title to
properties

We believe that we have satisfactory title to all of our owned assets. As is customary in the oil and natural
gas industry, we initially conduct only a cursory review of the title to undeveloped leasehold acreage rights acquired through oil and natural gas leases or farm-in agreements. Prior to the commencement of drilling operations on undeveloped
leasehold, we conduct a title examination and perform curative work with respect to any significant title defects. Prior to completing an acquisition of an interest in significant producing oil and natural gas properties, we conduct due diligence as
to title for the specific interest we are acquiring. Our interests in oil and natural gas properties are subject to customary royalty interests, liens for current taxes and other similar burdens and minor easements, restrictions and encumbrances
which we believe do not materially detract from the value of these interests either individually or in the aggregate and will not materially interfere with the operation of our business. We will take such steps as we deem necessary to assure that
our title to our properties is satisfactory. We are free, however, to exercise our judgment as to reasonable business risks in waiving title requirements.

Employees

As of December 31, 2010, we had 765 full-time employees,
including 16 geologists and geophysicists, 36 reservoir, production, and drilling engineers and 15 land professionals. Of these, 328 work in our Oklahoma City office and 437 work in our district and field offices. We also contract for the
services of independent consultants involved in land, regulatory, accounting, financial and other disciplines as needed. None of our employees are represented by labor unions or covered by any collective bargaining agreement. We believe that our
relations with our employees are satisfactory.



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ITEM 1A. RISK FACTORS

The following are some of the important factors that could affect our financial performance or could cause actual results to differ
materially from estimates contained in our forward-looking statements. We may encounter risks in addition to those described below. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also
impair or adversely affect our business, financial condition or results of operation.

Oil and natural gas prices are volatile. A
decline in oil and natural gas prices could adversely affect our financial condition, financial results, cash flows, access to capital and ability to grow.

Our future financial condition, revenues, results of operations, rate of growth and the carrying value of our oil and natural gas properties depend primarily upon the prices we receive for our oil and
natural gas production. Oil and natural gas prices historically have been volatile and are likely to continue to be volatile in the future, especially given current geopolitical conditions. This price volatility also affects the cash flow we will
have available for capital expenditures as well as our ability to borrow money or raise additional capital. The prices for oil and natural gas are subject to a variety of factors that are beyond our control. These factors include, but are not
limited to, the following:



| |  |  | the level of consumer demand for oil and natural gas;
| | - |  | -----------------------------------------------------



| |  |  | the domestic and foreign supply of oil and natural gas;
| | - |  | -------------------------------------------------------



| |  |  | commodity processing, gathering and transportation availability, and the availability of refining capacity;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | the price and level of foreign imports of oil and natural gas;
| | - |  | --------------------------------------------------------------



| |  |  | the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | domestic and foreign governmental regulations and taxes;
| | - |  | --------------------------------------------------------



| |  |  | the supply of
CO2;
| | - |  | ------------------



| |  |  | the price and availability of alternative fuel sources;
| | - |  | -------------------------------------------------------



| |  |  | weather conditions;
| | - |  | -------------------



| |  |  | financial and commercial market uncertainty;
| | - |  | --------------------------------------------



| |  |  | political conditions or hostilities in oil and natural gas producing regions, including the Middle East and South America; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | worldwide economic conditions.
| | - |  | ------------------------------

These factors and the volatility of the energy markets generally make it extremely difficult to predict future oil and natural gas price movements with any certainty. Declines in oil and natural gas
prices would not only reduce our revenue, but could reduce the amount of oil and natural gas we can produce economically, and as a result, could have a material adverse effect on our financial condition, results of operations, and reserves. If the
oil and natural gas industry experiences significant price declines, we may, among other things, be unable to meet our financial obligations, including payments on our senior secured revolving credit facility and our Senior Notes, or be unable to
make planned capital expenditures.



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Price declines at the end of 2008 and early 2009 resulted in write downs of the carrying values of our
properties, and further price declines could result in additional write downs in the future, which could negatively impact our results of operations.

We utilize the full cost method of accounting for costs related to our oil and natural gas properties. Under this method, all costs incurred for both productive and nonproductive properties are
capitalized and amortized on an aggregate basis using the units-of-production method. However, these capitalized costs are subject to a ceiling test which limits such pooled costs to the aggregate of the present value of estimated future net
revenues attributable to proved oil and natural gas reserves discounted at 10%, adjusted for derivatives accounted for as cash flow hedges and net of tax considerations, plus the lower of cost or market value of unproved properties. The full cost
ceiling is evaluated at the end of each quarter using the SEC prices for oil and natural gas in effect at that date as adjusted for our derivative positions deemed cash flow hedge positions. A write-down of oil and natural gas properties
does not impact cash flow from operating activities, but does reduce net income. Once incurred, a write-down of oil and natural gas properties is not reversible at a later date.

During the fourth quarter of 2008, our evaluation of our full cost ceiling required a non-cash impairment charge of $281.4 million to the
value of our oil and natural gas properties as a result of a decline in oil and natural gas prices at the measurement date. The impairment was calculated based on December 31, 2008 prices of $44.60 per Bbl of oil and $5.62 per Mcf of natural
gas. During the first quarter of 2009, natural gas prices declined significantly (as compared to the December 31, 2008 spot price of $5.62 per Mcf), and based on March 31, 2009 spot prices of $49.66 per Bbl of oil and $3.63 per Mcf of
natural gas, our reserves declined by 13.5%, as a result of which we recorded a non-cash ceiling test impairment of $240.8 million during the first quarter of 2009. Oil and natural gas prices have remained volatile and this and other factors,
without mitigating circumstances, could require us to further write down capitalized costs and incur corresponding non-cash charges to earnings. Any such further write downs could have a material adverse effect on our financial condition, results of
operations, and our ability to comply with debt covenants.

The actual quantities and present value of our proved reserves may be lower
than we have estimated.

Estimating quantities of proved oil and natural gas reserves is a complex process. It requires
interpretations of available technical data and various estimates and assumptions, including estimates based upon assumptions relating to economic factors such as commodity prices, production costs, severance and excise taxes, capital expenditures,
workovers, remedial costs, and the assumed effect of governmental regulation. There are numerous uncertainties about when a property may have proved reserves as compared to possible or probable reserves, including with respect to our EOR operations.
Reserve estimates are, therefore, inherently imprecise and, although we are reasonably certain of recovering the quantities we disclose as proved reserves, actual results will vary from our estimates. Any significant variations in the
interpretations or assumptions underlying our estimates or changes of conditions (e.g. economic growth and/or regulation) could cause the estimated quantities and net present value of our reserves to differ materially. In addition, we may adjust
estimates of proved reserves to reflect production history, results of exploration and developmental drilling, prevailing oil and natural gas prices and other factors, many of which are beyond our control. Our properties may also be susceptible to
hydrocarbon drainage from production by operators on adjacent properties.

You should not assume that the present values
referred to in this report represent the current market value of our estimated oil and natural gas reserves. The timing of production and expenses associated with the development and production of oil and natural gas properties will affect both the
timing of actual future net cash flows from our proved reserves and their present value. In accordance with requirements of the SEC, the estimates of present values are based on average prices and costs in effect as of the date of the estimates and
exclude escalations based upon future conditions. Actual future prices and costs may be materially higher or lower than the prices and costs as of the date of these estimates. In addition, the effects of derivative instruments are not reflected in
these assumed prices. Our December 31, 2010 reserve report used realized prices based on an average price of $4.38 per Mcf for natural gas and an average price of $79.43 per Bbl for oil.



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A significant portion of total proved reserves as of December 31, 2010 are undeveloped, and those
reserves may not ultimately be developed.

As of December 31, 2010, approximately 34% of our estimated proved
reserves were undeveloped. Recovery of undeveloped reserves requires significant capital expenditures and successful drilling and EOR operations. The reserve data assumes that we can and will make these expenditures and conduct these operations
successfully. While we are reasonably certain of our ability to make these expenditures and to conduct these operations under existing economic conditions, these assumptions may not prove correct and we may ultimately determine the development of
all, or any portion of, such proved but undeveloped reserves is not economically feasible.

Some of our reserves are subject to EOR
methods and the failure of these methods may have a material adverse affect on our financial condition, results of operations and reserves.

As of December 31, 2010, approximately 20% of our proved reserves were based on EOR methods including the injection of CO2and polymers, a synthetic chemical. Some of these properties have not been injected with CO2or with polymers having the identical chemical composition as polymers
used in historical production, and recovery factors cannot be estimated with precision. Accordingly, such projects may not result in significant proved reserves or improvements in anticipated production levels.

We do not currently have a supply of CO2for all of our unproved properties with CO2EOR potential, and we cannot assure you that we will be able to obtain such a supply on commercially reasonable terms. In
addition, many of our planned EOR projects will require significant investments in pipeline, compression facilities, and other infrastructure, and we may need to raise additional capital to fund these projects. We cannot assure you that such funding
will be available on commercially reasonable terms. The availability of CO2supply and financing of CO2projects could affect the timing of our planned EOR programs and impact our ability to implement such plans.

Our ability to develop our EOR reserves will depend on whether we can successfully implement our planned EOR programs, and our failure to do so could have a material adverse effect on our financial
condition, results of operations and reserves.

The development of the proved undeveloped reserves in our North Burbank Unit, Camrick
Area Units, and Farnsworth Unit may take longer and may require higher levels of capital expenditures than we currently anticipate.

As of December 31, 2010, undeveloped reserves comprised 49%, 53%, and 82%, respectively, of the total estimated proved reserves of our North Burbank Unit, Camrick Area Units, and Farnsworth Unit,
respectively. As of December 31, 2010, we expect to incur future development costs of $219.0 million over the next six years at our North Burbank Unit, $89.8 million over the next 19 years at our Camrick Area Units, and $118.4 million over
the next 12 years at our Farnsworth Unit to fully develop these reserves. Together, these fields encompass 48% of our total estimated future development costs of $882.7 million related to proved undeveloped reserves as of December 31,
2010. Development of these reserves may take longer and require higher levels of capital expenditures than we currently anticipate. In addition, the development of these reserves will require the use of EOR techniques, including water flood and
CO2injection installations, the success of which is still
subject to interpretation and predictability by reservoir engineers. Therefore, ultimate recoveries from these fields may not match current expectations.

The polymer reserves at our North Burbank Unit accounted for 14.2 MMBoe, or approximately 10% of our estimated proved reserves as of December 31, 2010. We and our independent petroleum engineers
believe that the polymer EOR flood development plan continues to be sufficient to permit us to include the North Burbank Unit reserves in our proved reserves and, as such, those reserves are included in our total proved reserves as of
December 31, 2010. We are continuing to develop our polymer plan while simultaneously instituting a pilot project for enhanced oil recovery from CO2injection to determine the best long-term EOR technique. The SEC could determine that our recent increase in focus on our
CO2operations results in a change in our polymer development
plan and could require us to reduce or eliminate all or a portion of the proved reserves attributable to the polymer EOR flood.



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Competition in the oil and natural gas industry is intense and many of our competitors have greater
financial and other resources than we do.

We operate in the highly competitive areas of oil and natural gas
production, acquisition, development, and exploration and face intense competition from both major and other independent oil and natural gas companies:



| |  |  | seeking to acquire desirable producing properties or new leases for future development or exploration; and
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | seeking to acquire the equipment and expertise necessary to operate and develop our properties.
| | - |  | -----------------------------------------------------------------------------------------------

Many of our competitors have financial and other resources substantially greater than ours, and some of them are fully integrated oil
companies. These companies may be able to pay more for development prospects and productive oil and natural gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or
human resources permit. Our ability to develop our oil and natural gas properties and to acquire additional properties in the future will depend upon our ability to successfully conduct operations, select suitable prospects and consummate
transactions in this highly competitive environment.

Significant capital expenditures are required to replace our reserves.

Our development, exploration, and acquisition activities require substantial capital expenditures. Historically, we
have funded our capital expenditures through a combination of cash flows from operations, debt financing, and private issuances of common stock. Future cash flows are subject to a number of variables, such as the level of production from existing
wells, prices of oil and natural gas, and our success in developing and producing new reserves. If our cash flow from operations is not sufficient to fund our capital expenditure budget, we may not be able to access additional bank debt or other
methods of financing on commercially reasonable terms to meet these requirements. If revenue were to decrease as a result of lower oil and natural gas prices or decreased production, and our access to capital were limited, we would have a reduced
ability to replace our reserves which may have an adverse effect on our results of operations and financial condition.



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If we are not able to replace reserves, we may not be able to sustain production.

Our future success depends largely upon our ability to find, develop, or acquire additional oil and natural gas reserves that are
economically recoverable. Unless we replace the reserves we produce through successful development, exploration or acquisition activities, our proved reserves and production will decline over time. In addition, approximately 34% of our total
estimated proved reserves (by volume) at December 31, 2010 were undeveloped. By their nature, estimates of undeveloped reserves are less certain. Recovery of such reserves will require significant capital expenditures and successful drilling
and EOR operations. Our December 31, 2010 reserve estimates reflect that our production rate on current proved developed producing reserve properties will decline at annual rates of approximately 16%, 12%, and 10% for the next three years.
Thus, our future oil and natural gas reserves and production and, therefore, our financial condition, results of operations, and cash flows are highly dependent on our success in efficiently developing our current reserves and economically
discovering or acquiring additional recoverable reserves.

Development and exploration drilling may not result in commercially
productive reserves.

Drilling activities are subject to many risks, including the risk that commercially productive
reservoirs will not be encountered. We cannot assure you that new wells we drill will be productive or that we will recover all or any portion of our investment in such wells. The seismic data and other technologies we use do not allow us to know
conclusively prior to drilling a well that oil or natural gas is present or may be economically recovered and/or produced. Drilling for oil and natural gas often involves unprofitable efforts, not only from dry wells but also from wells that are
productive but do not produce sufficient net reserves to return a profit at then-realized prices after deducting drilling, operating and other costs. The cost of drilling, completing and operating a well is often uncertain, and cost factors can
adversely affect the economics of a project. Further, our drilling operations may be curtailed, delayed or cancelled as a result of numerous factors, including:



| |  |  | unexpected drilling conditions;
| | - |  | -------------------------------



| |  |  | title problems;
| | - |  | ---------------



| |  |  | pressure or lost circulation in formations;
| | - |  | -------------------------------------------



| |  |  | equipment failures or accidents;
| | - |  | --------------------------------



| |  |  | adverse weather conditions;
| | - |  | ---------------------------



| |  |  | compliance with environmental and other governmental requirements; and
| | - |  | ----------------------------------------------------------------------



| |  |  | increases in the cost of, or shortages or delays in the availability of, drilling rigs, equipment and services.
| | - |  | ---------------------------------------------------------------------------------------------------------------

If, for any reason, we are unable to economically recover reserves through our exploration and drilling activities, our results of
operations, cash flows, growth, and reserve replenishment may be materially affected.



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We are subject to complex laws and regulations, including environmental and safety regulations, which
can adversely affect the cost, manner, and feasibility of doing business.

Our operations and facilities are subject to
certain federal, state, and local laws and regulations relating to the exploration for, and development, production, and transportation of, oil and natural gas, as well as environmental and safety matters. Although we believe that we are in
substantial compliance with all applicable laws and regulations, and are currently evaluating the extent of applicability and preparing to comply to the extent applicable with proposed and newly adopted greenhouse gas reporting and permitting
requirements, we cannot be certain that existing laws or regulations, as currently interpreted or reinterpreted in the future, or future laws or regulations will not harm our business, results of operations and financial condition. We may be
required to make large and unanticipated capital expenditures to comply with environmental and other governmental regulations such as:



| |  |  | land use restrictions;
| | - |  | ----------------------



| |  |  | drilling bonds and other financial responsibility requirements;
| | - |  | ---------------------------------------------------------------



| |  |  | spacing of wells;
| | - |  | -----------------



| |  |  | additional reporting or other limitations on emissions of greenhouse gases;
| | - |  | ---------------------------------------------------------------------------



| |  |  | unitization and pooling of properties;
| | - |  | --------------------------------------



| |  |  | habitat and endangered species protection, reclamation and remediation, and other environmental protection;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | well stimulation processes;
| | - |  | ---------------------------



| |  |  | produced water disposal;
| | - |  | ------------------------



| |  |  | CO2pipeline requirements;
| | - |  | -------------------------



| |  |  | safety precautions;
| | - |  | -------------------



| |  |  | operational reporting; and
| | - |  | --------------------------



| |  |  | taxation.
| | - |  | ---------

Under these laws and regulations, we could be liable for:



| |  |  | personal injuries;
| | - |  | ------------------



| |  |  | property and natural resource damages;
| | - |  | --------------------------------------



| |  |  | oil spills and releases or discharges of hazardous materials;
| | - |  | -------------------------------------------------------------



| |  |  | well reclamation costs;
| | - |  | -----------------------



| |  |  | remediation and clean-up costs and other governmental sanctions, such as fines and penalties;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | other environmental damages; and
| | - |  | --------------------------------



| |  |  | additional reporting permitting or other issues arising from greenhouse gas emissions.
| | - |  | --------------------------------------------------------------------------------------

Our operations could be significantly delayed or curtailed and our costs of operations could significantly increase as a result of
regulatory requirements or restrictions. Additionally, regulations promulgated pursuant to the Clean Air Act or other mandatory federal legislation requiring monitoring and reporting of greenhouse gas emissions continue to evolve and may impose new
restrictions on these emissions resulting in liability for exceeding permitted air pollutant emission rates or other mandatory caps on greenhouse gas emissions. While we are preparing for compliance with newly adopted requirements, at this time we
are unable to predict the ultimate cost of compliance with these requirements as they continue to evolve or their effect on our operations.



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Properties that we acquire may not produce as projected and we may be unable to accurately predict
reserve potential, identify liabilities associated with the properties, or obtain protection from sellers against such liabilities.

Acquisitions of producing and undeveloped properties have been an important part of our historical growth. We expect acquisitions will also contribute to our future growth. Successful acquisitions require
an assessment of a number of factors, including recoverable reserves, exploration or development potential, future oil and natural gas prices, operating costs, and potential environmental and other liabilities. We perform an engineering, geological
and geophysical review of the acquired properties, which we believe is generally consistent with industry practices, and also endeavor to evaluate environmental risks. However, such assessments are inexact and their accuracy is inherently uncertain
for a number of reasons. For instance, in connection with our assessments, such a review may not permit us to become sufficiently familiar with the properties to fully assess their deficiencies and capabilities. We do not physically inspect every
well. Even when we inspect a well, we do not always discover structural, subsurface and environmental problems that may exist or arise. Our review prior to signing a definitive purchase agreement may be even more limited. Often we are not entitled
to contractual indemnification for pre-closing liabilities, including environmental liabilities associated with acquired properties. Normally, we acquire interests in properties on an as is basis with limited remedies for breaches of
representations and warranties. Additionally, properties previously acquired have not been subject to greenhouse gas requirements which have just recently been adopted. As a result, significant unknown liabilities, including environmental
liabilities, may exist and we may experience losses due to title defects in acquisitions for which we have limited or no contractual remedies or insurance coverage. In addition, we may acquire oil and natural gas properties that contain economically
recoverable reserves which are less than predicted. Thus, liabilities and uneconomically feasible oil and natural gas recoveries related to our acquisitions of producing and undeveloped properties may have a material adverse effect on our results of
operations and reserve growth.

We cannot control the activities on properties we do not operate and we are unable to ensure the proper
operation and profitability of these non-operated properties.

We do not operate all of the properties in which we have
an interest. As a result, we have limited ability to exercise influence over, and control the risks associated with, the operation of these properties. The success and timing of drilling and development activities on our partially owned properties
operated by others therefore will depend upon a number of factors outside of our control, including the operators:



| |  |  | timing and amount of capital expenditures;
| | - |  | ------------------------------------------



| |  |  | expertise and diligence in adequately performing operations and complying with applicable agreements;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | financial resources;
| | - |  | --------------------



| |  |  | inclusion of other participants in drilling wells; and
| | - |  | ------------------------------------------------------



| |  |  | use of technology.
| | - |  | ------------------

As a result of any of the above or an operators failure to act in ways that are in our best interest, our allocated production revenues and results of operations could be adversely affected.



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If the third parties we rely on for gathering and distributing our oil and natural gas are unable to
meet our needs for such services and facilities, our future exploration and production activities could be adversely affected.

The marketability of our production depends upon the proximity of our reserves to, and the capacity of, third-party facilities and third-party services, including oil and natural gas gathering systems,
pipelines, trucking or terminal facilities, and refineries or processing facilities. Such third parties are subject to federal and state regulation of the production and transportation of oil and natural gas. If such third parties are unable to
comply with such regulations and we are unable to replace such service and facilities providers, we may be required to shut-in producing wells or delay or discontinue development plans for our properties. A shut-in, delay or discontinuance could
adversely affect our financial condition.

The loss of our Chief Executive Officer or other key personnel could adversely affect our
business.

We depend, and will continue to depend in the foreseeable future, on the services of Mark A. Fischer, our
Chief Executive Officer, and other officers and key employees with extensive experience and expertise in evaluating and analyzing producing oil and natural gas properties and drilling prospects, maximizing production from oil and natural gas
properties, marketing oil and natural gas production, and developing and executing financing and hedging strategies. Our ability to retain our officers and key employees, or hire replacements if we should lose one or more, is important to our
continued success and growth. The unexpected loss of the services of one or more of these individuals could have a detrimental effect on our business.

Oil and natural gas drilling and production operations can be hazardous and may expose us to environmental or other liabilities.

Oil and natural gas operations are subject to many risks, including well blowouts, cratering, explosions, pipe failure, fires, formations
with abnormal pressures, uncontrollable flows of oil, natural gas, brine or well fluids, and other environmental hazards and risks. Our drilling operations involve risks from high pressures and from mechanical difficulties such as stuck pipes,
collapsed casings and separated cables. If any of these events occur, we could sustain substantial losses as a result of:



| |  |  | injury or loss of life;
| | - |  | -----------------------



| |  |  | severe damage to or destruction of property, natural resources and equipment;
| | - |  | -----------------------------------------------------------------------------



| |  |  | pollution or other environmental damage;
| | - |  | ----------------------------------------



| |  |  | clean-up responsibilities;
| | - |  | --------------------------



| |  |  | regulatory investigations and administrative, civil and criminal penalties; and
| | - |  | -------------------------------------------------------------------------------



| |  |  | injunctions or other proceedings that suspend, limit or prohibit operations.
| | - |  | ----------------------------------------------------------------------------

Our liability for environmental hazards includes those created on properties prior to the date we acquired or leased them. While we
maintain insurance against some, but not all, of the risks described above, our insurance may not be adequate to cover any or all resulting losses or liabilities. Moreover, in the future, we may not be able to obtain any such insurance on
commercially reasonable terms. The occurrence of, or failure by us to obtain or maintain adequate insurance coverage for, any of the events listed above could have a material adverse effect on our financial condition and results of operations, as
well as our growth, exploration, and employee recruitment activities.



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Costs of environmental liabilities could exceed our estimates and adversely affect our operating
results.

Our operations are subject to numerous environmental laws and regulations, which obligate us to install and
maintain pollution controls and to clean up various sites at which regulated materials may have been disposed of or released. It is not possible for us to estimate reliably the amount and timing of all future expenditures related to environmental
matters because of:



| |  |  | the uncertainties in estimating clean up costs;
| | - |  | -----------------------------------------------



| |  |  | the discovery of additional contamination or contamination more widespread than previously thought;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | the uncertainty in quantifying liability under environmental laws that impose joint and several liability on all potentially responsible parties;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in interpretation and enforcement of existing environmental laws and regulations; and
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | future changes to environmental laws and regulations and their enforcement.
| | - |  | ---------------------------------------------------------------------------

Although we believe we have established appropriate reserves for known liabilities, including clean up costs, we could be required to set
aside additional reserves in the future due to these uncertainties, incur material clean up costs, other liabilities, and/or expend significant sums to defend ourselves against litigation related to legacy environmental issues, which could have an
adverse effect on our operating results.

We may not be able to generate sufficient cash to service all of our long-term indebtedness,
and we may be forced to take other actions to satisfy our obligations under our senior secured revolving credit facility, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to
certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our long-term
indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced
to reduce or delay capital expenditures, sell assets, seek additional capital or seek to restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service
obligations. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to attempt to meet our debt service and other obligations. The
indentures governing our Senior Notes and our senior secured revolving credit facility restrict our ability to use the proceeds from asset sales. We may not be able to consummate those asset sales to raise capital or to sell assets at prices that we
believe are fair, and proceeds that we do receive may not be adequate to meet any debt service obligations then due.

If we
cannot make scheduled payments on our long-term indebtedness, we will be in default and, as a result:



| |  |  | debt holders could declare all outstanding principal and interest to be due and payable;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | we may be in default under our master (ISDA) derivative contracts and counterparties could demand early termination;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | the lenders under the senior secured revolving credit facility could terminate their commitments to loan us money and foreclose against the assets
securing their borrowings; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we could be forced into bankruptcy or liquidation.
| | - |  | --------------------------------------------------



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Our level of indebtedness may adversely affect our operations and limit our growth.

As of December 31, 2010, our total long-term indebtedness, including current maturities, was $962.1 million. As
of March 29, 2011, our total long-term indebtedness, including current maturities, was approximately $1.0 billion, and the borrowing base under our senior secured revolving credit facility was $375.0 million. We may incur additional
indebtedness, including significant secured indebtedness, in order to make future acquisitions or to develop our properties for production or for other purposes, and we expect to continue to be highly leveraged in the foreseeable future. Covenants
set forth in the indentures for our Senior Notes, including the Adjusted Consolidated Net Tangible Asset debt incurrence test (the ACNTA test), limit the amount of secured debt we can incur. Certain thresholds set forth in the ACNTA test
are principally reliant upon the levels of commodity prices for crude oil and natural gas at specified dates.

Our high level
of indebtedness affects our operations in several ways, including the following:



| |  |  | the restrictions imposed on the operation of our business by the terms of our debt agreements may hinder our ability to take advantage of strategic
opportunities to grow our business;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we must use a substantial portion of our cash flow from operations to pay interest on our Senior Notes and our other indebtedness, which reduces the
funds available to us for operations and other purposes;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be at a competitive disadvantage compared to our competitors that may have proportionately less debt;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, restructuring, acquisitions, or
general corporate purposes may be impaired, which could be exacerbated by further volatility in the credit markets;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be more vulnerable to economic downturns and adverse developments in our business; and
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | we may be vulnerable to interest rate increases, as our borrowings under our senior secured revolving credit facility are at variable rates.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------

Any of the foregoing could have a material adverse effect on our business, financial condition, results of
operations, prospects, and ability to satisfy our debt obligations.



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We may not have sufficient funds to repay bank borrowings if required as a result of a borrowing base
redetermination.

Availability under our senior secured revolving credit facility is subject to a borrowing base, which
was $375.0 million as of March 29, 2011, and which is set by the banks semi-annually on May 1 and November 1 of each year. In addition, the banks may request a borrowing base redetermination once between each scheduled redetermination and
in the event of early termination of our derivative contracts. If we issue Additional Permitted Debt, as defined in our senior secured revolving credit facility, the borrowing base will be automatically reduced by an amount equal to 25% of the
aggregate stated principal amount of the debt issued. If the outstanding borrowings under our senior secured revolving credit facility were to exceed the borrowing base as a result of a redetermination, we would be required to eliminate this excess.
Within 10 days after receiving notice of the new borrowing base, we would be required to make an election: (1) to repay a portion of our bank borrowings in the amount of the excess either in a lump sum within 30 days or in equal monthly
installments over a six-month period, (2) to submit within 30 days additional oil and natural gas properties we own for consideration in connection with the determination of the borrowing base sufficient to eliminate the excess or (3) to
eliminate the excess through a combination of repayments and the submission of additional oil and natural gas properties within 30 days. If we are forced to repay a portion of our bank borrowings, we may not have sufficient funds to make such
repayments. If we do not have sufficient funds and are otherwise unable to negotiate renewals of our borrowings or arrange new financing, we may have to sell significant assets. Any such sale could have a material adverse effect on our business and
financial results.

Our use of derivative instruments could result in financial losses or reduce our income.

To reduce our exposure to the volatility in the price of oil and natural gas and provide stability to cash flows, we enter into derivative
positions, some of which we had previously designated as cash flow hedges for accounting purposes. These derivative products include fixed-price swaps, collars, and basis swaps with financial institutions or other similar transactions. As of
December 31, 2010, we had entered into swaps for 20,340 BBtu of our natural gas production for 2011 through 2012 at average monthly prices ranging from $4.99 to $6.92 per MMBtu of natural gas. As of December 31, 2010, we had entered into
swaps for 4,068 MBbls of our crude oil production for 2011 through 2012 at average monthly prices ranging from $73.71 to $91.37 per Bbl of oil. We also entered into collars for 84 MBbls of our crude oil production for 2011 at a floor of $110.00 per
Bbl of oil. As of December 31, 2010, we had basis protection swaps for 23,790 BBtu of our natural gas production for 2011 through 2012 at average monthly prices ranging from $0.30 to $0.73 per MMBtu. The fair value of our oil and natural gas
derivative positions outstanding as of December 31, 2010 was a liability of approximately $29.9 million.

Derivative
instruments expose us to risk of financial loss in some circumstances, including when:



| |  |  | our production is less than expected;
| | - |  | -------------------------------------



| |  |  | the counterparty to the derivative instruments defaults on its contractual obligations; or
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | there is a widening of price differentials between delivery points for our production and the delivery point assumed in the derivative instruments.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

Derivatives also expose us to risk of income reduction as derivative instruments may limit the benefit we
would receive from increases in the prices for oil and natural gas. Additionally, derivatives that are not hedges must be adjusted to fair value through income. If the derivative qualifies and is designated as a cash flow hedge, the effective
portion of changes in the fair value of the derivative is recognized in other comprehensive income (loss) until the hedged item is recognized in income. The ineffective portion of a derivatives change in fair value, as measured using the
dollar offset method, is immediately recognized in gain (loss) from oil and natural gas hedging activities in the statement of operations.

If it is probable the oil or natural gas sales which are hedged will not occur, hedge accounting must be discontinued and the gain or loss reported in accumulated other comprehensive income (loss) is
immediately reclassified into income. If a derivative which qualified for cash flow hedge accounting ceases to be highly effective, or is liquidated or sold prior to maturity, hedge accounting must be discontinued. The gain or loss associated with
the discontinued hedges remains in accumulated other comprehensive income (loss) and is reclassified into income as the hedged transactions occur.

While the primary purpose of our derivative transactions is to protect ourselves against the volatility in oil and natural gas prices, under certain circumstances, or if hedges are deemed ineffective,
discontinued, or terminated for any reason, we may incur substantial losses in closing out our positions, which could have a material adverse effect on our financial condition, results of operations, and cash flows.



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Our working capital could be adversely affected if we enter into derivative instruments that require
cash collateral.

The use of derivatives may, in some cases, require the posting of cash collateral with counterparties
(i.e. margin requirements). Although we currently do not, and do not anticipate that we will in the future, enter into derivative transactions that require an initial deposit of cash collateral, our working capital, and by extension, our growth,
could be impacted if we enter into derivative transactions that require cash collateral and if commodity prices move in a manner adverse to us, we may be required to meet margin calls. Future collateral requirements are uncertain and will depend on
arrangements with our counterparties and highly volatile oil and natural gas prices.

We are subject to financing and interest rate
exposure risks.

Our future success depends on our ability to access capital markets and obtain financing on reasonable
terms. Our ability to access financial markets and obtain financing on commercially reasonable terms in the future is dependent on a number of factors, many of which we cannot control, including changes in:



| |  |  | our credit ratings;
| | - |  | -------------------



| |  |  | interest rates;
| | - |  | ---------------



| |  |  | the structured and commercial financial markets;
| | - |  | ------------------------------------------------



| |  |  | market perceptions of us or the oil and natural gas exploration and production industry; and
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | tax burden due to new tax laws.
| | - |  | -------------------------------

Assuming a constant debt level of $375.0 million, equal to our borrowing base at December 31, 2010, the cash flow impact for a 12-month period resulting from a 100 basis point movement in interest
rates, regardless of whether the spread widens or tightens, would be $3.75 million. As a result, any increases in our interest rates, or our inability to access the equity markets on reasonable terms, could have an adverse impact on our financial
condition, results of operations, and growth prospects.

The concentration of accounts for our oil and natural gas sales, joint interest
billings, or hedging with third parties could expose us to credit risk.

Substantially all of our accounts receivable
result from oil and natural gas sales or joint interest billings to third parties in the energy industry. The concentration of customers and joint interest owners may impact our overall credit risk in that these entities may be similarly affected by
changes in economic and other conditions. Historically, we have not experienced any material credit losses on our receivables. Future concentrations of sales of oil and natural gas to a limited number of customers, combined with decreases in
commodity prices could result in adverse effects.

In addition, our oil and natural gas swaps or other hedging contracts
expose us to credit risk in the event of non-performance by counterparties. Generally, these contracts are with major investment grade financial institutions and historically we have not experienced any credit losses. We believe that the guarantee
of a fixed price for the volume of oil and natural gas hedged reduces volatility in our reported results of operations, financial position and cash flows from period to period and lowers our overall business risk. However, as also discussed along
with other risks specific to hedging activities, we may be exposed to greater credit risk in the future.



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Regulation related to global warming and climate change could have an adverse effect on our operations
and demand for oil and natural gas.

The U.S. Congress has previously considered legislation to reduce emissions of
greenhouse gases, including carbon dioxide, methane, and nitrous oxide among others, which some studies have suggested may be contributing to warming of the earths atmosphere. However, legislation to reduce greenhouse gases appears less likely
in the near term. As a result, regulation of greenhouse gases, if any, will more likely result from regulatory action by EPA or by the several states that have already taken legal measures to reduce emissions of greenhouse gases.

Federal regulation. The Environmental Protection Agency (EPA) has adopted regulations requiring Clean Air Act
(CAA) permitting of greenhouse gas emissions from stationary sources. As a result of the U.S. Supreme Courts decision in Massachusetts, et al. v. EPA finding that greenhouse gases fall within the CAAs definition of air
pollutant, the EPA was required to determine whether concentrations of greenhouse gases in the atmosphere endanger public health or welfare, and whether emissions of greenhouse gases from motor vehicles may cause or
contribute to this endangerment. On December 15, 2009, EPA promulgated its final rule, Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act, finding that
(i) the current and projected emissions of six key well-mixed greenhouse gases, including carbon dioxide and methane, constitute a threat to public health and welfare, and (ii) the combined emissions from motor vehicles cause and
contribute to the climate change problem which threatens public health and welfare. These findings did not themselves impose any requirements on industry or other entities, but were a prerequisite to EPAs adoption of greenhouse gas emission
standards for motor vehicles. On May 7, 2010, EPA and the Department of Transportations National Highway Traffic and Safety Administration, or NHTSA, promulgated a final action establishing a national program providing new standards for
certain motor vehicles to reduce greenhouse gas emissions and improve fuel economy, with EPA adopting the standards under the CAA, and NHTSA adopting the standards as Corporate Average Fuel Economy standards under the Energy Policy and Conservation
Act. While these motor vehicle regulations do not directly impact oil and natural gas production operations, the result of these actions are significant in that they automatically trigger application of certain CAA permit programs for stationary
greenhouse gas emissions sources, potentially including oil and natural gas production operations. These programs, the Prevention of Significant Deterioration (PSD) and Title V Operating Permit programs, have historically applied to
sources of air pollutants subject to regulation with emissions exceeding 100 and 250 tons per year. To avoid the broad impact of such low permitting thresholds for greenhouse gas emission sources, on June 3, 2010, EPA promulgated
its Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule, to add new higher thresholds of 75,000 tons per year carbon dioxide equivalents (CO2e) for modifications and 100,000 tons per year CO2e for new sources.

Additionally, EPA has promulgated separate regulations requiring greenhouse gas emission reporting from certain industry sectors, including natural gas production. On October 30, 2009, EPA
promulgated a final mandatory greenhouse gas reporting rule which will assist EPA in developing policy approaches to greenhouse gas regulation. This reporting rule became effective on December 29, 2009. On November 30, 2010, EPA
promulgated additional mandatory greenhouse gas reporting rules that apply specifically to oil and natural gas production for implementation in 2011.

Though under review by the D.C. Circuit, EPAs rules promulgated thus far have survived petitions for stay, and thus are currently final and effective, and will remain so unless vacated or remanded
by the court, or unless Congress adopts legislation preempting EPAs regulatory authority to address greenhouse gases under the CAA.



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Recent caselaw. Beyond legislative and regulatory developments, there have been
several court cases impacting this area of risk for significant greenhouse gas emissions sources. In September 2009, the United States Court of Appeals for the Second Circuit issued its decision in Connecticut v. American Electric Power Co.
With this case, the Second Circuit reversed a lower courts dismissal of plaintiff claims that public utility greenhouse gas emissions created a public nuisance. In reversing, the Second Circuit rejected the lower courts
reliance on several defenses, including political question, preemption and lack of standing to dismiss. The U.S. Supreme Court is set to review this case in the spring of 2011 to determine whether EPAs regulation of greenhouse gas under the
CAA supplants federal common law public nuisance claims. The Supreme Courts review of this Second Circuit decision is expected to affect another case involving this issue, Native Village of Kivalina v. ExxonMobil Corp.In Native Village of
Kivalina v. ExxonMobil Corp. (order granting defendants motion to dismiss for lack of subject matter jurisdiction), was appealed to the Ninth Circuit in November, 2009. The decisions in these cases may expose us, as potentially an emitter
of significant direct and indirect emission sources of greenhouse gases, to similar litigation risk.

A third case, North
Carolina v. Tennessee Valley Authority, also pending review by the Supreme Court, involves state common law claims which may not be affected by the Supreme Courts decision in Connecticut v. American Electric Power Co.

International treaties.Other nations have already agreed to regulate emissions of greenhouse gases pursuant to the United Nations
Framework Convention on Climate Change, also known as the Kyoto Protocol, an international treaty pursuant to which participating countries (not including the United States) agreed to reduce their emissions of greenhouse gases to below
1990 levels by 2012. Though the 16th meeting of the Council of the Parties in Mexico in November and December 2010 did not produce a legally binding final agreement, international negotiations continue, with the participation of the United States.

International developments, passage of state or federal climate control legislation or other regulatory initiatives, the
adoption of regulations by EPA and analogous state agencies that restrict emissions of greenhouse gases in areas in which we conduct business, or further development of caselaw allowing claims based upon greenhouse gas emissions, could have an
adverse effect on our operations and financial condition as a result of material increases in operating and production costs and litigation expense due to expenses associated with monitoring, reporting, permitting and controlling greenhouse gas
emissions or litigating claims related to emissions of greenhouse gases, as well as reduced demand for fossil fuels generally.

Potential legislative and regulatory actions could increase our costs, reduce our revenue and cash flow from oil and natural gas sales, reduce our
liquidity or otherwise alter the way we conduct our business.

In 2009 and 2010, the administration of President Obama
made budget proposals which, if enacted into law by Congress, would have potentially increased and accelerated the payment of federal income taxes by independent producers of oil and natural gas. Proposals included, but were not limited to,
repealing the expensing of intangible drilling costs, repealing the percentage depletion allowance, repealing the manufacturing tax deduction for oil and natural gas companies, and increasing the amortization period of geological and geophysical
expenses. Legislation which would have implemented the proposed changes was introduced but not enacted. It is unclear whether similar proposals will be forthcoming from the White House in 2011 or subsequent years or whether legislation supporting
any such proposals, or designed to accomplish similar objectives, will be introduced or, if introduced, would be enacted into law or, if enacted, how soon resulting changes would become effective. The passage of any legislation designed to implement
changes in the U.S. federal income tax laws similar to the changes included in the budget proposals offered by the White House in 2009 and 2010 could eliminate certain tax deductions currently available with respect to oil and gas exploration and
development, and any such changes (i) could make it more costly for us to explore for and develop our oil and natural gas resources, and (ii) could negatively affect our financial condition and results of operation.



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Certain risks are amplified by the current economic environment.

During 2007, the U.S. and many other countries began to exhibit signs of economic weakness, which continued through 2010. This weakness
has had an adverse impact on the global financial system, stressing a number of large financial institutions. Capital constraints coupled with significant energy price volatility have produced pervasive liquidity issues for many companies. Such
events have created uncertainty in the economic outlook, and have amplified the potential likelihood of certain risks inherent in our business, such as:



| |  |  | increased cost of capital and increased difficulties accessing capital to fund expansion and acquisition activities as well as routine operating
requirements;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the failure of counterparties to fulfill their delivery or purchase obligations;
| | - |  | --------------------------------------------------------------------------------



| |  |  | business failures by vendors, suppliers or customers that result in (i) delays in progress on our capital projects, (ii) nonpayment of
receivables or (iii) expensive and protracted court or bankruptcy proceedings; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | decreases in domestic consumption or in volumes imported to or produced in the United States and related reductions in transportation, terminalling, or
marketing margins.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Competition for experienced technical personnel may negatively impact our operations or financial
results.

Our continued drilling success and the success of other activities integral to our operations will depend, in
part, on our ability to attract and retain experienced explorationists, engineers and other professionals. Despite the recent decline in commodity prices and lower industry activity levels, competition for these professionals remains strong. We are
likely to continue to experience increased costs to attract and retain these professionals.



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Federal and state legislation and regulatory initiatives relating to hydraulic fracturing could result
in increased costs and additional operating restrictions or delays.

Congress has previously considered legislation to
amend the federal Safe Drinking Water Act to require the disclosure of chemicals used by the oil and natural gas industry in the hydraulic fracturing process. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure
into rock formations to stimulate natural gas production. Sponsors of bills previously considered before the Senate and House of Representatives have asserted that chemicals used in the fracturing process could adversely affect drinking water
supplies. The proposed legislation would require the reporting and public disclosure of chemicals used in the fracturing process, which could make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings
based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. In addition, these bills, if adopted, could repeal the exemptions for hydraulic fracturing from the Safe Drinking Water Act.

Further, in 2010, EPA initiated a Hydraulic Fracturing Research Study to address concerns that hydraulic fracturing may affect the safety
of drinking water. As part of that process, EPA requested and received information from the major fracturing service providers regarding the chemical composition of fluids, standard operating procedures and the sites where they engage in hydraulic
fracturing. In February 2011, EPA released its Draft Plan to Study the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources, proposing to study the lifecycle of hydraulic fracturing fluid and providing a comprehensive list of
chemicals identified in fracturing fluid and flowback/produced waste. These developments, as well as increased scrutiny of hydraulic fracturing activities by state authorities, municipal location prohibitions and Clean Water Act citizen suit
litigation activities arising from discharge of recovered wastewater from hydraulic fracturing operations to municipal wastewater treatment works may result in additional levels of regulation or level of complexity with respect to existing
regulation at the federal and state levels. This additional complexity could lead to operational delays or increased operating costs and could result in additional regulatory burdens that could make it more difficult to perform hydraulic fracturing
and increase our costs of compliance and doing business.

We are responsible for the decommissioning, abandonment, and reclamation costs
for our facilities, which could decrease funds available for servicing our debt obligations and other operating expenses.

We are responsible for compliance with all applicable laws and regulations regarding the decommissioning, abandonment and reclamation of our facilities at the end of their economic life, the costs of
which may be substantial. It is not possible to predict these costs with certainty since they will be a function of regulatory requirements at the time of decommissioning, abandonment and reclamation. We may, in the future, determine it prudent or
be required by applicable laws or regulations to establish and fund one or more decommissioning, abandonment and reclamation reserve funds to provide for payment of future decommissioning, abandonment and reclamation costs, which could decrease
funds available to service debt obligations. In addition, such reserves, if established, may not be sufficient to satisfy such future decommissioning, abandonment and reclamation costs and we will be responsible for the payment of the balance of
such costs.

Unusual weather patterns or natural disasters, whether due to climate change or otherwise, could negatively impact our
financial condition.

Our business depends, in part, on normal weather patterns across the United States. Natural gas
demand and prices are particularly susceptible to seasonal weather trends. Warmer than usual winters can result in reduced demand and high season-end storage volumes, which can depress prices to unacceptably low levels. In addition, because a
majority of our properties are located in Oklahoma, Texas, and Louisiana, our operations are constantly at risk of extreme adverse weather conditions such as tornadoes and hurricanes. Any unusual or prolonged adverse weather patterns in our areas of
operations or markets, whether due to climate change or otherwise, could have a material and adverse impact on our business, financial condition and cash flow. In addition, our business, financial condition and cash flow could be adversely affected
if the businesses of our key vendors, purchasers, contractors, suppliers or transportation service providers were disrupted due to severe weather, such as hurricanes or floods, whether due to climate change or otherwise.



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Climate change and government laws and regulations related to climate change could negatively impact
our financial condition.

In addition to other climate-related risks set forth in this Risk Factors
section, we are and will be, directly and indirectly, subject to the effects of climate change and are, and most likely will continue to be, affected by government laws and regulations related to climate change. We are currently evaluating
compliance costs arising from newly adopted mandatory greenhouse gas reporting rules, and potential compliance costs arising from newly promulgated Clean Air Act reporting and permit regulations for greenhouse gas emissions. These new regulations
could be preempted by new federal legislation if enacted. However, we cannot predict with any degree of certainty the ultimate effect possible climate change and government laws and regulations related to climate change will have on our operations.
While it is difficult to assess the timing and effect of climate change and pending legislation and regulation related to climate change on our business, we believe that climate change and government laws and regulations related to climate change
may affect: (i) the cost of the equipment and services we purchase, (ii) our ability to continue to operate as we have in the past, including drilling, completion and operating methods, (iii) the timeliness of delivery of the
materials and services we need and the cost of transportation paid by us and our vendors and other providers of services, (iv) insurance premiums, deductibles and the availability of coverage, (v) the cost of utility services, particularly
electricity, in connection with the operation of our properties, and (vi) factors arising from new Clean Air Act greenhouse gas permitting and, or, possible greenhouse gas legislation, in addition to previously identified factors. These
potential effects depend upon, but are not limited to, the following considerations: whether and to what extent legislation is enacted, the nature of the legislation (such as a cap and trade system or a tax on emissions); the greenhouse gas
reductions required pursuant to either existing Clean Air Act regulatory requirements or new greenhouse gas legislation; the cost and availability of required offsets or emissions reductions; the amount and allocation of possible allowances; costs
required to improve facilities and equipment to both monitor and reduce emissions in order to comply with regulatory limits or to mitigate the financial consequences of a greenhouse gas emission limitations; changes to profit or loss arising from
increased or decreased demand for oil and natural gas we produce arising directly from legislation or regulation, and indirectly from changes in production costs. In addition, climate change may increase the likelihood of property damage and the
disruption of our operations, especially in coastal states. As a result, our financial condition could be negatively impacted by significant climate change and related governmental regulation, and that impact could be material.

The recent adoption of The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) could have an adverse effect
on our ability to use derivative instruments to reduce the effect of commodity price and other risks associated with our business.

We use derivative instruments to manage our commodity price risk. The United States Congress recently adopted comprehensive financial reform legislation that establishes federal oversight and regulation
of the over-the-counter derivatives market and entities that participate in that market. The Dodd-Frank Act requires the Commodities Futures Trading Commission (the CFTC) and the SEC to promulgate rules and regulations implementing the
new legislation within 360 days from the date of enactment. The CFTC has also proposed regulations to set position limits for certain futures and option contracts in the major energy markets, although it is not possible at this time to predict
whether or when the CFTC will adopt those rules or include comparable provisions in its rulemaking under the new legislation. The financial reform legislation may also require us to comply with margin requirements and with certain clearing and
trade-execution requirements in connection with our derivative activities, although the application of those provisions to us is uncertain at this time. The financial reform legislation may also require the counterparties to our derivative
instruments to spin off some of their derivatives activities to a separate entity, which may not be as creditworthy as the current counterparty. The new legislation and any new regulations could significantly increase the cost of derivative
contracts (including through requirements to post collateral which could adversely affect our available liquidity), materially alter the terms of derivative contracts, reduce the availability of derivatives to protect against risks we encounter,
reduce our ability to monetize or restructure our existing derivative contracts, and increase our exposure to less creditworthy counterparties. If we reduce our use of derivatives as a result of the legislation and regulations, our results of
operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures. Finally, the legislation was intended, in part, to reduce the volatility of oil and
natural gas prices, which some legislators attributed to speculative trading in derivatives and commodity instruments related to oil and natural gas. Our revenues could therefore be adversely affected if a consequence of the legislation and
regulations is to lower commodity prices. Any of these consequences could have a material adverse effect on us, our financial condition and our results of operations.



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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

See Items 1. and 2. Business and PropertiesProperties. We also have various operating leases for rental of office space, office and field equipment, and vehicles. See Liquidity and Capital
ResourcesContractual Obligations in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations, and Note 13, Commitments and Contingencies, to our consolidated financial statements. Such
information is incorporated herein by reference.

ITEM 3. LEGAL PROCEEDINGS

In the opinion of management, there are no material pending legal proceedings to which we or any of our subsidiaries are a party or of
which any of our property is the subject. However, due to the nature of our business, certain legal or administrative proceedings may arise from time to time in the ordinary course of business.

ITEM 4. [RESERVED]



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PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock has not been registered under the Securities Exchange Act of 1934, and there is no established public trading market for
our common equity.

As of March 29, 2011, we had 1,410,235 shares of common stock outstanding held by 25 record holders.

We have not paid any dividends on our common stock in either of the last two years and we do not currently anticipate paying
any cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings to fund the development and growth of our business. Any future determination relating to our dividend policy will be at the
discretion of our board of directors and will depend on our results of operations, financial condition, capital requirements and other factors deemed relevant by our board. We are also currently restricted in our ability to pay dividends under our
senior secured revolving credit facility. See Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources for more information regarding the restrictions on our ability
to pay dividends.



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ITEM 6. SELECTED FINANCIAL DATA

You should read the following historical financial data in connection with the financial statements and related notes and
Managements Discussion and Analysis of Financial Condition and Results of Operations included in this report. The financial data as of and for each of the five years ended December 31, 2010 was derived from our audited
financial statements. Our historical results are not necessarily indicative of results to be expected in future periods.



|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|----------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | -------- | -
|                                                                                          |  | Year Ended December 31, |         
|(dollars in thousands)                                                                    |  | 2010                    |          |   | 2009 |   |          | 2008 |  |   | 2007     |   |  | 2006 |         
|Operating results data:                                                                   |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Revenues                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Oil and natural gas sales                                                                 |  | $                       | 408,561  |   |      | $ | 292,387  |      |  | $ | 501,761  |   |  | $    | 365,958  |   |  | $ | 249,180  |  
|Gain (loss) from oil and natural gas hedging activities                                   |  |                         | (29,393  | ) |      |   | 19,403   |      |  |   | (76,417  | ) |  |      | (28,140  | ) |  |   | (4,166   | )
|Other revenues                                                                            |  |                         | 4,127    |   |      |   | 2,864    |      |  |   | 8,735    |   |  |      | 2,859    |   |  |   |         |  
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Total revenues                                                                            |  |                         | 383,295  |   |      |   | 314,654  |      |  |   | 434,079  |   |  |      | 340,677  |   |  |   | 245,014  |  
|                                                                                          |  |                         |          |   |     
|Costs and expenses                                                                        |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Lease operating                                                                           |  |                         | 106,127  |   |      |   | 94,070   |      |  |   | 120,487  |   |  |      | 104,469  |   |  |   | 71,663   |  
|Production tax                                                                            |  |                         | 26,495   |   |      |   | 20,341   |      |  |   | 33,815   |   |  |      | 26,216   |   |  |   | 18,710   |  
|Depreciation, depletion and amortization                                                  |  |                         | 109,503  |   |      |   | 104,193  |      |  |   | 101,026  |   |  |      | 85,538   |   |  |   | 52,299   |  
|Loss on impairment of oil & natural gas properties                                        |  |                         |         |   |      |   | 240,790  |      |  |   | 281,393  |   |  |      |         |   |  |   |         |  
|Loss on impairment of other assets                                                        |  |                         | 4,150    |   |      |   |         |      |  |   | 2,900    |   |  |      |         |   |  |   |         |  
|General and administrative                                                                |  |                         | 29,915   |   |      |   | 23,741   |      |  |   | 22,370   |   |  |      | 21,838   |   |  |   | 14,659   |  
|Litigation settlement                                                                     |  |                         |         |   |      |   | 2,928    |      |  |   |         |   |  |      |         |   |  |   |         |  
|Other expenses                                                                            |  |                         | 3,148    |   |      |   | 1,957    |      |  |   | 7,150    |   |  |      | 2,493    |   |  |   |         |  
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Total costs and expenses                                                                  |  |                         | 279,338  |   |      |   | 488,020  |      |  |   | 569,141  |   |  |      | 240,554  |   |  |   | 157,331  |  
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Operating income (loss)                                                                   |  |                         | 103,957  |   |      |   | (173,366 | )    |  |   | (135,062 | ) |  |      | 100,123  |   |  |   | 87,683   |  
|                                                                                          |  |                         |          |   |     
|Non-operating income (expense)                                                            |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Interest expense                                                                          |  |                         | (83,611  | ) |      |   | (90,102  | )    |  |   | (86,038  | ) |  |      | (87,656  | ) |  |   | (45,246  | )
|Non-hedge derivative gains (losses)                                                       |  |                         | 38,595   |   |      |   | 11,169   |      |  |   | 126,941  |   |  |      | (23,781  | ) |  |   | (4,677   | )
|Financing costs, net of termination fee                                                   |  |                         | (1,812   | ) |      |   | (2,169   | )    |  |   | 2,100    |   |  |      |         |   |  |   |         |  
|Other income                                                                              |  |                         | 387      |   |      |   | 13,921   |      |  |   | 1,394    |   |  |      | 2,276    |   |  |   | 792      |  
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net non-operating income (expense)                                                        |  |                         | (46,441  | ) |      |   | (67,181  | )    |  |   | 44,397   |   |  |      | (109,161 | ) |  |   | (49,131  | )
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Income (loss) from continuing operations before income taxes and non-controlling interest |  |                         | 57,516   |   |      |   | (240,547 | )    |  |   | (90,665  | ) |  |      | (9,038   | ) |  |   | 38,552   |  
|Income tax expense (benefit)                                                              |  |                         | 23,803   |   |      |   | (89,777  | )    |  |   | (34,976  | ) |  |      | (3,292   | ) |  |   | 14,817   |  
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Income (loss) from continuing operations                                                  |  |                         | 33,713   |   |      |   | (150,770 | )    |  |   | (55,689  | ) |  |      | (5,746   | ) |  |   | 23,735   |  
|Income from discontinued operations, net of related taxes                                 |  |                         |         |   |      |   | 6,452    |      |  |   | 939      |   |  |      | 953      |   |  |   |         |  
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Income (loss) before non-controlling interest in net loss of subsidiaries                 |  |                         | 33,713   |   |      |   | (144,318 | )    |  |   | (54,750  | ) |  |      | (4,793   | ) |  |   | 23,735   |  
|Net loss attributable to non-controlling interest                                         |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   | (71      | )
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net income (loss)                                                                         |  | $                       | 33,713   |   |      | $ | (144,318 | )    |  | $ | (54,750  | ) |  | $    | (4,793   | ) |  | $ | 23,806   |  
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Cash flow data:                                                                           |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net cash provided by operating activities                                                 |  | $                       | 167,702  |   |      | $ | 98,675   |      |  | $ | 145,831  |   |  | $    | 113,070  |   |  | $ | 89,154   |  
|Net cash provided by (used in) investing activities                                       |  |                         | (264,172 | ) |      |   | 21,904   |      |  |   | (262,905 | ) |  |      | (239,069 | ) |  |   | (703,804 | )
|Net cash provided by (used in) financing activities                                       |  |                         | 78,164   |   |      |   | (99,274  | )    |  |   | 157,499  |   |  |      | 128,883  |   |  |   | 621,855  |  



|                                                                   |  |                    |           |   |      |   |           |      |  |   |           |  |  |      |           |   |  |   |           |  
|------------------------------------------------------------------ |  | ------------------ | --------- | - | ---- | - | --------- | ---- |  | - | --------- |  |  | ---- | --------- | - |  | - | --------- | -
|                                                                   |  | As of December 31, |          
|(dollars in thousands)                                             |  | 2010               |           |   | 2009 |   |           | 2008 |  |   | 2007      |  |  | 2006 |          
|Financial position data:                                           |  |                    |           |   |      |   |           |      |  |   |           |  |  |      |           |   |  |   |           |  
|Cash and cash equivalents                                          |  | $                  | 55,111    |   |      | $ | 73,417    |      |  | $ | 52,112    |  |  | $    | 11,687    |   |  | $ | 8,803     |  
|Total assets                                                       |  |                    | 1,529,292 |   |      |   | 1,353,920 |      |  |   | 1,712,836 |  |  |      | 1,530,898 |   |  |   | 1,331,435 |  
|Total debt                                                         |  |                    | 962,087   |   |      |   | 1,177,007 |      |  |   | 1,271,589 |  |  |      | 1,114,237 |   |  |   | 976,272   |  
|Retained earnings (accumulated deficit)                            |  |                    | (89,265   | ) |      |   | (122,978  | )    |  |   | 21,340    |  |  |      | 76,090    |   |  |   | 80,883    |  
|Accumulated other comprehensive income (loss), net of income taxes |  |                    | 34,974    |   |      |   | 17,618    |      |  |   | 82,133    |  |  |      | (73,839   | ) |  |   | (3,946    | )
|Total stockholders equity (deficit)                               |  |                    | 363,557   |   |      |   | (4,433    | )    |  |   | 204,400   |  |  |      | 103,178   |   |  |   | 177,864   |  





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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this report. In addition to historical financial information, the following discussion contains forward-looking statements that
reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in
this report, particularly in Risk Factors and Cautionary Note Regarding Forward-Looking Statements.

Overview

We are an independent oil and natural gas company engaged in the production, exploitation and acquisition of oil and natural gas properties. In 2010, we reorganized our oil and natural gas assets into
enhanced oil recovery (EOR) project areas and non-EOR(conventional) productive basins. Our primary areas of operation using conventional recovery methods are the Anadarko Basin Area, Central Oklahoma Area, and the Permian
Basin Area. We maintain a portfolio of proved reserves, development and exploratory drilling opportunities, and EOR projects. As of December 31, 2010, we had estimated proved reserves of 149.3 MMBoe, including EOR reserves of 30.5 MMBoe, with a
PV-10 value of approximately $1.8 billion. Our reserves were 66% proved developed and 63% crude oil.

Our revenues,
profitability and future growth depend substantially on prevailing prices for oil and natural gas and on our ability to find, develop and acquire oil and natural gas reserves that are economically recoverable. The preparation of our financial
statements in conformity with generally accepted accounting principles (GAAP) requires us to make estimates and assumptions that affect our reported results of operations and the amount of our reported assets, liabilities and proved oil
and natural gas reserves. We use the full cost method of accounting for our oil and natural gas activities.

Generally our
producing properties have declining production rates. Our December 31, 2010 reserve estimates reflect that our production rate on current proved developed producing reserve properties will decline at annual rates of approximately 16%, 12%, and
10% for the next three years. To grow our production and cash flow we must find, develop and acquire new oil and natural gas reserves to replace those being depleted by production. Substantial capital expenditures are required to find, develop and
acquire oil and natural gas reserves.

Oil and natural gas prices fluctuate widely. We generally hedge a substantial portion
of our expected future oil and natural gas production to reduce our exposure to commodity price decreases. The prices we receive for our oil and natural gas production affect our:



| |  |  | cash flow available for capital expenditures;
| | - |  | ---------------------------------------------



| |  |  | ability to borrow and raise additional capital;
| | - |  | -----------------------------------------------



| |  |  | ability to service debt;
| | - |  | ------------------------



| |  |  | quantity of oil and natural gas we can produce;
| | - |  | -----------------------------------------------



| |  |  | quantity of oil and natural gas reserves; and
| | - |  | ---------------------------------------------



| |  |  | operating results for oil and natural gas activities.
| | - |  | -----------------------------------------------------



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The following are material events that have impacted liquidity or results of operations in
2010 and/or are expected to impact these items in future periods:



| |  |  | 8.25% Senior Notes due 2021. On February 22, 2011, we issued $400.0 million aggregate principal amount of 8.25% Senior Notes maturing on
September 1, 2021. We used the net proceeds from the 8.25% Senior Notes to consummate a tender offer for all of our 8.5% Senior Notes due 2015, to redeem the 8.5% Senior Notes not purchased in the tender offer, and for general corporate
purposes. In connection with the issuance of the 8.25% Senior Notes and the repurchase or redemption of our 8.5% Senior Notes due 2015, we capitalized approximately $8.5 million of issuance costs related to underwriting and other fees and we
expensed approximately $15.0 million of repurchase- and redemption-related costs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 9.875% Senior Notes due 2020. On September 16, 2010, we issued $300.0 million aggregate principal amount of 9.875% Senior Notes maturing on
October 1, 2020. The net proceeds from the issuance of the notes were used to pay down outstanding amounts under our senior secured revolving credit facility and for working capital. In connection with the issuance of the 9.875% Senior Notes,
we recorded a discount of $7.0 million and capitalized $6.6 million of issuance costs related to underwriting and other fees.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Stock purchase agreement. On April 12, 2010, we closed the sale of an aggregate of 475,043 shares of our common stock to CCMP Capital
Investors II (AV-2), L.P., CCMP Energy I LTD., and CCMP Capital Investors (Cayman) II, L.P. (collectively, CCMP). Proceeds from the sale were $313.2 million, net of fees and other expenses of $11.8 million, and were used to repay amounts
owing under our prior credit facility. See Note 10 to our consolidated financial statements for additional information regarding this transaction.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Senior secured revolving credit facility. In connection with the closing of the sale of our common stock to CCMP, we entered into and closed our
Eighth Restated Credit Agreement (our senior secured revolving credit facility), which had an initial borrowing base of $450.0 million, is collateralized by our oil and natural gas properties, and is scheduled to mature on April 12,
2014. We used the proceeds from the sale of common stock to CCMP, along with proceeds available under the senior secured revolving credit facility, to repay the amounts owing under our Seventh Restated Credit Agreement (our prior credit
facility). During the second quarter of 2010, we recorded expenses for derivative novation and break fees and the write off of prepaid bank fees associated with our prior credit facility of $3.1 million, and we recorded deferred financing
costs associated with the closing of our senior secured revolving credit facility of $10.9 million. As a result of the issuance of our 9.875% Senior Notes due 2020, our borrowing base was reduced from $450.0 million to $375.0 million, effective
September 16, 2010. The borrowing base of $375.0 million was reaffirmed effective November 23, 2010.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 2010 Equity Incentive Plan. We adopted the Chaparral Energy, Inc. 2010 Long-Term Incentive Plan (the 2010 Plan) on April 12,
2010. The 2010 Plan reserves a total of 86,301 shares of our class A common stock for awards issued under the 2010 Plan. All of our or our affiliates employees, officers, directors, and consultants, as defined in the 2010 Plan, are eligible to
participate in the 2010 Plan. Our Board of Directors has approved awards of restricted stock under the 2010 Plan totaling 51,346 shares of our class A common stock. These initial awards are subject to performance, service, and market vesting
conditions. During 2010, we recorded stock-based compensation expense of $2.4 million associated with these awards. See Note 11 to our consolidated financial statements for additional information regarding stock-based compensation.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Capital expenditure budget. During 2010, we expended a significant portion of the proceeds from our sale of stock to CCMP for our oil and
natural gas properties. We have accordingly reduced our capital expenditure budget for 2011 to $250.0 million. Our 2011 capital budget allocates $157.0 million to conventional oil and natural gas exploration and production activities. The remaining
$93.0 million, or 37%, of the capital budget is allocated to the development of our EOR assets, and represents a substantial increase in capital being directed toward development of our EOR assets. The increased focus on EOR reduces near term growth
opportunities but enhances longer term growth and is consistent with our strategy of driving near term growth with developmental drilling and long term growth through EOR development.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Liquidity and capital resources

Historically, our primary sources of liquidity have been cash generated from our operations and debt. On April 12, 2010, we sold an
aggregate of 475,043 shares of our common stock to CCMP for proceeds of $313.2 million, net of fees and other expenses of $11.8 million. In connection with our sale of common stock to CCMP, we entered into and closed our senior secured revolving
credit facility, which had an initial borrowing base of $450.0 million, is collateralized by our oil and natural gas properties, and is scheduled to mature on April 12, 2014. We used the proceeds from the sale of common stock to CCMP, along
with proceeds available under our senior secured revolving credit facility, to repay the amounts owing under our prior credit facility.

On September 16, 2010, we issued $300.0 million aggregate principal amount of 9.875% Senior Notes maturing on October 1, 2020. We used the proceeds from the 9.875% Senior Notes due 2020 to pay
down outstanding amounts under our senior secured revolving credit facility and for working capital. As a result of our issuance of the 9.875% Senior Notes due 2020, the borrowing base under our senior secured revolving credit facility was reduced
from $450.0 million to $375.0 million.

We pledge our producing oil and natural gas properties to secure our senior secured
revolving credit facility. The banks establish a borrowing base by making an estimate of the collateral value of our oil and natural gas properties. We have the capacity to utilize the available funds to supplement our operating cash flows as a
financing source for our capital expenditures. If oil and natural gas prices decrease from the amounts used in estimating the collateral value of our oil and natural gas properties, the borrowing base may be reduced, thus reducing funds available
under the borrowing base. We mitigate a potential reduction in our borrowing base caused by a decrease in oil and natural gas prices through the use of commodity derivatives.

Covenants set forth in the indentures for our Senior Notes, including the ACNTA test, limit the amount of secured debt we can incur. Certain thresholds set forth in the ACNTA test are principally reliant
upon the levels of commodity prices for crude oil and natural gas at specified dates.



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##### Table of Contents

Sources and uses of cash

Our net increase (decrease) in cash is summarized as follows:



|                                                      |  |                         |          |   |      |   |         |      |  |   |          |  
|----------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                      |  | Year ended December 31, |         
|(dollars in thousands)                                |  | 2010                    |          |   | 2009 |   |         | 2008 | 
|Cash flows provided by operating activities           |  | $                       | 167,702  |   |      | $ | 98,675  |      |  | $ | 145,831  |  
|Cash flows provided by (used in) investing activities |  |                         | (264,172 | ) |      |   | 21,904  |      |  |   | (262,905 | )
|Cash flows provided by (used in) financing activities |  |                         | 78,164   |   |      |   | (99,274 | )    |  |   | 157,499  |  
|                                                      |  |                         |          |   |      |   |         |      |  |   |          |  
|Net increase (decrease) in cash during the period     |  | $                       | (18,306  | ) |      | $ | 21,305  |      |  | $ | 40,425   |  
|                                                      |  |                         |          |   |      |   |         |      |  |   |          |  

Substantially all of our cash flow from operating activities is from the production and sale of oil and
natural gas, reduced or increased by associated hedging activities. Cash inflows from oil and natural gas sales net of hedging settlements and cash outflows for operating expenses both increased significantly from 2009 to 2010 as commodity prices
rose, after having decreased sharply from 2008 to 2009 due to the decline in commodity prices. Operating cash flows also include production tax credits of $0, $13.7 million, and $1.0 million for the years ended December 31, 2010, 2009, and
2008, respectively. This source of cash received will not be available in future periods. Primarily as a result of the above activity, cash flows from operating activities increased by 70% from 2009 to 2010 after having decreased by 32% from 2008 to
2009.

We use the net cash provided by operations to partially fund our acquisition, exploration and development activities.
For the years ended December 31, 2010, 2009, and 2008, cash flows provided by operating activities were approximately 54%, 55%, and 48%, respectively, of cash used for the purchase of property and equipment and oil and natural gas properties.

During 2010, 2009, and 2008, the early monetization of derivatives provided investing cash inflows of $7.1 million, $111.9
million, and $32.6 million, respectively, and the return of our prepaid production tax credits provided investing cash inflows of $0, $13.5 million, and $1.1 million, respectively. Cash flows provided by investing activities for the year ended
December 31, 2009 also included proceeds of $25.3 million from the sale of the Electric Submersible Pumps (ESP) and Chemicals divisions of Green Country Supply, Inc. (GCS), a wholly owned subsidiary.

In February 2008, loss of well control occurred at the Bowdle 47 No. 2 well in Loving County, Texas. Total costs attributable to the
loss of well control were approximately $10.6 million. Our insurance policy has covered 100% of these costs, with the $0.6 million insurance retention and deductible being payable by us. We received insurance proceeds of $1.9 million and $8.1
million in 2009 and 2008, respectively, and no further receipts are expected. Insurance proceeds received are recorded as a reduction of oil and natural gas properties on the balance sheet and in the statement of cash flows.

Net cash provided by (used in) financing activities was $78.2 million, $(99.3) million, and $157.5 million, during 2010, 2009, and 2008,
respectively. On April 12, 2010, we sold an aggregate of 475,043 shares of our common stock to CCMP for proceeds of $313.2 million, net of fees and other expenses of $11.8 million, and we entered into and closed our senior secured revolving
credit facility. We used the proceeds from the sale of common stock to CCMP, along with proceeds available under our senior secured revolving credit facility, to repay the amounts owing under our prior credit facility. On September 16, 2010, we
issued $300.0 million aggregate principal amount of 9.875% Senior Notes maturing on October 1, 2020, for net proceeds of $293.0 million, less fees and other expenses of $6.6 million. As a result of the issuance of our 9.875% Senior Notes due
2020, the borrowing base under our senior secured revolving credit facility was reduced from $450.0 million to $375.0 million, and proceeds from the issuance of $206.0 million were used to pay down outstanding amounts under the facility. The
remaining $80.4 million was used for working capital.

As a result of our early monetization of derivatives in the second
quarter of 2009, the borrowing base under our prior credit facility was reduced from $600.0 million to $513.0 million, and proceeds from the monetization of $87.0 million were paid to the banks. Borrowings under our prior credit facility were $147.0
million in 2008, and were used to finance our capital expenditures.



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##### Table of Contents

Capital expenditures

During the second quarter of 2010, we expanded our oil and natural gas property capital expenditure budget for 2010 from $268.0 million to
$310.0 million in order to accelerate our development program. Our actual costs incurred for the year ended December 31, 2010 and our budgeted 2011 capital expenditures for oil and natural gas properties are summarized by area in the following
table:



|                                       |  |                              |        |  |          |   |         |              |  |   |          |  |  |                 |         |  |                                  |  |     |                 |  |   |         |  |  |  |     |  
|-------------------------------------- |  | ---------------------------- | ------ |  | -------- | - | ------- | ------------ |  | - | -------- |  |  | --------------- | ------- |  | -------------------------------- |  | --- | --------------- |  | - | ------- |  |  |  | --- | -
|                                       |  | Year ended December 31, 2010 |        |  |          |   |         |              | 
|(dollars in thousands)                 |  | Acquisitions                 |        |  | Drilling |   |         | Enhancements |  |   | Total(1) |  |  | Percentof total |         |  | Budgeted2011 capitalexpenditures |  |     | Percentof total | 
|Enhanced Oil Recovery Project Areas(2) |  | $                            | 7,451  |  |          | $ | 16,730  |              |  | $ | 28,792   |  |  | $               | 52,973  |  |                                  |  | 16  | %               |  | $ | 93,000  |  |  |  | 37  | %
|Anadarko Basin Area                    |  |                              | 6,147  |  |          |   | 86,997  |              |  |   | 6,360    |  |  |                 | 99,504  |  |                                  |  | 31  | %               |  |   | 71,000  |  |  |  | 29  | %
|Central Oklahoma                       |  |                              | 2,676  |  |          |   | 25,964  |              |  |   | 8,193    |  |  |                 | 36,833  |  |                                  |  | 11  | %               |  |   | 35,000  |  |  |  | 14  | %
|Permian Basin Area                     |  |                              | 5,884  |  |          |   | 45,796  |              |  |   | 7,599    |  |  |                 | 59,279  |  |                                  |  | 18  | %               |  |   | 21,000  |  |  |  | 8   | %
|Other                                  |  |                              | 19,362 |  |          |   | 47,270  |              |  |   | 12,043   |  |  |                 | 78,675  |  |                                  |  | 24  | %               |  |   | 30,000  |  |  |  | 12  | %
|                                       |  |                              |        |  |          |   |         |              |  |   |          |  |  |                 |         |  |                                  |  |     |                 |  |   |         |  |  |  |     |  
|Total                                  |  | $                            | 41,520 |  |          | $ | 222,757 |              |  | $ | 62,987   |  |  | $               | 327,264 |  |                                  |  | 100 | %               |  | $ | 250,000 |  |  |  | 100 | %
|                                       |  |                              |        |  |          |   |         |              |  |   |          |  |  |                 |         |  |                                  |  |     |                 |  |   |         |  |  |  |     |  



|(1) | Includes $1.5 million of additions relating to increases in our asset retirement obligations.
|--- | ---------------------------------------------------------------------------------------------

|(2) | Drilling and enhancements include $7.9 million of additions relating to conventional assets located in our EOR project areas and $9.8 million for
CO2support facilities and pipelines.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to our capital expenditures for oil and natural gas properties, we spent approximately $16.6
million for property and equipment during 2010.

During 2010, we expended a significant portion of the proceeds from our sale
of stock to CCMP for our oil and natural gas properties. We have accordingly reduced our capital expenditure budget for 2011 to $250.0 million. Despite this reduction, we expect production for 2011 to increase compared to 2010. We are currently
drilling a number of wells that we expect will support our production throughout 2011, and these wells are expected to be completed and on line during the first and second quarters of 2011. However, we cannot accurately predict the timing or level
of future production.

Our budgeted capital expenditures for oil and natural gas properties for the year ended
December 31, 2011 are summarized by area in the following table:



|                       |  |                                  |         | 
|---------------------- |  | -------------------------------- | ------- | 
|(dollars in thousands) |  | Budgeted2011 capitalexpenditures |        
|Enhanced Oil Recovery  |  | $                                | 93,000  | 
|Acquisitions           |  |                                  | 5,000   | 
|Conventional drilling  |  |                                  | 126,000 | 
|Enhancements           |  |                                  | 26,000  | 
|                       |  |                                  |         | 
|Total                  |  | $                                | 250,000 | 
|                       |  |                                  |         | 

Our 2011 capital budget reflects a substantial increase in capital being directed toward
development of EOR assets. The increased focus on EOR reduces near-term growth opportunities but enhances longer-term growth, and is consistent with our strategy of driving near-term growth with developmental drilling and long-term growth through
EOR development. The EOR capital budget of $93.0 million includes approximately $42.0 million for project infrastructure, including CO2transmission lines and compression facilities, $27.0 million for enhancements and CO2purchases, and $24.0 million for drilling.



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##### Table of Contents

We continually evaluate our capital needs and compare them to our capital resources. Our
actual expenditures during 2011 may be higher or lower than our budgeted amounts. Our level of exploration and development expenditures is largely discretionary, and the amount of funds devoted to any particular activity may increase or decrease
significantly depending on available opportunities, commodity prices, cash flows and development results, among other factors.

As of December 31, 2010, we had cash and cash equivalents of $55.1 million and long-term debt obligations of $962.1 million.

Credit Agreements

As of December 31, 2009, we were party to our prior credit facility, which was scheduled to mature on October 31, 2010, and was collateralized by our oil and natural gas properties.

On April 12, 2010, in connection with the closing of our stock purchase agreement with CCMP, we entered into and closed our senior
secured revolving credit facility, which had an initial borrowing base of $450.0 million, is collateralized by our oil and natural gas properties, and matures on April 12, 2014. We used the proceeds from the sale of common stock to CCMP, along
with proceeds available under our senior secured revolving credit facility, to repay the amounts owing under our prior credit facility. During the second quarter of 2010, we recorded expenses for derivative novation and break fees and the write off
of prepaid bank fees associated with our prior credit facility of $3.1 million and we recorded deferred financing costs associated with the closing of our senior secured revolving credit facility of $10.9 million.

The terms of our senior secured revolving credit facility are described below. The terms of our prior credit facility were substantially
similar to those contained in our senior secured revolving credit facility. All discussions of interest rates and ratios as of dates prior to April 12, 2010 relate to our prior credit facility.

Availability under our senior secured revolving credit facility is subject to a borrowing base which is set by the banks semi-annually on
May 1 and November 1 of each year. In addition, the lenders may request a borrowing base redetermination once between each scheduled redetermination and in the event of early termination of our derivative contracts. As a result of the
issuance of our 9.875% Senior Notes due 2020, the borrowing base was reduced from $450.0 million to $375.0 million effective September 16, 2010. Effective November 23, 2010, the borrowing base was reaffirmed at $375.0 million.

Borrowings under our senior secured revolving credit facility are made, at our option, as either Eurodollar loans or Alternate Base Rate
(ABR) loans.

Interest on Eurodollar loans is computed at the Adjusted LIBO Rate, defined as the rate applicable
to dollar deposits in the London interbank market with a maturity comparable to the interest period (one, two, three or six months, selected by us) times a Statutory Reserve Rate multiplier, as defined in our senior secured revolving credit
facility, plus a margin where the margin varies from 2.50% to 3.50% depending on the utilization percentage of the conforming borrowing base. From April 12, 2010 until October 12, 2010, the margin was fixed at 3.00%. Interest payments on
Eurodollar borrowings are due the last day of the interest period, if shorter than three months or every three months.

Interest on ABR loans is computed as the greater of (1) the Prime Rate, as defined in our senior secured revolving credit facility,
(2) the Federal Funds Effective Rate, as defined in our senior secured revolving credit facility, plus 1/2 of 1%, or (3) the Adjusted LIBO Rate, as defined in our senior secured revolving credit facility, plus 1%; plus a margin where the
margin varies from 1.625% to 2.625%, depending on the utilization percentage of the borrowing base.

Commitment fees of 0.50%
accrue on the unused portion of the borrowing base amount and are included as a component of interest expense. We have the right to make prepayments of the borrowings at any time without penalty or premium.



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Our senior secured revolving credit facility contains restrictive covenants that may limit
our ability, among other things, to:



| |  |  | incur additional indebtedness;
| | - |  | ------------------------------



| |  |  | create or incur additional liens on our oil and natural gas properties;
| | - |  | -----------------------------------------------------------------------



| |  |  | pay dividends in cash or other property, redeem our capital stock or prepay certain indebtedness;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | make investments in or loans to others;
| | - |  | ---------------------------------------



| |  |  | change our line of business;
| | - |  | ----------------------------



| |  |  | enter into operating leases;
| | - |  | ----------------------------



| |  |  | merge or consolidate with another person, or lease or sell all or substantially all of our assets;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | sell, farm-out or otherwise transfer property containing proved reserves;
| | - |  | -------------------------------------------------------------------------



| |  |  | enter into transactions with affiliates;
| | - |  | ----------------------------------------



| |  |  | issue preferred stock;
| | - |  | ----------------------



| |  |  | enter into negative pledge agreements or agreements restricting the ability of our subsidiaries to pay dividends;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | enter into or terminate certain swap agreements;
| | - |  | ------------------------------------------------



| |  |  | amend our organizational documents; and
| | - |  | ---------------------------------------



| |  |  | amend, modify or waive under our permitted bond documents (i) any covenants that would make the terms materially more onerous to us or
(ii) certain other provisions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our senior secured revolving credit facility requires us to maintain a
current ratio, as defined in our senior secured revolving credit facility, of not less than 1.0 to 1.0. The definition of current assets and current liabilities used for determination of the current ratio computed for loan compliance purposes
differs from current assets and current liabilities determined in compliance with GAAP. Since compliance with financial covenants is a material requirement under our senior secured revolving credit facility, we consider the current ratio calculated
under our senior secured revolving credit facility to be a useful measure of our liquidity because it includes the funds available to us under our senior secured revolving credit facility and is not affected by the volatility in working capital
caused by changes in the fair value of derivatives. At December 31, 2010 and 2009, our current ratio as computed using GAAP was 0.87 and 1.38, respectively. After giving effect to the adjustments, our current ratio computed for loan compliance
purposes was 3.78 and 1.51, respectively. The following table reconciles our current assets and current liabilities using GAAP to the same items for purposes of calculating the current ratio for our loan compliance:



|                                                                                   |  |                  |         |   |                  |   |         |  
|---------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | -
|(dollars in thousands)                                                             |  | December 31,2010 |         |   | December 31,2009 |  
|Current assets per GAAP                                                            |  | $                | 142,348 |   |                  | $ | 161,682 |  
|PlusAvailability under senior secured revolving credit facility                   |  |                  | 374,080 |   |                  |   | 3,145   |  
|LessShort-term derivative instruments                                             |  |                  | (1,429  | ) |                  |   | (18,226 | )
|LessDeferred tax asset on derivative instruments and asset retirement obligations |  |                  | (9,655  | ) |                  |   | (1,079  | )
|                                                                                   |  |                  |         |   |                  |   |         |  
|Current assets as adjusted                                                         |  | $                | 505,344 |   |                  | $ | 145,522 |  
|                                                                                   |  |                  |         |   |                  |   |         |  
|Current liabilities per GAAP                                                       |  | $                | 163,347 |   |                  | $ | 117,529 |  
|LessShort term derivative instruments                                             |  |                  | (28,853 | ) |                  |   | (20,677 | )
|LessShort-term asset retirement obligation                                        |  |                  | (690    | ) |                  |   | (300    | )
|                                                                                   |  |                  |         |   |                  |   |         |  
|Current liabilities as adjusted                                                    |  | $                | 133,804 |   |                  | $ | 96,552  |  
|                                                                                   |  |                  |         |   |                  |   |         |  
|Current ratio for loan compliance                                                  |  |                  | 3.78    |   |                  |   | 1.51    |  
|                                                                                   |  |                  |         |   |                  |   |         |  



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Our senior secured revolving credit facility also requires us to maintain, to the extent
borrowings are outstanding, a Consolidated Total Debt to Consolidated EBITDAX ratio, or to the extent no borrowings are outstanding, a Consolidated Net Debt to Consolidated EBITDAX ratio, as defined in our senior secured revolving credit facility,
of not greater than:



| |  |  | 4.50 to 1.0 for the annualized periods commencing on April 1, 2010 and ending on the last day of the fiscal quarter ending on June 30,
2010, September 30, 2010, and December 31, 2010;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 4.25 to 1.0 for the four consecutive fiscal quarters ending on March 31, 2011, June 30, 2011, and September 30, 2011; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | 4.00 to 1.0 for the four consecutive fiscal quarters ending on December 31, 2011 and for each period of four consecutive fiscal quarters ending on
the last day of such applicable fiscal quarters thereafter.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In July 2010, we amended the definition of
Consolidated EBITDAX in our senior secured revolving credit facility to (1) permit cash proceeds received from the early monetization of derivatives to be included in the calculation of Consolidated EBITDAX, to the extent that such
monetizations, in any period between scheduled redeterminations, do not exceed 5% of the borrowing base then in effect, and (2) permit the exclusion from the calculation of Consolidated EBITDAX of up to $4.5 million in one-time cash expenses
associated with our financing transactions that were incurred and paid during the second quarter of 2010.

Our senior secured
revolving credit facility also specifies events of default, including:



| |  |  | our failure to pay principal or interest under our senior secured revolving credit facility when due and payable;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | our representations or warranties proving to be incorrect, in any material respect, when made or deemed made;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | our failure to observe or perform certain covenants, conditions or agreements under our senior secured revolving credit facility;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | our failure to make payments on certain other material indebtedness when due and payable;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | the occurrence of any event or condition that requires the redemption or repayment of, or an offer to redeem or repay, certain other material
indebtedness prior to its scheduled maturity;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the commencement of a voluntary or involuntary proceeding seeking liquidation, reorganization or other relief, or the appointment of a receiver,
trustee, custodian or other similar official for us or our subsidiaries, and the proceeding or petition continues undismissed for 60 days or an order approving the foregoing is entered;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our inability, admission or failure generally to pay our debts as they become due;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | the entry of a final, non-appealable judgment for the payment of money in excess of $5.0 million that remains undischarged for a period of 60
consecutive days;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a Change of Control (as defined in our senior secured revolving credit facility); and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the occurrence of a default under any permitted bond document, which such default continues unremedied or is not waived prior to the expiration of any
applicable grace or cure under any permitted bond document.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If the outstanding borrowings under our senior
secured revolving credit facility were to exceed the borrowing base as a result of a redetermination, we would be required to eliminate this excess. Within 10 days after receiving notice of the new borrowing base, we would be required to make an
election: (1) to repay a portion of our bank borrowings in the amount of the excess either in a lump sum within 30 days or in equal monthly installments over a six-month period, (2) to submit within 30 days additional oil and natural gas
properties we own for consideration in connection with the determination of the borrowing base sufficient to eliminate the excess or (3) to eliminate the excess through a combination of repayments and the submission of additional oil and
natural gas properties within 30 days.



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Senior Notes

Senior Notes at December 31, 2010 and December 31, 2009 consisted of the following:



|                                  |  |              |         |   |      |   |         |  
|--------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                  |  | December 31, |        
|(dollars in thousands)            |  | 2010         |         |   | 2009 |  
|8.5% Senior Notes due 2015        |  | $            | 325,000 |   |      | $ | 325,000 |  
|8.875% Senior Notes due 2017(1)   |  |              | 325,000 |   |      |   | 325,000 |  
|9.875% Senior Notes due 2020(2)   |  |              | 300,000 |   |      |   |        |  
|Discount on Senior Notes due 2017 |  |              | (1,901  | ) |      |   | (2,123  | )
|Discount on Senior Notes due 2020 |  |              | (6,865  | ) |      |   |        |  
|                                  |  |              |         |   |      |   |         |  
|                                  |  | $            | 941,234 |   |      | $ | 647,877 |  
|                                  |  |              |         |   |      |   |         |  



|(1) | As part of the indenture, we entered into a registration rights agreement in which we agreed to file a registration statement with the Securities and Exchange
Commission related to an offer to exchange the notes for an issue of registered notes within 270 days of the closing date. The exchange offer was not completed within the 270-day period ending October 15, 2007 as required by the registration
rights agreement. As a result, we accrued liquidated damages of $0.3 million during the year ended December 31, 2007. On February 29, 2008, we completed the exchange offer, and liquidated damages ceased to accrue as of that date. Total
liquidated damages paid in 2008 were $0.4 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | As part of the indenture, we entered into a registration rights agreement in which we agreed to file a registration statement with the Securities and Exchange
Commission related to an offer to exchange the notes for an issue of registered notes within 270 days of the closing date. If we fail to complete the exchange offer within 270 days after the closing date, we will be required to pay liquidated
damages equal to 0.25% per annum of the principal amount of the notes for the first 90 days after the target registration date. After the first 90 days, the rate increases an additional 0.25% for each additional 90 days, up to a total of 1.0%.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Senior Notes are our senior unsecured obligations, rank equally in right of payment with all of our
existing and future senior indebtedness, and rank senior to all of our existing and future subordinated debt. The payment of the principal, interest and premium on the Senior Notes is fully and unconditionally guaranteed on a senior unsecured basis
by our material existing and future domestic restricted subsidiaries, as defined in the indentures.

On and after the fifth
anniversary of the issue date, we may redeem some or all of the Senior Notes at any time at redemption prices specified in the indentures, plus accrued and unpaid interest to the date of redemption.

Prior to the fifth anniversary of the issue date, the Senior Notes may be redeemed in whole or in part at a redemption price equal to the
principal amount of the notes plus accrued and unpaid interest to the date of redemption plus an applicable premium specified in the indentures.

We and our restricted subsidiaries are subject to certain negative and financial covenants under the indentures governing the Senior Notes. The provisions of the indentures limit our and our restricted
subsidiaries ability to, among other things:



| |  |  | incur or guarantee additional indebtedness, or issue preferred stock;
| | - |  | ---------------------------------------------------------------------



| |  |  | pay dividends on our capital stock or redeem, repurchase or retire our capital stock or subordinated indebtedness;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | make investments;
| | - |  | -----------------



| |  |  | incur liens;
| | - |  | ------------



| |  |  | create any consensual limitation on the ability of our restricted subsidiaries to pay dividends, make loans or transfer property to us;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | engage in transactions with our affiliates;
| | - |  | -------------------------------------------



| |  |  | sell assets, including capital stock of our subsidiaries;
| | - |  | ---------------------------------------------------------



| |  |  | consolidate, merge or transfer assets; and
| | - |  | ------------------------------------------



| |  |  | enter into other lines of business.
| | - |  | -----------------------------------



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##### Table of Contents

If we experience a change of control (as defined in the indentures governing the Senior
Notes), including making certain asset sales, subject to certain conditions, we must give holders of the Senior Notes the opportunity to sell to us their Senior Notes at 101% of the principal amount, plus accrued and unpaid interest.

Alternative capital resources

We have historically used cash flow from operations, debt financing, and private issuances of common stock as our primary sources of capital. In the future, we may use additional sources such as asset
sales, additional public or private issuances of common or preferred stock, or project financing. While we believe we would be able to obtain funds through one or more of these alternative sources, if needed, we cannot provide assurance that these
resources would be available on terms acceptable to us.

Contractual obligations

The following table summarizes our contractual obligations and commitments as of December 31, 2010:



|                                                            |  |                 |         |  |           |   |         |           |  |   |                  |  |  |       |         |  |  |   |           | 
|----------------------------------------------------------- |  | --------------- | ------- |  | --------- | - | ------- | --------- |  | - | ---------------- |  |  | ----- | ------- |  |  | - | --------- | 
|(dollars in thousands)                                      |  | Less than1 year |         |  | 1-3 years |   |         | 3-5 years |  |   | More than5 years |  |  | Total |        
|Debt:(1)                                                    |  |                 |         |  |           |   |         |           |  |   |                  |  |  |       |         |  |  |   |           | 
|Commitment fees on senior secured revolving credit facility |  | $               | 1,875   |  |           | $ | 3,750   |           |  | $ | 531              |  |  | $     |        |  |  | $ | 6,156     | 
|Senior Notes, including estimated interest(2)               |  |                 | 86,094  |  |           |   | 172,188 |           |  |   | 494,885          |  |  |       | 796,966 |  |  |   | 1,550,133 | 
|Other long-term notes, including estimated interest         |  |                 | 5,118   |  |           |   | 5,875   |           |  |   | 3,238            |  |  |       | 14,515  |  |  |   | 28,746    | 
|Capital leases, including estimated interest                |  |                 | 124     |  |           |   | 10      |           |  |   |                 |  |  |       |        |  |  |   | 134       | 
|Abandonment obligations                                     |  |                 | 690     |  |           |   | 1,380   |           |  |   | 1,380            |  |  |       | 38,245  |  |  |   | 41,695    | 
|Derivative obligations                                      |  |                 | 28,853  |  |           |   | 2,482   |           |  |   |                 |  |  |       |        |  |  |   | 31,335    | 
|Purchase commitments                                        |  |                 | 6,911   |  |           |   | 3,641   |           |  |   |                 |  |  |       |        |  |  |   | 10,552    | 
|                                                            |  |                 |         |  |           |   |         |           |  |   |                  |  |  |       |         |  |  |   |           | 
|Total                                                       |  | $               | 129,665 |  |           | $ | 189,326 |           |  | $ | 500,034          |  |  | $     | 849,726 |  |  | $ | 1,668,751 | 
|                                                            |  |                 |         |  |           |   |         |           |  |   |                  |  |  |       |         |  |  |   |           | 



|(1) | As of December 31, 2010, we had no off-balance sheet arrangements.
|--- | ------------------------------------------------------------------

|(2) | On February 22, 2011, we issued $400.0 million aggregate principal amount of 8.25% Senior Notes maturing on September 1, 2021. We used the net proceeds from
the 8.25% Senior Notes to consummate a tender offer for all of our 8.5% Senior Notes due 2015, to redeem the 8.5% Senior Notes not purchased in the tender offer, and for general corporate purposes. Our annual interest payments are expected to
increase by approximately $5.4 million as a result of these transactions.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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We have open purchase orders for inventory totaling $3.3 million at December 31, 2010.

We have a long-term contract to purchase CO2manufactured at an existing ethanol plant. We are currently purchasing approximately nine MMcf/d of CO2under this contract, and we expect to purchase an average of
approximately 12 MMcf/d over the fifteen-year contract term, which began on May 1, 2009. Purchases under this contract were $0.3 million, $0.1 million and $0 during 2010, 2009, and 2008, respectively. Pricing under the contract is variable over
time and the contract has renewal language.

We have rights under two additional contracts that require us
to purchase CO2for EOR projects. Under one of these
contracts, we are currently purchasing an average of approximately 16 MMcf/d and expect our purchases to remain at that level over the remaining contract term, which expires in February 2021. Purchases under this contract were $1.0 million, $0.6
million, and $0.7 million during 2010, 2009, and 2008, respectively. Under the second of these contracts, we as unit operator have nominated to purchase 10 MMcf/d of CO2through 2012, and are currently purchasing approximately nine MMcf/d of CO2under this contract. Purchases under this contract, which include
transportation charges, were $1.5 million, $3.2 million, and $3.2 million during 2010, 2009, and 2008, respectively. The contract expires in 2016. We may terminate or permanently reduce our purchase rate under this contract at the end of any
calendar year with 13 months notice. Pricing under both of these contracts is dependent on certain variable factors, including the price of oil.

On March 24, 2011, we signed a long-term contract to purchase up to 100% of
CO2emissions from an existing nitrogen fertilizer plant that
produces approximately 40 MMcf/d of CO2for injection into
our North Burbank Unit. The initial term of the contract is 20 years from commencement of operations of the compression facilities and pipeline, and the contract has renewal language. Pricing under the contract is fixed for the first five contract
years and variable thereafter. The contract will terminate automatically unless we begin construction of compression facilities by December 2011. Beginning no later than July 2013, and assuming the fertilizer plant produces and delivers a specified
quality of CO2, we will be obligated to purchase an average
of approximately 32 MMcf/d over the first ten contract years or pay for any deficiencies at the price in effect when the minimum delivery was to have occurred. Based on current prices, we estimate our minimum purchase obligation under the
contract to be approximately $28.0 million over the first ten contract years. After the first ten contract years, we may permanently reduce up to 100% of our purchase rate under this contract with six months notice.

Results of operations

Overview

Production has increased in each of the last three years.
However, oil and natural gas price volatility has had a significant impact on our revenues and cash flows from operations. Average sales prices and oil and natural gas sales increased by 33% and 40%, respectively, from 2009 to 2010 after having
decreased by 46% and 42%, respectively, from 2008 to 2009. In addition, we recorded non-cash pre-tax ceiling test impairments of our oil and natural gas properties of $0, $240.8 million, and $281.4 million in 2010, 2009, and 2008, respectively. As a
result of these and other transactions discussed below, we had net income of $33.7 million in 2010 compared to a net loss of $144.3 million and $54.8 million in 2009 and 2008, respectively.



|                                         |  |                         |         |  |      |   |          |      |  |   |         |  
|---------------------------------------- |  | ----------------------- | ------- |  | ---- | - | -------- | ---- |  | - | ------- | -
|                                         |  | Year ended December 31, |        
|                                         |  | 2010                    |         |  | 2009 |   |          | 2008 | 
|Production (MBoe)                        |  |                         | 8,050   |  |      |   | 7,638    |      |  |   | 7,072   |  
|                                         |  |                         |        
|Oil and natural gas sales (in thousands) |  | $                       | 408,561 |  |      | $ | 292,387  |      |  | $ | 501,761 |  
|Net income (loss) (in thousands)         |  | $                       | 33,713  |  |      | $ | (144,318 | )    |  | $ | (54,750 | )
|                                         |  |                         |        
|Cash flow from operations (in thousands) |  | $                       | 167,702 |  |      | $ | 98,675   |      |  | $ | 145,831 |  



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##### Table of Contents

Revenues and production

The following table presents information about our oil and natural gas sales before the effects of commodity derivative settlements:



|                                                        |  |                        |         |  |            |   |         |                         |  |  |            |   |  |        |         |  |  |  |       |   
|------------------------------------------------------- |  | ---------------------- | ------- |  | ---------- | - | ------- | ----------------------- |  |  | ---------- | - |  | ------ | ------- |  |  |  | ----- | --
|                                                        |  | Year endedDecember 31, |         |  | Percentage |   |         | Year ended December 31, |  |  | Percentage |  
|                                                        |  | 2010                   |         |  | 2009       |   |         | change                  |  |  | 2008       |   |  | change |        
|Oil and natural gas sales (dollars in thousands)        |  |                        |         |  |            |   |         |                         |  |  |            |   |  |        |         |  |  |  |       |   
|Oil                                                     |  | $                      | 305,042 |  |            | $ | 213,207 |                         |  |  | 43.1       | % |  | $      | 348,907 |  |  |  | (38.9 | )%
|Natural gas                                             |  |                        | 103,519 |  |            |   | 79,180  |                         |  |  | 30.7       | % |  |        | 152,854 |  |  |  | (48.2 | )%
|                                                        |  |                        |         |  |            |   |         |                         |  |  |            |   |  |        |         |  |  |  |       |   
|Total                                                   |  | $                      | 408,561 |  |            | $ | 292,387 |                         |  |  | 39.7       | % |  | $      | 501,761 |  |  |  | (41.7 | )%
|                                                        |  |                        |         |  |            |   |         |                         |  |  |            |   |  |        |         |  |  |  |       |   
|                                                        |  |                        |         |  |           
|Production                                              |  |                        |         |  |            |   |         |                         |  |  |            |   |  |        |         |  |  |  |       |   
|Oil (MBbls)                                             |  |                        | 4,093   |  |            |   | 3,874   |                         |  |  | 5.7        | % |  |        | 3,773   |  |  |  | 2.7   | % 
|Natural gas (MMcf)                                      |  |                        | 23,742  |  |            |   | 22,584  |                         |  |  | 5.1        | % |  |        | 19,795  |  |  |  | 14.1  | % 
|                                                        |  |                        |         |  |            |   |         |                         |  |  |            |   |  |        |         |  |  |  |       |   
|MBoe                                                    |  |                        | 8,050   |  |            |   | 7,638   |                         |  |  | 5.4        | % |  |        | 7,072   |  |  |  | 8.0   | % 
|                                                        |  |                        |         |  |           
|Average sales prices (excluding derivative settlements) |  |                        |         |  |            |   |         |                         |  |  |            |   |  |        |         |  |  |  |       |   
|Oil per Bbl                                             |  | $                      | 74.53   |  |            | $ | 55.04   |                         |  |  | 35.4       | % |  | $      | 92.47   |  |  |  | (40.5 | )%
|Natural gas per Mcf                                     |  | $                      | 4.36    |  |            | $ | 3.51    |                         |  |  | 24.2       | % |  | $      | 7.72    |  |  |  | (54.5 | )%
|                                                        |  |                        |         |  |            |   |         |                         |  |  |            |   |  |        |         |  |  |  |       |   
|Average price per Boe                                   |  | $                      | 50.75   |  |            | $ | 38.28   |                         |  |  | 32.6       | % |  | $      | 70.95   |  |  |  | (46.0 | )%

Oil and natural gas
revenues increased $116.2 million, or 40%, to $408.6 million during 2010 due to a 33% increase in the average price per Boe, combined with a 5% increase in sales volumes. Oil and natural gas revenues decreased $209.4 million, or 42%, to $292.4
million during 2009 due to a 46% decrease in the average price per Boe, partially offset by an 8% increase in sales volumes.



65



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##### Table of Contents

The relative impact of changes in commodity prices and sales volumes on our oil and natural
gas sales before the effects of derivative settlements is shown in the following table:



|                                               |  |                         |        |  |                          |  |      |                         |  |   |                          |   |  |  |       |   
|---------------------------------------------- |  | ----------------------- | ------ |  | ------------------------ |  | ---- | ----------------------- |  | - | ------------------------ | - |  |  | ----- | --
|                                               |  | Year ended December 31, |       
|                                               |  | 2010 vs. 2009           |        |  | 2009 vs. 2008            | 
|(dollars in thousands)                         |  | Salesincrease           |        |  | Percentagechangein
sales |  |      | Salesincrease(decrease) |  |   | Percentagechangein
sales |  
|Change in oil sales due to:                    |  |                         |        |  |                          |  |      |                         |  |   |                          |   |  |  |       |   
|Prices                                         |  | $                       | 79,782 |  |                          |  | 37.4 | %                       |  | $ | (145,040                 | ) |  |  | (41.6 | )%
|Production                                     |  |                         | 12,053 |  |                          |  | 5.7  | %                       |  |   | 9,340                    |   |  |  | 2.7   | % 
|                                               |  |                         |        |  |                          |  |      |                         |  |   |                          |   |  |  |       |   
|Total increase (decrease) in oil sales         |  | $                       | 91,835 |  |                          |  | 43.1 | %                       |  | $ | (135,700                 | ) |  |  | (38.9 | )%
|                                               |  |                         |        |  |                          |  |      |                         |  |   |                          |   |  |  |       |   
|                                               |  |                         |        | 
|Change in natural gas sales due to:            |  |                         |        |  |                          |  |      |                         |  |   |                          |   |  |  |       |   
|Prices                                         |  | $                       | 20,279 |  |                          |  | 25.6 | %                       |  | $ | (95,210                  | ) |  |  | (62.3 | )%
|Production                                     |  |                         | 4,060  |  |                          |  | 5.1  | %                       |  |   | 21,536                   |   |  |  | 14.1  | % 
|                                               |  |                         |        |  |                          |  |      |                         |  |   |                          |   |  |  |       |   
|Total increase (decrease) in natural gas sales |  | $                       | 24,339 |  |                          |  | 30.7 | %                       |  | $ | (73,674                  | ) |  |  | (48.2 | )%
|                                               |  |                         |        |  |                          |  |      |                         |  |   |                          |   |  |  |       |   

Production volumes by area were as follows (MBoe):



|                                    |  |                        |       |  |            |  |       |                         |  |  |            |    |  |        |       |  |  |  |       |   
|----------------------------------- |  | ---------------------- | ----- |  | ---------- |  | ----- | ----------------------- |  |  | ---------- | -- |  | ------ | ----- |  |  |  | ----- | --
|                                    |  | Year endedDecember 31, |       |  | Percentage |  |       | Year ended December 31, |  |  | Percentage |   
|                                    |  | 2010                   |       |  | 2009       |  |       | change                  |  |  | 2008       |    |  | change |      
|Enhanced Oil Recovery Project Areas |  |                        | 1,079 |  |            |  | 920   |                         |  |  | 17.3       | %  |  |        | 875   |  |  |  | 5.1   | % 
|Anadarko Basin Area                 |  |                        | 2,506 |  |            |  | 2,152 |                         |  |  | 16.4       | %  |  |        | 2,019 |  |  |  | 6.6   | % 
|Central Oklahoma                    |  |                        | 1,935 |  |            |  | 1,902 |                         |  |  | 1.7        | %  |  |        | 1,836 |  |  |  | 3.6   | % 
|Permian Basin Area                  |  |                        | 1,500 |  |            |  | 1,625 |                         |  |  | (7.7       | )% |  |        | 1,116 |  |  |  | 45.6  | % 
|Other                               |  |                        | 1,030 |  |            |  | 1,039 |                         |  |  | (0.9       | )% |  |        | 1,226 |  |  |  | (15.3 | )%
|                                    |  |                        |       |  |            |  |       |                         |  |  |            |    |  |        |       |  |  |  |       |   
|Total                               |  |                        | 8,050 |  |            |  | 7,638 |                         |  |  | 5.4        | %  |  |        | 7,072 |  |  |  | 8.0   | % 
|                                    |  |                        |       |  |            |  |       |                         |  |  |            |    |  |        |       |  |  |  |       |   

Production increased in our EOR project areas due to acquisition and development activities. The
increase in production in the Anadarko Basin Area is primarily due to our participation in six Atoka Wash wells, which came online during the first quarter of 2010 and accounted for approximately 4% of our total production during 2010. We also
drilled two Cleveland Sand horizontal wells that came online during the first and second quarters of 2010 and accounted for approximately 1% of our total production during 2010.

The decrease in production in the Permian Basin Area during 2010 is primarily due to the decline in production from the Bowdle 47
No. 2, which began selling natural gas in late November 2008 and accounted for approximately 5% and 9% of total production in 2010 and 2009, respectively. We have drilled and completed an offset, the Bowdle 47 No. 4, which came online in
late April of 2010 and accounted for approximately 2% of our total production during 2010.



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Derivative activities

Our results of operations, financial condition and capital resources are highly dependent upon the prevailing market prices of, and demand
for, oil and natural gas. These commodity prices are subject to wide fluctuations and market uncertainties. To mitigate a portion of this exposure, we enter into commodity price swaps, costless collars, and basis protection swaps. Certain commodity
price swaps qualified and were designated as cash flow hedges.

Entering into derivative instruments allows us to predict with
greater certainty the effective prices we will receive for associated oil and natural gas production. We closely monitor the fair value of our derivative contracts and may elect to settle a contract prior to its scheduled maturity date in order to
lock in a gain or loss. Our derivative activities are dynamic to allow us to respond to the volatile commodity markets.

Our
realized prices are impacted by realized gains and losses resulting from commodity derivatives contracts. The following table presents information about the effects of derivative settlements, excluding derivative monetizations, on realized prices:



|                                        |  |                         |       |   |      |   |       |      |  |   |       |  
|--------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                        |  | Year ended December 31, |      
|                                        |  | 2010                    |       |   | 2009 |   |       | 2008 | 
|Oil (per Bbl):                          |  |                         |       |   |      |   |       |      |  |   |       |  
|Before derivative settlements           |  | $                       | 74.53 |   |      | $ | 55.04 |      |  | $ | 92.47 |  
|After derivative settlements            |  | $                       | 71.91 |   |      | $ | 56.36 |      |  | $ | 71.95 |  
|Post-settlement to pre-settlement price |  |                         | 96.5  | % |      |   | 102.4 | %    |  |   | 77.8  | %
|                                        |  |                         |      
|Natural gas (per Mcf):                  |  |                         |       |   |      |   |       |      |  |   |       |  
|Before derivative settlements           |  | $                       | 4.36  |   |      | $ | 3.51  |      |  | $ | 7.72  |  
|After derivative settlements            |  | $                       | 6.20  |   |      | $ | 5.32  |      |  | $ | 7.38  |  
|Post-settlement to pre-settlement price |  |                         | 142.2 | % |      |   | 151.6 | %    |  |   | 95.6  | %

The estimated fair values
of our oil and natural gas derivative instruments are provided below. The associated carrying values of these instruments are equal to the estimated fair values.



|                                     |  |                    |         |   |      |   |         |      |  |   |         | 
|------------------------------------ |  | ------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | 
|                                     |  | As of December 31, |        
|(dollars in thousands)               |  | 2010               |         |   | 2009 |   |         | 2008 | 
|Derivative assets (liabilities):     |  |                    |         |   |      |   |         |      |  |   |         | 
|Natural gas swaps                    |  | $                  | 32,408  |   |      | $ | 30,340  |      |  | $ | 13,312  | 
|Oil swaps                            |  |                    | (58,200 | ) |      |   | (68,551 | )    |  |   | 111,416 | 
|Natural gas collars                  |  |                    |        |   |      |   | 14,065  |      |  |   | 21,682  | 
|Oil collars                          |  |                    | 1,509   |   |      |   | 12,290  |      |  |   | 57,716  | 
|Natural gas basis differential swaps |  |                    | (5,623  | ) |      |   | (14,964 | )    |  |   | 1,618   | 
|                                     |  |                    |         |   |      |   |         |      |  |   |         | 
|Net derivative asset (liability)     |  | $                  | (29,906 | ) |      | $ | (26,820 | )    |  | $ | 205,744 | 
|                                     |  |                    |         |   |      |   |         |      |  |   |         | 

Effective April 1, 2010, we elected to de-designate all of our commodity derivative contracts that had
previously been designated as cash flow hedges and to discontinue hedge accounting prospectively. As a result, all gains and losses from changes in the fair value of our derivative contracts subsequent to March 31, 2010 are recognized
immediately in non-hedge derivative gains in the consolidated statement of operations. This can have a significant impact on our results of operations due to the volatility of the underlying commodity prices. Prior to March 31, 2010, a portion
of the change in fair value was deferred through other comprehensive income. As of December 31, 2010, accumulated other comprehensive income (loss) (AOCI) consists of deferred net gains of $56.4 million ($35.0 million net of tax)
related to discontinued cash flow hedges that will be recognized as gains (losses) from oil and natural gas hedging activities through December 2013 as the hedged production is sold.



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The effects of derivative activities on our results of operations and cash flows were as
follows:



|                                                         |  |                              |         |   |                        |   |         |                              |  |   |                        |   |  |                              |         |   |                        |   |         |   |  |   |         |  
|-------------------------------------------------------- |  | ---------------------------- | ------- | - | ---------------------- | - | ------- | ---------------------------- |  | - | ---------------------- | - |  | ---------------------------- | ------- | - | ---------------------- | - | ------- | - |  | - | ------- | -
|                                                         |  | Year ended December 31,      |        
|                                                         |  | 2010                         |         |   | 2009                   |   |         | 2008                         | 
|(dollars in thousands)                                   |  | Non-cashfair valueadjustment |         |   | Cashreceipts(payments) |   |         | Non-cashfair valueadjustment |  |   | Cashreceipts(payments) |   |  | Non-cashfair valueadjustment |         |   | Cashreceipts(payments) |  
|Gain (loss) from oil and natural gas hedging activities: |  |                              |         |   |                        |   |         |                              |  |   |                        |   |  |                              |         |   |                        |   |         |   |  |   |         |  
|Oil swaps                                                |  | $                            | (25,399 | ) |                        | $ | (5,504  | )                            |  | $ | 14,114                 |   |  | $                            | (2,349  | ) |                        | $ | 7,770   |   |  | $ | (73,170 | )
|Natural gas swaps                                        |  |                              | 1,510   |   |                        |   |        |                              |  |   | 7,638                  |   |  |                              |        |   |                        |   | 4,779   |   |  |   | (15,796 | )
|                                                         |  |                              |         |   |                        |   |         |                              |  |   |                        |   |  |                              |         |   |                        |   |         |   |  |   |         |  
|Gain (loss) from oil and natural gas hedging activities  |  | $                            | (23,889 | ) |                        | $ | (5,504  | )                            |  | $ | 21,752                 |   |  | $                            | (2,349  | ) |                        | $ | 12,549  |   |  | $ | (88,966 | )
|                                                         |  |                              |         |   |                        |   |         |                              |  |   |                        |   |  |                              |         |   |                        |   |         |   |  |   |         |  
|                                                         |  |                              |         |   |                        |  
|Non-hedge derivative gains (losses):                     |  |                              |         |   |                        |   |         |                              |  |   |                        |   |  |                              |         |   |                        |   |         |   |  |   |         |  
|Oil swaps and collars                                    |  | $                            | (8,660  | ) |                        | $ | (5,225  | )                            |  | $ | (30,791                | ) |  | $                            | 7,490   |   |                        | $ | 80,297  |   |  | $ | (4,258  | )
|Natural gas swaps and collars                            |  |                              | (7,769  | ) |                        |   | 53,728  |                              |  |   | 9,455                  |   |  |                              | 46,100  |   |                        |   | 24,144  |   |  |   | 3,086   |  
|Natural gas basis differential contracts                 |  |                              | 9,341   |   |                        |   | (10,110 | )                            |  |   | (16,582                | ) |  |                              | (5,189  | ) |                        |   | 1,079   |   |  |   | 5,970   |  
|Derivative monetizations                                 |  |                              | 193     |   |                        |   | 7,097   |                              |  |   | (111,188               | ) |  |                              | 111,874 |   |                        |   | (15,966 | ) |  |   | 32,589  |  
|                                                         |  |                              |         |   |                        |   |         |                              |  |   |                        |   |  |                              |         |   |                        |   |         |   |  |   |         |  
|Non-hedge derivative gains (losses)                      |  | $                            | (6,895  | ) |                        | $ | 45,490  |                              |  | $ | (149,106               | ) |  | $                            | 160,275 |   |                        | $ | 89,554  |   |  | $ | 37,387  |  
|                                                         |  |                              |         |   |                        |   |         |                              |  |   |                        |   |  |                              |         |   |                        |   |         |   |  |   |         |  
|Total gains (losses) from derivative activities          |  | $                            | (30,784 | ) |                        | $ | 39,986  |                              |  | $ | (127,354               | ) |  | $                            | 157,926 |   |                        | $ | 102,103 |   |  | $ | (51,579 | )
|                                                         |  |                              |         |   |                        |   |         |                              |  |   |                        |   |  |                              |         |   |                        |   |         |   |  |   |         |  

We reclassified into earnings $25.4 million in losses associated with oil derivatives for which hedge
accounting has been discontinued, and we made payments on oil hedges of $5.5 million in 2010. In addition, due primarily to an increase in average NYMEX forward strip oil prices as of December 31, 2010 compared to December 31, 2009,
combined with high oil prices prevalent during the period, we recognized a non-hedge loss on oil derivatives of $13.9 million in 2010.

Due to the low oil prices prevalent during 2009, we received proceeds from oil derivatives of $5.1 million; however, we recognized non-cash losses on oil derivatives of $16.7 million in 2009 primarily due
to the significant improvement in average NYMEX forward strip oil prices as of December 31, 2009 compared to December 31, 2008. This included gains of $14.5 million reclassified into earnings that were associated with derivatives for which
hedge accounting was discontinued in 2008.

Due primarily to low natural gas prices prevalent during the periods, we
recognized non-hedge gains on natural gas derivatives of $46.0 million and $55.6 million during 2010 and 2009, respectively. In addition, we reclassified into earnings gains of $1.5 million and $7.6 million in 2010 and 2009, respectively, which were
associated with derivatives for which hedge accounting was discontinued in 2008.

Due primarily to the high commodity prices
prevalent during the first nine months of 2008, we made payments on oil and natural gas derivatives of $77.4 million and $12.7 million, respectively. However, these losses were offset by non-cash gains on oil and natural gas derivatives of $88.1
million and $28.9 million, respectively, which resulted from the decline in the NYMEX forward strip oil and natural gas prices as of December 31, 2008 compared to December 31, 2007.

During 2010, losses on natural gas basis differential contracts were $0.8 million, primarily due to low basis differentials prevalent
during the period, partially offset by lower average contractual prices and higher differentials indicated by the forward commodity price curves as of December 31, 2010 compared to December 31, 2009. During 2009, losses on natural gas
basis differential contracts were $21.8 million, primarily due to lower differentials indicated by the forward commodity price curves as of December 31, 2009 compared to December 31, 2008. Gains on natural gas basis differential swaps were
$7.0 million in 2008, primarily due to high differentials during 2008.



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During 2010, we unwound and monetized oil swaps and collars and natural gas collars with
original settlement dates from April 2010 through December 2012 for net proceeds of $7.1 million, and we recognized gains of $7.3 million associated with these transactions. During 2009, we monetized natural gas swaps with original settlement dates
from May through October of 2009 and oil swaps and collars with original settlement dates from January 2012 through December 2013 for total net proceeds of $111.9 million. As a result of these transactions, gains of $0.7 million were recognized in
earnings during 2009, and gains of $81.9 million were deferred through AOCI. During 2008, we monetized oil and natural gas swaps and collars with original settlement dates from January through June of 2009 for proceeds of $32.6 million. As a result
of this monetization, gains of $16.6 million were recognized in earnings, and gains of $17.9 million were deferred through AOCI.

Primarily as a result of the above transactions, total gains on derivative activities recognized in our statements of operations were $9.2 million, $30.6 million and $50.5 million in 2010, 2009 and 2008,
respectively.

Lease operating expenses



|                                        |  |              |         |  |            |   |        |              |  |  |            |   |  |        |         |  |  |  |       |   
|--------------------------------------- |  | ------------ | ------- |  | ---------- | - | ------ | ------------ |  |  | ---------- | - |  | ------ | ------- |  |  |  | ----- | --
|                                        |  | Year ended   |         |  |            |   |        | Year ended   |  |  |            |  
|                                        |  | December 31, |         |  | Percentage |   |        | December 31, |  |  | Percentage |  
|                                        |  | 2010         |         |  | 2009       |   |        | change       |  |  | 2008       |   |  | change |        
|Lease operating expenses (in thousands) |  | $            | 106,127 |  |            | $ | 94,070 |              |  |  | 12.8       | % |  | $      | 120,487 |  |  |  | (21.9 | )%
|                                        |  |              |         |  |            |   |        |              |  |  |            |   |  |        |         |  |  |  |       |   
|Lease operating expenses per Boe        |  | $            | 13.18   |  |            | $ | 12.32  |              |  |  | 7.0        | % |  | $      | 17.04   |  |  |  | (27.7 | )%
|                                        |  |              |         |  |            |   |        |              |  |  |            |   |  |        |         |  |  |  |       |   

Lease operating costs are sensitive to changes in demand for field equipment, services, and qualified
operational personnel, which is driven by demand for oil and natural gas. However, the timing of changes in operating costs may lag behind changes in commodity prices. Our lease operating expenses increased by 13% from 2009 to 2010 after having
decreased by 22% from 2008 to 2009, which is consistent, though not commensurate, with the changes in commodity prices during the same periods.

During 2010, lease operating expenses increased $12.1 million, or $0.86 per Boe, compared to 2009, primarily due to our increased activity combined with the upward pressure on operating and service costs
associated with the improvement in commodity prices during 2010. Electricity and fuel costs and workover costs increased by $3.8 million and $1.1 million, respectively, for operated properties from 2009 to 2010.

Due primarily to higher production mostly associated with the Bowdle 47 No. 2 well, the shut-in of uneconomic wells, and our efforts
to reduce production costs, lease operating expenses for 2009 decreased by $26.4 million, or $4.72 per Boe, compared to 2008. Per unit expenses were lower for all categories of lease operating expenses due to downward pressure on service costs,
labor, and materials resulting from the low commodity prices prevalent throughout 2009. Electricity and fuel costs and workover costs decreased by $4.4 million and $8.3 million, respectively, for operated properties from 2008 to 2009.

Production taxes (which include ad valorem taxes)



|                                |  |              |        |  |            |   |        |              |  |  |            |   |  |        |        |  |  |  |       |   
|------------------------------- |  | ------------ | ------ |  | ---------- | - | ------ | ------------ |  |  | ---------- | - |  | ------ | ------ |  |  |  | ----- | --
|                                |  | Year ended   |        |  |            |   |        | Year ended   |  |  |            |  
|                                |  | December 31, |        |  | Percentage |   |        | December 31, |  |  | Percentage |  
|                                |  | 2010         |        |  | 2009       |   |        | change       |  |  | 2008       |   |  | change |       
|Production taxes (in thousands) |  | $            | 26,495 |  |            | $ | 20,341 |              |  |  | 30.3       | % |  | $      | 33,815 |  |  |  | (39.8 | )%
|                                |  |              |        |  |            |   |        |              |  |  |            |   |  |        |        |  |  |  |       |   
|Production taxes per Boe        |  | $            | 3.29   |  |            | $ | 2.66   |              |  |  | 23.7       | % |  | $      | 4.78   |  |  |  | (44.4 | )%
|                                |  |              |        |  |            |   |        |              |  |  |            |   |  |        |        |  |  |  |       |   

Production taxes generally change in proportion to oil and natural gas sales. The increase in production
taxes from 2009 to 2010 was primarily due to the 33% increase in average realized prices, combined with a 5% increase in production volumes. The decrease in production taxes from 2008 to 2009 was due primarily to the 46% decrease in average realized
prices, partially offset by an 8% increase in production volumes.



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Depreciation, depletion and amortization (DD&A) and losses on impairment



|                                         |  |              |         |  |            |   |         |              |  |  |            |    |  |        |         |  |  |  |      |   
|---------------------------------------- |  | ------------ | ------- |  | ---------- | - | ------- | ------------ |  |  | ---------- | -- |  | ------ | ------- |  |  |  | ---- | --
|                                         |  | Year ended   |         |  |            |   |         | Year ended   |  |  |            |   
|                                         |  | December 31, |         |  | Percentage |   |         | December 31, |  |  | Percentage |   
|                                         |  | 2010         |         |  | 2009       |   |         | change       |  |  | 2008       |    |  | change |        
|DD&A (in thousands):                     |  |              |         |  |            |   |         |              |  |  |            |    |  |        |         |  |  |  |      |   
|Oil and natural gas properties           |  | $            | 96,676  |  |            | $ | 92,561  |              |  |  | 4.4        | %  |  | $      | 91,316  |  |  |  | 1.4  | % 
|Property and equipment                   |  |              | 9,567   |  |            |   | 8,705   |              |  |  | 9.9        | %  |  |        | 6,998   |  |  |  | 24.4 | % 
|Accretion of asset retirement obligation |  |              | 3,260   |  |            |   | 2,927   |              |  |  | 11.4       | %  |  |        | 2,712   |  |  |  | 7.9  | % 
|                                         |  |              |         |  |            |   |         |              |  |  |            |    |  |        |         |  |  |  |      |   
|Total DD&A                               |  | $            | 109,503 |  |            | $ | 104,193 |              |  |  | 5.1        | %  |  | $      | 101,026 |  |  |  | 3.1  | % 
|                                         |  |              |         |  |            |   |         |              |  |  |            |    |  |        |         |  |  |  |      |   
|DD&A per Boe:                            |  |              |         |  |            |   |         |              |  |  |            |    |  |        |         |  |  |  |      |   
|Oil and natural gas properties           |  | $            | 12.01   |  |            | $ | 12.12   |              |  |  | (0.9       | )% |  | $      | 12.91   |  |  |  | (6.1 | )%
|Other fixed assets                       |  |              | 1.59    |  |            |   | 1.52    |              |  |  | 4.6        | %  |  |        | 1.38    |  |  |  | 10.1 | % 
|                                         |  |              |         |  |            |   |         |              |  |  |            |    |  |        |         |  |  |  |      |   
|Total DD&A per Boe                       |  | $            | 13.60   |  |            | $ | 13.64   |              |  |  | (0.3       | )% |  | $      | 14.29   |  |  |  | (4.5 | )%
|                                         |  |              |         |  |            |   |         |              |  |  |            |    |  |        |         |  |  |  |      |   

We adjust our DD&A rate on oil and natural gas properties each quarter for significant changes
in our estimates of oil and natural gas reserves and costs, and thus our DD&A rate could change significantly in the future. DD&A on oil and natural gas properties increased $4.1 million from 2009 to 2010. Higher production volumes increased
DD&A by $5.0 million, which was offset by a $0.9 million reduction in DD&A due to a lower rate per equivalent unit of production. Our DD&A rate per equivalent unit of production decreased $0.11 to $12.01 per Boe, primarily due to
increased reserves, partially offset by higher estimated future development costs for proved undeveloped reserves.

DD&A
on oil and natural gas properties increased $1.2 million from 2008 to 2009. Higher production volumes increased DD&A by $7.3 million, which was offset by a $6.1 million reduction in DD&A due to a lower rate per equivalent unit of production.
Our DD&A rate per equivalent unit of production decreased $0.79 to $12.12 per Boe primarily due to the decrease in capitalized costs resulting from the ceiling test impairments recorded in the fourth quarter of 2008 and the first quarter of
2009, combined with lower estimated future development costs for proved undeveloped reserves.

Our DD&A expense for
property and equipment increased in both 2010 and 2009, primarily due to drilling rigs that were acquired and placed into service in 2010 and 2008 and the expansion of our corporate office space during 2008.

We record the estimated future value of a liability for an asset retirement obligation in the period in which it is incurred, discounted
to its present value using our credit adjusted risk-free interest rate, with a corresponding increase in the carrying amount of oil and natural gas properties. The liability is accreted each period, and the capitalized cost is depreciated over the
useful life of the related asset.



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Impairment of oil and natural gas properties. In accordance with the full-cost method
of accounting, the net capitalized costs of oil and natural gas properties are not to exceed their related estimated future net revenues discounted at 10% (PV-10 value), as adjusted for our cash flow hedge positions and net of tax
considerations, plus the lower of cost or estimated fair value of unproved properties.

During the fourth quarter of 2008, we
recorded a ceiling test impairment of oil and natural gas properties of $281.4 million as a result of a decline in oil and natural gas prices at the measurement date. The impairment was calculated based on December 31, 2008 spot prices of
$44.60 per Bbl of oil and $5.62 per Mcf of natural gas. The effect of derivative contracts accounted for as cash flow hedges, based on the December 31, 2008 spot prices, increased the full-cost ceiling by $192.1 million, thereby reducing the
ceiling test write down by the same amount.

During the first quarter of 2009, natural gas prices declined significantly as
compared to the December 31, 2008 spot price of $5.62 per Mcf. Based on March 31, 2009 spot prices of $49.66 per Bbl of oil and $3.63 per Mcf of natural gas, the internally estimated PV-10 value of our reserves declined by 13.5% compared
to our PV-10 value at December 31, 2008. As a result, we recorded a ceiling test impairment of oil and natural gas properties of $240.8 million during the first quarter of 2009. The effect of derivative contracts accounted for as cash flow
hedges, based on the March 31, 2009 spot prices, increased the full cost ceiling by $169.0 million, thereby reducing the ceiling test write down by the same amount.

Our estimates of oil and natural gas reserves as of December 31, 2010 and 2009 were prepared using an average price for oil and natural gas based upon the first day of each month for the prior twelve
months as required by the SECs Modernization of Oil and Gas Reportingand the updated guidance of the Financial Accounting Standards Board (FASB) relating to Oil and Gas Reserve Estimation and Disclosures, which we
adopted effective December 31, 2009. As of December 31, 2010, the cost center ceiling exceeded the net capitalized cost of our oil and natural gas properties, and no additional ceiling test impairment was recorded. The PV-10 value of our
reserves was estimated based on average prices of $79.43 per Bbl of oil and $4.38 per Mcf of gas for the year ended December 31, 2010. A decline in oil and natural gas prices subsequent to December 31, 2010 could result in additional
ceiling test write downs in future periods. The amount of any future impairment is difficult to predict, and will depend on the average oil and natural gas prices during each period, the incremental proved reserves added during each period, and
additional capital spent.

Impairment of other assets.We own an interest in the Levelland/Hockley County ethanol plant
in Levelland, Texas, and we own a pipeline constructed for the sole purpose of supplying natural gas to the ethanol plant. Due to changes in the price and availability of grain, the plant has experienced significant supply issues, has ceased
operations, and is exploring alternatives for additional sources of capital. During the fourth quarter of 2010, we determined that any future cash flows generated by either the ethanol plant or by our pipeline which supplies gas to the ethanol plant
would probably not be sufficient to allow us to recover our investment in these assets. We accordingly recorded an impairment charge of $4.2 million, which includes our $2.1 million investment in the ethanol plant and the $2.1 million carrying value
of our pipeline assets.

We owned a 66.67% interest in Oklahoma Ethanol LLC, a joint venture to construct and operate an
ethanol production plant in Blackwell, Oklahoma. Oklahoma Ethanol LLC retained a financial advisor to arrange project financing to fund construction costs and for related start-up working capital. Because financing did not close by
September 15, 2008, the minority owner, Oklahoma Sustainable Energy LLC, was no longer able to participate in the joint venture, and we now own 100% of Oklahoma Ethanol LLC. The City of Blackwell was also unable to obtain financing for the
railroad upgrades and storage facilities that would be necessary to support ethanol production. During the third quarter of 2008, we determined that we would be unlikely to obtain equity capital or new project financing for an ethanol plant. We
accordingly recorded an impairment charge of $2.9 million, which was the amount of our investment in the ethanol plant.



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General and administrative expenses (G&A) and litigation settlement



|                                                  |  |              |         |   |            |   |         |              |  |  |            |   |  |        |         |   |  |  |       |   
|------------------------------------------------- |  | ------------ | ------- | - | ---------- | - | ------- | ------------ |  |  | ---------- | - |  | ------ | ------- | - |  |  | ----- | --
|                                                  |  | Year ended   |         |   |            |   |         | Year ended   |  |  |            |  
|                                                  |  | December 31, |         |   | Percentage |   |         | December 31, |  |  | Percentage |  
|(dollars in thousands, excluding per Boe amounts) |  | 2010         |         |   | 2009       |   |         | change       |  |  | 2008       |   |  | change |        
|Gross G&A expenses                                |  | $            | 44,575  |   |            | $ | 34,565  |              |  |  | 29.0       | % |  | $      | 33,550  |   |  |  | 3.0   | % 
|Capitalized exploration and development costs     |  |              | (14,660 | ) |            |   | (10,824 | )            |  |  | 35.4       | % |  |        | (11,180 | ) |  |  | (3.2  | )%
|                                                  |  |              |         |   |            |   |         |              |  |  |            |   |  |        |         |   |  |  |       |   
|Net G&A expenses                                  |  | $            | 29,915  |   |            | $ | 23,741  |              |  |  | 26.0       | % |  | $      | 22,370  |   |  |  | 6.1   | % 
|                                                  |  |              |         |   |            |   |         |              |  |  |            |   |  |        |         |   |  |  |       |   
|Average G&A cost per Boe                          |  | $            | 3.72    |   |            | $ | 3.11    |              |  |  | 19.6       | % |  | $      | 3.16    |   |  |  | (1.6  | )%
|                                                  |  |              |         |   |            |   |         |              |  |  |            |   |  |        |         |   |  |  |       |   
|Full-time employees as of December 31             |  |              | 765     |   |            |   | 689     |              |  |  | 11.0       | % |  |        | 859     |   |  |  | (19.8 | )%
|                                                  |  |              |         |   |            |   |         |              |  |  |            |   |  |        |         |   |  |  |       |   

G&A expenses increased $6.2 million from 2009 to 2010, primarily due to higher
compensation costs caused by our heightened level of activity. G&A expenses for 2010 include stock-based compensation expense of $2.6 million, of which $2.4 million is associated with initial grants of restricted stock under the 2010 Plan that
were awarded to certain employees beginning on April 12, 2010.

G&A expenses increased $1.4 million from 2008 to
2009, primarily due to higher deferred compensation costs. Due to a reduction in the fair value of our phantom stock during 2008, we recognized a deferred compensation gain which reduced G&A expenses by $0.3 million. The fair value of our
phantom stock increased during 2009, and deferred compensation expense increased G&A expenses by $1.0 million in 2009.

Litigation settlement.Effective April 15, 2009, we settled our pending lawsuit against John Milton Graves Trust u/t/a
6/11/2004, et al (the Sellers). Pursuant to the settlement agreement, the Sellers paid us $7.1 million, and we retained $0.4 million contained in an escrow account, which amounts settled all claims related to the litigation. In addition,
the parties issued mutual releases, dismissed with prejudice the pending litigation and the claims made therein, and the Sellers will take action to clear the title to certain properties purchased by us in the Calumet acquisition. As a result of the
settlement, a $14.4 million receivable and a $4.4 million payable related to the litigation were eliminated, the escrow cash account was reclassified to operating cash, and we recorded a charge to expense of $2.9 million during the year ended
December 31, 2009.



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Other income and expenses

Interest expense. The following table presents interest expense for the periods indicated:



|                             |  |                         |         |   |      |   |           |      |  |   |           |  
|---------------------------- |  | ----------------------- | ------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                             |  | Year ended December 31, |        
|(dollars in thousands)       |  | 2010                    |         |   | 2009 |   |           | 2008 | 
|Revolver interest            |  | $                       | 10,119  |   |      | $ | 27,786    |      |  | $ | 24,944    |  
|8.5% Senior Notes due 2015   |  |                         | 28,489  |   |      |   | 28,415    |      |  |   | 28,348    |  
|8.875% Senior Notes due 2017 |  |                         | 29,675  |   |      |   | 29,601    |      |  |   | 29,578    |  
|9.875% Senior Notes due 2020 |  |                         | 9,119   |   |      |   |          |      |  |   |          |  
|Bank fees and other interest |  |                         | 8,245   |   |      |   | 5,136     |      |  |   | 4,752     |  
|Less capitalized interest    |  |                         | (2,036  | ) |      |   | (836      | )    |  |   | (1,584    | )
|                             |  |                         |         |   |      |   |           |      |  |   |           |  
|Total interest expense       |  | $                       | 83,611  |   |      | $ | 90,102    |      |  | $ | 86,038    |  
|                             |  |                         |         |   |      |   |           |      |  |   |           |  
|Average long-term borrowings |  | $                       | 968,114 |   |      | $ | 1,216,540 |      |  | $ | 1,178,243 |  
|                             |  |                         |         |   |      |   |           |      |  |   |           |  

Interest expense decreased by $6.5 million, or 7%, from 2009 to 2010 primarily as a result of decreased
levels of borrowings, partially offset by slightly higher interest rates. Bank fees and other interest for 2010 includes the $2.2 million write off of prepaid bank fees associated with our prior credit facility. Interest expense increased by $4.1
million, or 5%, from 2008 to 2009 primarily as a result of increased levels of borrowings accompanied by slightly higher interest rates.

Financing costs net of termination fee.On April 12, 2010, in connection with our sale of common stock to CCMP, we entered into and closed our senior secured revolving credit facility. We
recorded expenses for derivative novation and break fees of $0.9 million associated with the transaction.

On October 9,
2009, we entered into an Agreement and Plan of Reorganization with United Refining Energy Corp. (United) under which we would merge with United, a publicly held Special Purpose Acquisition Company, in a reverse merger. On
December 11, 2009, United announced that the merger did not receive the stockholder vote required for approval, and the Agreement and Plan of Reorganization was terminated. As a result, costs of $2.2 million associated with the merger were
expensed.

On July 14, 2008, we entered into an Agreement and Plan of Merger (Merger Agreement) with Edge
Petroleum Corporation (Edge), and we entered into a Stock Purchase Agreement with Magnetar Financial LLC (Magnetar). Both of these agreements were terminated on December 16, 2008. As a result, Magnetar paid a total of
$5.0 million, of which $1.5 million was paid to Edge at our direction to reimburse Edge for certain expenses, and $3.5 million was paid to us and recorded as a termination fee. We also expensed costs of $1.4 million associated with the merger.

Production tax credits. During 2006, we purchased interests in two venture capital limited liability companies
resulting in a total investment of $15.0 million. Our return on the investment was the receipt of $2 of Oklahoma tax credits for every $1 invested and was recouped from our Oklahoma production taxes. The investments were accounted for as a
production tax benefit asset and were netted against tax credits realized in other income using the effective yield method over the expected recovery period. Other income for 2009 and 2008 includes Oklahoma production tax credits of $13.5 million
and $0.7 million, respectively. No such income was received during 2010 and this source of income will not be available in future periods.



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Income taxes



|                                         |  |                         |        |   |      |   |         |      |  |   |         |  
|---------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                         |  | Year ended December 31, |       
|(dollars in thousands)                   |  | 2010                    |        |   | 2009 |   |         | 2008 | 
|Current income tax expense (benefit)     |  | $                       | 79     |   |      | $ | (23     | )    |  | $ | (28     | )
|Deferred income tax expense (benefit)    |  |                         | 23,724 |   |      |   | (89,754 | )    |  |   | (34,948 | )
|                                         |  |                         |        |   |      |   |         |      |  |   |         |  
|Total income tax expense (benefit)       |  | $                       | 23,803 |   |      | $ | (89,777 | )    |  | $ | (34,976 | )
|                                         |  |                         |        |   |      |   |         |      |  |   |         |  
|Effective tax rate                       |  |                         | 41.4   | % |      |   | 37.3    | %    |  |   | 38.6    | %
|Total net deferred tax asset (liability) |  | $                       | 30,148 |   |      | $ | 64,212  |      |  | $ | (62,395 | )
|                                         |  |                         |        |   |      |   |         |      |  |   |         |  

As of December 31, 2010, our federal and state net operating loss carryforwards were approximately
$350.8 million and $255.9 million, respectively, and will begin to expire in 2011. As of December 31, 2010, approximately $125.2 million of the state net operating loss carryforwards have been reduced by a valuation allowance based on our
assessment that it is more likely than not that a portion will not be realized.

Realization of our deferred tax assets is
dependent upon generating sufficient future taxable income. Although realization is not assured, we believe it is more likely than not that the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near-term if estimates of future taxable income are reduced.



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Discontinued operations

Discontinued operations consist of the third-party revenue and operating expenses of the ESP and Chemicals divisions of GCS, which was
acquired on April 16, 2007. Revenues were generated through the sale of oilfield supplies, chemicals, downhole submersible pumps and related services to oil and natural gas operators primarily in Oklahoma, Texas, and Wyoming. Operating expenses
consisted of costs of sales related to product sales and general and administrative expenses.

In the second quarter of 2009,
we committed to a plan to sell the assets of these divisions, and on June 8, 2009, we sold the assets of the ESP division to Global Oilfield Services, Inc. (Global) for a cash price of approximately $24.6 million after working
capital adjustments as provided in the agreement. We paid off notes payable attributed to certain assets sold to Global in the amount of $1.6 million, and recorded a pre-tax gain associated with the sale of $9.1 million.

On December 11, 2009, we entered into an agreement with Reef Services, LLC (Reef) under which we exchanged the assets of
the Chemicals division of GCS for the assets of the Reef Acid Division and cash of $0.7 million. The assets received consist primarily of acid trucks and related equipment and have an estimated fair value of approximately $3.0 million. This
transaction is considered a non-monetary exchange accounted for at fair value. We paid off notes payable attributed to certain assets sold to Reef in the amount of $0.3 million, and recorded a pre-tax gain associated with the exchange of $1.4
million.

There was no activity related to these operations during the year ended December 31, 2010. The operating
results of these divisions have been reclassified as discontinued operations in the consolidated statements of operations as detailed in the table below.



|                                         |  |                         |        |   |      |   |         |  
|---------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------- | -
|                                         |  | Year ended December 31, |       
|(dollars in thousands)                   |  | 2009                    |        |   | 2008 |  
|Revenues                                 |  | $                       | 8,760  |   |      | $ | 25,537  |  
|Operating expenses                       |  |                         | (8,375 | ) |      |   | (23,061 | )
|Depreciation, depletion and amortization |  |                         | (541   | ) |      |   | (947    | )
|Gain on sale                             |  |                         | 10,449 |   |      |   |        |  
|                                         |  |                         |        |   |      |   |         |  
|Income before income taxes               |  |                         | 10,293 |   |      |   | 1,529   |  
|Income tax expense                       |  |                         | 3,841  |   |      |   | 590     |  
|                                         |  |                         |        |   |      |   |         |  
|Income from discontinued operations      |  | $                       | 6,452  |   |      | $ | 939     |  
|                                         |  |                         |        |   |      |   |         |  

There were no assets held for sale or liabilities associated with discontinued operations as of
December 31, 2010 or 2009.



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Critical accounting policies and estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. The
preparation of these statements requires us to make assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and other sources that we believe are
reasonable at the time. Actual results may differ from the estimates and assumptions we used in preparation of our financial statements. We evaluate our estimates and assumptions on a regular basis. Described below are the most significant policies
and the related estimates and assumptions we apply in the preparation of our financial statements. See Note 1 to our consolidated financial statements for an additional discussion of accounting policies and estimates made by management.

Revenue recognition. We derive almost all of our revenue from the sale of crude oil and natural gas
produced from our oil and natural gas properties. Revenue is recorded in the month the product is delivered to the purchaser. We receive payment on substantially all of these sales from one to three months after delivery. At the end of each month,
we estimate the amount of production delivered to purchasers that month and the price we will receive. Variances between our estimated revenue and actual payment received for all prior months are recorded in the month payment is received.

Derivative instruments. We determine the fair value of our crude oil, natural gas, and basis swaps by reference to
forward pricing curves for oil and natural gas futures contracts. The difference between the forward price curve and the contractual fixed price is discounted to the measurement date using a credit risk adjusted discount rate. In certain less liquid
markets, forward prices are not as readily available. In these circumstances, swaps are valued using internally developed methodologies that consider historical relationships among various commodities that result in managements best estimate
of fair value. These contracts are classified as Level 3 in accordance with the fair value hierarchy defined by the Financial Accounting Standards Board (FASB). We have determined that the fair value methodology described above for the
remainder of our swaps is consistent with observable market inputs and have categorized them as Level 2. We determine fair value for our oil and natural gas collars using an option pricing model which takes into account market volatility, market
prices, contract parameters, and credit risk. Due to unavailability of observable volatility data input for our collars, we have determined that all of our collars fair value measurements are categorized as Level 3. Derivative instruments are
discounted using a rate that incorporates our nonperformance risk for derivative liabilities, and our counterparties credit risk for derivative assets. Our derivative contracts have been executed with the institutions that are parties to our
revolving credit facility. We believe the credit risks associated with all of these institutions are acceptable.

Certain
of our oil and natural gas derivative contracts have historically been treated as cash flow hedges under GAAP. This policy significantly impacts the timing of revenue or expense recognized from this activity, as our contracts are adjusted to their
fair value at the end of each month. The effective portion of the hedge gain or loss, meaning the portion of the change in the fair value of the contract that offsets the change in the expected future cash flows from our forecasted sales of
production, is recognized in income when the hedged production is reported as revenue. We reflect this as an adjustment to our revenue in the Gain (loss) from oil and natural gas hedging activities line in our consolidated statements of
operations. Until hedged production is reported in earnings and the contract settles, the effective portion of change in the fair value of the contract is reported in the Accumulated other comprehensive income (loss) line item in
stockholders equity. The ineffective portion of the hedge gain or loss is reported in the Gain (loss) from oil and natural gas hedging activities line item each period. Our derivative contracts that do not qualify for cash flow
hedge treatment, or have not been designated as cash flow hedges, are marked to their period end market values and the change in the fair value of the contracts is included in the Non-hedge derivative gains (losses) line in our
consolidated statements of operations. Effective April 1, 2010, we elected to de-designate all of our commodity derivative contracts that had previously been designated as cash flow hedges and to discontinue hedge accounting prospectively. As a
result, our reported earnings could include large non-cash fluctuations, particularly in volatile pricing environments.

Oil and natural gas properties.



| |  |  | Full cost accounting. We use the full cost method of accounting for our oil and natural gas properties. Under this method, all costs
incurred in the exploration and development of oil and natural gas properties are capitalized into a cost center. These costs include drilling and equipping productive wells, dry hole costs, seismic costs and delay rentals. Capitalized costs also
include salaries, employee benefits, consulting services and other expenses that directly relate to our exploration and development activities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Proved oil and natural gas reserves quantities. Proved oil and natural gas reserves are the quantities of crude oil and natural gas which,
by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically produciblefrom a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government
regulationsprior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain. The estimates of proven reserves for a given reservoir may change significantly over time as a
result of changing prices, operating cost, additional development activity and the actual operating performance.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Our proved reserve information included in this report is based on estimates prepared by
Cawley, Gillespie & Associates, Inc. and Ryder Scott Company, L.P. each independent petroleum engineers, and our engineering staff. The independent petroleum engineers evaluated approximately 83% of the estimated future net revenues of our
proved reserves discounted at 10% as of December 31, 2010, and our engineering staff evaluated the remainder. We continually make revisions to reserve estimates throughout the year as additional information becomes available.



| |  |  | Depreciation, depletion and amortization. The quantities of proved oil and natural gas reserves are a significant component of our
calculation of depreciation, depletion and amortization expense, and revisions in such estimates may alter the rate of future expense. The depreciation, depletion and amortization rate is determined using the units-of-production method based on
estimates of proved oil and natural gas reserves and production, which are converted to a common unit of measure based on the relative energy content.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Full cost ceiling limitation. Under the full cost method, the net capitalized costs of oil and natural gas properties recorded on our
balance sheet cannot exceed the estimated future net revenues discounted at 10%, adjusted for the impact of derivatives accounted for as cash flow hedges, plus the lower of cost or fair market value of unproved properties. The ceiling calculation
requires that prices and costs used to determine the estimated future net revenues exclude escalations based upon future conditions. If oil and natural gas prices decline or if we have downward revisions to our estimated reserve quantities, it is
possible that write downs of our oil and natural gas properties could occur in the future.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Costs not subject to amortization. Costs of unevaluated properties are excluded from our amortization base until we have evaluated the
properties. The costs associated with unevaluated leasehold acreage and seismic data, exploratory wells currently drilling, and capitalized interest are initially excluded from our amortization base. Leasehold costs are either transferred to the
amortization base with the costs of drilling a well or are assessed quarterly for possible impairment. Our future depreciation, depletion and amortization rate would increase if costs are transferred to the amortization base without any associated
reserves.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Future development and abandonment costs. Our future development costs include costs to be incurred to obtain access to proved reserves
such as drilling costs and the installation of production equipment. Future abandonment costs include costs to plug and abandon our oil and natural gas properties and related facilities. We develop estimates of these costs for each of our properties
based on their location, type of facility, market demand for equipment and currently available procedures. Because these costs typically extend many years into the future, estimating these future costs is difficult and requires management to make
numerous judgments. These judgments are subject to future revisions from changing technology and regulatory requirements. We review our assumptions and estimates of future development and future abandonment costs on a quarterly basis.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We record a liability for the estimated fair value of an asset retirement obligation in the period in which
it is incurred and the corresponding cost is capitalized by increasing the carrying value of the related asset. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related
asset.

We use the present value of estimated cash flows related to our asset retirement obligation to determine the fair
value. Significant assumptions used in estimating such obligations include estimates of the ultimate costs of dismantling and site restoration, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal,
regulatory, environmental and political environments, all of which are Level 3 inputs in the fair value hierarchy. To the extent future revisions to these assumptions impact the present value of the existing asset retirement obligation liability, a
corresponding adjustment will be required for the related asset. We believe the estimates and judgments reflected in our financial statements are reasonable but are necessarily subject to the uncertainties we have just described. Accordingly, any
significant variance in any of the above assumptions or factors could materially affect our estimated future cash flows.

Income taxes. Deferred income taxes are provided for the difference between the tax basis of assets and liabilities and the
carrying amount in our financial statements. This difference will result in taxable income or deductions in future years when the reported amount of the asset or liability is settled. Since our tax returns are filed after the financial statements
are prepared, estimates are required in valuing tax assets and liabilities. We record adjustments to actual in the period we file our tax returns.



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Valuation allowance for NOL carryforwards. In computing our income tax expense,
we assess the need for a valuation allowance on deferred tax assets, which consist primarily of net operating loss, or NOL, carryforwards. For federal income tax purposes these NOL carryforwards expire 15 to 20 years from the year of origination. We
generally assess our ability to fully utilize these carryforwards by estimating expected future taxable income based on the assumption that we will produce our existing reserves, as scheduled for production in our reserve report and by analyzing the
expected reversal of existing deferred tax liabilities. These computations are imprecise due to the extensive use of estimates and assumptions. Each quarter we assess our ability to utilize NOL carryforwards. We will record a valuation allowance for
the amount of net deferred tax assets when, in managements opinion, it is more likely than not that such asset will not be realized.

Recent accounting pronouncements

In December 2008, the SEC issued
itsModernization of Oil and Gas Reporting, which revises reserves requirements for oil and natural gas companies. In addition, in January 2010, the FASB issued guidance regarding Oil and Gas Reserve Estimation and Disclosuresto
provide consistency with the new SEC rules. The new guidance amends existing standards to align the reserves calculation and disclosure requirements under GAAP with the requirements in the SEC rules.

We adopted the new SEC reserves requirements and GAAP reserves guidance as a change in accounting principle that is inseparable from a
change in estimate, and applied the guidance prospectively effective December 31, 2009. As of December 31, 2010 and 2009:



| |  |  | economic producibility of reserves and discounted cash flows were estimated using an average price for oil and natural gas based upon the first day of
each month for the prior twelve months rather than prices on the last day of the reporting period;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reserves were classified as proved undeveloped if there was a high degree of confidence that the quantities will be recovered and they are scheduled to
be drilled within the next five years; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | additional disclosures regarding our reserve estimates were provided.
| | - |  | ---------------------------------------------------------------------

In January 2010, the FASB issued new authoritative guidance regarding Improving Disclosures about Fair Value Measurements and
Disclosures that requires additional disclosure of transfers in and out of Level 1 and 2 measurements and the reasons for the transfers, and a gross presentation of activity within the Level 3 roll forward. The guidance also includes
clarifications to existing disclosure requirements on the level of disaggregation and disclosures regarding inputs and valuation techniques. The guidance is effective for the first interim or annual reporting period beginning after December 15,
2009, except for the gross presentation of the Level 3 roll forward information, which is required for annual reporting periods beginning after December 15, 2010 and for interim reporting periods within those years. We adopted the guidance on
January 1, 2010, except for requirements regarding the gross presentation of Level 3 roll forward information, which we will adopt on January 1, 2011. Because this guidance only requires additional disclosures, it did not have a
significant impact on our financial statements, nor is it expected to have a significant impact in future periods.

See
recently adopted and issued accounting standards in Part II, Item 8. Financial Statements, Note 1, Nature of operations and summary of significant accounting policies.

Effects of inflation and pricing

While the general level of inflation affects certain of our costs, factors unique to the oil and natural gas industry result in independent price fluctuations. Historically, significant fluctuations have
occurred in oil and natural gas prices. In addition, changing prices often cause costs of equipment and supplies to vary as industry activity levels increase and decrease to reflect perceptions of future price levels. Although it is difficult to
estimate future prices of oil and natural gas, price fluctuations have had, and will continue to have, a material effect on us.



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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Oil and natural gas prices. Our financial condition, results of operations and capital resources are highly
dependent upon the prevailing market prices of, and demand for, oil and natural gas. These commodity prices are subject to wide fluctuations and market uncertainties due to a variety of factors that are beyond our control. We cannot predict future
oil and natural gas prices with any degree of certainty. Sustained declines in oil and natural gas prices may adversely affect our financial condition and results of operations, and may also reduce the amount of net oil and natural gas reserves that
we can produce economically. Any reduction in reserves, including reductions due to price fluctuations, can reduce our borrowing base under our senior secured revolving credit facility and adversely affect our liquidity and our ability to obtain
capital for our acquisition, exploration and development activities. Based on our production for the year ended December 31, 2010, our gross revenues from oil and natural gas sales would change approximately $2.4 million for each $0.10 change
in natural gas prices and $4.1 million for each $1.00 change in oil prices.

To mitigate a portion of our exposure to
fluctuations in commodity prices, we enter into commodity price swaps, costless collars, and basis protection swaps. Effective April 1, 2010, we have elected to de-designate all of our commodity contracts that had previously been designated as
cash flow hedges and to discontinue hedge accounting prospectively. Therefore, the changes in fair value and settlement of all our derivative contracts subsequent to March 31, 2010 are recognized as non-hedge derivative gains (losses). This can
have a significant impact on our results of operations due to the volatility of the underlying commodity prices.

For
commodity price swaps, we receive a fixed price for the hedged commodity and pay a floating market price to the counterparty. The fixed-price payment and the floating-price payment are netted, resulting in a net amount due to or from the
counterparty. Collars contain a fixed floor price (put) and ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, we receive the fixed price and pay the market price. If the market price is
between the call and the put strike price, no payments are due from either party.

We use basis protection swaps to reduce
basis risk. Basis is the difference between the physical commodity being hedged and the price of the futures contract used for hedging. Basis risk is the risk that an adverse change in the futures market will not be completely offset by an equal and
opposite change in the cash price of the commodity being hedged. Basis risk exists in natural gas primarily due to the geographic price differentials between cash market locations and futures contract delivery locations. Natural gas basis protection
swaps are arrangements that guarantee a price differential for natural gas from a specified pricing point. We receive a payment from the counterparty if the price differential is greater than the stated terms of the contract and pay the counterparty
if the price differential is less than the stated terms of the contract.

Derivative positions are adjusted in response to
changes in prices and market conditions as part of an ongoing dynamic process. We review our derivative positions continuously and if future market conditions change, we may execute a cash settlement with our counterparty, restructure the position,
or enter into a new swap that effectively reverses the current position (a counter-swap). The factors we consider in closing or restructuring a position before the settlement date are identical to those we reviewed when deciding to enter into the
original derivative position.



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Our outstanding oil and natural gas derivative instruments as of December 31, 2010 are
summarized below:



|        |  |                 |       |  |                                          |   |       |             |  |  |                      |  |  |                             |                 |  |  |  |       | 
|------- |  | --------------- | ----- |  | ---------------------------------------- | - | ----- | ----------- |  |  | -------------------- |  |  | --------------------------- | --------------- |  |  |  | ----- | 
|        |  | Crude oil swaps |       |  | Crude oil collars                        |   |       |             | 
|        |  | VolumeMBbls     |       |  | Weightedaveragefixed 
priceto bereceived |   |       | VolumeMBbls |  |  | Weightedaveragerange |  |  | Percent 
ofPDPproduction(1) |                
|1Q 2011 |  |                 | 793   |  |                                          | $ | 75.37 |             |  |  | 21                   |  |  | $                           | 110.00 -$153.00 |  |  |  | 82.4% | 
|2Q 2011 |  |                 | 751   |  |                                          |   | 74.98 |             |  |  | 21                   |  |  |                             | 110.00 - 153.00 |  |  |  | 83.5% | 
|3Q 2011 |  |                 | 721   |  |                                          |   | 74.42 |             |  |  | 21                   |  |  |                             | 110.00 - 153.00 |  |  |  | 84.0% | 
|4Q 2011 |  |                 | 699   |  |                                          |   | 73.89 |             |  |  | 21                   |  |  |                             | 110.00 - 153.00 |  |  |  | 84.3% | 
|1Q 2012 |  |                 | 276   |  |                                          |   | 91.26 |             |  |  |                     |  |  |                             |                |  |  |  | 33.4% | 
|2Q 2012 |  |                 | 276   |  |                                          |   | 91.29 |             |  |  |                     |  |  |                             |                |  |  |  | 34.5% | 
|3Q 2012 |  |                 | 276   |  |                                          |   | 91.31 |             |  |  |                     |  |  |                             |                |  |  |  | 35.4% | 
|4Q 2012 |  |                 | 276   |  |                                          |   | 91.36 |             |  |  |                     |  |  |                             |                |  |  |  | 36.4% | 
|        |  |                 |       |  |                                          |   |       |             |  |  |                      |  |  |                             |                 |  |  |  |       | 
|        |  |                 | 4,068 |  |                                          |   |       |             |  |  | 84                   |  |  |                             |                 |  |  |  |       | 
|        |  |                 |       |  |                                          |   |       |             |  |  |                      |  |  |                             |                 |  |  |  |       | 



|        |  |                   |        |  |                                          |   |      |                             |  |  |       | 
|------- |  | ----------------- | ------ |  | ---------------------------------------- | - | ---- | --------------------------- |  |  | ----- | 
|        |  | Natural gas swaps |        |  |                                          |  
|        |  | VolumeBBtu        |        |  | Weightedaveragefixed 
priceto bereceived |   |      | Percent 
ofPDPproduction(1) | 
|1Q 2011 |  |                   | 4,800  |  |                                          | $ | 6.55 |                             |  |  | 81.2% | 
|2Q 2011 |  |                   | 4,600  |  |                                          |   | 6.00 |                             |  |  | 84.5% | 
|3Q 2011 |  |                   | 4,340  |  |                                          |   | 6.26 |                             |  |  | 84.8% | 
|4Q 2011 |  |                   | 4,200  |  |                                          |   | 6.67 |                             |  |  | 86.3% | 
|1Q 2012 |  |                   | 600    |  |                                          |   | 5.16 |                             |  |  | 12.9% | 
|2Q 2012 |  |                   | 600    |  |                                          |   | 5.00 |                             |  |  | 13.5% | 
|3Q 2012 |  |                   | 600    |  |                                          |   | 5.05 |                             |  |  | 14.0% | 
|4Q 2012 |  |                   | 600    |  |                                          |   | 5.19 |                             |  |  | 14.5% | 
|        |  |                   |        |  |                                          |   |      |                             |  |  |       | 
|        |  |                   | 20,340 |  |                                          |   |      |                             |  |  |       | 
|        |  |                   |        |  |                                          |   |      |                             |  |  |       | 



|        |  |                                   |        |  |                                      |   |      | 
|------- |  | --------------------------------- | ------ |  | ------------------------------------ | - | ---- | 
|        |  | Natural gas basisprotection
swaps |       
|        |  | VolumeBBtu                        |        |  | Weightedaveragefixed priceto be paid |  
|1Q 2011 |  |                                   | 4,200  |  |                                      | $ | 0.73 | 
|2Q 2011 |  |                                   | 3,860  |  |                                      |   | 0.64 | 
|3Q 2011 |  |                                   | 3,720  |  |                                      |   | 0.64 | 
|4Q 2011 |  |                                   | 3,610  |  |                                      |   | 0.65 | 
|1Q 2012 |  |                                   | 2,100  |  |                                      |   | 0.30 | 
|2Q 2012 |  |                                   | 2,100  |  |                                      |   | 0.30 | 
|3Q 2012 |  |                                   | 2,100  |  |                                      |   | 0.30 | 
|4Q 2012 |  |                                   | 2,100  |  |                                      |   | 0.30 | 
|        |  |                                   |        |  |                                      |   |      | 
|        |  |                                   | 23,790 |  |                                      |   |      | 
|        |  |                                   |        |  |                                      |   |      | 



|(1) | Based on our most recent internally estimated PDP production for such periods.
|--- | ------------------------------------------------------------------------------



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Subsequent to December 31, 2010, we entered into the following derivative instruments:



|        |  |                             |       |  |                                         |   |        |            |  |   |                                         |  |  |   |        | 
|------- |  | --------------------------- | ----- |  | --------------------------------------- | - | ------ | ---------- |  | - | --------------------------------------- |  |  | - | ------ | 
|        |  | Crude oil swaps             |       |  | Natural gas swaps                       |  
|        |  | VolumeMBbls                 |       |  | Weightedaveragefixed priceto bereceived |   |        | VolumeBBtu |  |   | Weightedaveragefixed priceto bereceived | 
|1Q 2011 |  |                             | 27    |  |                                         | $ | 95.37  |            |  |   | 200                                     |  |  | $ | 4.53   | 
|2Q 2011 |  |                             | 59    |  |                                         |   | 97.48  |            |  |   | 270                                     |  |  |   | 4.55   | 
|3Q 2011 |  |                             | 51    |  |                                         |   | 98.66  |            |  |   | 260                                     |  |  |   | 4.66   | 
|4Q 2011 |  |                             | 48    |  |                                         |   | 99.38  |            |  |   | 190                                     |  |  |   | 4.85   | 
|1Q 2012 |  |                             | 245   |  |                                         |   | 97.90  |            |  |   | 1,800                                   |  |  |   | 5.06   | 
|2Q 2012 |  |                             | 223   |  |                                         |   | 97.40  |            |  |   | 1,800                                   |  |  |   | 4.95   | 
|3Q 2012 |  |                             | 204   |  |                                         |   | 97.05  |            |  |   | 1,800                                   |  |  |   | 4.99   | 
|4Q 2012 |  |                             | 187   |  |                                         |   | 96.66  |            |  |   | 1,800                                   |  |  |   | 5.10   | 
|1Q 2013 |  |                             | 105   |  |                                         |   | 102.41 |            |  |   | 1,500                                   |  |  |   | 5.25   | 
|2Q 2013 |  |                             | 105   |  |                                         |   | 102.05 |            |  |   | 1,500                                   |  |  |   | 5.14   | 
|3Q 2013 |  |                             | 105   |  |                                         |   | 101.83 |            |  |   | 1,500                                   |  |  |   | 5.18   | 
|4Q 2013 |  |                             | 105   |  |                                         |   | 101.71 |            |  |   | 1,500                                   |  |  |   | 5.28   | 
|        |  |                             |       |  |                                         |   |        |            |  |   |                                         |  |  |   |        | 
|        |  |                             | 1,464 |  |                                         |   |        |            |  |   | 14,120                                  |  |  |   |        | 
|        |  |                             |       |  |                                         |   |        |            |  |   |                                         |  |  |   |        | 
|        | 
|        |  | Crude oil three-way collars |      
|        | 
|        |  |                             |       |  | Weighted average fixed price            |  
|        |  | VolumeMBbls                 |       |  | Additionalput option                    |   |        | Floor      |  |   | Ceiling                                 | 
|1Q 2012 |  |                             | 180   |  |                                         | $ | 65.00  |            |  | $ | 87.50                                   |  |  | $ | 108.79 | 
|2Q 2012 |  |                             | 180   |  |                                         |   | 65.00  |            |  |   | 87.50                                   |  |  |   | 108.79 | 
|3Q 2012 |  |                             | 180   |  |                                         |   | 65.00  |            |  |   | 87.50                                   |  |  |   | 108.79 | 
|4Q 2012 |  |                             | 180   |  |                                         |   | 65.00  |            |  |   | 87.50                                   |  |  |   | 108.79 | 
|1Q 2013 |  |                             | 150   |  |                                         |   | 71.00  |            |  |   | 94.00                                   |  |  |   | 128.20 | 
|2Q 2013 |  |                             | 150   |  |                                         |   | 71.00  |            |  |   | 94.00                                   |  |  |   | 128.20 | 
|3Q 2013 |  |                             | 150   |  |                                         |   | 71.00  |            |  |   | 94.00                                   |  |  |   | 128.20 | 
|4Q 2013 |  |                             | 150   |  |                                         |   | 71.00  |            |  |   | 94.00                                   |  |  |   | 128.20 | 
|        |  |                             |       |  |                                         |   |        |            |  |   |                                         |  |  |   |        | 
|        |  |                             | 1,320 |  |                                         |   |        |            |  |   |                                         |  |  |   |        | 
|        |  |                             |       |  |                                         |   |        |            |  |   |                                         |  |  |   |        | 

A three-way collar contract consists of a standard collar contract plus a put option contract sold
by us with a price below the floor price of the collar. This additional put option requires us to make a payment to the counterparty if the settlement price for any settlement period is below the put option price. By combining the collar contract
with the additional put option, we are entitled to a net payment equal to the difference between the floor price of the standard collar and the additional put option price if the settlement price is equal to or less than the additional put option
price. If the settlement price is greater than the additional put option price, the result is the same as it would have been with a standard collar contract only. Therefore, if market prices are below the additional put option, we would be entitled
to receive the market price plus the difference between the additional put option and the floor. This strategy enables us to increase the floor and the ceiling price of the collar beyond the range of a traditional costless collar while defraying the
associated cost with the sale of the additional put option.



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Interest rates. There were no outstanding borrowings under our senior secured
revolving facility as of December 31, 2010. We may designate borrowings under our senior secured revolving credit facility as either ABR loans or Eurodollar loans. ABR loans bear interest at a fluctuating rate that is linked to the greater of
(1) the Prime Rate, as defined in our senior secured revolving credit facility, (2) the Federal Funds Effective Rate, as defined in the senior secured revolving credit facility, plus 1/2 of 1%, or (3) the Adjusted LIBO rate, as
defined in our senior secured revolving credit facility, plus 1%; plus a margin where the margin varies from 1.625% to 2.625%, depending on the utilization percentage of the borrowing base. Eurodollar loans bear interest at a fluctuating rate that
is linked to LIBOR. Any increases in these rates can have an adverse impact on our results of operations and cash flow. Assuming a constant debt level of $375.0 million, equal to our borrowing base at December 31, 2010, the cash flow impact for
a 12-month period resulting from a 100 basis point change in interest rates would be $3.75 million.



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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to financial statements



|                                                                                                                                                 |  |      |    | 
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                                                                 |  | Page |   
|                                                                                                                                                 | 
|Chaparral Energy, Inc. consolidated financial statements:                                                                                        |  |      |    | 
|                                                                                                                                                 | 
|Report of independent registered public accounting firm                                                                                          |  |      | 84 | 
|                                                                                                                                                 | 
|Consolidated balance sheets as of December 31, 2010 and 2009                                                                                     |  |      | 85 | 
|                                                                                                                                                 | 
|Consolidated statements of operations for the years ended December 31, 2010, 2009, and
2008                                                      |  |      | 87 | 
|                                                                                                                                                 | 
|Consolidated statements of stockholders equity (deficit) and comprehensive income (loss) for the years
 ended December 31, 2010, 2009, and 2008 |  |      | 88 | 
|                                                                                                                                                 | 
|Consolidated statements of cash flows for the years ended December 31, 2010, 2009, and
2008                                                      |  |      | 89 | 
|                                                                                                                                                 | 
|Notes to consolidated financial statements                                                                                                       |  |      | 91 | 



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Report of independent registered public accounting firm

Board of Directors

Chaparral
Energy, Inc.

We have audited the accompanying consolidated balance sheets of Chaparral Energy, Inc. and subsidiaries as of
December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders equity (deficit) and comprehensive income (loss) and cash flows for each of the three years in the period ended December 31, 2010. These
financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chaparral Energy, Inc. and subsidiaries as of December 31,
2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of estimating oil and gas reserves and
related disclosures in 2009.



|                       
|-----------------------
|/S/ GRANT THORNTON LLP 
|                       
|Oklahoma City, Oklahoma
|March 29, 2011         



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Chaparral Energy, Inc. and subsidiaries

Consolidated balance sheets



|                                                                 |  |              |            |   |      |   |           |  
|---------------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | --------- | -
|                                                                 |  | December 31, |           
|(dollars in thousands, except per share data)                    |  | 2010         |            |   | 2009 |  
|Assets                                                           |  |              |            |   |      |   |           |  
|Current assets:                                                  |  |              |            |   |      |   |           |  
|Cash and cash equivalents                                        |  | $            | 55,111     |   |      | $ | 73,417    |  
|Accounts receivable, net                                         |  |              | 62,780     |   |      |   | 51,969    |  
|Inventories                                                      |  |              | 11,068     |   |      |   | 10,551    |  
|Prepaid expenses                                                 |  |              | 2,429      |   |      |   | 5,729     |  
|Derivative instruments                                           |  |              | 1,429      |   |      |   | 18,226    |  
|Deferred income taxes                                            |  |              | 9,531      |   |      |   | 1,790     |  
|                                                                 |  |              |            |   |      |   |           |  
|                                                                 |  |             
|Total current assets                                             |  |              | 142,348    |   |      |   | 161,682   |  
|Property and equipmentat cost, net                              |  |              | 66,014     |   |      |   | 62,197    |  
|Oil & natural gas properties, using the full cost method:        |  |              |            |   |      |   |           |  
|Proved                                                           |  |              | 2,253,662  |   |      |   | 1,929,789 |  
|Unevaluated (excluded from the amortization base)                |  |              | 19,135     |   |      |   | 19,728    |  
|Accumulated depreciation, depletion, amortization and impairment |  |              | (1,003,261 | ) |      |   | (906,584  | )
|                                                                 |  |              |            |   |      |   |           |  
|                                                                 |  |             
|Total oil & natural gas properties                               |  |              | 1,269,536  |   |      |   | 1,042,933 |  
|Derivative instruments                                           |  |              |           |   |      |   | 5,794     |  
|Deferred income taxes                                            |  |              | 20,617     |   |      |   | 62,422    |  
|Other assets                                                     |  |              | 30,777     |   |      |   | 18,892    |  
|                                                                 |  |              |            |   |      |   |           |  
|                                                                 |  | $            | 1,529,292  |   |      | $ | 1,353,920 |  
|                                                                 |  |              |            |   |      |   |           |  

The accompanying notes are an integral part of these consolidated financial statements.



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Chaparral Energy, Inc. and subsidiaries

Consolidated balance sheetscontinued



|                                                                                                                                                                                                           |  |              |           |   |      |   |           |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                                                                                                                                                                                           |  | December 31, |          
|(dollars in thousands, except per share data)                                                                                                                                                              |  | 2010         |           |   | 2009 |  
|Liabilities and stockholders equity (deficit)                                                                                                                                                             |  |              |           |   |      |   |           |  
|Current liabilities:                                                                                                                                                                                       |  |              |           |   |      |   |           |  
|Accounts payable and accrued liabilities                                                                                                                                                                   |  | $            | 75,982    |   |      | $ | 48,283    |  
|Accrued payroll and benefits payable                                                                                                                                                                       |  |              | 13,427    |   |      |   | 10,849    |  
|Accrued interest payable                                                                                                                                                                                   |  |              | 23,695    |   |      |   | 14,394    |  
|Revenue distribution payable                                                                                                                                                                               |  |              | 17,223    |   |      |   | 18,673    |  
|Current maturities of long-term debt and capital leases                                                                                                                                                    |  |              | 4,167     |   |      |   | 4,653     |  
|Derivative instruments                                                                                                                                                                                     |  |              | 28,853    |   |      |   | 20,677    |  
|                                                                                                                                                                                                           |  |              |           |   |      |   |           |  
|                                                                                                                                                                                                           |  |             
|Total current liabilities                                                                                                                                                                                  |  |              | 163,347   |   |      |   | 117,529   |  
|Long-term debt and capital leases, less current maturities                                                                                                                                                 |  |              | 16,686    |   |      |   | 524,477   |  
|Senior notes, net                                                                                                                                                                                          |  |              | 941,234   |   |      |   | 647,877   |  
|Derivative instruments                                                                                                                                                                                     |  |              | 2,482     |   |      |   | 30,163    |  
|Deferred compensation                                                                                                                                                                                      |  |              | 981       |   |      |   | 1,142     |  
|Asset retirement obligations                                                                                                                                                                               |  |              | 41,005    |   |      |   | 37,165    |  
|Commitments and contingencies (Note 13)                                                                                                                                                                    |  |              |           |   |      |   |           |  
|Stockholders equity (deficit):                                                                                                                                                                            |  |              |           |   |      |   |           |  
|Preferred stock, 600,000 shares authorized, none issued and outstanding                                                                                                                                    |  |              |          |   |      |   |          |  
|Class A Common stock, $0.01 par value, 10,000,000 shares authorized and 51,346 shares issued and outstanding as of
December 31, 2010 and none authorized, issued, and outstanding as of December 31, 2009  |  |              |          |   |      |   |          |  
|Class B Common stock, $0.01 par value, 10,000,000 shares authorized and 357,882 shares issued and outstanding as of
December 31, 2010 and none authorized, issued, and outstanding as of December 31, 2009 |  |              | 4         |   |      |   |          |  
|Class C Common stock, $0.01 par value, 10,000,000 shares authorized and 209,882 shares issued and outstanding as of
December 31, 2010 and none authorized, issued, and outstanding as of December 31, 2009 |  |              | 2         |   |      |   |          |  
|Class D Common stock, $0.01 par value, 10,000,000 shares authorized and 279,999 shares issued and outstanding as of
December 31, 2010 and none authorized, issued, and outstanding as of December 31, 2009 |  |              | 3         |   |      |   |          |  
|Class E Common stock, $0.01 par value, 10,000,000 shares authorized and 504,276 shares issued and outstanding as of
December 31, 2010 and none authorized, issued, and outstanding as of December 31, 2009 |  |              | 5         |   |      |   |          |  
|Class F Common stock, $0.01 par value, 1 share authorized, issued, and outstanding as of December 31, 2010 and none
authorized, issued, and outstanding as of December 31, 2009                            |  |              |          |   |      |   |          |  
|Class G Common stock, $0.01 par value, 3 shares authorized, issued, and outstanding as of December 31, 2010 and none
authorized, issued, and outstanding as of December 31, 2009                           |  |              |          |   |      |   |          |  
|Common stock, $0.01 par value, none authorized, issued and outstanding as of December 31, 2010 and 3,000,000 shares
authorized and 877,000 shares issued and outstanding as of December 31, 2009           |  |              |          |   |      |   | 9         |  
|Additional paid in capital                                                                                                                                                                                 |  |              | 417,834   |   |      |   | 100,918   |  
|Retained earnings (accumulated deficit)                                                                                                                                                                    |  |              | (89,265   | ) |      |   | (122,978  | )
|Accumulated other comprehensive income, net of taxes                                                                                                                                                       |  |              | 34,974    |   |      |   | 17,618    |  
|                                                                                                                                                                                                           |  |              |           |   |      |   |           |  
|                                                                                                                                                                                                           |  |              | 363,557   |   |      |   | (4,433    | )
|                                                                                                                                                                                                           |  |              |           |   |      |   |           |  
|                                                                                                                                                                                                           |  | $            | 1,529,292 |   |      | $ | 1,353,920 |  
|                                                                                                                                                                                                           |  |              |           |   |      |   |           |  

The accompanying notes are an integral part of these consolidated financial statements.



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Chaparral Energy, Inc. and subsidiaries

Consolidated statements of operations



|                                                             |  |                         |         |   |      |   |          |      |  |   |          |  
|------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                             |  | Year Ended December 31, |        
|(dollars in thousands)                                       |  | 2010                    |         |   | 2009 |   |          | 2008 | 
|Revenues:                                                    |  |                         |         |   |      |   |          |      |  |   |          |  
|Oil and natural gas sales                                    |  | $                       | 408,561 |   |      | $ | 292,387  |      |  | $ | 501,761  |  
|Gain (loss) from oil and natural gas hedging activities      |  |                         | (29,393 | ) |      |   | 19,403   |      |  |   | (76,417  | )
|Other revenues                                               |  |                         | 4,127   |   |      |   | 2,864    |      |  |   | 8,735    |  
|                                                             |  |                         |         |   |      |   |          |      |  |   |          |  
|Total revenues                                               |  |                         | 383,295 |   |      |   | 314,654  |      |  |   | 434,079  |  
|Costs and expenses:                                          |  |                         |         |   |      |   |          |      |  |   |          |  
|Lease operating                                              |  |                         | 106,127 |   |      |   | 94,070   |      |  |   | 120,487  |  
|Production tax                                               |  |                         | 26,495  |   |      |   | 20,341   |      |  |   | 33,815   |  
|Depreciation, depletion and amortization                     |  |                         | 109,503 |   |      |   | 104,193  |      |  |   | 101,026  |  
|Loss on impairment of oil & natural gas properties           |  |                         |        |   |      |   | 240,790  |      |  |   | 281,393  |  
|Loss on impairment of other assets                           |  |                         | 4,150   |   |      |   |         |      |  |   | 2,900    |  
|General and administrative                                   |  |                         | 29,915  |   |      |   | 23,741   |      |  |   | 22,370   |  
|Litigation settlement                                        |  |                         |        |   |      |   | 2,928    |      |  |   |         |  
|Other expenses                                               |  |                         | 3,148   |   |      |   | 1,957    |      |  |   | 7,150    |  
|                                                             |  |                         |         |   |      |   |          |      |  |   |          |  
|                                                             |  |                         |        
|Total costs and expenses                                     |  |                         | 279,338 |   |      |   | 488,020  |      |  |   | 569,141  |  
|                                                             |  |                         |         |   |      |   |          |      |  |   |          |  
|Operating income (loss)                                      |  |                         | 103,957 |   |      |   | (173,366 | )    |  |   | (135,062 | )
|Non-operating income (expense):                              |  |                         |         |   |      |   |          |      |  |   |          |  
|Interest expense                                             |  |                         | (83,611 | ) |      |   | (90,102  | )    |  |   | (86,038  | )
|Non-hedge derivative gains                                   |  |                         | 38,595  |   |      |   | 11,169   |      |  |   | 126,941  |  
|Financing costs, net of termination fee                      |  |                         | (1,812  | ) |      |   | (2,169   | )    |  |   | 2,100    |  
|Other income                                                 |  |                         | 387     |   |      |   | 13,921   |      |  |   | 1,394    |  
|                                                             |  |                         |         |   |      |   |          |      |  |   |          |  
|                                                             |  |                         |        
|Net non-operating income (expense)                           |  |                         | (46,441 | ) |      |   | (67,181  | )    |  |   | 44,397   |  
|Income (loss) from continuing operations before income taxes |  |                         | 57,516  |   |      |   | (240,547 | )    |  |   | (90,665  | )
|Income tax expense (benefit)                                 |  |                         | 23,803  |   |      |   | (89,777  | )    |  |   | (34,976  | )
|                                                             |  |                         |         |   |      |   |          |      |  |   |          |  
|Income (loss) from continuing operations                     |  |                         | 33,713  |   |      |   | (150,770 | )    |  |   | (55,689  | )
|Income from discontinued operations, net of related taxes    |  |                         |        |   |      |   | 6,452    |      |  |   | 939      |  
|                                                             |  |                         |         |   |      |   |          |      |  |   |          |  
|Net income (loss)                                            |  | $                       | 33,713  |   |      | $ | (144,318 | )    |  | $ | (54,750  | )
|                                                             |  |                         |         |   |      |   |          |      |  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



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Chaparral Energy, Inc. and subsidiaries

Consolidated statements of stockholders equity (deficit)

and comprehensive income (loss)



|                                                                                             |        |              |           |        |                          |   |    |                                      |  |   |                                            |  |  |       |          |   |  |   |         |   |  |   |          |  
|-------------------------------------------------------------------------------------------- | ------ | ------------ | --------- | ------ | ------------------------ | - | -- | ------------------------------------ |  | - | ------------------------------------------ |  |  | ----- | -------- | - |  | - | ------- | - |  | - | -------- | -
|(dollars in thousands)                                                                       |        | Common stock |           |        | Additionalpaid
incapital |   |    | Retainedearnings(accumulateddeficit) |  |   | Accumulatedothercomprehensiveincome (loss) |  |  | Total |         
|                                                                                             | Shares |              |           | Amount |                          |   |    |                                      | 
|Balance at January 1, 2008                                                                   |        |              | 877,000   |        |                          | $ | 9  |                                      |  | $ | 100,918                                    |  |  | $     | 76,090   |   |  | $ | (73,839 | ) |  | $ | 103,178  |  
|Net loss                                                                                     |        |              |          |        |                          |   |   |                                      |  |   |                                           |  |  |       | (54,750  | ) |  |   |        |   |  |   | (54,750  | )
|Other comprehensive income, net                                                              |        |              |           |        |                          |   |    |                                      |  |   |                                            |  |  |       |          |   |  |   |         |   |  |   |          |  
|Unrealized gain on hedges, net of taxes of $65,602                                           |        |              |          |        |                          |   |   |                                      |  |   |                                           |  |  |       |         |   |  |   | 103,998 |   |  |   | 103,998  |  
|Reclassification adjustment for hedge losses included in net loss, net of taxes of $32,784   |        |              |          |        |                          |   |   |                                      |  |   |                                           |  |  |       |         |   |  |   | 51,974  |   |  |   | 51,974   |  
|                                                                                             |        |              |           |        |                          |   |    |                                      |  |   |                                            |  |  |       |          |   |  |   |         |   |  |   |          |  
|Total comprehensive income                                                                   |        |              |           |        |                          |   |    |                                      |  |   |                                            |  |  |       |          |   |  |   |         |   |  |   | 101,222  |  
|                                                                                             |        |              |           |        |                          |   |    |                                      |  |   |                                            |  |  |       |          |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2008                                                                 |        |              | 877,000   |        |                          |   | 9  |                                      |  |   | 100,918                                    |  |  |       | 21,340   |   |  |   | 82,133  |   |  |   | 204,400  |  
|Net loss                                                                                     |        |              |          |        |                          |   |   |                                      |  |   |                                           |  |  |       | (144,318 | ) |  |   |        |   |  |   | (144,318 | )
|Other comprehensive loss, net                                                                |        |              |           |        |                          |   |    |                                      |  |   |                                            |  |  |       |          |   |  |   |         |   |  |   |          |  
|Unrealized loss on hedges, net of taxes of $32,601                                           |        |              |          |        |                          |   |   |                                      |  |   |                                           |  |  |       |         |   |  |   | (51,683 | ) |  |   | (51,683  | )
|Reclassification adjustment for hedge gains included in net loss, net of taxes of $8,095     |        |              |          |        |                          |   |   |                                      |  |   |                                           |  |  |       |         |   |  |   | (12,832 | ) |  |   | (12,832  | )
|                                                                                             |        |              |           |        |                          |   |    |                                      |  |   |                                            |  |  |       |          |   |  |   |         |   |  |   |          |  
|Total comprehensive loss                                                                     |        |              |           |        |                          |   |    |                                      |  |   |                                            |  |  |       |          |   |  |   |         |   |  |   | (208,833 | )
|                                                                                             |        |              |           |        |                          |   |    |                                      |  |   |                                            |  |  |       |          |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2009                                                                 |        |              | 877,000   |        |                          |   | 9  |                                      |  |   | 100,918                                    |  |  |       | (122,978 | ) |  |   | 17,618  |   |  |   | (4,433   | )
|Common stock issuance for cash                                                               |        |              | 475,043   |        |                          |   | 5  |                                      |  |   | 313,226                                    |  |  |       |         |   |  |   |        |   |  |   | 313,231  |  
|Restricted stock issuances                                                                   |        |              | 51,346    |        |                          |   |   |                                      |  |   | 3,690                                      |  |  |       |         |   |  |   |        |   |  |   | 3,690    |  
|Net income                                                                                   |        |              |          |        |                          |   |   |                                      |  |   |                                           |  |  |       | 33,713   |   |  |   |        |   |  |   | 33,713   |  
|Other comprehensive income, net                                                              |        |              |           |        |                          |   |    |                                      |  |   |                                            |  |  |       |          |   |  |   |         |   |  |   |          |  
|Unrealized loss on hedges, net of taxes of $386                                              |        |              |          |        |                          |   |   |                                      |  |   |                                           |  |  |       |         |   |  |   | (648    | ) |  |   | (648     | )
|Reclassification adjustment for hedge losses included in net income, net of taxes of $10,729 |        |              |          |        |                          |   |   |                                      |  |   |                                           |  |  |       |         |   |  |   | 18,004  |   |  |   | 18,004   |  
|                                                                                             |        |              |           |        |                          |   |    |                                      |  |   |                                            |  |  |       |          |   |  |   |         |   |  |   |          |  
|Total comprehensive income                                                                   |        |              |           |        |                          |   |    |                                      |  |   |                                            |  |  |       |          |   |  |   |         |   |  |   | 51,069   |  
|                                                                                             |        |              |           |        |                          |   |    |                                      |  |   |                                            |  |  |       |          |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2010                                                                 |        |              | 1,403,389 |        |                          | $ | 14 |                                      |  | $ | 417,834                                    |  |  | $     | (89,265  | ) |  | $ | 34,974  |   |  | $ | 363,557  |  
|                                                                                             |        |              |           |        |                          |   |    |                                      |  |   |                                            |  |  |       |          |   |  |   |         |   |  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



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Chaparral Energy, Inc. and subsidiaries

Consolidated statements of cash flows



|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                         |  | Year Ended December 31, |         
|(dollars in thousands)                                                                   |  | 2010                    |          |   | 2009 |   |          | 2008 | 
|Cash flows from operating activities                                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Net income (loss)                                                                        |  | $                       | 33,713   |   |      | $ | (144,318 | )    |  | $ | (54,750  | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities  |  |                         |          |   |      |   |          |      |  |   |          |  
|Depreciation, depletion & amortization                                                   |  |                         | 109,503  |   |      |   | 104,193  |      |  |   | 101,026  |  
|Depreciation, depletion & amortization of discontinued operations                        |  |                         |         |   |      |   | 541      |      |  |   | 947      |  
|Loss on impairment of oil and natural gas properties                                     |  |                         |         |   |      |   | 240,790  |      |  |   | 281,393  |  
|Loss on impairment of other assets                                                       |  |                         | 4,150    |   |      |   |         |      |  |   | 2,900    |  
|Litigation settlement                                                                    |  |                         |         |   |      |   | 2,928    |      |  |   |         |  
|Deferred income taxes                                                                    |  |                         | 23,724   |   |      |   | (85,913  | )    |  |   | (34,358  | )
|Unrealized (gain) loss on ineffective portion of hedges and reclassification adjustments |  |                         | 23,889   |   |      |   | (21,752  | )    |  |   | (12,549  | )
|Non-hedge derivative gains                                                               |  |                         | (38,595  | ) |      |   | (11,169  | )    |  |   | (126,941 | )
|Gain on sale of business and other assets                                                |  |                         | (184     | ) |      |   | (10,463  | )    |  |   | (177     | )
|Other                                                                                    |  |                         | 2,211    |   |      |   | 2,141    |      |  |   | 2,750    |  
|Change in assets & liabilities                                                           |  |                         |          |   |      |   |          |      |  |   |          |  
|Accounts receivable                                                                      |  |                         | (6,463   | ) |      |   | 17,648   |      |  |   | (3,599   | )
|Inventories                                                                              |  |                         | (785     | ) |      |   | 6,048    |      |  |   | (8,278   | )
|Prepaid expenses and other assets                                                        |  |                         | 7,382    |   |      |   | 12,084   |      |  |   | 1,373    |  
|Accounts payable and accrued liabilities                                                 |  |                         | 9,452    |   |      |   | (13,265  | )    |  |   | (1,957   | )
|Revenue distribution payable                                                             |  |                         | (1,450   | ) |      |   | (1,154   | )    |  |   | (1,643   | )
|Deferred compensation                                                                    |  |                         | 1,155    |   |      |   | 336      |      |  |   | (306     | )
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                |  |                         | 167,702  |   |      |   | 98,675   |      |  |   | 145,831  |  
|Cash flows from investing activities                                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Purchase of property and equipment and oil and gas properties                            |  |                         | (310,125 | ) |      |   | (178,154 | )    |  |   | (304,568 | )
|Proceeds from dispositions of property and equipment and oil and gas properties          |  |                         | 445      |   |      |   | 515      |      |  |   | 1,808    |  
|Proceeds from sale of a business                                                         |  |                         |         |   |      |   | 25,346   |      |  |   |         |  
|Return of prepaid production tax asset                                                   |  |                         |         |   |      |   | 13,544   |      |  |   | 1,083    |  
|Settlement of non-hedge derivative instruments                                           |  |                         | 45,490   |   |      |   | 160,275  |      |  |   | 37,387   |  
|Other                                                                                    |  |                         | 18       |   |      |   | 378      |      |  |   | 1,385    |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) investing activities                                      |  |                         | (264,172 | ) |      |   | 21,904   |      |  |   | (262,905 | )
|Cash flows from financing activities                                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Proceeds from long-term debt                                                             |  |                         | 209,533  |   |      |   | 158      |      |  |   | 162,511  |  
|Repayment of long-term debt                                                              |  |                         | (717,561 | ) |      |   | (94,795  | )    |  |   | (5,692   | )
|Proceeds from senior notes                                                               |  |                         | 293,016  |   |      |   |         |      |  |   |         |  
|Proceeds from equity issuance                                                            |  |                         | 313,231  |   |      |   |         |      |  |   |         |  
|Principal payments under capital lease obligations                                       |  |                         | (249     | ) |      |   | (258     | )    |  |   | (244     | )
|Settlement of derivative instruments acquired                                            |  |                         |         |   |      |   |         |      |  |   | 184      |  
|Fees paid related to financing activities                                                |  |                         | (19,806  | ) |      |   | (4,379   | )    |  |   | (2,760   | )
|Proceeds from termination fee                                                            |  |                         |         |   |      |   |         |      |  |   | 3,500    |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) financing activities                                      |  |                         | 78,164   |   |      |   | (99,274  | )    |  |   | 157,499  |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Net increase (decrease) in cash and cash equivalents                                     |  |                         | (18,306  | ) |      |   | 21,305   |      |  |   | 40,425   |  
|Cash and cash equivalents at beginning of period                                         |  |                         | 73,417   |   |      |   | 52,112   |      |  |   | 11,687   |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents at end of period                                               |  | $                       | 55,111   |   |      | $ | 73,417   |      |  | $ | 52,112   |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Supplemental cash flow information                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash paid (received) during the period for:                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Interest, net of capitalized interest                                                    |  | $                       | 67,529   |   |      | $ | 86,778   |      |  | $ | 82,334   |  
|Income taxes                                                                             |  |                         | (21      | ) |      |   | (23      | )    |  |   | (28      | )

The accompanying notes are
an integral part of these consolidated financial statements.



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Chaparral Energy, Inc. and subsidiaries

Consolidated statements of cash flows(continued)

Supplemental disclosure of investing and financing activities (dollars in thousands)

During the years ended December 31, 2010, 2009, and 2008 we entered into capital lease obligations of $0, $111, and $592, respectively, for the purchase of machinery and equipment.

During the year ended December 31, 2010, oil and natural gas property additions of $25,773 were recorded as increases to accounts
payable and accrued expenses, and will be reflected in investing activities in the periods that the payables are settled. During the year ended December 31, 2009, oil and natural gas property additions of $27,511 previously included in accounts
payable and accrued expenses were settled and were included in cash used in investing activities. During the year ended December 31, 2008, oil and natural gas property additions of $25,407 were recorded as increases to accounts payable and
accrued expenses, and were reflected in cash used in investing activities in the periods that the payables were settled.

In
December 2009, we exchanged the assets of the Chemicals Division of Green Country Supply for assets received from Reef Services, LLC and cash of $696. The assets received consisted primarily of acid trucks and related equipment and had an estimated
fair value of approximately $2,950. This transaction was considered a non-monetary exchange accounted for at fair value. Non-cash additions to property and equipment for 2008 included $1,707 related to final settlement of the Green Country Supply
acquisition.

During the years ended December 31, 2010, 2009, and 2008, we recorded an asset and related liability of
$1,488, $1,322, and $707, respectively, associated with the asset retirement obligation on the acquisition and/or development of oil and natural gas properties.

Interest of $2,036, $836, and $1,584, was capitalized during the years ended December 31, 2010, 2009, and 2008, respectively, primarily related to unproved oil and natural gas leaseholds.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements

(Dollars in thousands, unless otherwise noted)

Note 1: Nature of operations and
summary of significant accounting policies

Chaparral Energy, Inc. and subsidiaries (collectively, we,
our, us or the Company) is involved in the acquisition, exploration, development, production and operation of oil and natural gas properties. Properties are located primarily in Oklahoma, Texas, New Mexico,
Louisiana, Arkansas, Montana, Kansas, and Wyoming.

A summary of the significant accounting policies applied in the
preparation of the accompanying consolidated financial statements follows.

Principles of consolidation

The consolidated financial statements include the accounts of Chaparral Energy, Inc. and its wholly owned
subsidiaries. All significant intercompany balances and transactions have been eliminated.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates affecting these financial statements include estimates for quantities of proved oil and natural gas
reserves, valuation allowances associated with deferred income taxes, asset retirement obligations, fair value of derivative instruments, and others, and are subject to change.

Reclassifications

Certain reclassifications have been made to prior period financial statements to conform to current period presentation.

Cash and cash equivalents

We consider all highly liquid investments
with an original maturity of three months or less to be cash equivalents. We maintain cash and cash equivalents in bank deposit accounts and money market funds which may not be federally insured. As of December 31, 2010, cash with a recorded
balance totaling $50,400 was held at JP Morgan Chase Bank, N.A. We have not experienced any losses in such accounts and believe we are not exposed to any significant credit risk on such accounts.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Accounts receivable

We have receivables from joint interest owners and oil and natural gas purchasers which are generally uncollateralized. We generally
review our oil and natural gas purchasers for credit worthiness and general financial condition. We may have the ability to withhold future revenue disbursements to recover non-payment of joint interest billings on properties of which we are the
operator. Accounts receivable from joint interest owners are stated at amounts due, net of an allowance for doubtful accounts. Accounts receivable are generally due within 30 days and accounts outstanding longer than 60 days are considered past due.
Interest accrues beginning on the day after the due date of the receivable. Accounts receivable past due 90 days or more and still accruing interest at December 31, 2010 and 2009 were $378 and $687, respectively. We determine our allowance by
considering the length of time past due, previous loss history, future net revenues of the debtors ownership interest in oil and natural gas properties we operate, and the owners ability to pay its obligation, among other things.

We write off accounts receivable when they are determined to be uncollectible. Bad debt expense for the years ended
December 31, 2010, 2009, and 2008 was $17, $317, and $351, respectively. When the account is determined to be uncollectible, all interest previously accrued but not collected is reversed against the allowance for doubtful accounts. Accounts
receivable consisted of the following at December 31:



|                                  |  |      |        |   |      |   |        |  
|--------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                  |  | 2010 |        |   | 2009 |  
|Joint interests                   |  | $    | 17,835 |   |      | $ | 11,986 |  
|Accrued oil and natural gas sales |  |      | 41,316 |   |      |   | 33,600 |  
|Derivative settlements            |  |      | 3,431  |   |      |   | 5,977  |  
|Other                             |  |      | 831    |   |      |   | 1,223  |  
|Allowance for doubtful accounts   |  |      | (633   | ) |      |   | (817   | )
|                                  |  |      |        |   |      |   |        |  
|                                  |  | $    | 62,780 |   |      | $ | 51,969 |  
|                                  |  |      |        |   |      |   |        |  

Production tax benefit asset

During 2006, we purchased interests in two venture capital limited liability companies resulting in a total investment of $15,000. Our
expected return on the investment was the receipt of $2 of tax credits for every $1 invested and was recouped from our Oklahoma production taxes. The investments were accounted for as a production tax benefit asset and were netted against tax
credits realized in other income using the effective yield method over the expected recovery period. As of December 31, 2010 and 2009, the carrying value of the production tax benefit asset was $0 and $19, respectively, and was included in
other accounts receivable. Oklahoma production tax credits of $0, $13,544, and $711 were included in other income in the consolidated statements of operations for the years ended December 31, 2010, 2009, and 2008, respectively.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Inventories

Inventories are comprised of equipment used in developing oil and natural gas properties, oil and natural gas product inventories, and
equipment for resale. Equipment inventory and inventory for resale are carried at the lower of cost or market using the average cost method. Oil and natural gas product inventories are stated at the lower of production cost or market. We regularly
review inventory quantities on hand and record provisions for excess or obsolete inventory if necessary. The provision for excess or obsolete inventory for the years ended December 31, 2010, 2009, and 2008 was $810, $274, and $615,
respectively. Inventories consisted of the following at December 31:



|                              |  |      |        |   |      |   |        |  
|----------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                              |  | 2010 |        |   | 2009 |  
|Equipment inventory           |  | $    | 6,399  |   |      | $ | 6,673  |  
|Oil and natural gas product   |  |      | 3,624  |   |      |   | 2,642  |  
|Inventory for resale          |  |      | 2,866  |   |      |   | 2,356  |  
|Inventory valuation allowance |  |      | (1,821 | ) |      |   | (1,120 | )
|                              |  |      |        |   |      |   |        |  
|                              |  | $    | 11,068 |   |      | $ | 10,551 |  
|                              |  |      |        |   |      |   |        |  

Property and equipment

Property and equipment are capitalized and stated at cost, while maintenance and repairs are expensed currently.

Depreciation and amortization are provided in amounts sufficient to relate the cost of depreciable assets to operations over their
estimated service lives using the straight-line method. Estimated useful lives are as follows:



|                              |  |  |               | 
|----------------------------- |  |  | ------------- | 
|Furniture and fixtures        |  |  | 10 years      | 
|Automobiles and trucks        |  |  | 5 years       | 
|Machinery and equipment       |  |  | 10  20 years | 
|Office and computer equipment |  |  | 5  10 years  | 
|Building and improvements     |  |  | 10  40 years | 



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Oil and natural gas properties

We use the full cost method of accounting for oil and natural gas properties and activities. Accordingly, we capitalize all costs incurred
in connection with the exploration for and development of oil and natural gas reserves. Proceeds from the disposition of oil and natural gas properties are accounted for as a reduction in capitalized costs, with no gain or loss generally recognized
unless such dispositions involve a significant alteration in the depletion rate. We capitalize internal costs that can be directly identified with exploration and development activities, but do not include any costs related to production, general
corporate overhead or similar activities. Capitalized costs include geological and geophysical work, 3D seismic, delay rentals, drilling and completing and equipping oil and natural gas wells, including salaries, benefits and other internal costs
directly attributable to these activities.

Depreciation, depletion and amortization (DD&A) of oil and natural
gas properties are provided using the units-of-production method based on estimates of proved oil and natural gas reserves and production, which are converted to a common unit of measure based upon their relative energy content. Our cost basis for
depletion includes estimated future development costs to be incurred on proved undeveloped properties. The computation of DD&A takes into consideration restoration, dismantlement, and abandonment costs, and the anticipated proceeds from
salvaging equipment.

In accordance with the full cost method of accounting, the net capitalized costs of oil and natural gas
properties are not to exceed their related estimated future net revenues discounted at 10% (PV-10 value), as adjusted for our cash flow hedge positions and net of tax considerations, plus the lower of cost or estimated fair value of
unproved properties. During the fourth quarter of 2008, we recorded a ceiling test impairment of oil and natural gas properties of $281,393 as a result of a decline in oil and natural gas prices at the measurement date. The impairment was calculated
based on December 31, 2008 spot prices of $44.60 per Bbl of oil and $5.62 per Mcf of natural gas. Based on these year-end prices, the effect of derivative contracts accounted for as cash flow hedges increased the full cost ceiling by $192,108,
thereby reducing the ceiling test write down by the same amount.

During the first quarter of 2009, natural gas prices
declined significantly as compared to the December 31, 2008 spot price of $5.62 per Mcf. Based on March 31, 2009 spot prices of $49.66 per Bbl of oil and $3.63 per Mcf of natural gas, the internally estimated PV-10 value of our reserves
declined by 13.5% compared to the PV-10 value at December 31, 2008. As a result, we recorded a ceiling test impairment of oil and natural gas properties of $240,790 during the first quarter of 2009. The effect of derivative contracts accounted
for as cash flow hedges, based on the March 31, 2009 spot prices, increased the full cost ceiling by $169,013, thereby reducing the ceiling test write down by the same amount.

Our estimates of oil and natural gas reserves as of December 31, 2010 and 2009 were prepared using an average price for oil and
natural gas based upon the first day of each month for the prior twelve months as required by the SECs Modernization of Oil and Gas Reporting and the updated guidance of the Financial Accounting Standard Board (FASB)
relating to Oil and Gas Reserve Estimation and Disclosures, which we adopted effective December 31, 2009. As of December 31, 2010, the cost center ceiling exceeded the net capitalized cost of our oil and natural gas properties, and
no additional ceiling test impairment was recorded. The PV-10 value of our reserves was estimated based on average prices of $79.43 per Bbl of oil and $4.38 per Mcf of gas for the year ended December 31, 2010.

A decline in oil and natural gas prices subsequent to December 31, 2010 could result in additional ceiling test write downs in
future periods. The amount of any future impairment is difficult to predict, and will depend on the average oil and gas prices during each period, the incremental proved reserves added during each period, and additional capital spent.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Impairment of long-lived assets

Impairment losses are recorded on property and equipment used in operations and other long lived assets when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amount. Impairment is measured based on the excess of the carrying amount over the fair value of the asset.

We own an interest in the Levelland/Hockley County ethanol plant in Levelland, Texas, and we own a pipeline constructed for the sole
purpose of supplying natural gas to the ethanol plant. Due to changes in the price and availability of grain, the plant has experienced significant supply issues, has ceased operations, and is exploring alternatives for additional sources of
capital. During the fourth quarter of 2010, we determined that any future cash flows generated by either the ethanol plant or by our pipeline, which supplies gas to the ethanol plant would probably not be sufficient to allow us to recover our
investment in these assets. We accordingly recorded an impairment charge of $4,150, which includes our $2,042 investment in the ethanol plant and the $2,108 carrying value of our pipeline assets.

We owned a 66.67% interest in Oklahoma Ethanol LLC, a joint venture to construct and operate an ethanol production plant in Blackwell,
Oklahoma. Oklahoma Ethanol LLC retained a financial advisor to arrange project financing to fund construction costs and for related start-up working capital. Because financing did not close by September 15, 2008, the minority owner, Oklahoma
Sustainable Energy LLC, was no longer able to participate in the joint venture, and we now own 100% of Oklahoma Ethanol LLC. The City of Blackwell was also unable to obtain financing for the railroad upgrades and storage facilities that would be
necessary to support ethanol production. During the third quarter of 2008, we determined that we would be unlikely to obtain equity capital or new project financing for an ethanol plant. We accordingly recorded an impairment charge of $2,900, which
was the amount of our investment in the ethanol plant.

Deferred income taxes

Deferred income taxes are provided for significant carry-forwards and temporary differences between the tax basis of an asset or liability
and its reported amount in the financial statements that will result in taxable or deductible amounts in future years. Deferred income tax assets or liabilities are determined by applying the presently enacted tax rates and laws. We record a
valuation allowance for the amount of net deferred tax assets when, in managements opinion, it is more likely than not that such assets will not be realized.

Realization of our deferred tax assets is dependent upon generating sufficient future taxable income. Although realization is not assured, we believe it is more likely than not that the deferred tax asset
will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near-term if estimates of future taxable income are reduced.

If applicable, we would report a liability for tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return, and would recognize interest and penalties related to
uncertain tax positions in interest expense. As of December 31, 2010 and 2009, we have not recorded a liability or accrued interest or penalties related to uncertain tax positions.

The tax years 1999 through 2010 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to
which we are subject.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Revenue recognition

Oil revenue is recognized when the product is delivered to the purchaser and natural gas revenue when delivered to the gas
purchasers sales meter. Well supervision fees and overhead reimbursements from producing properties are recognized as expense reimbursements from outside interest owners when the services are performed. Sales of products or services are
recognized at the time of delivery of materials or performance of service.

Gas balancing

In certain instances, the owners of the natural gas produced from a well will select different purchasers for their respective ownership
interest in the wells. If one purchaser takes more than its rateable portion of the gas, the owners selling to that purchaser will be required to satisfy the imbalance in the future by cash payments or by allowing the other owners to sell more than
their share of production. We recognize gas imbalances on the sales method and, accordingly, have recognized revenue on all production delivered to our purchasers. To the extent future reserves exist to enable the other owners to sell more than
their rateable share of gas, no liability is recorded for our obligation for natural gas taken by our purchasers which exceeds our ownership interest of the wells total production. As of December 31, 2010 and 2009, our aggregate imbalance
due to under production was approximately 2,900 MMcf and 3,024 MMcf , respectively. As of December 31, 2010, and 2009, our aggregate imbalance due to over production was approximately 1,835 MMcf and 1,818 MMcf, respectively, and a liability for
gas imbalances of $1,456 and $1,486, respectively, was included in accounts payable and accrued liabilities.

Derivative
transactions

We use derivative instruments to reduce the effect of fluctuations in crude oil and natural gas prices,
and we recognize all derivatives as either assets or liabilities measured at fair value. The accounting for changes in the fair value of a derivative depends on the use of the derivative and the resulting designation.

Changes in the fair value of derivatives that are not accounted for as hedges are reported immediately in non-hedge derivative gains
(losses) in the statement of operations. Cash flows associated with non-hedge derivatives are reported as investing activities in the statement of cash flows unless the derivatives contain a significant financing element, in which case they are
reported as financing activities.

If the derivative qualifies and is designated as a cash flow hedge, the effective portion
of changes in the fair value of the derivative is recognized in other comprehensive income (loss) until the hedged item is recognized in income. The ineffective portion of a derivatives change in fair value, as measured using the dollar offset
method, is immediately recognized in gain (loss) from oil and natural gas hedging activities in the statement of operations. Cash flows associated with hedges are reported as operating activities in the statement of cash flows unless the hedges
contain a significant financing element, in which case they are reported as financing activities.

If it is probable the oil
or natural gas sales which are hedged will not occur, hedge accounting is discontinued and the gain or loss reported in accumulated other comprehensive income (loss) is immediately reclassified into income. If a derivative which qualified for cash
flow hedge accounting ceases to be highly effective, or is liquidated or sold prior to maturity, hedge accounting is discontinued. The gain or loss associated with the discontinued hedges remains in accumulated other comprehensive income (loss) and
is reclassified into income as the hedged transactions occur. Effective April 1, 2010, we have elected to de-designate all of our commodity derivative contracts that had previously been designated as cash flow hedges and to discontinue hedge
accounting prospectively.

We offset assets and liabilities for derivative contracts executed with the same counterparty under
a master netting arrangement. See Note 3 for additional information regarding our derivative transactions.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Fair value measurements

Fair value is defined by the FASB as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation
models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments complexity.

Assets and liabilities recorded at fair value in the balance sheet are categorized according to the fair value hierarchy defined by the
FASB. The hierarchical levels are based upon the level of judgment associated with the inputs used to measure the fair value of the assets and liabilities. In certain cases, the inputs used to measure fair value may fall into different levels of the
fair value hierarchy. In such cases, the asset or liability is categorized based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and may affect the placement of assets and liabilities within the levels of the fair value hierarchy.

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 inputs include adjusted quoted prices for similar instruments in
active markets, and inputs other than quoted prices that are observable for the asset or liability. Fair value assets and liabilities included in this category are derivatives with fair values based on published forward commodity price curves
and other observable inputs. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Assets carried at fair value and included in this
category are certain financial derivatives, additions to our asset retirement obligations, and assets acquired through a non-monetary exchange transaction.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Asset retirement obligations

We record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding
increase in the carrying amount of oil and natural gas properties. The accretion of the asset retirement obligations is included in depreciation, depletion and amortization on the consolidated statements of operations. Our asset retirement
obligations consist of the estimated present value of future costs to plug and abandon or otherwise dispose of our oil and natural gas properties and related facilities. Significant inputs used in determining such obligations include estimates of
plugging and abandonment costs, inflation rates, discount rates, and well life, all of which are Level 3 inputs according to the fair value hierarchy. The estimated future costs to dispose of properties added during 2010 were escalated using an
annual inflation rate of 2.95% and discounted using our credit-adjusted risk-free interest rate of approximately 8.9%. These estimates may change based upon future inflation rates and changes in statutory remediation rules. See Note 4 for additional
information regarding our asset retirement obligations.

Comprehensive income (loss)

Comprehensive income (loss) consists of net income (loss) and the unrealized gain or loss for the effective portion of derivative
instruments classified as cash flow hedges. Comprehensive income (loss) is presented net of income taxes in the accompanying consolidated statements of stockholders equity and comprehensive income (loss).

Environmental liabilities

Environmental expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenue generation are expensed. Liabilities are accrued when
environmental assessments and/or clean-ups are probable, and the costs can be reasonably estimated. As of December 31, 2010 and 2009, we have not accrued for or been fined or cited for any environmental violations which would have a material
adverse effect upon our financial position, operating results, or cash flows.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Sale of common stock

On April 12, 2010, we closed the sale of an aggregate of 475,043 shares of our common stock to CCMP Capital Investors II (AV-2),
L.P., CCMP Energy I LTD., and CCMP Capital Investors (Cayman) II, L.P. (collectively, CCMP). Proceeds from the sale were $313,231, net of fees and other expenses of $11,769, and were used to repay the amounts owing under our Seventh
Restated Credit Agreement.

Stock-based compensation

Our stock-based compensation programs consist of phantom stock and restricted stock awards issued to employees. The estimated fair value
of the phantom stock awards is remeasured at the end of each reporting period until settlement. The estimated fair market value of these awards is calculated based on our total asset value less total liabilities, with both assets and liabilities
being adjusted to fair value, in accordance with the terms of the Phantom Stock Plan. The primary adjustment required is the adjustment of oil and natural gas properties from net book value to the discounted and risk adjusted reserve value based on
internal reserve reports priced on NYMEX forward strips. Compensation cost associated with the phantom stock awards is recognized on a straight-line basis over the five-year vesting period.

We measure the fair value of our restricted stock awards that include a service condition based upon the fair market value of our common
stock on the date of grant, and recognize compensation cost over the requisite service period using the accelerated method for awards with graded vesting.

We use a Monte Carlo model to estimate the grant date fair value of restricted stock awards that include a market condition. This model includes various significant assumptions, including the expected
volatility of the share awards and the probabilities of certain vesting conditions. These assumptions reflect our best estimates, but they involve inherent uncertainties based on market conditions generally outside of our control. As a result, if
other assumptions had been used, stock-based compensation expense could have been significantly impacted. Compensation cost associated with restricted stock awards that include a market condition is recognized over the requisite service period using
the straight-line method.

Compensation cost is calculated net of forfeitures, which are estimated based on our historical and
expected turnover rates. A portion of stock-based compensation cost associated with our employees involved in our acquisition, exploration, and development activities has been capitalized as part of our oil and natural gas properties. The remaining
cost is reflected in lease operating and general and administrative expenses in the consolidated statements of operations. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation cost could be different
from what we have recorded in the current period. Due to a reduction in the fair value of the phantom stock during 2008, we recognized a deferred compensation gain during the year ended December 31, 2008. We recognized stock-based compensation
expense (gain) as follows for the years ended December 31:



|                                                                                         |  |      |        |   |      |   |       |      |  |   |      |  
|---------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ----- | ---- |  | - | ---- | -
|                                                                                         |  | 2010 |        |   | 2009 |   |       | 2008 | 
|Stock-based compensation cost (gain)                                                     |  | $    | 3,980  |   |      | $ | 1,715 |      |  | $ | (466 | )
|Less: stock-based compensation cost capitalized                                          |  |      | (1,380 | ) |      |   | (570  | )    |  |   | 160  |  
|                                                                                         |  |      |        |   |      |   |       |      |  |   |      |  
|Stock-based compensation expense (gain)                                                  |  | $    | 2,600  |   |      | $ | 1,145 |      |  | $ | (306 | )
|                                                                                         |  |      |        |   |      |   |       |      |  |   |      |  
|Recognized tax benefit (expense) associated with stock-based compensation expense (gain) |  | $    | 1,076  |   |      | $ | 427   |      |  | $ | (118 | )
|                                                                                         |  |      |        |   |      |   |       |      |  |   |      |  

See Note 11 for additional information relating to stock-based compensation.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Financing costs

On April 12, 2010, in connection with our sale of common stock to CCMP, we entered into and closed an Eighth Restated Credit
Agreement. We recorded expenses for derivative novation and break fees of $849 associated with the transaction.

On
October 9, 2009, we entered into an Agreement and Plan of Reorganization with United Refining Energy Corp. (United) under which we would merge with United, a publicly held Special Purpose Acquisition Company, in a reverse merger. On
December 11, 2009, United announced that the merger did not receive the stockholder vote required for approval, and the Agreement and Plan of Reorganization was terminated. As a result, costs of $2,169 associated with the merger were expensed.

On July 14, 2008, we entered into an Agreement and Plan of Merger (Merger Agreement) with Edge Petroleum
Corporation (Edge), and we entered into a Stock Purchase Agreement with Magnetar Financial LLC (Magnetar). Both of these agreements were terminated on December 16, 2008. As a result, Magnetar paid a total of $5,000, of
which $1,500 was paid to Edge at our direction to reimburse Edge for certain expenses, and $3,500 was paid to us and recorded as a termination fee. We also expensed costs of $1,400 associated with the merger.

Discontinued operations

Certain amounts have been reclassified to present the operations of the Electric Submersible Pumps (ESP) and Chemicals divisions of Green Country Supply, Inc. (GCS), a wholly owned
subsidiary, as discontinued operations. Unless otherwise indicated, information presented in the notes to the financial statements relates only to our continuing operations. See Note 14 for additional information relating to discontinued operations.

Recent accounting pronouncements

In December 2008, the SEC issued itsModernization of Oil and Gas Reporting, which revises reserves requirements for oil and
natural gas companies. In addition, in January 2010, the FASB issued guidance regarding Oil and Gas Reserve Estimation and Disclosuresto provide consistency with the new SEC rules. The new guidance amends existing standards to align the
reserves calculation and disclosure requirements under GAAP with the requirements in the SEC rules.

We adopted the new SEC
reserves requirements and GAAP reserves guidance as a change in accounting principle that is inseparable from a change in estimate, and applied the guidance prospectively effective December 31, 2009. As of December 31, 2010 and 2009:



| |  |  | economic producibility of reserves and discounted cash flows were estimated using an average price for oil and natural gas based upon the first day of
each month for the prior twelve months rather than prices on the last day of the reporting period;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reserves were classified as proved undeveloped if there was a high degree of confidence that the quantities will be recovered and they are scheduled to
be drilled within the next five years; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | additional disclosures regarding our reserve estimates were provided.
| | - |  | ---------------------------------------------------------------------

As a result of adopting the new requirements, our estimated reserves as of December 31, 2009 were approximately 18,810 MBoe lower than
they would have been under the previous guidelines.

In January 2010, the FASB issued new authoritative guidance regarding
Improving Disclosures about Fair Value Measurements and Disclosures that requires additional disclosure of transfers in and out of Level 1 and 2 measurements and the reasons for the transfers, and a gross presentation of activity
within the Level 3 roll forward. The guidance also includes clarifications to existing disclosure requirements on the level of disaggregation and disclosures regarding inputs and valuation techniques. The guidance is effective for the first interim
or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 roll forward information, which is required for annual reporting periods beginning after December 15, 2010 and for interim
reporting periods within those years. We adopted the guidance on January 1, 2010, except for requirements regarding the gross presentation of Level 3 roll forward information, which we will adopt on January 1, 2011. Because this guidance
only requires additional disclosures, it did not have a significant impact on our financial statements, nor is it expected to have an impact in future periods.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Note 2: Property and equipment

Major classes of property and equipment consist of the following at December 31:



|                                               |  |      |         |  |      |   |        | 
|---------------------------------------------- |  | ---- | ------- |  | ---- | - | ------ | 
|                                               |  | 2010 |         |  | 2009 |  
|Furniture and fixtures                         |  | $    | 2,056   |  |      | $ | 1,960  | 
|Automobiles and trucks                         |  |      | 13,593  |  |      |   | 12,095 | 
|Machinery and equipment                        |  |      | 54,686  |  |      |   | 42,522 | 
|Office and computer equipment                  |  |      | 8,259   |  |      |   | 7,594  | 
|Building and improvements                      |  |      | 21,978  |  |      |   | 21,741 | 
|                                               |  |      |         |  |      |   |        | 
|                                               |  |      | 100,572 |  |      |   | 85,912 | 
|Less accumulated depreciation and amortization |  |      | 39,904  |  |      |   | 29,198 | 
|                                               |  |      |         |  |      |   |        | 
|                                               |  |      | 60,668  |  |      |   | 56,714 | 
|Land                                           |  |      | 5,346   |  |      |   | 5,483  | 
|                                               |  |      |         |  |      |   |        | 
|                                               |  | $    | 66,014  |  |      | $ | 62,197 | 
|                                               |  |      |         |  |      |   |        | 

Property and equipment leased under capital leases, which are included in the above amounts, consist of the
following at December 31:



|                                               |  |      |       |  |      |   |       | 
|---------------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                                               |  | 2010 |       |  | 2009 |  
|Office and computer equipment                  |  | $    | 1,926 |  |      | $ | 1,926 | 
|Machinery and equipment                        |  |      | 642   |  |      |   | 642   | 
|                                               |  |      |       |  |      |   |       | 
|                                               |  |      | 2,568 |  |      |   | 2,568 | 
|Less accumulated depreciation and amortization |  |      | 2,093 |  |      |   | 1,929 | 
|                                               |  |      |       |  |      |   |       | 
|                                               |  | $    | 475   |  |      | $ | 639   | 
|                                               |  |      |       |  |      |   |       | 



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Note 3: Derivative activities and financial instruments

Overview

Our results of operations, financial condition and capital resources are highly dependent upon the prevailing market prices of, and demand for, oil and natural gas. These commodity prices are subject to
wide fluctuations and market uncertainties. To mitigate a portion of this exposure, we enter into commodity price swaps, costless collars, and basis protection swaps. See Note 1 for additional information regarding our accounting policies for
derivative transactions and fair value measurements.

For commodity price swaps, we receive a fixed price for the hedged
commodity and pay a floating market price to the counterparty. The fixed-price payment and the floating-price payment are netted, resulting in a net amount due to or from the counterparty.

Collars contain a fixed floor price (put) and ceiling price (call). If the market price exceeds the call strike price or falls below the
put strike price, we receive the fixed price and pay the market price. If the market price is between the call and the put strike price, no payments are due from either party.

We use basis protection swaps to reduce basis risk. Basis is the difference between the physical commodity being hedged and the price of the futures contract used for hedging. Basis risk is the risk that
an adverse change in the futures market will not be completely offset by an equal and opposite change in the cash price of the commodity being hedged. Basis risk exists in natural gas primarily due to the geographic price differentials between cash
market locations and futures contract delivery locations. Natural gas basis protection swaps are arrangements that guarantee a price differential for natural gas from a specified pricing point. We receive a payment from the counterparty if the price
differential is greater than the stated terms of the contract and pay the counterparty if the price differential is less than the stated terms of the contract.

Our outstanding derivative instruments as of December 31, 2010 are summarized below:



|     |  |                 |       |  |                                           |   |       |             |  |  |                       |  |  |   |                  | 
|---- |  | --------------- | ----- |  | ----------------------------------------- | - | ----- | ----------- |  |  | --------------------- |  |  | - | ---------------- | 
|     |  | Oil derivatives |      
|     |  | Swaps           |       |  | Collars                                   |  
|     |  | VolumeMBbls     |       |  | Weighted averagefixed price to bereceived |   |       | VolumeMBbls |  |  | Weighted averagerange | 
|2011 |  |                 | 2,964 |  |                                           | $ | 74.69 |             |  |  | 84                    |  |  | $ | 110.00 - $153.00 | 
|2012 |  |                 | 1,104 |  |                                           |   | 91.30 |             |  |  |                      |  |  |   |                 | 
|     |  |                 |       |  |                                           |   |       |             |  |  |                       |  |  |   |                  | 
|     |  |                 | 4,068 |  |                                           |   |       |             |  |  | 84                    |  |  |   |                  | 
|     |  |                 |       |  |                                           |   |       |             |  |  |                       |  |  |   |                  | 



|     |  |                   |        |  |                                            |   |      |            |  |  |                                       |  |  |   |      | 
|---- |  | ----------------- | ------ |  | ------------------------------------------ | - | ---- | ---------- |  |  | ------------------------------------- |  |  | - | ---- | 
|     |  | Natural gas swaps |        |  | Natural gas basisprotection
swaps          |  
|     |  | VolumeBBtu        |        |  | Weighted averagefixed price to be received |   |      | VolumeBBtu |  |  | Weighted averagefixed price to
bepaid | 
|2011 |  |                   | 17,940 |  |                                            | $ | 6.37 |            |  |  | 15,390                                |  |  | $ | 0.67 | 
|2012 |  |                   | 2,400  |  |                                            |   | 5.10 |            |  |  | 8,400                                 |  |  |   | 0.30 | 
|     |  |                   |        |  |                                            |   |      |            |  |  |                                       |  |  |   |      | 
|     |  |                   | 20,340 |  |                                            |   |      |            |  |  | 23,790                                |  |  |   |      | 
|     |  |                   |        |  |                                            |   |      |            |  |  |                                       |  |  |   |      | 



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Discontinuance of cash flow hedge accounting

Effective April 1, 2010, we elected to de-designate all of our commodity derivative contracts that had previously been designated as
cash flow hedges and to discontinue hedge accounting prospectively. As a result, all gains and losses from changes in the fair value of our derivative contracts subsequent to March 31, 2010 are recognized immediately in non-hedge derivative
gains (losses) in the consolidated statement of operations. This can have a significant impact on our results of operations due to the volatility of the underlying commodity prices. Prior to March 31, 2010, a portion of the change in fair value
was deferred through other comprehensive income. As of December 30, 2010, accumulated other comprehensive income consists of deferred net gains of $56,428 ($34,974 net of tax) that will be recognized as gains (losses) from oil and natural gas
hedging activities through December 2013 as the hedged production is sold. We expect to reclassify $17,015 of net losses in accumulated other comprehensive income to income during the next 12 months.

Derivative activities

Gains and losses associated with cash flow hedges are summarized below:



|                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                              |  | Year ended December 31, |        
|                                                                              |  | 2010                    |         |   | 2009 |   |         | 2008 | 
|Amount of gain (loss) recognized in AOCI (effective portion)                  |  |                         |         |   |      |   |         |      |  |   |         |  
|Oil swaps                                                                     |  | $                       | (1,034  | ) |      | $ | (84,284 | )    |  | $ | 171,095 |  
|Natural gas swaps                                                             |  |                         |        |   |      |   |        |      |  |   | (1,495  | )
|Income taxes                                                                  |  |                         | 386     |   |      |   | 32,601  |      |  |   | (65,602 | )
|                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|                                                                              |  | $                       | (648    | ) |      | $ | (51,683 | )    |  | $ | 103,998 |  
|                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Amount of gain (loss) reclassified from AOCI in income (effective portion)(1) |  |                         |         |   |      |   |         |      |  |   |         |  
|Oil swaps                                                                     |  | $                       | (30,243 | ) |      | $ | 13,289  |      |  | $ | (76,921 | )
|Natural gas swaps                                                             |  |                         | 1,510   |   |      |   | 7,638   |      |  |   | (7,837  | )
|Income taxes                                                                  |  |                         | 10,729  |   |      |   | (8,095  | )    |  |   | 32,784  |  
|                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|                                                                              |  | $                       | (18,004 | ) |      | $ | 12,832  |      |  | $ | (51,974 | )
|                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Amount of gain (loss) recognized in income (ineffective portion)(1)           |  |                         |         |   |      |   |         |      |  |   |         |  
|Oil swaps                                                                     |  | $                       | (660    | ) |      | $ | (1,524  | )    |  | $ | 11,520  |  
|Natural gas swaps                                                             |  |                         |        |   |      |   |        |      |  |   | (3,179  | )
|                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|                                                                              |  | $                       | (660    | ) |      | $ | (1,524  | )    |  | $ | 8,341   |  
|                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  



|(1) | Included in gain (loss) from oil and natural gas hedging activities in the consolidated statements of operations.
|--- | -----------------------------------------------------------------------------------------------------------------



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Gain (loss) from oil and natural gas hedging activities, which is a component of total
revenues in the consolidated statements of operations, is comprised of the following:



|                                                                                   |  |                         |         |   |      |   |        |      |  |   |         |  
|---------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                                   |  | Year ended December 31, |        
|                                                                                   |  | 2010                    |         |   | 2009 |   |        | 2008 | 
|Oil hedges                                                                         |  |                         |         |   |      |   |        |      |  |   |         |  
|Reclassification adjustment for hedge gains (losses) included in net income (loss) |  | $                       | (30,243 | ) |      | $ | 13,289 |      |  | $ | (76,921 | )
|Gain (loss) on ineffective portion of derivatives qualifying for hedge accounting  |  |                         | (660    | ) |      |   | (1,524 | )    |  |   | 11,520  |  
|Natural gas hedges                                                                 |  |                         |         |   |      |   |        |      |  |   |         |  
|Reclassification adjustment for hedge gains (losses) included in net income (loss) |  |                         | 1,510   |   |      |   | 7,638  |      |  |   | (7,837  | )
|Loss on ineffective portion of derivatives qualifying for hedge accounting         |  |                         |        |   |      |   |       |      |  |   | (3,179  | )
|                                                                                   |  |                         |         |   |      |   |        |      |  |   |         |  
|                                                                                   |  | $                       | (29,393 | ) |      | $ | 19,403 |      |  | $ | (76,417 | )
|                                                                                   |  |                         |         |   |      |   |        |      |  |   |         |  



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



During 2010, we received proceeds of $7,097 on the early settlement of certain oil swaps
and oil and natural gas collars with original settlement dates from April 2010 through December 2012. During 2009, we early settled natural gas swaps with original settlement dates from May through October of 2009 and oil swaps and collars with
original settlement dates from January 2012 through December 2013 for total net proceeds of $111,874. During 2008, we early settled oil and natural gas swaps and collars with original settlement dates from January through June of 2009 for proceeds
of $32,589. The proceeds from early settlement are recorded as a component of non-hedge derivative gains in the consolidated statements of operations.

Non-hedge derivative gains in the consolidated statements of operations are comprised of the following:



|                                                                                   |  |                         |         |   |      |   |         |      |  |   |         | 
|---------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | 
|                                                                                   |  | Year ended December 31, |        
|                                                                                   |  | 2010                    |         |   | 2009 |   |         | 2008 | 
|Change in fair value of commodity price swaps                                      |  | $                       | 8,610   |   |      | $ | (79,480 | )    |  | $ | 9,077   | 
|Change in fair value of costless collars                                           |  |                         | (24,846 | ) |      |   | (53,044 | )    |  |   | 79,398  | 
|Change in fair value of natural gas basis differential contracts                   |  |                         | 9,341   |   |      |   | (16,582 | )    |  |   | 1,079   | 
|Receipts from (payments on) settlement of commodity price swaps                    |  |                         | 27,332  |   |      |   | 116,445 |      |  |   | 20,290  | 
|Receipts from (payments on) settlement of costless collars                         |  |                         | 28,268  |   |      |   | 49,019  |      |  |   | 11,127  | 
|Receipts from (payments on) settlement of natural gas basis differential contracts |  |                         | (10,110 | ) |      |   | (5,189  | )    |  |   | 5,970   | 
|                                                                                   |  |                         |         |   |      |   |         |      |  |   |         | 
|                                                                                   |  | $                       | 38,595  |   |      | $ | 11,169  |      |  | $ | 126,941 | 
|                                                                                   |  |                         |         |   |      |   |         |      |  |   |         | 

Derivative settlements receivable of $3,431 and $5,977 were included in accounts receivable at
December 31, 2010 and 2009, respectively. Derivative settlements payable of $785 and $1,739 were included in accounts payable and accrued liabilities at December 31, 2010 and 2009, respectively.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Fair value of derivative instruments

All derivative financial instruments are recorded on the balance sheet at fair value. We estimate the fair value of our derivative
instruments using a combined income and market valuation methodology. Future cash flows from the derivatives are estimated based on the difference between the fixed contract price and the underlying published forward market price, and are discounted
at the LIBOR swap rate. The fair value of collars is determined using an option pricing model which takes into account market volatility as well as the inputs described above. All derivative instruments are discounted further using a rate that
incorporates our nonperformance risk for derivative liabilities, and our counterparties nonperformance risk for derivative assets. As of December 31, 2010 and December 31, 2009, the rate reflecting our nonperformance risk was 2.50%
and 3.25%, respectively, and the weighted-average rate reflecting our counterparties nonperformance risk was approximately 2.14% and 1.49%, respectively.

The estimated fair values of derivative instruments are provided below. The carrying amounts of these instruments are equal to the estimated fair values.



|                                                   |  |                         |        |  |                         |   |         |           |  |   |         |   |  |             |        |  |           |   |         |   |  |   |         |  
|-------------------------------------------------- |  | ----------------------- | ------ |  | ----------------------- | - | ------- | --------- |  | - | ------- | - |  | ----------- | ------ |  | --------- | - | ------- | - |  | - | ------- | -
|                                                   |  | As of December 31, 2010 |        |  | As of December 31, 2009 |  
|                                                   |  | Assets                  |        |  | Liabilities             |   |         | Net Value |  |   | Assets  |   |  | Liabilities |        |  | Net Value |  
|Derivatives designated as cash flow hedges:        |  |                         |        |  |                         |   |         |           |  |   |         |   |  |             |        |  |           |   |         |   |  |   |         |  
|Oil swaps                                          |  | $                       |       |  |                         | $ |        |           |  | $ |        |   |  | $           | 172    |  |           | $ | (54,883 | ) |  | $ | (54,711 | )
|Derivatives not designated as hedging instruments: |  |                         |        |  |                         |   |         |           |  |   |         |   |  |             |        |  |           |   |         |   |  |   |         |  
|Natural gas swaps                                  |  |                         | 32,538 |  |                         |   | (130    | )         |  |   | 32,408  |   |  |             | 30,366 |  |           |   | (26     | ) |  |   | 30,340  |  
|Oil swaps                                          |  |                         | 21     |  |                         |   | (58,221 | )         |  |   | (58,200 | ) |  |             |       |  |           |   | (13,840 | ) |  |   | (13,840 | )
|Natural gas collars                                |  |                         |       |  |                         |   |        |           |  |   |        |   |  |             | 14,065 |  |           |   |        |   |  |   | 14,065  |  
|Oil collars                                        |  |                         | 1,509  |  |                         |   |        |           |  |   | 1,509   |   |  |             | 12,290 |  |           |   |        |   |  |   | 12,290  |  
|Natural gas basis differential swaps               |  |                         | 220    |  |                         |   | (5,843  | )         |  |   | (5,623  | ) |  |             |       |  |           |   | (14,964 | ) |  |   | (14,964 | )
|                                                   |  |                         |        |  |                         |   |         |           |  |   |         |   |  |             |        |  |           |   |         |   |  |   |         |  
|Total non-hedge instruments                        |  |                         | 34,288 |  |                         |   | (64,194 | )         |  |   | (29,906 | ) |  |             | 56,721 |  |           |   | (28,830 | ) |  |   | 27,891  |  
|                                                   |  |                         |        |  |                         |   |         |           |  |   |         |   |  |             |        |  |           |   |         |   |  |   |         |  
|Total derivative instruments                       |  |                         | 34,288 |  |                         |   | (64,194 | )         |  |   | (29,906 | ) |  |             | 56,893 |  |           |   | (83,713 | ) |  |   | (26,820 | )
|Less:                                              |  |                         |        |  |                         |   |         |           |  |   |         |   |  |             |        |  |           |   |         |   |  |   |         |  
|Netting adjustments (1)                            |  |                         | 32,859 |  |                         |   | (32,859 | )         |  |   |        |   |  |             | 32,873 |  |           |   | (32,873 | ) |  |   |        |  
|Current portion asset (liability)                  |  |                         | 1,429  |  |                         |   | (28,853 | )         |  |   | (27,424 | ) |  |             | 18,226 |  |           |   | (20,677 | ) |  |   | (2,451  | )
|                                                   |  |                         |        |  |                         |   |         |           |  |   |         |   |  |             |        |  |           |   |         |   |  |   |         |  
|                                                   |  | $                       |       |  |                         | $ | (2,482  | )         |  | $ | (2,482  | ) |  | $           | 5,794  |  |           | $ | (30,163 | ) |  | $ | (24,369 | )
|                                                   |  |                         |        |  |                         |   |         |           |  |   |         |   |  |             |        |  |           |   |         |   |  |   |         |  



|(1) | Amounts represent the impact of legally enforceable master netting agreements that allow us to net settle positive and negative positions with the same counterparties.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



We had no Level 1 assets or liabilities as of December 31, 2010 or 2009. Our
derivative contracts classified as Level 2 are valued using NYMEX forward commodity price curves and quotations provided by price index developers such as Platts. In certain less liquid markets, forward prices are not as readily available. In these
circumstances, commodity swaps are valued using internally developed methodologies that consider historical relationships among various commodities that result in managements best estimate of fair value. These contracts are classified as Level
3. Due to unavailability of observable volatility data input, the fair value measurement of all our collars has been categorized as Level 3.

The fair value hierarchy for our financial assets and liabilities is shown by the following table:



|                                              |  |                         |         |   |                         |   |         |                         |  |   |                  |   |  |                       |         |   |                         |   |         |   |  |   |         |  
|--------------------------------------------- |  | ----------------------- | ------- | - | ----------------------- | - | ------- | ----------------------- |  | - | ---------------- | - |  | --------------------- | ------- | - | ----------------------- | - | ------- | - |  | - | ------- | -
|                                              |  | As of December 31, 2010 |         |   | As of December 31, 2009 |  
|                                              |  | Derivativeassets        |         |   | Derivativeliabilities   |   |         | Net assets(liabilities) |  |   | Derivativeassets |   |  | Derivativeliabilities |         |   | Net assets(liabilities) |  
|Significant other observable inputs (Level 2) |  | $                       | 32,779  |   |                         | $ | (64,194 | )                       |  | $ | (31,415          | ) |  | $                     | 30,538  |   |                         | $ | (83,713 | ) |  | $ | (53,175 | )
|Significant unobservable inputs (Level 3)     |  |                         | 1,509   |   |                         |   |        |                         |  |   | 1,509            |   |  |                       | 26,355  |   |                         |   |        |   |  |   | 26,355  |  
|Netting adjustments (1)                       |  |                         | (32,859 | ) |                         |   | 32,859  |                         |  |   |                 |   |  |                       | (32,873 | ) |                         |   | 32,873  |   |  |   |        |  
|                                              |  |                         |         |   |                         |   |         |                         |  |   |                  |   |  |                       |         |   |                         |   |         |   |  |   |         |  
|                                              |  | $                       | 1,429   |   |                         | $ | (31,335 | )                       |  | $ | (29,906          | ) |  | $                     | 24,020  |   |                         | $ | (50,840 | ) |  | $ | (26,820 | )
|                                              |  |                         |         |   |                         |   |         |                         |  |   |                  |   |  |                       |         |   |                         |   |         |   |  |   |         |  



|(1) | Amounts represent the impact of master netting agreements that allow us to net settle positive and negative positions with the same counterparty.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Changes in the fair value of net commodity derivatives classified as Level 3 in the fair
value hierarchy at December 31 were:



|                                                                                                                 |  |                         |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                 |  | Year ended December 31, |        
|Net derivative assets                                                                                            |  | 2010                    |         |   | 2009 |  
|Beginning balance                                                                                                |  | $                       | 26,355  |   |      | $ | 79,603  |  
|Total realized and unrealized gains (losses) included in non-hedge derivative gains (losses)                     |  |                         | 3,422   |   |      |   | (3,939  | )
|Settlements                                                                                                      |  |                         | (28,268 | ) |      |   | (49,309 | )
|                                                                                                                 |  |                         |         |   |      |   |         |  
|Ending balance                                                                                                   |  | $                       | 1,509   |   |      | $ | 26,355  |  
|                                                                                                                 |  |                         |         |   |      |   |         |  
|Losses relating to assets still held at the reporting date included in non-hedge derivative gains for the period |  | $                       | (775    | ) |      | $ | (1,777  | )
|                                                                                                                 |  |                         |         |   |      |   |         |  

Fair value of other financial instruments

The carrying values of items comprising current assets and current liabilities approximate fair values due to the short-term maturities of
these instruments. The carrying value for long-term debt at December 31, 2010 and 2009 approximates fair value because substantially all debt carries variable market rates and incorporates a measure of our credit risk. The carrying value and
estimated market value of our senior notes at December 31, 2010 and 2009 were as follows:



|                             |  |                   |         |  |                     |   |         |               |  |   |                     |  |  |   |         | 
|---------------------------- |  | ----------------- | ------- |  | ------------------- | - | ------- | ------------- |  | - | ------------------- |  |  | - | ------- | 
|                             |  | December 30, 2010 |         |  | December 31, 2009   |  
|                             |  | Carryingvalue     |         |  | Estimatedfair value |   |         | Carryingvalue |  |   | Estimatedfair value | 
|8.5% Senior Notes due 2015   |  | $                 | 325,000 |  |                     | $ | 332,313 |               |  | $ | 325,000             |  |  | $ | 281,125 | 
|8.875% Senior Notes due 2017 |  |                   | 323,099 |  |                     |   | 329,875 |               |  |   | 322,877             |  |  |   | 281,125 | 
|9.875% Senior Notes due 2020 |  |                   | 293,135 |  |                     |   | 315,000 |               |  |   |                    |  |  |   |        | 
|                             |  |                   |         |  |                     |   |         |               |  |   |                     |  |  |   |         | 
|                             |  | $                 | 941,234 |  |                     | $ | 977,188 |               |  | $ | 647,877             |  |  | $ | 562,250 | 
|                             |  |                   |         |  |                     |   |         |               |  |   |                     |  |  |   |         | 

Fair value amounts have been estimated based on quoted market prices. The use of different market
assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Concentrations of credit risk

Financial instruments which potentially subject us to concentrations of credit risk consist principally of derivative instruments and
accounts receivable. Derivative instruments are exposed to credit risk from counterparties. We do not require collateral or other security to support the derivative instruments subject to credit risk, however, our derivative contracts have been
executed with the institutions that are affiliates of our lenders, and we believe the credit risks associated with all of these institutions are acceptable. At December 31, 2010, we had a commodity derivative net asset balance of $683 with
Credit Agricole Corporate and Investment Bank. As of December 31, 2010, we have no balance outstanding on our credit facility. We did not post collateral under any of these contracts as they are secured under our senior secured revolving credit
facility. Payment on our derivative contracts would be accelerated in the event of a default on our revolving credit facility. The aggregate fair value of our derivative liabilities was $64,194 at December 31, 2010.

Accounts receivable are primarily from purchasers of oil and natural gas products, and exploration and production companies who own
interests in properties we operate. The industry concentration has the potential to impact our overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic, industry or other
conditions.

Sales of oil and natural gas to one purchaser accounted for 20.3% and 26.4% of total oil and natural gas
revenues, excluding the effects of hedging activities, during the years ended December 31, 2010 and 2009, respectively. Sales of oil and natural gas to two purchasers accounted for 23.7% and 10.3% of total oil and natural gas revenues,
excluding the effects of hedging activities, during the year ended December 31, 2008. If we were to lose a purchaser, we believe we could replace it with a substitute purchaser.

Note 4: Asset retirement obligations

The activity incurred in the asset
retirement obligation for the years ended December 31, 2010 and 2009 is as follows:



|                                       |  |                         |        |   |      |   |        |  
|-------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | -
|                                       |  | Year ended December 31, |       
|                                       |  | 2010                    |        |   | 2009 |  
|Beginning balance                      |  | $                       | 37,465 |   |      | $ | 33,375 |  
|Liabilities incurred in current period |  |                         | 1,488  |   |      |   | 1,322  |  
|Liabilities settled in current period  |  |                         | (518   | ) |      |   | (159   | )
|Accretion expense                      |  |                         | 3,260  |   |      |   | 2,927  |  
|                                       |  |                         |        |   |      |   |        |  
|                                       |  |                         | 41,695 |   |      |   | 37,465 |  
|Less current portion                   |  |                         | 690    |   |      |   | 300    |  
|                                       |  |                         |        |   |      |   |        |  
|                                       |  | $                       | 41,005 |   |      | $ | 37,165 |  
|                                       |  |                         |        |   |      |   |        |  

See Note 1 for additional information regarding our accounting policies for asset retirement obligations and
fair value measurements.

We have funds held in escrow that are legally restricted for certain of our asset retirement
obligations. The balances of these escrow accounts were $1,653 and $1,672 at December 31, 2010 and 2009, respectively and are included in Other assets in our consolidated balance sheets. We are entitled to make quarterly withdrawals
from the plugging escrow account equal to one-half of the interest earnings for the period and as reimbursement for actual plugging and abandonment expenses incurred on the North Burbank Unit, provided that written documentation has been provided.
The balance is not intended to reflect our total future financial obligation for the plugging and abandonment of these wells.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Note 5: Senior Notes

On December 1, 2005, we issued $325,000 of 8.5% senior notes due 2015 at a price of 100% of the principal amount. Interest on the notes is payable semi-annually on June 1 and December 1
each year beginning June 1, 2006, and the notes mature on December 1, 2015. On or after December 1, 2010, we may, at our option, redeem the notes at the following redemption prices plus accrued and unpaid interest: 104.25% after
December 1, 2010, 102.83% after December 1, 2011, 101.42% after December 1, 2012, and 100% after December 1, 2013 and thereafter.

In connection with the issuance of the 8.5% senior notes, we capitalized $9,251 of costs related to underwriting and other fees that are amortized to interest expense using the effective interest method.
Unamortized costs of $5,567 and $6,430 were included in other assets as of December 31, 2010 and 2009, respectively. Amortization of $863, $790, and $723 was charged to interest expense during the years ended December 31, 2010, 2009 and
2008, respectively, related to these costs.

On January 18, 2007, we issued $325,000 of 8.875% senior notes due 2017 at a
price of 99.178% of the principal amount. The net proceeds, after underwriting and issuance costs, were used to reduce outstanding indebtedness under our revolving line of credit and for working capital. Interest on the notes is payable
semi-annually on February 1 and August 1 each year beginning August 1, 2007, and the notes mature on February 1, 2017. On or after February 1, 2012, we may, at our option, redeem the notes at the following redemption prices
plus accrued and unpaid interest: 104.49% after February 1, 2012, 102.96% after February 1, 2013, 101.48% after February 1, 2014, and 100% after February 1, 2015 and thereafter. Prior to February 1, 2012, we may redeem up to
35% of the senior notes with the net proceeds of one or more equity offerings at a redemption price of 108.88%, plus accrued and unpaid interest.

In connection with the issuance of our 8.875% senior notes, we entered into a registration rights agreement with the initial purchasers in which we agreed to file a registration statement with the
Securities and Exchange Commission related to an offer to exchange the notes for other freely tradable notes and complete such exchange offer within 270 days of the issue date. In September 2007, we determined that the exchange offer would not be
completed within the 270 day period ending October 15, 2007 as required by the registration rights agreement. As a result, we accrued liquidated damages of $339 during the year ended December 31, 2007. On February 29, 2008, we
completed the exchange offer, and liquidated damages ceased to accrue as of that date. Total liquidated damages paid in 2008 were $388.

In connection with the issuance of the 8.875% senior notes, we recorded a discount of $2,671 and capitalized $7,316 of issuance costs related to underwriting and other fees that are amortized to interest
expense using the effective interest method. Unamortized issuance costs of $5,221 and $5,830 were included in other assets as of December 31, 2010 and 2009, respectively. Accretion of $222, $202, and $185 was charged to interest expense during
the years ended December 31, 2010, 2009, and 2008, respectively, related to the discount, and amortization of $609, $556, and $500 was charged to interest expense during the years ended December 31, 2010, 2009, and 2008, respectively,
related to the issuance costs.

On September 16, 2010, we issued $300,000 of 9.875% senior notes due 2020 at a price of
97.672% of the principal amount. The net proceeds, after underwriting and issuance costs, were used to pay down the outstanding indebtedness under our revolving line of credit and for working capital. Interest is payable on the Senior Notes
semi-annually on April 1 and October 1 each year beginning April 1, 2011. The notes mature on October 1, 2020. On or after October 1, 2015, we may, at our option, redeem the notes at the following redemption prices plus
accrued and unpaid interest: 104.938% after October 1, 2015, 103.292% after October 1, 2016, 101.646% after October 1, 2017, and 100% after October 1, 2018 and thereafter. Prior to October 1, 2013, we may redeem up to 35% of
the notes with the net proceeds of one or more equity offerings at a redemption price of 109.875%, plus accrued and unpaid interest.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



As part of the indenture for our 9.875% senior notes, we entered into a registration
rights agreement in which we agreed to file a registration statement with the Securities and Exchange Commission related to an offer to exchange the notes for an issue of registered notes within 270 days of the closing date. If we fail to complete
the exchange offer within 270 days after the closing date, we would be required to pay liquidated damages equal to 0.25% per annum of the principal amount of the notes for the first 90 days after the target registration date. After the first 90
days, the rate increases an additional 0.25% for each additional 90 days, up to a total of 1.0%.

In connection with the
issuance of the 9.875% senior notes, we recorded a discount of $6,984 and capitalized $6,648 of issuance costs related to underwriting and other fees that are amortized to interest expense using the effective interest method. We had unamortized
issuance costs of $6,536 as of December 31, 2010 that are included in other assets. Accretion of $119 was charged to interest expense during the year ended December 31, 2010 related to the discount, and amortization of $112 was charged to
interest expense during the year ended December 31, 2010 related to the issuance costs.

The indentures governing our
Senior Notes contain certain covenants which limit our ability to:



| |  |  | incur or guarantee additional debt and issue certain types of preferred stock;
| | - |  | ------------------------------------------------------------------------------



| |  |  | pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated debt;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | make investments;
| | - |  | -----------------



| |  |  | create liens on assets;
| | - |  | -----------------------



| |  |  | create restrictions on the ability of restricted subsidiaries to pay dividends or make other payments to us;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | transfer or sell assets;
| | - |  | ------------------------



| |  |  | engage in transactions with affiliates;
| | - |  | ---------------------------------------



| |  |  | consolidate, merge or transfer all or substantially all assets and the assets of subsidiaries; and
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | enter into other lines of business.
| | - |  | -----------------------------------

Chaparral is a holding company and owns no operating assets and has no significant operations independent of its subsidiaries. Our obligations under our outstanding senior notes have been fully and
unconditionally guaranteed, on a joint and several basis, by all of our wholly owned subsidiaries except for Oklahoma Ethanol, LLC and Chaparral Biofuels, LLC.

Senior Notes at December 31 consisted of the following:



|                                  |  |      |         |   |      |   |         |  
|--------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                  |  | 2010 |         |   | 2009 |  
|8.5% Senior Notes due 2015        |  | $    | 325,000 |   |      | $ | 325,000 |  
|8.875% Senior Notes due 2017      |  |      | 325,000 |   |      |   | 325,000 |  
|9.875% Senior Notes due 2020      |  |      | 300,000 |   |      |   |        |  
|Discount on Senior Notes due 2017 |  |      | (1,901  | ) |      |   | (2,123  | )
|Discount on Senior Notes due 2020 |  |      | (6,865  | ) |      |   |        |  
|                                  |  |      |         |   |      |   |         |  
|                                  |  | $    | 941,234 |   |      | $ | 647,877 |  
|                                  |  |      |         |   |      |   |         |  



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Note 6: Long-term debt

Long-term debt consists of the following:



|                                                                                                                                                                                                                        |  |              |        |  |      |   |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------ |  | ---- | - | ------- | 
|                                                                                                                                                                                                                        |  | December 31, |       
|                                                                                                                                                                                                                        |  | 2010         |        |  | 2009 |  
|Revolving credit line with banks                                                                                                                                                                                        |  | $            |       |  |      | $ | 507,001 | 
|Real estate mortgage notes, principal and interest payable monthly, bearing interest at rates ranging from 3.71% to 9.26%, due
January 2017 through December 2028; collateralized by real property                      |  |              | 13,024 |  |      |   | 13,465  | 
|Installment notes payable, principal and interest payable monthly, bearing interest at rates ranging from 2.00% to 9.25%, due
January 2011 through January 2016; collateralized by automobiles, machinery and equipment |  |              | 7,699  |  |      |   | 8,285   | 
|                                                                                                                                                                                                                        |  |              |        |  |      |   |         | 
|                                                                                                                                                                                                                        |  |              | 20,723 |  |      |   | 528,751 | 
|Less current maturities                                                                                                                                                                                                 |  |              | 4,047  |  |      |   | 4,405   | 
|                                                                                                                                                                                                                        |  |              |        |  |      |   |         | 
|                                                                                                                                                                                                                        |  | $            | 16,676 |  |      | $ | 524,346 | 
|                                                                                                                                                                                                                        |  |              |        |  |      |   |         | 

Maturities of long-term debt as of December 31, 2010 are as follows:



|                    |  |   |        | 
|------------------- |  | - | ------ | 
|2011                |  | $ | 4,047  | 
|2012                |  |   | 2,653  | 
|2013                |  |   | 1,633  | 
|2014                |  |   | 1,040  | 
|2015                |  |   | 944    | 
|2016 and thereafter |  |   | 10,406 | 
|                    |  |   |        | 
|                    |  | $ | 20,723 | 
|                    |  |   |        | 

As of December 31, 2009, we were party to a Seventh Restated Credit Agreement (our prior credit
facility), which was scheduled to mature on October 31, 2010 and was collateralized by our oil and natural gas properties.

On April 12, 2010, in connection with our sale of common stock to CCMP, we entered into and closed an Eighth Restated Credit Agreement (our senior secured revolving credit facility),
which had an initial borrowing base of $450,000, is collateralized by our oil and natural gas properties, and is scheduled to mature on April 12, 2014. We used the proceeds from the sale of common stock to CCMP, along with proceeds available
under our senior secured revolving credit facility, to repay the amounts owing under our prior credit facility, and those amounts are classified as long-term debt as of December 31, 2009. During the second quarter of 2010, we recorded expenses
for derivative novation and break fees and the write off of prepaid bank fees associated with our prior credit facility of $3,090, and we recorded deferred financing costs associated with the closing of our senior secured revolving credit facility
of $10,909.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



The terms of our senior secured revolving credit facility are described below. The terms
of our prior credit facility were substantially similar to those contained in our senior secured revolving credit facility. All discussions of interest rates and ratios as of dates prior to April 12, 2010 relate to our prior credit facility.

Availability under our senior secured revolving credit facility is subject to a borrowing base which is set by the banks
semi-annually on May 1 and November 1 of each year. In addition, the lenders may request a borrowing base redetermination once between each scheduled redetermination and in the event of early termination of our derivative contracts. As a
result of the issuance of our 9.875% senior notes due 2020, the borrowing base was reduced from $450,000 to $375,000 effective September 16, 2010. The borrowing base of $375,000 was reaffirmed effective November 23, 2010.

Borrowings under our senior secured revolving credit facility are made, at our option, as either Eurodollar loans or Alternate Base Rate
(ABR) loans. Interest, including commitment fees, was paid at least every three months during 2010 and 2009. The effective rate of interest on the entire outstanding balance of our revolving credit line was 6.081% as of December 31,
2009 and was based upon LIBOR. We had no balance outstanding as of December 31, 2010.

Interest on Eurodollar loans is
computed at the Adjusted LIBO Rate, defined as the rate applicable to dollar deposits in the London interbank market with a maturity comparable to the interest period (one, two, three or six months, selected by us) times a Statutory Reserve Rate
multiplier, as defined in our senior secured revolving credit facility, plus a margin where the margin varies from 2.50% to 3.50% depending on the utilization percentage of the conforming borrowing base. From April 12, 2010 until
October 12, 2010, the margin was fixed at 3.00%. Interest payments on Eurodollar borrowings are due the last day of the interest period, if shorter than three months or every three months.

Interest on ABR loans is computed as the greater of (1) the Prime Rate, as defined in our senior secured revolving credit facility,
(2) the Federal Funds Effective Rate, as defined in our senior secured revolving credit facility, plus 1/2 of 1%, or (3) the Adjusted LIBO Rate, as defined in our senior secured revolving credit facility, plus 1%; plus a margin where the
margin varies from 1.625% to 2.625%, depending on the utilization percentage of the borrowing base.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Commitment fees of 0.50% accrue on the unused portion of the borrowing base amount,
depending on the utilization percentage, and are included as a component of interest expense. We have the right to make prepayments of the borrowings at any time without penalty or premium.

Our senior secured revolving credit facility contains restrictive covenants that may limit our ability, among other things, to:



| |  |  | incur additional indebtedness;
| | - |  | ------------------------------



| |  |  | create or incur additional liens on our oil and natural gas properties;
| | - |  | -----------------------------------------------------------------------



| |  |  | pay dividends in cash or other property, redeem our capital stock or prepay certain indebtedness;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | make investments in or loans to others;
| | - |  | ---------------------------------------



| |  |  | change our line of business;
| | - |  | ----------------------------



| |  |  | enter into operating leases;
| | - |  | ----------------------------



| |  |  | merge or consolidate with another person, or lease or sell all or substantially all of our assets;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | sell, farm-out or otherwise transfer property containing proved reserves;
| | - |  | -------------------------------------------------------------------------



| |  |  | enter into transactions with affiliates;
| | - |  | ----------------------------------------



| |  |  | issue preferred stock;
| | - |  | ----------------------



| |  |  | enter into negative pledge agreements or agreements restricting the ability of our subsidiaries to pay dividends;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | enter into or terminate certain swap agreements;
| | - |  | ------------------------------------------------



| |  |  | amend our organizational documents; and
| | - |  | ---------------------------------------



| |  |  | amend, modify or waive under our permitted bond documents (i) any covenants that would make the terms materially more onerous to us or
(ii) certain other provisions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our senior secured revolving credit facility also has certain negative
and affirmative covenants that require, among other things, maintaining a Current Ratio, as defined in our senior secured revolving credit facility, of not less than 1.0 to 1.0. Our senior secured revolving credit facility also requires us to
maintain, to the extent borrowings are outstanding, a Consolidated Total Debt to Consolidated EBITDAX ratio, or to the extent no borrowings are outstanding, a Consolidated Net Debt to Consolidated EBITDAX ratio, as defined in our senior secured
revolving credit facility, of not greater than:



| |  |  | 4.50 to 1.0 for the annualized periods commencing on April 1, 2010 and ending on the last day of the fiscal quarter ending on June 30,
2010, September 30, 2010, and December 31, 2010;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 4.25 to 1.0 for the four consecutive fiscal quarters ending on March 31, 2011, June 30, 2011, and September 30, 2011; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | 4.00 to 1.0 for the four consecutive fiscal quarters ending on December 31, 2011 and for each period of four consecutive fiscal quarters ending on
the last day of such applicable fiscal quarters thereafter.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



The First Amendment to our senior secured revolving credit facility, dated July 26,
2010, modified the definition of Consolidated EBITDAX to (1) permit cash proceeds received from the monetization of derivatives to be included in the calculation of Consolidated EBITDAX, to the extent that such monetizations, in any period
between scheduled redeterminations, do not exceed 5% of the borrowing base then in effect, and (2) permit the exclusion from the calculation of Consolidated EBITDAX of up to $4,500 in one-time cash expenses associated with our financing
transactions that were incurred and paid during the second quarter of 2010.

We believe we were in compliance with all
covenants under our senior secured revolving credit facility as of December 31, 2010.

Our senior secured revolving
credit facility also specifies events of default, including non-payment, breach of warranty, non-performance of financial covenants, default on other indebtedness, certain adverse judgments, and change of control, among others. In addition,
bankruptcy and insolvency events with respect to us or certain of our subsidiaries will result in an automatic acceleration of the indebtedness under our senior secured revolving credit facility. An acceleration of our indebtedness under our senior
secured revolving credit facility could in turn result in an event of default under the indentures for our Senior Notes, which in turn could result in the acceleration of the Senior Notes.

If the outstanding borrowings under our senior secured revolving credit facility were to exceed the borrowing base as a result of a
redetermination, we would be required to eliminate this excess. Within 10 days after receiving notice of the new borrowing base, we would be required to make an election: (1) to repay a portion of our bank borrowings in the amount of the excess
either in a lump sum within 30 days or in equal monthly installments over a six-month period, (2) to submit within 30 days additional oil and natural gas properties we own for consideration in connection with the determination of the borrowing
base sufficient to eliminate the excess or (3) to eliminate the excess through a combination of repayments and the submission of additional oil and natural gas properties within 30 days.

Note 7: Capital leases

Future minimum lease payments under capital leases
for property and equipment and the present value of the net minimum lease payments as of December 31, 2010 are as follows:



|                                            |  |   |     | 
|------------------------------------------- |  | - | --- | 
|2011                                        |  | $ | 124 | 
|2012                                        |  |   | 10  | 
|                                            |  |   |     | 
|Total minimum lease payments                |  |   | 134 | 
|Less amount representing interest           |  |   | 4   | 
|                                            |  |   |     | 
|Present value of net minimum lease payments |  |   | 130 | 
|Less current portion                        |  |   | 120 | 
|                                            |  |   |     | 
|                                            |  | $ | 10  | 
|                                            |  |   |     | 



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Note 8: Income taxes

Income tax expense (benefit) consists of the following for the years ended December 31:



|                               |  |      |        |   |      |   |         |      |  |   |         |  
|------------------------------ |  | ---- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                               |  | 2010 |        |   | 2009 |   |         | 2008 | 
|Current tax expense (benefit)  |  |      |        |   |      |   |         |      |  |   |         |  
|Federal tax benefit            |  | $    | (16    | ) |      | $ | (22     | )    |  | $ | (22     | )
|State tax expense (benefit)    |  |      | 95     |   |      |   | (1      | )    |  |   | (6      | )
|                               |  |      |        |   |      |   |         |      |  |   |         |  
|Current tax expense (benefit)  |  |      | 79     |   |      |   | (23     | )    |  |   | (28     | )
|                               |  |      |        |   |      |   |         |      |  |   |         |  
|Deferred tax benefit           |  |      |        |   |      |   |         |      |  |   |         |  
|Federal tax expense (benefit)  |  |      | 19,712 |   |      |   | (77,260 | )    |  |   | (30,083 | )
|State tax expense (benefit)    |  |      | 4,012  |   |      |   | (12,494 | )    |  |   | (4,865  | )
|                               |  |      |        |   |      |   |         |      |  |   |         |  
|Deferred tax expense (benefit) |  |      | 23,724 |   |      |   | (89,754 | )    |  |   | (34,948 | )
|                               |  |      |        |   |      |   |         |      |  |   |         |  
|                               |  | $    | 23,803 |   |      | $ | (89,777 | )    |  | $ | (34,976 | )
|                               |  |      |        |   |      |   |         |      |  |   |         |  

Income tax expense (benefit) differed from amounts computed by applying the U.S. Federal income tax rate as
follows for the years ended December 31:



|                                           |  |      |      |    |      |  |      |      |  |  |      |   
|------------------------------------------ |  | ---- | ---- | -- | ---- |  | ---- | ---- |  |  | ---- | --
|                                           |  | 2010 |      |    | 2009 |  |      | 2008 | 
|Statutory rate                             |  |      | 35.0 | %  |      |  | 35.0 | %    |  |  | 35.0 | % 
|State income taxes, net of federal benefit |  |      | 5.5  | %  |      |  | 3.6  | %    |  |  | 3.6  | % 
|Statutory depletion                        |  |      | (0.7 | )% |      |  | (0.5 | )%   |  |  | (0.5 | )%
|Other                                      |  |      | 1.6  | %  |      |  | (0.8 | )%   |  |  | 0.5  | % 
|                                           |  |      |      |    |      |  |      |      |  |  |      |   
|Effective tax rate                         |  |      | 41.4 | %  |      |  | 37.3 | %    |  |  | 38.6 | % 
|                                           |  |      |      |    |      |  |      |      |  |  |      |   



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Components of the deferred tax assets and liabilities are as follows at
December 31:



|                                             |  |      |          |   |      |   |         |  
|-------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | -
|                                             |  | 2010 |          |   | 2009 |  
|Deferred tax assets related to               |  |      |          |   |      |   |         |  
|Asset retirement obligations                 |  | $    | 6,238    |   |      | $ | 5,012   |  
|Accrued expenses, allowance and other        |  |      | 3,266    |   |      |   | 2,627   |  
|Net operating loss carryforwards             |  |      |          |   |      |   |         |  
|Federal                                      |  |      | 122,791  |   |      |   | 97,635  |  
|State                                        |  |      | 10,174   |   |      |   | 12,161  |  
|Statutory depletion carryforwards            |  |      | 2,003    |   |      |   | 1,854   |  
|Alternative minimum tax credit carryforwards |  |      | 308      |   |      |   | 308     |  
|                                             |  |      |          |   |      |   |         |  
|                                             |  |      | 144,780  |   |      |   | 119,597 |  
|Less valuation allowance                     |  |      | (4,864   | ) |      |   | (5,848  | )
|                                             |  |      |          |   |      |   |         |  
|Deferred tax asset                           |  |      | 139,916  |   |      |   | 113,749 |  
|Deferred tax liabilities related to          |  |      |          |   |      |   |         |  
|Derivative instruments                       |  |      | (31,462  | ) |      |   | (25,449 | )
|Property and equipment                       |  |      | (77,288  | ) |      |   | (23,461 | )
|Inventories                                  |  |      | (1,018   | ) |      |   | (627    | )
|                                             |  |      |          |   |      |   |         |  
|Deferred tax liability                       |  |      | (109,768 | ) |      |   | (49,537 | )
|                                             |  |      |          |   |      |   |         |  
|Net deferred tax asset                       |  |      | 30,148   |   |      |   | 64,212  |  
|Less net current deferred tax asset          |  |      | 9,531    |   |      |   | 1,790   |  
|                                             |  |      |          |   |      |   |         |  
|Long-term deferred tax asset                 |  | $    | 20,617   |   |      | $ | 62,422  |  
|                                             |  |      |          |   |      |   |         |  

Approximately $9,414 and $948 of the current deferred tax asset at December 31, 2010 and 2009,
respectively, relates to the short-term derivative instruments. Additionally, approximately $241 and $131 of the current deferred tax asset relates to asset retirement obligations at December 31, 2010 and 2009, respectively. At
December 31, 2010 and 2009, taxes receivable of $21 and $21, respectively, are included in accounts receivable.

We have
federal net operating loss carryforwards of approximately $350,800 at December 31, 2010, significant portions of which will begin to expire in 2018 if unused. At December 31, 2010, we have state net operating loss carryforwards of
approximately $255,900, which will begin to expire in 2011. At December 31, 2010, approximately $125,200 of the state net operating loss carryforwards have been reduced by a valuation allowance based on our assessment that it is more likely
than not that a portion will not be realized. The decrease in the valuation allowance of $984 during the year ended December 31, 2010 relates to adjustments to our estimated state net operating loss carryforwards and to our expected realization
of such carryforwards. In addition, at December 31, 2010 we had tax percentage depletion carryforwards of approximately $5,724, which are not subject to expiration.

Realization of our deferred tax assets is dependent upon generating sufficient future taxable income. Although realization is not assured, we believe it is more likely than not that the deferred tax asset
will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near-term if estimates of future taxable income are reduced.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Note 9: Related party transactions

Transactions with Chesapeake Energy Corporation

CHK Holdings L.L.C. (CHK), an indirect wholly owned subsidiary of Chesapeake Energy Corporation (Chesapeake), owns approximately 20% of our outstanding common stock. We participate
in ownership of properties operated by Chesapeake, and we received revenues and incurred joint interest billings on these properties as follows:



|                        |  |                         |        |   |      |   |        |      |  |   |        |  
|----------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                        |  | Year ended December 31, |       
|                        |  | 2010                    |        |   | 2009 |   |        | 2008 | 
|Revenues                |  | $                       | 6,395  |   |      | $ | 5,223  |      |  | $ | 9,033  |  
|Joint interest billings |  | $                       | (5,111 | ) |      | $ | (3,280 | )    |  | $ | (3,764 | )

In addition, Chesapeake
participates in ownership of properties operated by us, and we paid revenues and recorded joint interest billings to Chesapeake on these properties as follows:



|                        |  |                         |        |   |      |   |        |      |  |   |        |  
|----------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                        |  | Year ended December 31, |       
|                        |  | 2010                    |        |   | 2009 |   |        | 2008 | 
|Revenues                |  | $                       | (1,553 | ) |      | $ | (1,454 | )    |  | $ | (2,941 | )
|Joint interest billings |  | $                       | 1,765  |   |      | $ | 2,728  |      |  | $ | 3,007  |  

Amounts receivable
from and payable to Chesapeake were $718 and $120, respectively, as of December 31, 2010. Amounts receivable from and payable to Chesapeake were $2,506 and $241, respectively, as of December 31, 2009.

We were recently notified that CHK intends to sell all of its equity interest in us. The sale by CHK will be subject to the terms and
conditions of the Stockholders Agreement described in Note 10, including the restrictions on its ability to sell its equity interest.

Transactions with CCMP

On April 12, 2010, we closed the sale
of an aggregate of 475,043 shares of our common stock to CCMP, and as a result of this transaction, CCMP owns approximately 36% of our total outstanding common stock. Fees and other expenses associated with the sale were $11,769, which includes
$5,000 paid to CCMP for its expenses in connection with the transaction. See Note 10 for additional information regarding the sale of stock to CCMP.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Note 10: Common Stock

On March 23, 2010, we entered into a Stock Purchase Agreement with CCMP, pursuant to which CCMP would purchase and we would sell 475,042 shares of our class E common stock, par value $0.01 per share,
and one share of class F common stock, par value $0.01 per share, for a purchase price of $325,000. Fees and other expenses of the transaction were $11,769. The closing date of the Stock Purchase Agreement (the Closing Date) was
April 12, 2010.

In connection with the execution of the Stock Purchase Agreement, on April 12, 2010, two of the
three principal stockholders of the Company, Fischer Investments, L.L.C. (Fischer) and Altoma Energy GP (Altoma), each executed a stock purchase agreement with CCMP pursuant to which CCMP purchased from such stockholder
14,617 shares of Company common stock for a purchase price of $10,000.

Amended and Restated Certificate of
Incorporation and Amended Bylaws

In connection with the execution of the Stock Purchase Agreement, we filed the
Amended and Restated Certificate of Incorporation with the Delaware Secretary of State on April 12, 2010. The Amended and Restated Certificate of Incorporation creates seven classes of $0.01 par value per share common stock, classes A through
G, with the rights and preferences summarized below. The class A common stock carries standard voting, dividend and liquidation rights. The class B, C and D common stock was issued to our existing stockholders, with a separate class issued to each
stockholder. The class E and class F common stock was issued to CCMP. One share of class G common stock was issued to each of our existing stockholders. All shares of class B through G common stock will automatically convert to class A common stock
upon consummation of an initial public offering of shares of class A common stock resulting in proceeds to us of at least $250,000, which is underwritten on a firm commitment basis by a nationally recognized investment banking firm, and which
results in the initial listing or quotation of the class A common stock on any national securities exchange (a Qualified IPO).

Holders of class B, C and D common stock have the right, in aggregate, to designate three of our five directors. Holders of class E common stock have the right to designate the remaining two directors.
Holders of each of the class B, C, D, and E common stock have designated their respective directors. All of the initial designees of the class B, C, D and E common stock were approved by the existing board of directors prior to being empanelled.

The class B, E, F and G common stock carry the following additional voting and consent rights:



| |  |  | So long as the class B holders own 80% or more of the common stock they owned as of the Closing Date, and without such holders prior consent, we
may neither initiate nor consummate a sale of the Company, whether in the form of a stock sale, asset sale, merger or any other form whatsoever (a Company Sale), or a liquidation or dissolution of the Company, on or prior to the sixth
anniversary of the Closing Date.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In certain circumstances, we are prohibited from incurring debt, consummating sales or acquisitions of assets, taking certain operational actions or
engaging in other specified transactions without the prior consent of the holders of the class E common stock.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Upon the triggering of a Company Sale or a Demand IPO (each as summarized below) by holders of class E common stock, the voting and other rights
related to the class F common stock will permit holders of class E common stock to cause any actions necessary to be taken by our board of directors or stockholders to consummate such Company Sale or Demand IPO.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Upon the triggering of a Demand IPO by a majority in interest of our existing stockholders, the voting and other rights related to the class G common
stock will permit the majority of the holders of class G common stock to cause any actions necessary to be taken by the Companys board of directors or stockholders to consummate such Demand IPO.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The rights and preferences of a holder of class B, C, D, E, F and G common stock terminate on the earlier of (x) the closing date of
a Qualified IPO or (y) the date that such holder and its permitted transferees cease to beneficially own 5% or more of our fully-diluted common stock.

Our bylaws have been amended to conform to the provisions of the Amended and Restated Certificate of Incorporation.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Stockholders Agreement

In connection with the closing of the Stock Purchase Agreement, the Company, CCMP and our existing stockholders executed the Stockholders
Agreement on April 12, 2010. The Stockholders Agreement provides for certain general rights and restrictions, including board observer rights, informational rights, general restrictions on transfer of common stock, tag-along rights, preemptive
rights, registration rights following a Qualified IPO and, subject to certain limited exceptions, prohibitions on the sale or acquisition of our common stock that would result in a change of control, as such term is defined under the indentures for
our Senior Notes.

The Stockholders Agreement also provides for the following stockholder-specific rights or restrictions:



| |  |  | Prior to a Qualified IPO, Altoma will not vote for the approval of (i) any merger, consolidation, conversion or a Demand IPO, (ii) certain
amendments to our organizational documents, (iii) the sale of all or substantially all of our assets, or (iv) a termination of the business of or liquidation or dissolution of the Company, unless Fischer votes for such approval.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other than pursuant to the exercise of preemptive rights, CHK may not acquire more than 25% of our outstanding common stock.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | CCMP may sell up to 20% of its common stock owned on the Closing Date without restriction. Prior to a Qualified IPO and except in limited
circumstances, CCMP is restricted from making further sales before the fourth anniversary of the Closing Date, and any sales thereafter (but before a Qualified IPO) will be subject to certain rights of first offer provisions set forth in the
Stockholders Agreement (the ROFO provisions).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fischer may sell up to 20% of its common stock owned immediately prior to the Closing Date subject to certain restrictions. Prior to a Qualified IPO
and except in limited circumstances, Fischer is restricted from making further sales before the fourth anniversary of the Closing Date, and any sales thereafter (but before a Qualified IPO) will be subject to the ROFO provisions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Prior to a Qualified IPO and except in limited circumstances, CHK is restricted from selling its common stock before the 30 month anniversary of the
Closing Date, and any sales thereafter (but before a Qualified IPO) will be subject to the ROFO provisions.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If our common stock is not listed on a national securities exchange after August 15, 2011, Altoma may request to transfer its shares pursuant to a
demand registration, but only after Altoma first offers such shares to the Company, and then to CHK, Fischer and CCMP in accordance with the procedures set forth in the Stockholders Agreement.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | At any time after the 18 month anniversary of the Closing Date, either (i) CCMP or (ii ) a majority in interest of our existing stockholders may
demand that we engage in a Qualified IPO (a Demand IPO), if (a) the price per share to be received by the Company or such party or parties, as the case may be, in such Demand IPO is at least 1.75 times the price per share paid by
CCMP for our common stock pursuant to the Stock Purchase Agreement and (b) certain other conditions are met.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | At any time after the four year anniversary of the Closing Date, CCMP may demand a Demand IPO.
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | At any time after the sixth anniversary of the Closing Date, and so long as a Qualified IPO has not yet occurred, CCMP may demand a Company Sale,
subject to a right of first offer to purchase the Company provided to Fischer.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

With the exception of
registration rights, the rights and preferences of a stockholder under the Stockholders Agreement will generally terminate on the earlier of (x) the closing date of a Qualified IPO or (y) the date that such holder and its permitted
transferees cease to beneficially own 5% or more of our fully-diluted common stock.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Summary of changes in common stock

The following is a summary of the changes in our common shares outstanding during the year ended December 31, 2010:



|                                   |  |              |        |  |         |  |         |         |  |  |         |  |  |         |         |  |         |  |         |         |  |  |                                   |  |  |       |   |  |  |  |          |   |  |  |           | 
|---------------------------------- |  | ------------ | ------ |  | ------- |  | ------- | ------- |  |  | ------- |  |  | ------- | ------- |  | ------- |  | ------- | ------- |  |  | --------------------------------- |  |  | ----- | - |  |  |  | -------- | - |  |  | --------- | 
|                                   |  | Common Stock |       
|                                   |  | Class A      |        |  | Class B |  |         | Class C |  |  | Class D |  |  | Class E |         |  | Class F |  |         | Class G |  |  | SharesOutstandingon April 11,2010 |  |  | Total |  
|Shares issued at January 1, 2010   |  |              |       |  |         |  |        |         |  |  |        |  |  |         |        |  |         |  |        |         |  |  |                                  |  |  |       |  |  |  |  | 877,000  |   |  |  | 877,000   | 
|Change in classification           |  |              |       |  |         |  | 357,882 |         |  |  | 209,882 |  |  |         | 279,999 |  |         |  | 29,234  |         |  |  |                                  |  |  |       | 3 |  |  |  | (877,000 | ) |  |  |          | 
|Common stock issuance for cash     |  |              |       |  |         |  |        |         |  |  |        |  |  |         |        |  |         |  | 475,042 |         |  |  | 1                                 |  |  |       |  |  |  |  |         |   |  |  | 475,043   | 
|Restricted stock issuances         |  |              | 51,346 |  |         |  |        |         |  |  |        |  |  |         |        |  |         |  |        |         |  |  |                                  |  |  |       |  |  |  |  |         |   |  |  | 51,346    | 
|                                   |  |              |        |  |         |  |         |         |  |  |         |  |  |         |         |  |         |  |         |         |  |  |                                   |  |  |       |   |  |  |  |          |   |  |  |           | 
|Shares issued at December 31, 2010 |  |              | 51,346 |  |         |  | 357,882 |         |  |  | 209,882 |  |  |         | 279,999 |  |         |  | 504,276 |         |  |  | 1                                 |  |  |       | 3 |  |  |  |         |   |  |  | 1,403,389 | 
|                                   |  |              |        |  |         |  |         |         |  |  |         |  |  |         |         |  |         |  |         |         |  |  |                                   |  |  |       |   |  |  |  |          |   |  |  |           | 

There were no changes in our common shares outstanding during the years ended December 31, 2009 and
2008.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Note 11: Stock-based compensation

Phantom Stock Plan

Effective January 1, 2004, we implemented a Phantom Unit Plan, which was revised on December 31, 2008 as the Second Amended and Restated Phantom Stock Plan (the Plan), to provide
deferred compensation to certain key employees (the Participants). Phantom stock may be awarded to participants in total up to 2% of the fair market value of the Company. No participant may be granted, in the aggregate, more than 5% of
the maximum number of phantom shares available for award. Under the current plan, awards vest on the fifth anniversary of the award date, but may also vest on a pro-rata basis following a participants termination of employment with us due to
death, disability, retirement or termination by us without cause. Also, phantom stock will vest if a change of control event occurs. Upon vesting, participants are entitled to redeem their phantom stock for cash within 120 days of the vesting date.

A summary of our phantom stock activity for the three years ended December 31, 2010 is presented in the following table:



|                                              |  |                                     |       |  |               |  |         |                   |  |   |                                            |  |  |  |      | 
|--------------------------------------------- |  | ----------------------------------- | ----- |  | ------------- |  | ------- | ----------------- |  | - | ------------------------------------------ |  |  |  | ---- | 
|                                              |  | Weightedaveragegrant datefair value |       |  | Phantomshares |  |         | Vestdatefairvalue |  |   | Weightedaverageamortizationperiodremaining | 
|                                              |  | ($ per share)                       |       |  |               |  |         |                   |  |   | (years)                                    | 
|                                              |  |                                     |       | 
|Unvested and outstanding at January 1, 2008   |  | $                                   | 9.41  |  |               |  | 200,843 |                   |  |   |                                            |  |  |  | 2.15 | 
|Granted                                       |  | $                                   | 16.54 |  |               |  | 31,158  |                   |  |   |                                            |  |  |  |      | 
|Vested                                        |  | $                                   |      |  |               |  |        |                   |  | $ |                                           |  |  |  |      | 
|Forfeited                                     |  | $                                   | 13.29 |  |               |  | (12,343 | )                 |  |   |                                            |  |  |  |      | 
|                                              |  |                                     |       |  |               |  |         |                   |  |   |                                            |  |  |  |      | 
|                                              |  |                                     |       | 
|Unvested and outstanding at December 31, 2008 |  | $                                   | 10.20 |  |               |  | 219,658 |                   |  |   |                                            |  |  |  | 1.49 | 
|Granted                                       |  | $                                   | 11.89 |  |               |  | 40,601  |                   |  |   |                                            |  |  |  |      | 
|Vested                                        |  | $                                   | 5.38  |  |               |  | (80,411 | )                 |  |   | 811                                        |  |  |  |      | 
|Forfeited                                     |  | $                                   | 11.75 |  |               |  | (4,366  | )                 |  |   |                                            |  |  |  |      | 
|                                              |  |                                     |       |  |               |  |         |                   |  |   |                                            |  |  |  |      | 
|                                              |  |                                     |       | 
|Unvested and outstanding at December 31, 2009 |  | $                                   | 12.77 |  |               |  | 175,482 |                   |  |   |                                            |  |  |  | 1.90 | 
|Granted                                       |  | $                                   | 23.93 |  |               |  | 18,841  |                   |  |   |                                            |  |  |  |      | 
|Vested                                        |  | $                                   | 9.17  |  |               |  | (59,652 | )                 |  |   | 1,442                                      |  |  |  |      | 
|Forfeited                                     |  | $                                   | 13.63 |  |               |  | (7,812  | )                 |  |   |                                            |  |  |  |      | 
|                                              |  |                                     |       |  |               |  |         |                   |  |   |                                            |  |  |  |      | 
|                                              |  |                                     |       | 
|Unvested and outstanding at December 31, 2010 |  | $                                   | 16.04 |  |               |  | 126,859 |                   |  |   |                                            |  |  |  | 2.09 | 
|                                              |  |                                     |       |  |               |  |         |                   |  |   |                                            |  |  |  |      | 

Payments for phantom shares totaled $1,445 and $809 during 2010 and 2009, respectively. There was
no payment for phantom shares in 2008. As of December 31, 2010, there were no vested units outstanding. Based on an estimated fair value of $17.94 per phantom share as of December 31, 2010, the aggregate intrinsic value of the unvested
phantom shares outstanding was $2,276, which includes approximately $974 of unrecognized compensation cost that is expected to be recognized over a weighted-average period of 2.09 years. As of December 31, 2010 and 2009, accrued payroll and
benefits payable included $321 and $1,315, respectively, for deferred compensation costs vesting within the next twelve months.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



2010 Equity Incentive Plan

We adopted the Chaparral Energy, Inc. 2010 Long-Term Incentive Plan (the 2010 Plan) on April 12, 2010. The 2010 Plan
reserves a total of 86,301 shares of our class A common stock for awards issued under the 2010 Plan. All of our or our affiliates employees, officers, directors, and consultants, as defined in the 2010 Plan, are eligible to participate in the
2010 Plan.

Our Board of Directors has approved awards of restricted stock under the 2010 Plan totaling 51,346 shares of our
class A common stock. These awards consisted of a total of 10,049 shares that are subject to service vesting conditions (also defined as Time Vesting awards in the restricted stock agreements) and a total of 41,297 shares that are
subject to market and performance vesting conditions (also defined as Performance Vesting awards in the restricted stock agreements).

The service condition awards vest in equal annual installments over the five year vesting period. In the event of a transaction whereby CCMP receives cash upon the sale of its class E common stock (a
Transaction as defined in the restricted stock agreements), vesting of the service condition shares will be accelerated with respect to the fraction obtained by dividing (x) the number of shares of common stock sold pursuant to the
Transaction, by (y) the 504,276 shares of class E common stock owned by CCMP on April 12, 2010 (the Vesting Fraction). All other shares will remain subject to the normal vesting schedule. Since we believe the occurrence of a
Transaction is probable, compensation cost is recognized over the 3.7 year derived service period associated with the accelerated vesting provision.

The market condition awards vest in the event of a Transaction, as defined in the restricted stock agreements, whereby CCMPs net proceeds from the Transaction yield certain target returns on
investment, as shown in the following table:



|                            |  |                                                  
|--------------------------- |  | -------------------------------------------------
|Return on investment target |  | Shares vested                                    
|200% per share              |  | 20% of shares multiplied by the Vesting Fraction 
|250% per share              |  | 40% of shares multiplied by the Vesting Fraction 
|300% per share              |  | 60% of shares multiplied by the Vesting Fraction 
|350% per share              |  | 80% of shares multiplied by the Vesting Fraction 
|400% per share              |  | 100% of shares multiplied by the Vesting Fraction

The price paid by CCMP for our class E common stock on April 12, 2010, was considered to be the fair value of the service condition awards granted through December 30, 2010. The Monte Carlo
simulation method was used to value the market condition awards. A Monte Carlo simulation allows for the analysis of a complex security through statistical measures applied to a model that is simulated thousands of times to build distributions of
potential outcomes. The variables and assumptions used in this calculation were as follows:



|                        |  |                |                | 
|----------------------- |  | -------------- | -------------- | 
|                        |  | April 12, 2010 |               
|Risk free interest rate |  |                | 0.44% to 3.65% | 
|Expected volatility     |  |                | 0.55           | 
|Expected dividends      |  | $              | 0.00           | 
|Expected life           |  |                | 8 years        | 

Expected volatility
is calculated based on the average historical stock price volatility of our peer group, which consisted of the following oil and gas exploration and production companies: Berry Petroleum Co., Cabot Oil & Gas Corporation, Concho Resources,
Inc., Comstock Resources, Inc., Continental Resources, Inc., Denbury Resources, Inc., Encore Energy Partners, LP, EXCO Resources, Inc., and Whiting Petroleum Corp. Since we believe the occurrence of a Transaction is probable, compensation cost is
recognized over the 5.5 year derived service period.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



A summary of our restricted stock activity during 2010 is presented in the following
table:



|                                                    |  |                                     |        |  |                  |  |        | 
|--------------------------------------------------- |  | ----------------------------------- | ------ |  | ---------------- |  | ------ | 
|                                                    |  | Weightedaveragegrant datefair value |        |  | Restrictedshares | 
|                                                    |  | ($ per share)                       |        |  |                  | 
|                                                    |  |                                    
|Unvested and outstanding at January 1, 2010         |  | $                                   |       |  |                  |  |       | 
|Granted                                             |  | $                                   | 371.24 |  |                  |  | 51,346 | 
|Vested                                              |  | $                                   |       |  |                  |  |       | 
|Forfeited                                           |  | $                                   |       |  |                  |  |       | 
|                                                    |  |                                     |        |  |                  |  |        | 
|Unvested and total outstanding at December 31, 2010 |  | $                                   | 371.24 |  |                  |  | 51,346 | 
|                                                    |  |                                     |        |  |                  |  |        | 

Unrecognized compensation cost of $15,372 associated with our non-vested restricted stock awards is expected
to be recognized over a weighted-average period of 4.45 years.

Note 12: Retirement benefits

We provide a 401(k) retirement plan for all employees, and we match employee contributions 100%, up to 6% of each employees gross
wages. At December 31, 2010, 2009, and 2008, there were 595, 563, and 691 employees, respectively, participating in the plan. Our contribution expense was $2,000, $1,865, and $1,883 for the years ended December 31, 2010, 2009 and 2008,
respectively.

Note 13: Commitments and contingencies

Standby Letters of Credit (Letters) available under the revolving credit line are used in lieu of surety bonds with various organizations for liabilities relating to the operation of oil and
natural gas properties. We had various Letters outstanding totaling $920, $2,855, and $2,730 as of December 31, 2010, 2009, and 2008, respectively. Interest on each Letter accrues at the lenders prime rate for all amounts paid by the
lenders under the Letters. We paid no interest on the Letters during 2010, 2009, or 2008.

We have entered into operating
lease agreements for the use of office space and equipment rental on oil and natural gas properties. Rent expense for the years ended December 31, 2010, 2009, and 2008 was $4,647, $5,279, and $7,116, respectively.

We have open purchase orders for inventory totaling $3,270 at December 31, 2010.

We have a long-term contract to purchase CO2manufactured at an existing ethanol plant. We are currently purchasing approximately nine MMcf per day of CO2under this contract, and we expect to purchase an average of
approximately 12 MMcf per day over the fifteen-year contract term, which began on May 1, 2009. Purchases under this contract were $305, $62 and $0 during 2010, 2009, and 2008, respectively. Pricing under the contract is variable over time and
the contract has renewal language.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



We have rights under two additional contracts that require us to
purchase CO2for EOR projects. Under one of these contracts,
we are currently purchasing an average of approximately 16 MMcf per day and expect our purchases to remain at that level over the remaining contract term, which expires in February 2021. Purchases under this contract were $961, $600, and $746 during
2010, 2009, and 2008, respectively. Under the second of these contracts, we as unit operator have nominated to purchase 10 MMcf per day of CO2through 2012, and are currently purchasing approximately nine MMcf per day of CO2under this contract. Purchases under this contract, which include
transportation charges, were $1,505, $3,248, and $3,198 during 2010, 2009, and 2008, respectively. The contract expires in 2016. We may terminate or permanently reduce our purchase rate under this contract at the end of any calendar year with 13
months notice. Pricing under both of these contracts is dependent on certain variable factors, including the price of oil.

During 2010, we entered into change of control severance agreements under which the officers are entitled to receive certain severance
benefits. The severance payment will be paid in equal monthly installments over a period of months as calculated under the terms of the agreement and will be equal to a set multiplier times the sum of (A) the officers base salary as in
effect immediately prior to his termination date, plus (B) the officers bonus for the full year in which the termination date occurred.

Effective April 15, 2009, we settled a lawsuit against John Milton Graves Trust u/t/a 6/11/2004, et al (the Sellers). Pursuant to the settlement agreement, the Sellers paid us $7,100 and
we retained $387 contained in an escrow account, which amount settled all claims related to the litigation. In addition, the parties issued mutual releases, dismissed with prejudice the pending litigation and the claims made therein, and the Sellers
will take action to clear the title to certain properties purchased by us in the Calumet acquisition. As a result of the settlement, a $14,406 receivable and a $4,378 payable related to the litigation were eliminated, the escrow cash account was
reclassified to operating cash, and we recorded a charge to expense of $2,928 during the year ended December 31, 2009.

In February 2008, loss of well control occurred at the Bowdle 47 No. 2 well in Loving County, Texas. Total costs attributable to the
loss of well control were approximately $10,648. Our insurance policy has covered 100% of these costs, with the $627 insurance retention and deductible being payable by us. As of December 31, 2009, we received insurance proceeds of $10,021, and
no further receipts are expected. Insurance proceeds received are recorded as a reduction of oil and natural gas properties on the balance sheet and in the statement of cash flows.

Various claims and lawsuits, incidental to the ordinary course of business, are pending both for and against us. In the opinion of
management, all matters are not expected to have a material effect on our consolidated financial position or consolidated results of operations.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Note 14: Discontinued operations

Discontinued operations consist of third-party revenue and operating expenses of the ESP and Chemicals divisions of GCS, which was
acquired on April 16, 2007. Revenues were generated through the sale of oilfield supplies, chemicals, downhole submersible pumps and related services to oil and natural gas operators primarily in Oklahoma, Texas, and Wyoming. Operating expenses
consisted of costs of sales related to product sales and general and administrative expenses.

In the second quarter of 2009,
we committed to a plan to sell the assets of these divisions, and on June 8, 2009, we sold the assets of the ESP division of GCS to Global Oilfield Services, Inc. (Global) for a cash price of approximately $24,650 after working
capital adjustments as provided in the agreement. We paid off notes payable attributed to certain assets sold to Global in the amount of $1,605, and recorded a pre-tax gain associated with the sale of $9,081.

On December 11, 2009, we entered into an agreement with Reef Services, LLC (Reef) under which we exchanged the assets of
the Chemicals division of GCS for the assets of the Reef Acid Division and cash of $696. The assets received consist primarily of acid trucks and related equipment and have an estimated fair value of approximately $2,950. This transaction is
considered a non-monetary exchange accounted for at fair value. We paid off notes payable attributed to certain assets sold to Reef in the amount of $253, and recorded a pre-tax gain associated with the exchange of $1,368.

The operating results of GCS have been reclassified as discontinued operations in the consolidated statements of operations as detailed
in the table below. There was no activity associated with these divisions during 2010.



|                                         |  |                         |        |   |      |   |         |  
|---------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------- | -
|                                         |  | Year ended December 31, |       
|                                         |  | 2009                    |        |   | 2008 |  
|Revenues                                 |  | $                       | 8,760  |   |      | $ | 25,537  |  
|Operating expenses                       |  |                         | (8,375 | ) |      |   | (23,061 | )
|Depreciation, depletion and amortization |  |                         | (541   | ) |      |   | (947    | )
|Gain on sale                             |  |                         | 10,449 |   |      |   |        |  
|                                         |  |                         |        |   |      |   |         |  
|Income before income taxes               |  |                         | 10,293 |   |      |   | 1,529   |  
|Income tax expense                       |  |                         | 3,841  |   |      |   | 590     |  
|                                         |  |                         |        |   |      |   |         |  
|Income from discontinued operations      |  | $                       | 6,452  |   |      | $ | 939     |  
|                                         |  |                         |        |   |      |   |         |  

There were no assets held for sale or liabilities associated with discontinued operations as of
December 31, 2010 or 2009.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Note 15: Oil and natural gas activities

Our oil and natural gas activities are conducted entirely in the United States. Costs incurred in oil and natural gas producing activities
are as follows for the years ended December 31:



|                           |  |      |         |  |      |   |         |      |  |   |         | 
|-------------------------- |  | ---- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|                           |  | 2010 |         |  | 2009 |   |         | 2008 | 
|Property acquisition costs |  |      |         |  |      |   |         |      |  |   |         | 
|Proved properties          |  | $    | 32,458  |  |      | $ | 14,552  |      |  | $ | 39,201  | 
|Unproved properties        |  |      | 9,062   |  |      |   | 3,781   |      |  |   | 6,677   | 
|                           |  |      |         |  |      |   |         |      |  |   |         | 
|Total acquisition costs    |  |      | 41,520  |  |      |   | 18,333  |      |  |   | 45,878  | 
|Development costs(1)       |  |      | 251,564 |  |      |   | 127,640 |      |  |   | 251,690 | 
|Exploration costs(2)       |  |      | 34,180  |  |      |   | 4,942   |      |  |   | 5,108   | 
|                           |  |      |         |  |      |   |         |      |  |   |         | 
|Total                      |  | $    | 327,264 |  |      | $ | 150,915 |      |  | $ | 302,676 | 
|                           |  |      |         |  |      |   |         |      |  |   |         | 



|(1) | Includes $9,794, $5,831 and $17,946 of costs related to CO2support facilities and pipelines in 2010, 2009 and 2008, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes $16,667 of EOR costs in 2010.
|--- | --------------------------------------

Depreciation, depletion, and amortization expense of oil and natural gas properties was $96,676, $92,561, and $91,316 for the years ended December 31, 2010, 2009, and 2008, respectively. The average
depreciation, depletion and amortization rate per equivalent unit of production was $12.01, $12.12, and $12.91 for the years ended December 31, 2010, 2009 and 2008, respectively.

Oil and natural gas properties not subject to amortization consist of the cost of unevaluated properties and seismic costs associated
with specific unevaluated properties. Of the $19,135 of unproved property costs at December 31, 2010 being excluded from the amortization base, $8,246, $4,656, and $3,740 were incurred in 2010, 2009 and 2008, respectively, and $2,493 was
incurred in prior years. These costs are primarily seismic and lease acquisition costs. We expect to complete our evaluation of the properties representing the majority of these costs within the next two to five years.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Note 16: Disclosures about oil and natural gas activities (unaudited)

The estimate of proved reserves and related valuations were based upon the reports of Cawley, Gillespie & Associates, Inc., Ryder
Scott Company, L.P., and Lee Keeling & Associates, Inc., each independent petroleum and geological engineers, and our engineering staff. Users of this information should be aware that the process of estimating quantities of
proved and proved developed crude oil and natural gas reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The
data for a given reservoir may also change substantially over time as a result of numerous factors, including additional development activity, evolving production history and continual reassessment of the viability of production under varying
economic conditions. Consequently, material revisions to existing reserve estimates occur from time to time.



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Our oil and natural gas reserves are attributable solely to properties within the United
States. A summary of the changes in our quantities of proved oil and natural gas reserves for the three years ended December 31, 2010 are as follows:



|                              |  |            |         |   |                   |  |         |             |  |  |         |  
|----------------------------- |  | ---------- | ------- | - | ----------------- |  | ------- | ----------- |  |  | ------- | -
|                              |  | Oil(MBbls) |         |   | Natural Gas(MMcf) |  |         | Total(MBoe) | 
|Balance at January 1, 2008    |  |            | 99,104  |   |                   |  | 392,269 |             |  |  | 164,482 |  
|Purchase of minerals in place |  |            | 1,170   |   |                   |  | 7,549   |             |  |  | 2,428   |  
|Sales of minerals in place    |  |            | (31     | ) |                   |  | (854    | )           |  |  | (173    | )
|Extensions and discoveries    |  |            | 2,444   |   |                   |  | 51,149  |             |  |  | 10,969  |  
|Revisions (1)                 |  |            | (46,784 | ) |                   |  | (67,414 | )           |  |  | (58,020 | )
|Improved recoveries           |  |            | (847    | ) |                   |  | 9,462   |             |  |  | 730     |  
|Production                    |  |            | (3,773  | ) |                   |  | (19,795 | )           |  |  | (7,072  | )
|                              |  |            |         |   |                   |  |         |             |  |  |         |  
|Balance at December 31, 2008  |  |            | 51,283  |   |                   |  | 372,366 |             |  |  | 113,344 |  
|Purchase of minerals in place |  |            | 595     |   |                   |  | 336     |             |  |  | 651     |  
|Sales of minerals in place    |  |            | (33     | ) |                   |  | (18     | )           |  |  | (36     | )
|Extensions and discoveries    |  |            | 6,671   |   |                   |  | 49,446  |             |  |  | 14,912  |  
|Revisions(2)                  |  |            | 32,328  |   |                   |  | (87,990 | )           |  |  | 17,663  |  
|Improved recoveries           |  |            | 2,499   |   |                   |  | 2,874   |             |  |  | 2,978   |  
|Production                    |  |            | (3,874  | ) |                   |  | (22,584 | )           |  |  | (7,638  | )
|                              |  |            |         |   |                   |  |         |             |  |  |         |  
|Balance at December 31, 2009  |  |            | 89,469  |   |                   |  | 314,430 |             |  |  | 141,874 |  
|Purchase of minerals in place |  |            | 1,352   |   |                   |  | 17,166  |             |  |  | 4,213   |  
|Sales of minerals in place    |  |            |        |   |                   |  | (6      | )           |  |  | (1      | )
|Extensions and discoveries    |  |            | 4,767   |   |                   |  | 37,914  |             |  |  | 11,086  |  
|Revisions                     |  |            | (2,694  | ) |                   |  | (10,542 | )           |  |  | (4,451  | )
|Improved recoveries           |  |            | 4,611   |   |                   |  |        |             |  |  | 4,611   |  
|Production                    |  |            | (4,093  | ) |                   |  | (23,742 | )           |  |  | (8,050  | )
|                              |  |            |         |   |                   |  |         |             |  |  |         |  
|Balance at December 31, 2010  |  |            | 93,412  |   |                   |  | 335,220 |             |  |  | 149,282 |  
|                              |  |            |         |   |                   |  |         |             |  |  |         |  
|                              |  |            |        
|Proved developed reserves:    |  |            |         |   |                   |  |         |             |  |  |         |  
|January 1, 2008               |  |            | 61,567  |   |                   |  | 269,578 |             |  |  | 106,497 |  
|                              |  |            |         |   |                   |  |         |             |  |  |         |  
|December 31, 2008             |  |            | 40,382  |   |                   |  | 263,331 |             |  |  | 84,271  |  
|                              |  |            |         |   |                   |  |         |             |  |  |         |  
|December 31, 2009             |  |            | 55,861  |   |                   |  | 228,006 |             |  |  | 93,862  |  
|                              |  |            |         |   |                   |  |         |             |  |  |         |  
|December 31, 2010             |  |            | 55,607  |   |                   |  | 257,754 |             |  |  | 98,566  |  
|                              |  |            |         |   |                   |  |         |             |  |  |         |  
|                              |  |            |        
|Proved undeveloped reserves:  |  |            |         |   |                   |  |         |             |  |  |         |  
|January 1, 2008               |  |            | 37,537  |   |                   |  | 122,691 |             |  |  | 57,985  |  
|                              |  |            |         |   |                   |  |         |             |  |  |         |  
|December 31, 2008             |  |            | 10,901  |   |                   |  | 109,035 |             |  |  | 29,073  |  
|                              |  |            |         |   |                   |  |         |             |  |  |         |  
|December 31, 2009             |  |            | 33,608  |   |                   |  | 86,424  |             |  |  | 48,012  |  
|                              |  |            |         |   |                   |  |         |             |  |  |         |  
|December 31, 2010             |  |            | 37,805  |   |                   |  | 77,466  |             |  |  | 50,716  |  
|                              |  |            |         |   |                   |  |         |             |  |  |         |  



|(1) | The downward revision in our oil and natural gas reserves during 2008 was primarily due to a decrease in price from $96.01 and $6.80, respectively, as of
December 31, 2007 to $44.60 and $5.62, respectively as of December 31, 2008.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The upward revision in our oil reserves during 2009 was primarily due to an increase in price from $44.60 as of December 31, 2008 to $61.18 as of December 31,
2009. The downward revision in our natural gas reserves during 2009 was primarily due to a decrease in price from $5.62 as of December 31, 2008 to $3.87 as of December 31, 2009.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



The following information was developed using procedures prescribed by GAAP. The
standardized measure of discounted future net cash flows should not be viewed as representative of our current value. It and the other information contained in the following tables may be useful for certain comparative purposes, but should not be
solely relied upon in evaluating us or our performance.

We believe that, in reviewing the information that follows, the
following factors should be taken into account:



| |  |  | future costs and sales prices will probably differ from those required to be used in these calculations;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | actual rates of production achieved in future years may vary significantly from the rates of production assumed in the calculations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a 10% discount rate may not be reasonable as a measure of the relative risk inherent in realizing future net oil and natural gas revenues; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | future net revenues may be subject to different rates of income taxation.
| | - |  | -------------------------------------------------------------------------

For 2010 and 2009, future cash inflows used in the standardized measure calculation were estimated by applying a twelve-month average
price for oil and natural gas, adjusted for location and quality differences, to the estimated future production of year-end proved reserves. Future cash inflows for 2008 were estimated by applying the year-end price for oil and natural gas,
adjusted for location and quality differences, to the estimated future production of year-end proved reserves. Future cash inflows do not reflect the impact of future production that is subject to open hedge positions (see Note 3, Derivative
activities and financial instruments). Future cash inflows were reduced by estimated future development, abandonment and production costs based on year-end costs in order to arrive at net cash flows before tax. Future income tax expense has
been computed by applying year-end statutory tax rates to aggregate future pre-tax net cash flows reduced by the tax basis of the properties involved and tax carryforwards. GAAP requires the use of a 10% discount rate and prices and costs excluding
escalations based upon future conditions.

In general, management does not rely on the following information in making
investment and operating decisions. Such decisions are based upon a wide range of factors, including estimates of probable and possible as well as proved reserves and varying price and cost assumptions considered more representative of a range of
possible economic conditions that may be anticipated.

The standardized measure of discounted future net cash flows relating
to proved oil and natural gas reserves are as follows:



|                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|-------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                         |  | 2010 |            |   | 2009 |   |            | 2008 | 
|Future cash flows                                        |  | $    | 8,614,519  |   |      | $ | 6,376,198  |      |  | $ | 4,198,416  |  
|Future production costs                                  |  |      | (3,448,904 | ) |      |   | (2,561,177 | )    |  |   | (1,841,786 | )
|Future development and abandonment costs                 |  |      | (1,054,771 | ) |      |   | (734,611   | )    |  |   | (438,360   | )
|Future income tax provisions                             |  |      | (1,211,143 | ) |      |   | (792,160   | )    |  |   | (338,416   | )
|                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Net future cash flows                                    |  |      | 2,899,701  |   |      |   | 2,288,250  |      |  |   | 1,579,854  |  
|Less effect of 10% discount factor                       |  |      | (1,663,675 | ) |      |   | (1,316,886 | )    |  |   | (824,841   | )
|                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Standardized measure of discounted future net cash flows |  | $    | 1,236,026  |   |      | $ | 971,364    |      |  | $ | 755,013    |  
|                                                         |  |      |            |   |      |   |            |      |  |   |            |  



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Future cash flows as shown above were reported without consideration for the effects of
cash flow hedges outstanding at each period end. Based on SEC prices used in determining future net revenues, if the effects of cash flow hedges were included in the computation, then future cash flows would have increased by $0, $28,156, and
$259,793 in 2010, 2009 and 2008, respectively.

The changes in the standardized measure of discounted future net cash flows
relating to proved oil and natural gas reserves are as follows:



|                                                                                   |  |      |           |   |      |   |          |      |  |   |            |  
|---------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | -------- | ---- |  | - | ---------- | -
|                                                                                   |  | 2010 |           |   | 2009 |   |          | 2008 | 
|Beginning of year                                                                  |  | $    | 971,364   |   |      | $ | 755,013  |      |  | $ | 1,793,980  |  
|Sale of oil and natural gas produced, net of production costs                      |  |      | (275,939  | ) |      |   | (177,891 | )    |  |   | (347,749   | )
|Net changes in prices and production costs                                         |  |      | 512,006   |   |      |   | 369,851  |      |  |   | (1,184,385 | )
|Extensions and discoveries                                                         |  |      | 166,330   |   |      |   | 126,235  |      |  |   | 231,614    |  
|Improved recoveries                                                                |  |      | 69,181    |   |      |   | 25,212   |      |  |   | 15,415     |  
|Changes in future development costs                                                |  |      | (236,031  | ) |      |   | (253,459 | )    |  |   | 142,143    |  
|Development costs incurred during the period that reduced future development costs |  |      | 84,327    |   |      |   | 62,960   |      |  |   | 181,462    |  
|Revisions of previous quantity estimates                                           |  |      | (66,781   | ) |      |   | 149,494  |      |  |   | (1,225,090 | )
|Purchases and sales of reserves in place, net                                      |  |      | 63,205    |   |      |   | 4,956    |      |  |   | 46,148     |  
|Accretion of discount                                                              |  |      | 124,480   |   |      |   | 88,440   |      |  |   | 401,154    |  
|Net change in income taxes                                                         |  |      | (181,858  | ) |      |   | (174,544 | )    |  |   | 703,123    |  
|Changes in production rates and other                                              |  |      | 5,742     |   |      |   | (4,903   | )    |  |   | (2,802     | )
|                                                                                   |  |      |           |   |      |   |          |      |  |   |            |  
|End of year                                                                        |  | $    | 1,236,026 |   |      | $ | 971,364  |      |  | $ | 755,013    |  
|                                                                                   |  |      |           |   |      |   |          |      |  |   |            |  

The following prices before field differentials were used in determining future net revenues related to the
standardized measure calculation:



|                      |  |      |       |  |      |   |       |      |  |   |       | 
|--------------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                      |  | 2010 |       |  | 2009 |   |       | 2008 | 
|Oil (per Bbl)         |  | $    | 79.43 |  |      | $ | 61.18 |      |  | $ | 44.60 | 
|Natural gas (per Mcf) |  | $    | 4.38  |  |      | $ | 3.87  |      |  | $ | 5.62  | 



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Chaparral Energy, Inc. and subsidiaries

Notes to consolidated financial statements(Continued)

(Dollars in thousands, unless otherwise noted)



Note 17: Subsequent events

On February 22, 2011, we issued $400,000 aggregate principal amount of 8.25% Senior Notes maturing on September 1, 2021. We used
the net proceeds from the 8.25% Senior Notes to consummate a tender offer for all of our 8.5% Senior Notes due 2015, to redeem our 8.5% Senior Notes due 2015 not purchased in the tender offer, and for general corporate purposes. In connection with
the issuance of the 8.25% Senior Notes and the repurchase or redemption of our 8.5% Senior Notes due 2015, we capitalized approximately $8,500 of issuance costs related to underwriting and other fees and we expensed approximately $15,000 of
redemption-related costs.



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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial
reports and to other members of senior management and the board of directors. Based on their evaluation as of the end of the fiscal year ended December 31, 2010, our principal executive officer and principal financial officer have concluded
that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act are recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms and are effective to ensure that information required to be disclosed in such reports is accumulated and communicated to our management, including
our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Managements Report on Internal Control over Financial Reporting

Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of
1934, as amended, as a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles and includes those policies
and procedures that:



| |  |  | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions relating to and the dispositions of our
assets;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide reasonable assurance regarding prevention or the timely detection of unauthorized acquisition, or the use or disposition of our assets that
could have a material effect on the financial statements.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.

Management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the principal executive officer and principal
financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on our evaluation under the framework in Internal ControlIntegrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2010.

This annual report does not include an attestation report of our registered public accounting firm regarding internal
control over financial reporting. Managements report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only managements report in
this annual report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2010
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We may make changes in our internal control procedures from time to time in the future.



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ITEM 9B. OTHER INFORMATION

None.

PART
III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Executive Officers and Directors

The following table provides information regarding our executive officers and directors. Our board of directors currently consists of five membersMark A. Fischer, Charles A. Fischer, Jr., Aubrey K.
McClendon, Karl Kurz and Christopher Behrens. Mark A. Fischer is a full-time employee.



|                        |  |     |    |  |          |                                                                                  
|----------------------- |  | --- | -- |  | -------- | ---------------------------------------------------------------------------------
|Name                    |  | Age |    |  | Position
|Mark A. Fischer         |  |     | 61 |  |          | Chairman, Chief Executive Officer and President                                  
|Joseph O. Evans         |  |     | 56 |  |          | Chief Financial Officer and Executive Vice President                             
|K. Earl Reynolds        |  |     | 50 |  |          | Chief Operating Officer and Executive Vice President (effective February 1, 2011)
|Robert W. Kelly II      |  |     | 53 |  |          | Senior Vice President and General Counsel                                        
|Larry E. Gateley        |  |     | 61 |  |          | Senior Vice PresidentReservoir Engineering and Business Development             
|James M. Miller         |  |     | 48 |  |          | Senior Vice PresidentMid-Continent Region Manager                               
|Charles A. Fischer, Jr. |  |     | 62 |  |          | Director                                                                         
|Aubrey K. McClendon     |  |     | 51 |  |          | Director                                                                         
|Karl Kurz               |  |     | 49 |  |          | Director                                                                         
|Christopher Behrens     |  |     | 50 |  |          | Director                                                                         

Mark A. Fischer, Chairman,
Chief Executive Officer, President and Co-Founder, co-founded the Company in 1988 and has served as its President and Chairman of the Board since its inception. Mr. Fischer began his career with Exxon Company USA in 1972 in the Permian
Basin of West Texas where he held various positions as production engineer, reservoir engineer, field superintendent and finally supervising production engineer. From 1977 until 1980, Mr. Fischer served as the drilling and production manager
for the West Texas and then Mid-Continent Division of TXO Production Corp. Prior to founding Chaparral, he served as division operations manager for Slawson Exploration Company, focusing on the Mid-Continent and Panhandle Divisions. He is a member
of the Society of Petroleum Engineers and the American Petroleum Institute. Mr. Fischer served as a director of the API from 1984 to 1986. Mr. Fischer graduated from Texas A&M University with an Honors degree in Aerospace Engineering,
and currently serves on the Engineering Advisory Council for Texas A&M University. Mark A. Fischer and Charles A. Fischer, Jr. are brothers. Mr. Fischer is the board designee of the holders of our class B common stock.

Joseph O. Evans, Chief Financial Officer & Executive Vice President, joined the Company in July of 2005 as Chief
Financial Officer and served on its board of directors from September 2006 to April 2010. From 1998 to June 2005, Mr. Evans was a consultant and practiced public accounting with the firm of Evans Gaither & Assoc. From 1997 to 1998, he
served as Senior Vice President and Financial Advisor, Energy Lending, for First National Bank of Commerce in New Orleans. From 1976 until 1997, Mr. Evans worked in the Oklahoma practice of Deloitte & Touche where he became an Audit
Partner. While at Deloitte he was a member of the energy industry group and was responsible for services on numerous SEC filings for clients. Mr. Evans has instructed numerous continuing professional education courses focused on compliance with
the Sarbanes-Oxley Act. He is a Certified Public Accountant and an Accredited Petroleum Accountant. Mr. Evans is a graduate of the University of Central Oklahoma with a Bachelor of Science degree in Accounting.

K. Earl Reynolds, Chief Operating Officer and Executive Vice President, joined the Company in February 2011. From 2000 through
2010, Mr. Reynolds was actively involved in international operations and strategic planning for Devon Energy, most recently serving as Senior Vice President  Strategic Development, and was responsible for tactical planning, budgeting,
coordination of acquisitions and divestitures, and oversight of the companys assessment of oil and gas reserves. Prior to Devon Energy, Mr. Reynolds career included several key leadership roles in domestic and international
operations with companies such as Burlington Resources and Mobil Oil. Mr. Reynolds is registered as a Professional Engineer and a member of the Society of Petroleum Engineers. He has served on the board of directors for several non-profit
organizations in Houston and Oklahoma City. Mr. Reynolds holds a Master of Science degree in Petroleum Engineering from the University of Houston and a Bachelor of Science degree in Petroleum Engineering from Mississippi State University.

Robert W. Kelly II, Sr. Vice President & General Counsel, joined the Company in 2001 and oversees the legal,
land, marketing and environmental functions. Prior to joining the Company, Mr. Kelly worked for Ricks Exploration Inc. as Director of Business Development & Gas Marketing for two years. From 1990 until 1999, he was with EOG Resources
Inc. (formerly Enron Oil & Gas Company) initially as Land Manager for its Oklahoma City division and later building their business development department. During



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1989 and 1990, Mr. Kelly was a title attorney in his own partnership firm in Oklahoma City. He began his oil and gas career as a Landman with TXO Production Corp. in 1981, subsequently
receiving promotions to District Landman by 1988. He is a member of the American Bar Association, the Oklahoma Bar Association, the Oklahoma Independent Producers Association, and several other business and legal associations. Mr. Kelly
received a Bachelor of Business Administration (Petroleum Land Management) degree from the University of Oklahoma, and a Juris Doctor from the Oklahoma City University School of Law.

Larry E. Gateley, Sr. Vice PresidentReservoir Engineering andBusiness Development, joined the Company in 1997 as the
Reservoir Engineering and Acquisitions Manager, and is responsible for the Company Reservoir Group, which prepares the Company Annual Reserve Report, the Acquisition Department, the Company EOR Special Projects Group, and the Joint Interests
Department. Mr. Gateley has 38 years of diversified management and operational and technical engineering experience. His previous positions include Reservoir/Production/Drilling Engineer for Exxon Company USA, Sr. Petroleum Engineer for J.M.
Huber Corp., Chief Drilling Engineer for Post Petroleum Inc., Vice President and Co-Owner of Wood-Gate Engineering Inc., Vice President of Acquisitions for SMR Energy Income Funds, and Acquisitions Manager for Frontier Natural Gas Corporation.
Mr. Gateley is a registered Professional Engineer in the states of Oklahoma and Texas. He is a graduate of the University of Oklahoma with a Bachelor of Science degree in Mechanical Engineering.

James M. Miller, Sr. Vice PresidentMid-Continent Region Manager, joined the Company in 1996, as Operations Engineer. Since
joining the Company, Mr. Miller has been promoted to positions of increasing responsibility and currently oversees all company production operations and field services. Mr. Miller has gained particular expertise in the area of operating
secondary and EOR units. Prior to joining Chaparral, Mr. Miller worked for KEPCO Operating Inc. for one year as a petroleum engineer. From 1987 to 1995, he was employed by Robert A. Mason Production Co., as a petroleum engineer, and later as
Vice President of Production. He is a member of the Society of Petroleum Engineers and the American Petroleum Institute. Mr. Miller attended the University of Oklahoma and received a Bachelor of Science degree in Petroleum Engineering.

Charles A. Fischer, Jr., Director and Co-Founder, co-founded the Company in 1988, and has served as a director of the
Company since its inception. Mr. Fischer served as the Companys Chief Administrative Officer and Executive Vice President from July 2005 until his retirement effective July 27, 2007. Mr. Fischer joined the Company full-time in
2000 and served as its Chief Financial Officer and Senior Vice President for five years until assuming the role of Chief Administrative Officer. In 1978 Mr. Fischer founded C.A. Fischer Lumber Co. Ltd., which owns eight retail building supply
outlets in western Canada, and is the current President. Mr. Fischer also serves as manager of Altoma Energy GP. Mr. Fischer began his career with Renewable Resources in 1974 as a senior scientist on the Polar Gas Pipeline Project
investigating the feasibility of bringing natural gas from the high Arctic to south-central Canada. Mr. Fischer served as director of the Canadian Western Retail Lumbermans Association for 11 years, was President for six years, and
received the 2001 Industry Achievement Award. He graduated from Texas A&M University with a Bachelor of Science degree in Biology and from the University of Wisconsin with a Master of Science degree in Ecology. Mr. Fischer is the board
designee of the holders of our class C common stock.

Aubrey K. McClendon, Director,was elected to the Companys
board of directors in April 2010. Mr. McClendon co-founded Chesapeake Energy Corporation (NYSE: CHK) in 1989 and has served as its Chairman of the Board and Chief Executive Officer since that time. From 1982 to 1989, Mr. McClendon was an
independent producer of oil and natural gas. Mr. McClendon graduated from Duke University in 1981. Mr. McClendon is the board designee of the holders of our class D common stock.

Karl Kurz, Director,has over 28 years of energy industry experience with a focus on executive management, operations, midstream,
marketing, business development, and planning. Mr. Kurz joined CCMP Capital Advisors, LLC in 2009 as a Managing Director and Co-Head of the Energy Group, and is a member of its Investment Committee. Previously, Mr. Kurz served as the chief
operating officer for Anadarko Petroleum Corporation, one of the worlds largest independent oil and gas exploration and development companies from December 2006 through March 2009. He led a global organization of approximately 3,300 employees
with a 2008 capital budget of $5.2 billion. He had responsibility for global exploration and production, marketing, midstream, land, technology, and engineering services. Mr. Kurz joined Anadarko in 2000 as Manager, Energy Marketing. He was
promoted to Vice President, Marketing in November 2003, to Senior Vice President, Marketing, and General Manager, U.S. Onshore in May 2005 and to Senior Vice President, North America Operations, Midstream and Marketing in August 2006. Mr. Kurz
began his career with ARCO Oil & Gas Company in 1983 and spent seven years in various upstream roles, with a focus on reservoir and production engineering. In 1990, he continued his career with a move into ARCO Oil & Gas
Companys Crude Oil Marketing Department. Mr. Kurz became Manager of Vastar Resources, Inc.s Crude Oil and NGL Marketing Department in 1995 and was promoted to General Manager of Midstream and Marketing in 1998. Mr. Kurz holds a
Bachelor of Science in petroleum engineering from Texas A&M University, graduating Magna Cum Laude in 1983. He is also a graduate of Harvards Advanced Management Program in 2008. Mr. Kurz has served on the Board of Directors of
Natural Gas Supply Association, the American Petroleum Institute, and the Independent Petroleum Association of America. He also served on the board of Western Gas Partners (WES) from December 2007 through March 2009, and currently serves on the
board of SemGroup Corporation. Active in his community, Mr. Kurz serves on the Board of Sam Houston Council of the Boy Scouts of America and Dallas Theological Seminary. Mr. Kurz is one of the two board designees of the holders of our
class E common stock.



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Christopher Behrens, Director,is a Managing Director in the New York office of CCMP
Capital Advisors, LLC and a member of its Investment Committee. He focuses on making investments in the industrial, distribution and energy sectors. Prior to joining CCMP in 2006, Mr. Behrens was a partner with J.P. Morgan Partners, LLC. Prior to
joining J.P. Morgan Partners in 1994, he was a Vice President in the Merchant Banking Group of The Chase Manhattan Corporation. Mr. Behrens holds a B.A. from the University of California, Berkeley and an M.A. from Columbia University.
Mr. Behrens serves on the board of directors of a number of private companies. Mr. Behrens is one of the two board designees of the holders of our class E common stock.

Board Committees

On April 12, 2010, our Board of Directors established a compensation committee and an audit committee, effective upon the closing of the sale of our common stock to CCMP. All members of the Board of
Directors were appointed to both the compensation committee and the audit committee, and the Board of Directors adopted charters for both committees on November 10, 2010. Christopher Behrens has been appointed Chairman of the audit committee,
and Karl Kurz has been appointed Chairman of the compensation committee.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics that is applicable to all employees, officers and members of our board of directors.
The Code of Business Conduct and Ethics is available on our website at http://www.chaparralenergy.com.



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ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

On April 12, 2010, we sold 475,043 shares of our common stock to CCMP. In connection with that sale, we were required to (i) offer employment agreements to our NEOs, and (ii) adopt the 2010 Long-Term
Incentive Plan. The terms of the employment agreements and the 2010 Long-Term Incentive Plan were agreed upon following negotiations with CCMP and are described below under the heading Compensation after April 12, 2010. Our compensation
philosophy and objectives outlined below continue to apply after our sale of stock to CCMP.

Overview & Oversight of Compensation
Program

Our compensation programs include programs that are designed specifically for (i) our most senior executive
officers (Senior Executives), which includes the Principal Executive Officer (PEO) and the other executive officers named in the Summary Compensation Table (the Named Executive Officers or NEOs);
(ii) employees who are designated as our executives (Executives or Executive Employees), which includes the Senior Executives and (iii) a broad base of employees. Currently, our PEO and board of directors oversee
the compensation programs for the Named Executive Officers, Executives and the broad base of employees.

Overview of Compensation
Philosophy and Program

In order to recruit and retain the most qualified and competent individuals as Senior Executives,
we strive to maintain a compensation program that is competitive in the labor market. The following compensation objectives are considered in setting the compensation programs for our Senior Executives:



| |  |  | drive and reward performance which supports our core values;
| | - |  | ------------------------------------------------------------



| |  |  | align the interests of Senior Executives with those of stockholders;
| | - |  | --------------------------------------------------------------------



| |  |  | design competitive total compensation and rewards programs to enhance our ability to attract and retain knowledgeable and experienced Senior
Executives; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | set compensation and incentive levels that reflect mid-range market practices.
| | - |  | ------------------------------------------------------------------------------

Compensation Targets

From time to time, we review compensation data from the Oil & Gas E&P Survey prepared by Effective Compensation, Incorporated
(the Survey Data) to ensure that our Senior Executive base salary compensation program generally aligns with the median of the Survey Data. The Survey Data is a compilation of compensation and other data from the prior year based upon
over 100 exploration and production firms that participated in the survey.

In determining base salaries for our executive
officers, in addition to the Survey Data referenced above, our Board also considers the current level of the Executives compensation, both internally and relative to other Company officers and current industry and economic factors. The
process can best be described as (i) first, looking within our Company at the current salary structure among the executive group to ensure fairness and consistency, (ii) second, evaluating the Companys performance to ensure that
compensation is, in large part, performance-based, (iii) third, looking at general industry conditions, and (iv) fourth, looking at peer group companies to determine if the range of compensation paid to our Executives is within the
fairway of the compensation paid to executives in similarly situated companies.



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Compensation Elements and Rationale for Pay Mix Decisions

We believe that a competitive compensation program will enhance our ability to attract and retain Senior Executives. To reward both short-
and long-term performance in our compensation program and in furtherance of our compensation objectives noted above, our executive compensation philosophy includes the following four principles:

(i) Compensation levels should be competitive

We review the Survey Data to ensure that the base salary compensation is aligned with median levels.

(ii) Compensation should be related to performance

We believe that
a significant portion of a Senior Executives compensation should be tied to individual performance and to our overall performance measured primarily by growth in reserves, production and net income.

(iii) Variable compensation should represent a portion of a Senior Executives total compensation

We intend for a portion of compensation paid to Senior Executives to be variable in order to allow flexibility when our performance and/or
industry conditions are not optimum and maintain the ability to reward Senior Executives for our overall growth and retain Senior Executives when industry conditions necessitate. Senior Executives should have the incentive of increasing our
profitability and value in order to earn a portion of their compensation package.

(iv) Compensation should balance
short- and long-term performance

We seek to structure a balance between achieving strong short-term annual results and
ensuring our long-term viability and success. To reinforce the importance of balancing these perspectives, Senior Executives are regularly provided compensation based on both the accomplishment of short-term objectives and incentives for achieving
long-term objectives. Beginning in 2004, we began a long-term compensation plan for our Executive Employees and other key employees to deliver long-term incentive awards aligned with the interests of stockholders while simultaneously serving as a
retention tool to ensure that recipients remain employed while our annual bonus plans are structured to reward the accomplishment of short-term objectives.

Review of Senior Executive Performance

The PEO reviews, on an annual
basis, each compensation element of a Senior Executive. In each case, the PEO takes into account the scope of responsibilities and experience, succession potential, strengths and weaknesses, and contribution and performance over the past year and
balances these against competitive salary levels. The PEO works daily with the Senior Executives, which allows him to form his assessment of each individuals performance. The PEOs performance is assessed by the Board, taking into account
the scope of responsibilities and experience, strengths and weaknesses, and contribution and performance over the past year balanced against competitive salary levels.



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Components of the Executive Compensation Program

We believe the total compensation and benefits program for Senior Executives should consist of the following:



| |  |  | base salaries;
| | - |  | --------------



| |  |  | annual bonus plans;
| | - |  | -------------------



| |  |  | long-term retention and incentive compensation; and
| | - |  | ---------------------------------------------------



| |  |  | health and welfare benefits and retirement.
| | - |  | -------------------------------------------

Base Salaries

For 2010, Senior Executive base salaries were minimally
increased from 2009 due to general industry conditions and the economic and industry outlook for 2010. Increases to base salaries in 2010, if any, were driven primarily by general industry conditions and the economic and industry outlook for 2010.

We review the Survey Data annually. The Survey Data and general economic conditions and marketplace compensation trends are
evaluated. We usually adjust base salaries for Senior Executives annually. The PEO did not rely solely on predetermined formulas or a limited set of criteria when evaluating the base salaries of the Senior Executives for 2010.

This is in line with our philosophy that Senior Executive compensation should be paid at approximately the competitive median levels
based on the Survey Data, and taking current industry and economic factors into consideration. The salaries paid to the PEO and the NEOs during fiscal year 2010 are shown in the Summary Compensation Table in this annual report.

Annual Officers Bonus

We established the Annual Officers Bonus program in September 2006. The Annual Officers Bonus provides Senior Executives with the
opportunity to earn cash bonuses based on our achievement of unspecified Company-wide goals as determined by the PEO. The bonus is a component of the compensation program designed to align Senior Executive pay with our annual (short-term)
performance.

The Annual Officers Bonus program was structured to provide cash bonus targets to Senior Executives competitive
to the median levels based on the Survey Data to be consistent with our philosophy that compensation levels should be variable and competitive. The Annual Officers Bonuses awarded to the PEO and the NEOs are shown in the Summary Compensation
Table. The 2010 Annual Officers Bonuses were awarded in March 2011, and were generally in line with the cash bonus targets.

Phantom Plan

The Second Amended and Restated Phantom Stock Plan (Phantom Plan) is a deferred compensation plan. The
objective of the Phantom Plan is to provide Senior Executives who are not stockholders, Executive Employees and other key employees with long-term incentive and retention award opportunities in a private company that would be competitive with equity
incentive plans provided by public companies.

The term phantom stock refers to units of value that trace our fair
market value, as defined by the Phantom Plan. The phantom stock is not convertible into stock and does not possess any voting rights. Phantom stock will be exchanged for cash upon vesting. Phantom stock may be awarded in total up to 2% of our fair
market value, as defined by the Phantom Plan. No participant may be granted, in the aggregate, more than 5% of the maximum number of phantom stock available for award. Generally, phantom stock vests on the fifth anniversary of the award date of the
phantom stock, but may also vest on a pro-rata basis following a participants termination of employment with us due to death, disability, retirement or termination by the Company without cause.



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Also, phantom stock vests if a change of control event occurs as discussed in more detail
under the heading -Potential Payments upon Termination or Change of Control. Upon vesting, participants are entitled to the value of their phantom units payable in cash immediately, subject to meeting certain requirements under Code
Section 409A and the accompanying regulations.

The Phantom Plan was effective January 1, 2004 and was amended and
restated a second time effective December 31, 2008. At the creation of the Phantom Plan, the value of the initial and two subsequent annual awards made to Senior Executives was targeted. The value and timing of the awards was derived to provide
an estimated pre-determined payout upon vesting of the awards. The payout on vesting of the awards assumed certain Company growth rates were sustained over the vesting period, although no adjustment is made to those awards if we exceed or do not
meet those growth rates. We believe that this aligned the Senior Executives compensation to stockholder value by providing a proprietary interest in our value. Although no adjustments were made for 2010, the predetermined subsequent annual
awards can be adjusted to recognize exemplary performance or increased responsibility consistent with the philosophy of relating individual compensation to performance.

Non-Equity Incentive in Lieu of Phantom Plan Awards or Restricted Stock Awards

In September 2006, concurrent with the creation of the Annual Officers Bonus, we ceased to grant phantom units to our officers under the Phantom Plan. In anticipation of the consummation of an initial
public offering, which we were preparing for at that time, our board planned to approve grants of restricted stock to our officers following consummation of our initial public offering. Because that initial public offering was not consummated and
subsequent initial public offerings and mergers have also not been consummated, our board approved the payment of cash to our officers in lieu of making grants of restricted stock in a private entity in 2007, 2008, and 2009.

In April of 2010, we adopted the 2010 Equity Incentive Plan described below, and no further non-equity incentive in lieu of restricted
stock awards are expected to be made.

Tax Implications of Executive Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code) places a limit of $1,000,000 on the amount of
compensation that we may deduct in any year with respect to the PEO and the NEOs unless the compensation is performance-based compensation as described in Section 162(m) and the related regulations, as well as pursuant to a plan approved by our
stockholders. We may, from time to time, pay compensation to our Senior Executives that may not be deductible, including discretionary bonuses or other types of compensation outside of our plans, such as recruitment, when it is consistent with our
overall philosophy.

Although we have generally attempted to structure executive compensation so as to preserve deductibility,
we also believe that there are circumstances where our interests are best served by maintaining flexibility in the way compensation is provided, even if it might result in the non-deductibility of certain compensation under the Code.

Although we may deduct equity awards for tax purposes, the accounting rules pursuant to ASC Topic 718, Compensation  Stock
Compensation,require that the portion of the tax benefit in excess of the financial compensation cost be recorded to paid-in-capital.



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Health and Welfare and Retirement Benefits

We offer a variety of health and welfare and retirement programs to all eligible employees. The Senior Executives are eligible for the
same benefit programs on the same basis as the rest of our employees. The health and welfare programs are intended to protect employees against catastrophic loss and encourage a healthy lifestyle. Our health and welfare programs include medical,
pharmacy, dental, life insurance, supplemental insurance policies and a flexible spending plan.

We offer a 401(k) Profit
Sharing Plan that is intended to supplement the employees personal savings and social security. All employees, including Senior Executives, are generally eligible for the 401(k) plan. Senior Executives participate in the 401(k) plan on the
same basis as other employees.

We adopted the 401(k) plan to enable employees to save for retirement through a tax-advantaged
combination of employee and Company contributions and to provide employees the opportunity to directly manage their retirement plan assets through a variety of investment options. The 401(k) plan allows eligible employees to elect to contribute from
1% to 60% of their eligible compensation, up to the annual IRS dollar limit. Eligible compensation generally means all wages, salaries and fees for services paid by us. The Company matches at a rate of $1.00 per $1.00 employee contribution for the
first 6% of the employees salary. Company contributions vest as follows:



|                             |  |            |    |  
|---------------------------- |  | ---------- | -- | -
|Years of
Service for Vesting |  | Percentage |   
|1                            |  |            | 33 | %
|2                            |  |            | 33 | %
|3                            |  |            | 34 | %

However, regardless of the
number of years of service, an employee is fully vested in his 401(k) plan if the employee retires at age 65 or later, attains age 62 and completes 5 years of service, or the employees employment is terminated due to death or total and
permanent disability. The 401(k) plan provides for different investment options, for which the participant has sole discretion in determining how both the employer and employee contributions are invested. The 401(k) plan does not provide our
employees the option to invest directly in our stock. The 401(k) plan offers in-service withdrawals in the form of loans, hardship distributions, after-tax account distributions and age 59.5 distributions.



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Indemnification agreements

We have indemnification agreements with Mark A. Fischer, Charles A. Fischer, Jr., Joseph O. Evans and Robert W. Kelly II. These indemnification agreements are intended to permit indemnification to
the fullest extent now or hereafter permitted by the General Corporation Law of Delaware. It is possible that the applicable law could change the degree to which indemnification is expressly permitted.

The indemnification agreements cover expenses (including attorneys fees), judgments, fines and amounts paid in settlement incurred
as a result of the fact that such person, in his capacity as a director or officer, is made or threatened to be made a party to any suit or proceeding. The indemnification agreements will generally cover claims relating to the fact that the
indemnified party is or was an officer, director, employee or agent of us or any of our affiliates, or is or was serving at our request in such a position for another entity. The indemnification agreements will also obligate us to promptly advance
all reasonable expenses incurred in connection with any claim. The indemnitee is, in turn, obligated to reimburse us for all amounts so advanced if it is later determined that the indemnitee is not entitled to indemnification. The indemnification
provided under the indemnification agreements is not exclusive of any other indemnity rights; however, double payment to the indemnitee is prohibited.

We are not obligated to indemnify the indemnitee with respect to claims brought by the indemnitee against:



| |  |  | us, except for:
| | - |  | ---------------



| |  |  | claims regarding the indemnitees rights under the indemnification agreement;
| | - |  | -----------------------------------------------------------------------------



| |  |  | claims to enforce a right to indemnification under any statute or law; and
| | - |  | --------------------------------------------------------------------------



| |  |  | counter-claims against us in a proceeding brought by us against the indemnitee; or
| | - |  | ----------------------------------------------------------------------------------



| |  |  | any other person, except for claims approved by our board of directors.
| | - |  | -----------------------------------------------------------------------

We also maintain director and officer liability insurance for the benefit of each of the above indemnitees. These policies include
coverage for losses for wrongful acts and omissions and to ensure our performance under the indemnification agreements. Each of the indemnitees are named as an insured under such policies and provided with the same rights and benefits as are
accorded to the most favorably insured of our directors and officers.



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Compensation After April 12, 2010

Employment Agreements

In connection with the sale of our common stock to CCMP, on April 12, 2010, we entered into employment agreements with each of our NEOs, under the terms of which each will serve in their respective
officerial positions. The initial term of the employment agreements are three years, each with an automatic two-year renewal and automatic annual renewals thereafter. The employment agreements provide our NEOs the following compensation
arrangements:



|                   |  |             |         |  |                                     |  |     |                                   |  |   |                                  |  |  |   |           | 
|------------------ |  | ----------- | ------- |  | ----------------------------------- |  | --- | --------------------------------- |  | - | -------------------------------- |  |  | - | --------- | 
|Name               |  | Base Salary |         |  | Target Annual Bonus(as
a % of Base) |  |     | Equity Grant(Service 
Vesting)(1) |  |   | Equity Grant(Market 
Vesting)(2) | 
|Mark A. Fischer    |  | $           | 620,298 |  |                                     |  | 100 | %                                 |  | $ | 1,814,366                        |  |  | $ | 3,673,995 | 
|Joseph O. Evans    |  |             | 345,030 |  |                                     |  | 80  | %                                 |  |   | 725,883                          |  |  |   | 1,469,598 | 
|Larry E. Gateley   |  |             | 289,380 |  |                                     |  | 70  | %                                 |  |   | 725,883                          |  |  |   | 1,469,598 | 
|James M. Miller    |  |             | 273,798 |  |                                     |  | 70  | %                                 |  |   | 725,883                          |  |  |   | 1,469,598 | 
|Robert W. Kelly II |  |             | 273,798 |  |                                     |  | 70  | %                                 |  |   | 725,883                          |  |  |   | 1,469,598 | 



|(1) | Calculated using the estimated fair value at grant date of $684.15 per share.
|--- | -----------------------------------------------------------------------------

|(2) | Calculated using the estimated fair value at grant date of $295.10 per share.
|--- | -----------------------------------------------------------------------------

On February 1, 2011, we entered into an employement agreement with K. Earl Reynolds for the position of Executive Vice President and COO, at a base salary of $375,000, with a Target Annual Bonus of
80% and Equity Grants equal to those shown above for Joseph O. Evans, Larry E. Gateley, James M. Miller and Robert W. Kelly II.

Each NEO will also participate in our welfare benefit plans and fringe benefit, vacation and expense reimbursement policies. Each
employment agreement provides for certain payments in the event of an NEOs termination. The termination payments are discussed below under the heading Potential Payments Upon Termination or Change of Control. Each employment
agreement contains certain restrictive covenants that generally prohibit our NEOs from (i) competing against us, (ii) disclosing information that is confidential to us and our subsidiaries and (iii) during the employment term and for
each NEO, a period of months equal to the product of 12 times the Severance Multiple of that NEO, as described below, thereafter, from soliciting or hiring our employees and those of our subsidiaries or soliciting our customers.



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2010 Equity Incentive Plan

In connection with the sale of our common stock to CCMP, on April 12, 2010, we adopted the Chaparral Energy, Inc. 2010 Long-Term
Incentive Plan (the 2010 Plan). The 2010 Plan reserves a total of 86,301 shares of our class A common stock for awards issued under the 2010 Plan. If any award is exercised, paid, forfeited, terminated or canceled without the delivery of
shares, then the shares covered by such award will be available again for grant under the 2010 Plan. All of our or our affiliates employees, officers, directors, and consultants, as defined in the 2010 Plan, are eligible to participate in the
2010 Plan.

Purpose

The 2010 Plan is intended to aid us in recruiting and retaining employees, officers, directors, and consultants capable of assuring our future success. We expect that the awards of stock-based
compensation under the 2010 Plan and opportunities for stock ownership in the Company will provide incentives to participants to exert their best efforts for our success and also align their interests with those of our stockholders.

Administration

The 2010 Plan is administered by our Compensation Committee. Subject to the terms of the 2010 Plan, the Compensation Committee has the full power and authority to, among other things: (i) designate
participants in the 2010 Plan; (ii) determine the type or types of awards to be granted to a participant; (iii) determine the number of shares to be covered by, or with respect to which payments, rights, or other matters are to be
calculated in connection with, awards; (iv) determine the terms and conditions of any award; (v) determine whether, to what extent, and under what circumstances awards may be settled or exercised in cash, shares, other securities, other
awards or other property, or canceled, forfeited, or suspended and the method or methods by which awards may be settled, exercised, canceled, forfeited, or suspended; (vi) interpret and administer the 2010 Plan or any award agreement issued
under the 2010 Plan; (vii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the 2010 Plan; (viii) determine the fair market value of any
shares issued under the 2010 Plan; (ix) prescribe the form of each award agreement, which need not be identical for each participant; and (x) make any other determination and take any other action that the Compensation Committee deems
necessary or desirable for the administration of the 2010 Plan.



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Types of Awards

The 2010 Plan authorizes the following types of awards:



| |  |  | Stock Options. The grant of either non-qualified or incentive stock options (ISOs) to purchase shares of our class A common stock
are permitted under the 2010 Plan. ISOs are intended to qualify for favorable tax treatment under the Code to participants in the 2010 Plan. The stock options will provide for the right to purchase shares of our class A common stock at a specified
price and will become exercisable after the grant date under the terms established by the Compensation Committee. In general, the per share option exercise price may not be less than 100% of the fair market value of a share of class A common stock
on the grant date. No person owning more than 10% of the total combined voting power of the Company may be granted ISOs unless (i) the option exercise price is at least 110% of the fair market value of a share of class A common stock on the
grant date and (ii) the term during which such ISO may be exercised does not exceed five years from the date of grant.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Restricted Stock. Awards of restricted stock are permitted under the 2010 Plan, subject to any restrictions the Compensation Committee
determines to impose, such as satisfaction of performance measures for a performance period, or restrictions on the right to vote or receive dividends.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Performance Awards. Performance awards, denominated as a cash amount (e.g., $100 per award unit) at the time of grant are permitted under the
2010 Plan. Performance awards confer on the participant the right to receive payment of such award, in whole or in part, upon the achievement of certain performance objectives during such performance periods as established by the Compensation
Committee.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Bonus Shares. Awards of class A common stock without restrictions are permitted under the 2010 Plan, but such grants may be subject to any terms
and conditions the Compensation Committee may determine.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Phantom Shares. Awards of phantom shares are permitted under the 2010 Plan, upon such terms and conditions as determined by the Compensation
Committee. Each phantom share award shall constitute an agreement by us to issue or transfer a specified number of shares or pay an amount of cash equal to a specified number of shares, or a combination thereof to the participant in the future,
subject to the fulfillment of performance objectives, if any, during the restricted period as the Compensation Committee may specify at the date of grant.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cash Awards. Grants of cash awards, subject to the terms and conditions established by the Compensation Committee, are permitted under the 2010
Plan. If granted, a cash award shall be granted (simultaneously or subsequently) in tandem with another award and shall entitle a participant to receive a specified amount of cash from us upon such other award becoming taxable to the participant,
which cash amount may be based on a formula relating to the anticipated taxable income associated with such other award and the payment of the cash award.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other Stock-Based Awards. Grants of other types of awards that are denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, shares of our class A common stock, subject to the terms and conditions established by the Compensation Committee, are permitted under the 2010 Plan.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Initial Awards Under the 2010 Plan

Our Board of Directors approved initial awards of restricted stock under the 2010 Plan totaling 51,346 shares of our class A common stock,
which includes awards totaling 39,266 shares to our NEOs. The initial award of restricted stock to our NEOs consisted of a total of 6,896 shares that are subject to service vesting conditions and a total of 32,370 shares that are subject to market
vesting conditions.

The table below sets forth the number and dollar value of the initial awards of both the service-vested
restricted stock grants and the market-vested restricted stock grants to be made to our NEOs.



|                   |  |                                      |       |  |                                       |   |           |                                     |  |  |                                      |  |  |                             |           |  |                                  |  |        |  |  |   |           | 
|------------------ |  | ------------------------------------ | ----- |  | ------------------------------------- | - | --------- | ----------------------------------- |  |  | ------------------------------------ |  |  | --------------------------- | --------- |  | -------------------------------- |  | ------ |  |  | - | --------- | 
|Name (3)           |  | Number ofService-VestedSharesGranted |       |  | DollarValue ofService-VestedShares(1) |   |           | Number ofMarket-VestedSharesGranted |  |  | DollarValue ofMarket-VestedShares(2) |  |  | TotalNumber ofSharesGranted |           |  | TotalDollarValue ofSharesGranted | 
|Mark A. Fischer    |  |                                      | 2,652 |  |                                       | $ | 1,814,366 |                                     |  |  | 12,450                               |  |  | $                           | 3,673,995 |  |                                  |  | 15,102 |  |  | $ | 5,488,361 | 
|Joseph O. Evans    |  |                                      | 1,061 |  |                                       | $ | 725,883   |                                     |  |  | 4,980                                |  |  | $                           | 1,469,598 |  |                                  |  | 6,041  |  |  | $ | 2,195,481 | 
|Larry E. Gateley   |  |                                      | 1,061 |  |                                       | $ | 725,883   |                                     |  |  | 4,980                                |  |  | $                           | 1,469,598 |  |                                  |  | 6,041  |  |  | $ | 2,195,481 | 
|James M. Miller    |  |                                      | 1,061 |  |                                       | $ | 725,883   |                                     |  |  | 4,980                                |  |  | $                           | 1,469,598 |  |                                  |  | 6,041  |  |  | $ | 2,195,481 | 
|Robert W. Kelly II |  |                                      | 1,061 |  |                                       | $ | 725,883   |                                     |  |  | 4,980                                |  |  | $                           | 1,469,598 |  |                                  |  | 6,041  |  |  | $ | 2,195,481 | 



|(1) | Calculated using the estimated fair value at grant date of $684.15 per share.
|--- | -----------------------------------------------------------------------------

|(2) | Calculated using the estimated fair value at grant date of $295.10 per share.
|--- | -----------------------------------------------------------------------------

|(3) | K. Earl Reynolds was added to this program on February 1, 2011 with 1,061 Service-Vested shares and 4,980 Market-Vested shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------

Terms of Service-Vested Restricted Stock Awards

Service-vested restricted stock awards vest with respect to twenty percent (20%) of the shares subject to the award on each of the first, second, third, fourth and fifth anniversaries of the award
date, subject to the NEO remaining employed by us as of those dates.

Termination by Company Without Cause or by NEO for
Good Reason. If the NEO is terminated by the Company without cause or by the NEO for good reason, then the vesting of the shares scheduled to vest during the period beginning on the date the NEOs employment was terminated (the
Separation Date) and ending on the 12-month anniversary of the Separation Date shall accelerate as of the Separation Date. Any shares not vested on the Separation Date will be forfeited as of the Separation Date. Cause and
good reason shall have the same meanings as those terms are defined in any employment agreement then in effect between the NEO and us. See Potential Payments Upon Termination or Change in ControlEmployment Agreements
with Our NEOs for the definitions of cause and good reason.

Accelerated Vesting Upon Certain
Transactions. In the event of a transaction whereby CCMP receives cash in exchange for the sale, transfer or other disposition of its common stock pursuant to (i) a sale of the Company or (ii) an offering of its common stock to the
public pursuant to a registration statement filed under the Securities Act of 1933, or any sale of its common stock thereafter (a Transaction), the shares held by each NEO who remains employed by us as of the date of such Transaction
shall vest with respect to the fraction obtained by dividing (x) the number of shares of common stock sold pursuant to the Transaction, by (y) the 504,276 shares of class E common stock issued to CCMP on April 12, 2010 (the
Vesting Fraction). Any shares of common stock sold pursuant to an Excepted transfer are excluded from both the numerator and the denominator when determining the Vesting Fraction. Excepted transfer means the
transfer by CCMP and its permitted transferees of up to 20% of the common stock owned by them on or immediately following April 12, 2010. All other shares will remain subject to the normal vesting schedule.

Market-Vested Restricted Stock Awards

Market-vested restricted stock awards vest in the event of a Transaction (i) whereby CCMPs net proceeds from a Transaction yields certain target returns on investment, and
(ii) the NEO remains employed by us as of the date of such Transaction. Net proceeds means the actual cash proceeds received by CCMP in a Transaction, but excludes the aggregate amount of out-of-pocket expenses incurred by CCMP in
connection with such Transaction.



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The table below sets forth the return on investment targets that trigger vesting of the
market-vested restricted stock grants and the formula for calculating the number of shares of market-vested restricted stock that vest upon CCMPs receipt of net proceeds in a Transaction that meet one or more of the return on investment
targets.



|                            |  |                                                 
|--------------------------- |  | ------------------------------------------------
|Return on Investment Target |  | Shares Vested                                   
|200% per share              |  | 20% of shares multiplied by the Vesting Fraction
|250% per share              |  | 20% of shares multiplied by the Vesting Fraction
|300% per share              |  | 20% of shares multiplied by the Vesting Fraction
|350% per share              |  | 20% of shares multiplied by the Vesting Fraction
|400% per share              |  | 20% of shares multiplied by the Vesting Fraction

Any shares of market-vested restricted stock not vested on an NEOs Separation Date will be forfeited as of the Separation Date.

Our Purchase Option

All service-vested and market-vested restricted stock awards are subject to our right to purchase the shares that have vested under the terms of such awards, which purchase option lapses on the seventh
anniversary of the grant date. If the NEO ceases his employment with us for any reason, we shall have the right to purchase the shares of restricted stock awarded to the NEO that have vested. If the NEOs employment is terminated by us without
cause, by the NEO for good reason, as a result of the NEOs death or by the NEO without good reason, the purchase price for such shares shall be equal to the fair market value of such shares on the Separation Date. If the NEOs employment
is terminated by us for cause, the purchase price for such shares shall be $0.01 per share. In the event of the NEOs material breach of the terms of any agreement with us that is in effect on or after the NEOs Separation Date, the
purchase price for such shares shall be $0.01 per share.

Board of Directors Report

The 2010 board of directors has reviewed and discussed the above Compensation Discussion and Analysis with management and, based on such
review and discussions, the board of directors recommended that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.



Mark A. FischerKarl Kurz Christopher
BerensCharles A. Fischer Aubrey
McClendon


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of our executive officers have served as members of a compensation committee (or if no committee performs that function, the board
of directors) of any other entity that has an executive officer serving as a member of our board of directors. All members of the Board of Directors serve on the compensation committee and Karl Kurz has been appointed Chairman of the compensation
committee.



147



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2009 SUMMARY COMPENSATION TABLE

The following table below summarizes the total compensation paid or earned by each of the NEOs for the fiscal year ended
December 31, 2010, 2009, and 2008.



|                                                                                      |  |      |      |  |           |         |         |             |  |         |                   |  |  |                 |           |  |                                             |   |   |                                                                       |  |         |                             |  |  |          |   |  |  |        |        |  |  |           |           | 
|------------------------------------------------------------------------------------- |  | ---- | ---- |  | --------- | ------- | ------- | ----------- |  | ------- | ----------------- |  |  | --------------- | --------- |  | ------------------------------------------- | - | - | --------------------------------------------------------------------- |  | ------- | --------------------------- |  |  | -------- | - |  |  | ------ | ------ |  |  | --------- | --------- | 
|Nameand Principal Position                                                            |  | Year |      |  | Salary($) |         |         | Bonus($)(1) |  |         | StockAwards($)(2) |  |  | OptionAwards($) |           |  | Non-EquityIncentive 
PlanCompensation($)(3) |   |   | Change
inPension 
ValueandNonqualifiedDeferredCompensationEarnings($) |  |         | All OtherCompensation($)(4) |  |  | Total($) |  
|Mark A. Fischer,Chief Executive Officer and President                                 |  |      | 2010 |  |           | $       | 620,298 |             |  | $       | 434,209           |  |  | $               | 5,488,361 |  |                                             |   |  |                                                                       |  | $       |                            |  |  |          |  |  |  | $      | 28,079 |  |  | $         | 6,570,947 | 
|                                                                                      |  | 2009 |      |  |           | 590,760 |         |             |  | 590,760 |                   |  |  |                |           |  |                                             |  |   |                                                                       |  | 254,323 |                             |  |  |         |   |  |  | 36,102 |        |  |  | 1,471,945 |          
|                                                                                      |  | 2008 |      |  |           | 531,115 |         |             |  | 224,180 |                   |  |  |                |           |  |                                             |  |   |                                                                       |  | 224,180 |                             |  |  |         |   |  |  | 34,176 |        |  |  | 1,013,651 |          
|                                                                                      |  |      |      |  |           |         |         |             | 
|Joseph O. Evans,Chief Financial Officer and Executive Vice President                  |  |      | 2010 |  |           | $       | 345,030 |             |  | $       | 193,217           |  |  | $               | 2,195,481 |  |                                             |   |  |                                                                       |  | $       |                            |  |  |          |  |  |  | $      | 15,840 |  |  | $         | 2,749,568 | 
|                                                                                      |  | 2009 |      |  |           | 328,600 |         |             |  | 262,880 |                   |  |  |                |           |  |                                             |  |   |                                                                       |  | 119,025 |                             |  |  |         |   |  |  | 24,329 |        |  |  | 734,834   |          
|                                                                                      |  | 2008 |      |  |           | 301,115 |         |             |  | 107,437 |                   |  |  |                |           |  |                                             |  |   |                                                                       |  | 107,437 |                             |  |  |         |   |  |  | 21,960 |        |  |  | 537,949   |          
|                                                                                      |  |      |      |  |           |         |         |             | 
|Larry E. Gateley,Senior Vice PresidentReservoir Engineering and Business Development |  |      | 2010 |  |           | $       | 289,380 |             |  | $       | 141,796           |  |  | $               | 2,195,481 |  |                                             |   |  |                                                                       |  | $       |                            |  |  |          |  |  |  | $      | 18,231 |  |  | $         | 2,644,888 | 
|                                                                                      |  | 2009 |      |  |           | 275,600 |         |             |  | 192,920 |                   |  |  |                |           |  |                                             |  |   |                                                                       |  | 89,714  |                             |  |  |         |   |  |  | 25,609 |        |  |  | 583,843   |          
|                                                                                      |  | 2008 |      |  |           | 252,462 |         |             |  | 80,690  |                   |  |  |                |           |  |                                             |  |   |                                                                       |  | 80,690  |                             |  |  |         |   |  |  | 22,831 |        |  |  | 436,673   |          
|                                                                                      |  |      |      |  |           |         |         |             | 
|James M. Miller,Senior Vice PresidentMid-Continent Region Manager                    |  |      | 2010 |  |           | $       | 273,798 |             |  | $       | 134,161           |  |  | $               | 2,195,481 |  |                                             |   |  |                                                                       |  | $       |                            |  |  |          |  |  |  | $      | 15,510 |  |  | $         | 2,618,950 | 
|                                                                                      |  | 2009 |      |  |           | 260,760 |         |             |  | 182,532 |                   |  |  |                |           |  |                                             |  |   |                                                                       |  | 86,273  |                             |  |  |         |   |  |  | 17,342 |        |  |  | 546,907   |          
|                                                                                      |  | 2008 |      |  |           | 239,000 |         |             |  | 76,595  |                   |  |  |                |           |  |                                             |  |   |                                                                       |  | 76,595  |                             |  |  |         |   |  |  | 16,274 |        |  |  | 408,464   |          
|                                                                                      |  |      |      |  |           |         |         |             | 
|Robert W. Kelly II,Senior Vice President and General Counsel                          |  |      | 2010 |  |           | $       | 273,798 |             |  | $       | 134,161           |  |  | $               | 2,195,481 |  |                                             |   |  |                                                                       |  | $       |                            |  |  |          |  |  |  | $      | 15,909 |  |  | $         | 2,619,349 | 
|                                                                                      |  | 2009 |      |  |           | 260,760 |         |             |  | 182,532 |                   |  |  |                |           |  |                                             |  |   |                                                                       |  | 86,273  |                             |  |  |         |   |  |  | 23,292 |        |  |  | 552,857   |          
|                                                                                      |  | 2008 |      |  |           | 239,000 |         |             |  | 76,595  |                   |  |  |                |           |  |                                             |  |   |                                                                       |  | 76,595  |                             |  |  |         |   |  |  | 18,777 |        |  |  | 410,967   |          



|(1) | Bonuses for 2010, 2009, and 2008 were paid or will be paid on March 31, 2011, April 13, 2010, and March 15, 2009, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(2) | Restricted stock awards were made on April 12, 2010 and valued at estimated grant date fair value of $684.15 for service-vested shares and $295.10 for
market-vested shares. The value shown is the aggregate grant date fair value computed in accordance with FASB ASC Topic 718.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Non-Equity Incentive Plan Compensation payments for 2009 and 2008 were made on, January 4, 2010, and January 7, 2009, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes: for Mark A. Fischer $14,667, $22,000, and $20,500 in matching 401(k) contributions, $2,108, $1,973, and $1,300 for the use of a Company vehicle, and $6,051,
$6,831, and $6,091 for the use of the Company airplane; for Joseph O. Evans $13,518, $22,000, and $20,500 in matching 401(k) contributions; for Larry E. Gateley $14,667, $22,000, and $20,500 in matching 401(k) contributions; for James M. Miller
$14,700, $16,500, and $15,500 in matching 401(k) contributions; for Robert W. Kelly II $14,667, $22,000, and $17,591 in matching 401(k) contributions in 2010, 2009 and 2008, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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GRANTS OF PLAN-BASED AWARDS IN 2010

The following table shows grants of equity-based awards in 2010 for each NEO.



|                                    |  |            |                |  |                                                               |  |   |           |  |  |            |  |  |                                                             |        |  |                                                  |  |       |  |  |   |           | 
|----------------------------------- |  | ---------- | -------------- |  | ------------------------------------------------------------- |  | - | --------- |  |  | ---------- |  |  | ----------------------------------------------------------- | ------ |  | ------------------------------------------------ |  | ----- |  |  | - | --------- | 
|                                    |  |            |                |  | Estimated Future Payouts UnderEquity Incentive Plan Awards(1) |  |   |           |  |  |            | 
|Name                                |  | Grant Date |                |  | Threshold(#)                                                  |  |   | Target(#) |  |  | Maximum(#) |  |  | All OtherStockAwards:Number ofShares ofStock orUnits (#)(2) |        |  | Grant DateFair Valueof Stock andOptionAwards (3) | 
|Mark A. Fischer  market-vested     |  |            | April 12, 2010 |  |                                                               |  | 0 |           |  |  | n/a        |  |  |                                                             | 12,450 |  |                                                  |  |       |  |  | $ | 3,673,995 | 
|Mark A. Fischer  service-vested    |  |            | April 12, 2010 |  |                                                               |  |   |           |  |  |            |  |  |                                                             |        |  |                                                  |  | 2,652 |  |  |   | 1,814,366 | 
|Joseph O. Evans  market-vested     |  |            | April 12, 2010 |  |                                                               |  | 0 |           |  |  | n/a        |  |  |                                                             | 4,980  |  |                                                  |  |       |  |  |   | 1,469,598 | 
|Joseph O. Evans  service-vested    |  |            | April 12, 2010 |  |                                                               |  |   |           |  |  |            |  |  |                                                             |        |  |                                                  |  | 1,061 |  |  |   | 725,883   | 
|Larry E. Gateley  market-vested    |  |            | April 12, 2010 |  |                                                               |  | 0 |           |  |  | n/a        |  |  |                                                             | 4,980  |  |                                                  |  |       |  |  |   | 1,469,598 | 
|Larry E. Gateley  service-vested   |  |            | April 12, 2010 |  |                                                               |  |   |           |  |  |            |  |  |                                                             |        |  |                                                  |  | 1,061 |  |  |   | 725,883   | 
|James M. Miller  market-vested     |  |            | April 12, 2010 |  |                                                               |  | 0 |           |  |  | n/a        |  |  |                                                             | 4,980  |  |                                                  |  |       |  |  |   | 1,469,598 | 
|James M. Miller  service-vested    |  |            | April 12, 2010 |  |                                                               |  |   |           |  |  |            |  |  |                                                             |        |  |                                                  |  | 1,061 |  |  |   | 725,883   | 
|Robert W. Kelly II  market-vested  |  |            | April 12, 2010 |  |                                                               |  | 0 |           |  |  | n/a        |  |  |                                                             | 4,980  |  |                                                  |  |       |  |  |   | 1,469,598 | 
|Robert W. Kelly II  service-vested |  |            | April 12, 2010 |  |                                                               |  |   |           |  |  |            |  |  |                                                             |        |  |                                                  |  | 1,061 |  |  |   | 725,883   | 



|(1) | The vesting of the market-vested restricted stock awards is based solely upon the rate of return obtained by CCMP from the sale of its stock. See Executive
compensationCompensation discussion and analysisCompensation after April 12, 20102010 Equity Incentive PlanMarket-Vested Restricted Stock Awards for specific information regarding the potential vesting scenarios. The
vesting scenarios do not include a target number of awards to be vested.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The service-vested restricted stock awards vest over a five-year period.
|--- | ------------------------------------------------------------------------

|(3) | The grant date value of the service-vested restricted stock awards was calculated using the estimated fair value at grant date of $684.15 per share. The grant date
value of the market-vested restricted stock awards was calculated using the estimated fair value at grant date of $295.10 per share.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2010 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE

The following
table shows outstanding (i) phantom stock awards and (ii) restricted stock awards as of December 31, 2010 for each NEO.



|                   |  |                                                 |     |  |                                                              |   |        |                                                 |  |  |                                                              |  |  |   |           | 
|------------------ |  | ----------------------------------------------- | --- |  | ------------------------------------------------------------ | - | ------ | ----------------------------------------------- |  |  | ------------------------------------------------------------ |  |  | - | --------- | 
|                   |  | Phantom Stock Awards                            |     |  | Restricted Stock Awards                                      |  
|Name               |  | Number ofShares ofStockThat HaveNotVested(1)(#) |     |  | MarketValue ofShares orUnits
ofStockThat HaveNotVested(2)($) |   |        | Number ofShares ofStockThat HaveNotVested(3)(#) |  |  | MarketValue ofShares orUnits
ofStockThat HaveNotVested(3)($) | 
|Mark A. Fischer    |  |                                                 |    |  |                                                              | $ |       |                                                 |  |  | 15,102                                                       |  |  | $ | 5,488,361 | 
|Joseph O. Evans    |  |                                                 | 420 |  |                                                              |   | 7,535  |                                                 |  |  | 6,041                                                        |  |  |   | 2,195,481 | 
|Larry E. Gateley   |  |                                                 | 839 |  |                                                              |   | 15,052 |                                                 |  |  | 6,041                                                        |  |  |   | 2,195,481 | 
|James M. Miller    |  |                                                 | 839 |  |                                                              |   | 15,052 |                                                 |  |  | 6,041                                                        |  |  |   | 2,195,481 | 
|Robert W. Kelly II |  |                                                 | 839 |  |                                                              |   | 15,052 |                                                 |  |  | 6,041                                                        |  |  |   | 2,195,481 | 



|(1) | All outstanding phantom stock awards shown vest on January 1, 2011.
|--- | -------------------------------------------------------------------

|(2) | The table assumes a market value of $17.94 at December 31, 2010 which is calculated in accordance with the provisions of the Phantom Plan.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(3) | See Executive compensationCompensation discussion and analysisCompensation after April 12, 20102010 Equity Incentive PlanInitial awards
under the 2010 Plan for specific information regarding the number and dollar value of the awards of both the service-vested restricted stock grants and the market-vested restricted stock grants made to our NEOs in 2010.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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2010 STOCK VESTED

No awards of class A common stock granted under our 2010 Plan vested in 2010. The following table shows phantom stock awards that vested
during the year ended December 31, 2010 for each NEO that participates in the Phantom Plan.



|                   |  |                                            |       |  |                                 |   |        | 
|------------------ |  | ------------------------------------------ | ----- |  | ------------------------------- | - | ------ | 
|                   |  | Stock Awards                               |      
|Name               |  | Number ofShares ofStockThat HaveVested (#) |       |  | Value Realizedon 
Vesting(1)($) |  
|Joseph O. Evans    |  |                                            | 3,554 |  |                                 | $ | 72,288 | 
|Larry E. Gateley   |  |                                            | 1,749 |  |                                 |   | 42,816 | 
|James M. Miller    |  |                                            | 1,749 |  |                                 |   | 42,816 | 
|Robert W. Kelly II |  |                                            | 1,749 |  |                                 |   | 42,816 | 



|(1) | Awards for Larry E. Gateley, James M. Miller, and Robert W. Kelly II were paid on April 15, 2010 and award for Joseph O. Evans was paid on October 23, 2010.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

Employment Agreements with our NEOs

Our employment agreements with our NEOs obligate us to pay certain separation benefits to them in the event of voluntary termination, termination without cause, termination for good reason and termination
in the event of disability or death. The term disability means the NEOs incapacity due to physical or mental illness whereby the NEO is substantially unable to perform his duties under the employment agreement (with or without
reasonable accommodation, as defined under the Americans With Disabilities Act) for a period of six (6) consecutive months. The term cause means termination for one of the following reasons:



| |  |  | the NEOs conviction of, or entry by the NEO of a guilty or no contest plea to a felony or crime involving moral turpitude;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | the NEOs willful commission of an act of fraud or dishonesty resulting in economic or financial injury to us or any affiliate;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | the NEOs willful failure to substantially perform or gross neglect of his duties, including, but not limited to, the failure to follow any lawful
directive of our Chief Executive Officer, within the reasonable scope of the NEOs duties;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the NEOs performance of unapproved acts materially detrimental to us or any affiliate;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | the NEOs use of narcotics, alcohol, or illicit drugs in a manner that has or may reasonably be expected to have a detrimental effect on his
performance of his duties as our employee or on the reputation of the Company or any affiliate;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the NEOs commission of a material violation of any of our rules or policies which results in injury to us; or
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | the NEOs material breach of the employment agreement.
| | - |  | ------------------------------------------------------

In Mr. Fischers case, the term cause also includes:



| |  |  | the occurrence or existence of any event constituting Cause, with respect to Mr. Fischer under our Second Amended and Restated
Certificate of Incorporation, as amended and restated on April 12, 2010; (the Certificate of Incorporation);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a material breach by us of Article 7 of the Certificate of Incorporation caused by specific acts or omissions of Mr. Fischer, provided that we
fail to remedy such breach within 90 days after we have knowledge of the initial existence of such breach; or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a material breach by Fischer Investments, L.L.C. of that certain Stockholders Agreement dated April 12, 2010.
| | - |  | --------------------------------------------------------------------------------------------------------------

The term good reason means the occurrence, without the written consent of the NEO, of one of the events set forth below:



| |  |  | a material diminution in the NEOs authority, duties or responsibilities, combined with a demotion in the NEOs pay grade ranking;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | the reduction by us of the NEOs base salary by more than 10% (unless done so for all of our executive officers);
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | the requirement that the NEO be based at any office or location that is more than 50 miles from our principal executive offices, except for travel
reasonably required in the performance of the NEOs responsibilities; or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any other action or inaction that constitutes a material breach by us under the employment agreement.
| | - |  | -----------------------------------------------------------------------------------------------------



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The term change in control means:



| |  |  | the consummation of any transaction or series of related transactions involving the sale of our outstanding securities (but excluding a public offering
of our capital stock) for securities or other consideration issued or paid or caused to be issued or paid by such other corporation or an affiliate thereof and which results in our shareholders (or their affiliates) immediately prior to such
transaction not holding at least a majority of the voting power of the surviving or continuing entity following such transaction; or
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the consummation by us (whether directly involving us or indirectly involving us through one or more intermediaries) of (x) a merger,
consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of our assets or (z) the acquisition of assets or stock of another entity, in each case, other than a transaction which
results in our voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into our voting securities or the person that, as a result of the transaction, controls,
directly or indirectly, us or owns, directly or indirectly, all or substantially all of our assets or otherwise succeeds to our business), directly or indirectly, at least a majority of the combined voting power of the successor entitys
outstanding voting securities immediately after the transaction.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Payments Made Upon Termination
Without Cause or by the NEO for Good Reason Not Following a Change in Control

In the event an NEOs employment is
terminated without cause or by the NEO for good reason at any time that is not within two years after the occurrence of a change in control, we will be obligated:



| |  |  | to pay to the NEO an amount equal to the Severance Multiple, as specified in the NEOs employment agreement, times the sum of (x) the
NEOs base salary in effect on the date of termination plus (y) the annual bonus granted to the NEO for the fiscal year immediately on or preceding the date of termination, payable in the form of a salary continuation for a period of
months equal to the product of 12 times the Severance Multiple;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | subject to certain limitations, to maintain for a period of 18 months following the date of termination, participation by the NEO (and his spouse
and/or eligible dependents, as applicable) in our medical, hospitalization, and dental programs maintained for the benefit of our senior executive officers as in effect on the date of termination, at such level and terms and conditions (including,
without limitation, contributions required by the NEO for such benefits) as in effect on the date of termination (the Termination Welfare Benefits);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | to pay to the NEO any earned but unpaid base salary, annual bonus from prior years, and vacation pay in the form of a lump sum payment; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | to pay to the NEO any unreimbursed reasonable business expenses incurred by the NEO on our behalf in the form of a lump sum payment.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------

The following table quantifies amounts that would have been paid pursuant to the employment agreements for
each of our NEOs assuming a termination without cause or by the NEO for good reason not following a change in control took place on December 31, 2010, and assuming all accrued compensation and reimbursable expenses had been paid on
December 31, 2010.



|                   |  |             |         |  |              |   |         |                   |  |  |          |  |  |       |        |  |  |   |           | 
|------------------ |  | ----------- | ------- |  | ------------ | - | ------- | ----------------- |  |  | -------- |  |  | ----- | ------ |  |  | - | --------- | 
|Name               |  | Base Salary |         |  | Annual Bonus |   |         | SeveranceMultiple |  |  | Benefits |  |  | Total |       
|Mark A. Fischer    |  | $           | 620,298 |  |              | $ | 434,209 |                   |  |  | 2.5      |  |  | $     | 13,026 |  |  | $ | 2,649,294 | 
|Joseph O. Evans    |  |             | 345,030 |  |              |   | 193,217 |                   |  |  | 2.0      |  |  |       | 13,015 |  |  |   | 1,089,509 | 
|Larry E. Gateley   |  |             | 289,380 |  |              |   | 141,796 |                   |  |  | 1.5      |  |  |       | 13,026 |  |  |   | 659,790   | 
|James M. Miller    |  |             | 273,798 |  |              |   | 134,161 |                   |  |  | 1.5      |  |  |       | 13,015 |  |  |   | 624,954   | 
|Robert W. Kelly II |  |             | 273,798 |  |              |   | 134,161 |                   |  |  | 1.5      |  |  |       | 13,015 |  |  |   | 624,954   | 



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Payments Made Upon Termination Without Cause or by the NEO for Good Reason Following a
Change in Control

If at any time within two years after a change in control (CiC), the NEOs
employment is terminated without cause or by the NEO for good reason, we will be obligated:



| |  |  | to pay to the NEO an amount equal to the CiC Severance Multiple, as specified in the NEOs employment agreement, times the sum of (x) the
NEOs base salary in effect on the date of termination plus (y) the annual bonus granted to the NEO for the fiscal year immediately on or preceding the date of termination, payable in the form of a salary continuation for a period of
months equal to the product of 12 times the CiC Multiple, or in the form of a lump sum payment if the CiC occurs as a result of the sale or other disposition of all or substantially all of the Companys assets;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | subject to certain limitations, to provide the Termination Welfare Benefits;
| | - |  | ----------------------------------------------------------------------------



| |  |  | to pay to the NEO any earned but unpaid base salary, annual bonus from prior years and vacation pay in the form of a lump sum payment; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | to pay to the NEO any unreimbursed reasonable business expenses incurred by the NEO on our behalf in the form of a lump sum payment.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------

The following table quantifies amounts that would have been paid pursuant to the employment agreements for
each of our NEOs assuming a termination without cause or by the NEO for good reason following a change in control took place on December 31, 2010, and assuming all accrued compensation and reimbursable expenses had been paid on
December 31, 2010.



|                   |  |             |         |  |              |   |         |                        |  |  |          |  |  |       |        |  |  |   |           | 
|------------------ |  | ----------- | ------- |  | ------------ | - | ------- | ---------------------- |  |  | -------- |  |  | ----- | ------ |  |  | - | --------- | 
|Name               |  | Base Salary |         |  | Annual Bonus |   |         | CiC 
SeveranceMultiple |  |  | Benefits |  |  | Total |       
|Mark A. Fischer    |  | $           | 620,298 |  |              | $ | 434,209 |                        |  |  | 3.0      |  |  | $     | 13,026 |  |  | $ | 3,176,547 | 
|Joseph O. Evans    |  |             | 345,030 |  |              |   | 193,217 |                        |  |  | 2.5      |  |  |       | 13,015 |  |  |   | 1,358,633 | 
|Larry E. Gateley   |  |             | 289,380 |  |              |   | 141,796 |                        |  |  | 2.0      |  |  |       | 13,026 |  |  |   | 875,378   | 
|James M. Miller    |  |             | 273,798 |  |              |   | 134,161 |                        |  |  | 2.0      |  |  |       | 13,015 |  |  |   | 828,933   | 
|Robert W. Kelly II |  |             | 273,798 |  |              |   | 134,161 |                        |  |  | 2.0      |  |  |       | 13,015 |  |  |   | 828,933   | 

Payments Made
Upon Termination for Cause or by the NEO Without Good Reason

In the event an NEO is terminated for cause, or the NEO
resigns without good reason, we have no further obligations to the NEO other than a lump sum payment of the following amounts:



| |  |  | any earned but unpaid base salary, annual bonus from prior years and vacation pay; and
| | - |  | --------------------------------------------------------------------------------------



| |  |  | unreimbursed reasonable business expenses incurred by the NEO on our behalf, so long as the NEO was not fired for cause due to his misappropriation of
Company funds.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

No amounts would have been paid pursuant to the employment agreements for each of our NEOs
assuming a termination for cause or by the NEO without good reason took place on December 31, 2010, and assuming all accrued compensation and reimbursable expenses had been paid on December 31, 2010.



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##### Table of Contents

Payments Made Upon Death or Disability

In the event of an NEOs death or disability, we will be obligated to pay to the NEO:



| |  |  | any earned but unpaid base salary, annual bonus from prior years and vacation pay;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | unreimbursed reasonable business expenses incurred by the NEO on our behalf; and
| | - |  | --------------------------------------------------------------------------------



| |  |  | a pro rata share of the annual bonus for the fiscal year in which the termination of employment occurs.
| | - |  | -------------------------------------------------------------------------------------------------------

No amounts would have been paid pursuant to the employment agreements for each of our NEOs assuming an event of death or disability took
place on December 31, 2010, and assuming all accrued compensation or reimbursable expenses had been paid on December 31, 2010.

Payments of separation benefits may be delayed if (i) the NEO is a specified employee within the meaning of Section 409A of the Code (Section 409A) as of the date of his
separation from service and (ii) the amount of any separation benefits payable to him are subject to Section 409A. In such instance, the separation benefits will not be paid to the NEO until six months after the date of separation from
service, or, if earlier, the date of his death.



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Phantom Stock Plan Awards

We have granted phantom stock awards to certain NEOs and other key employees.

If
a change of control as defined in the Phantom Stock Plan were to occur prior to the NEOs termination of employment with us, all of the NEOs then outstanding phantom unit awards granted by us would become fully vested and payable in a
lump sum as of such date, subject to meeting certain requirements under Code Section 409A and the accompanying regulations. Under the Phantom Plan, a change in control is deemed to occur if:



| |  |  | any individual or person (as such term is used in the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder, other than an underwriter temporarily holding securities pursuant to an offering of such securities) becomes the beneficial owner (as such term is used in the 1934 Act), directly or indirectly, of our securities representing more than
50% of the combined voting power of our then outstanding securities; or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we sell, lease, transfer, convey or otherwise dispose of (including by merger or consolidation) in one or a series of related transactions, more than
50% of the total fair market value of all of our assets to an unrelated person; or
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we adopt a plan relating to our liquidation or dissolution.
| | - |  | -----------------------------------------------------------

Phantom stock awards vest on a pro-rata basis following the participants termination of employment with the Company due to death, disability, retirement or termination of employment without cause.
The pro-rata calculation will be accomplished by dividing the number of years elapsed from the award date to the date of vesting (to a maximum of five years) by five and then multiplying the number of phantom shares in the award by the result.
Phantom shares which do not vest hereunder will be forfeited to us and the participant shall have no further rights with regard to the units. A participant is considered disabled if, in the sole determination of the Board, such participant is
subject to a physical or mental condition which renders or is expected to render the participant unable to perform his or her usual duties. A participant is considered retired if the participants full-time employment with us terminates at or
after the date the participant attains the age of 65 years.

The table below quantifies the value of the accelerated vesting
of the phantom shares owned by each of our NEOs assuming we underwent a change of control on December 31, 2010 or that on December 31, 2010, we terminated each NEO without cause or their employment was terminated by reason of death,
disability, or retirement.



|                   |  |                   |        |  |                                                            |   |        | 
|------------------ |  | ----------------- | ------ |  | ---------------------------------------------------------- | - | ------ | 
|Name               |  | Change of Control |        |  | Death, 
Disability,Retirement, 
orTerminationWithout Cause |  
|Joseph O. Evans    |  | $                 | 7,535  |  |                                                            | $ | 7,535  | 
|Larry E. Gateley   |  |                   | 15,052 |  |                                                            |   | 15,052 | 
|James M. Miller    |  |                   | 15,052 |  |                                                            |   | 15,052 | 
|Robert W. Kelly II |  |                   | 15,052 |  |                                                            |   | 15,052 | 



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Other Payments Made Upon Termination, Retirement, Death or Disability

Certain accelerated vesting provisions will apply to each NEOs restricted stock awards if the NEOs employment is terminated
without cause or by the NEO for good reason. See Compensation Discussion and AnalysisCompensation after April 12, 20102010 Equity Incentive Plan.

Regardless of the manner in which an NEOs employment is terminated, he is entitled to receive amounts earned during his term of
employment, including unused vacation pay and bonuses earned but not yet paid under the Annual Officers Bonus. All amounts earned by our NEOs under the Annual Officers Bonuses will be paid on March 31, 2011.

Additionally, if an NEO is terminated due to death or disability, that NEO will receive benefits under our disability plan or payments
under our life insurance plan.

DIRECTOR COMPENSATION

Members of our Board of Directors do not receive compensation for their services as board members. We do, however, reimburse our
directors for all reasonable out-of-pocket costs and expenses incurred by them in connection with their service as a director.

COMPENSATION POLICIES AND RISK MANAGEMENT

While our Board strives to create incentives that encourage a level of risk-taking behavior consistent with our business strategy, our compensation policies and practices do not create risks that are
reasonably likely to have a material adverse affect on our operations or financial condition.



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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

Principal Stockholders

The following table sets forth information, as of March 29, 2011, with respect to all persons who own of record or are known by us to own
beneficially more than 5% of our outstanding common stock, each director, and each of the five most highly compensated executive officers, and by all directors and executive officers as a group.



|                                                                                  |  |                      |         |  |       |         |           |  |       |                       |  |  |      |  
|--------------------------------------------------------------------------------- |  | -------------------- | ------- |  | ----- | ------- | --------- |  | ----- | --------------------- |  |  | ---- | -
|                                                                                  |  | Beneficial ownership |         |  |       |        
|Name                                                                              |  | Number               |         |  | Class |         | % ofclass |  |       | % of
totaloutstanding | 
|Mark A. Fischer(1)(2)(7)                                                          |  |                      | 357,882 |  |       | B       |           |  | 100.0 | %                     |  |  | 25.4 | %
|                                                                                  |  |                      | 1       |  |       | G       |           |  | 33.3  | %                     |  |  | *    |  
|                                                                                  |  |                      | 15,102  |  |       | A       |           |  | 26.0  | %                     |  |  | 1.1  | %
|Altoma Energy G.P.(1)(3)                                                          |  |                      | 209,882 |  |       | C       |           |  | 100.0 | %                     |  |  | 14.9 | %
|                                                                                  |  |                      | 1       |  |       | G       |           |  | 33.3  | %                     |  |  | *    |  
|Charles A. Fischer, Jr.(1)(4)                                                     |  |                      | 209,882 |  |       | C       |           |  | 100.0 | %                     |  |  | 14.9 | %
|                                                                                  |  |                      | 1       |  |       | G       |           |  | 33.3  | %                     |  |  | *    |  
|CHK Holdings, L.L.C.(5)                                                           |  |                      | 279,999 |  |       | D       |           |  | 100.0 | %                     |  |  | 19.9 | %
|                                                                                  |  |                      | 1       |  |       | G       |           |  | 33.3  | %                     |  |  | *    |  
|Aubrey K. McClendon(5)                                                            |  |                      | 279,999 |  |       | D       |           |  | 100.0 | %                     |  |  | 19.9 | %
|                                                                                  |  |                      | 1       |  |       | G       |           |  | 33.3  | %                     |  |  | *    |  
|CCMP Capital Investors II (AV-2), L.P.(6)                                         |  |                      | 386,750 |  |       | E       |           |  | 76.7  | %                     |  |  | 27.4 | %
|                                                                                  |  |                      | 1       |  |       | F       |           |  | 100.0 | %                     |  |  | *    |  
|Christopher Behrens(6)                                                            |  |                      |        |  |       |        |           |  |      |                       |  |  |     |  
|Karl Kurz (6)                                                                     |  |                      |        |  |       |        |           |  |      |                       |  |  |     |  
|Joseph O. Evans (7)                                                               |  |                      | 6,041   |  |       | A       |           |  | 10.4  | %                     |  |  | *    |  
|K. Earl Reynolds (7)                                                              |  |                      | 6,041   |  |       | A       |           |  | 10.4  | %                     |  |  | *    |  
|Larry E. Gateley (7)                                                              |  |                      | 6,041   |  |       | A       |           |  | 10.4  | %                     |  |  | *    |  
|James M. Miller (7)                                                               |  |                      | 6,041   |  |       | A       |           |  | 10.4  | %                     |  |  | *    |  
|Robert W. Kelly II (7)                                                            |  |                      | 6,041   |  |       | A       |           |  | 10.4  | %                     |  |  | *    |  
|All Directors and Officers as a group (10 personsownership of total outstanding) |  |                      | 893,073 |  |       | Various |           |  |       |                       |  |  | 63.3 | %



|* | Less than 1%
|- | ------------

|(1) | The address of the the stockholder is in care of Chaparral Energy, Inc., 701 Cedar Lake Boulevard, Oklahoma City, Oklahoma 73114.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(2) | Fischer Investments, L.L.C., which is owned 50% by Mark A. Fischer 1994 Trust, for which Mark A. Fischer serves as Trustee, and 50% by Susan L. Fischer 1994 Trust, for
which Susan L. Fischer, the spouse of Mark A. Fischer, serves as trustee, is the record owner of these shares of our common stock with the exception of 3,030 shares held by the irrevocable trusts of his children, for which Mark A. Fischer serves as
Trustee.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Charles A. Fischer, Jr., one of our directors, is one of Altomas four managing general partners and beneficially owns a 23.15% general partner interest (including
0.90% owned by his spouse) in Altoma Energy G.P. The other partners of Altoma Energy G.P. who are each managing general partners and beneficially own in excess of 5% of its general partner interests are: Kenneth H. McCourt36.75%; Ronald D.
Jakimchuck17.86%; and Gary H. Klassen12.80%.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes all 209,882 shares owned of record by Altoma Energy G.P. Charles A. Fischer, Jr. serves as one of four managing partners of Altoma Energy G.P. Charles A.
Fischer, Jr. owns directly a 22.25% general partner interest and his spouse owns directly a 0.90% general partner interest in Altoma Energy G.P.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | The address of CHK Holdings L.L.C. and Aubrey K. McClendon is 6100 North Western Avenue, Oklahoma City, Oklahoma 73118. CHK Holdings is an indirect wholly owned
subsidiary of Chesapeake Energy Corporation. Mr. McClendon disclaims beneficial ownership of these securities and this report shall not be deemed an admission that he is the beneficial owner of the shares under the securities laws or for any
other purpose.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | CCMP Capital Investors II (AV-2), L.P. (AV-2), which owns 386,750 shares of Class E common stock and 1 share of Class F common, is part of an affiliated
group of our stockholders ultimately controlled by CCMP Capital, LLC (CCMP Capital). The affiliated group also includes CCMP Energy I, Ltd. (CCMP Energy), which is wholly owned by CCMP Capital Investors II (AV-1), L.P.
(AV-1) and which owns 58,217 shares of Class E common stock, and CCMP Capital Investors (Cayman) II, L.P. (CCMP Cayman), which owns 59,309 shares of Class E common stock. We refer to CCMP Cayman, AV-2 and AV-1 as the
CCMP Capital Funds. The affiliated group controlled by CCMP Capital owns an aggregate of 504,277, or 35.8%, of our common shares outstanding as of March 29, 2011.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The general partner of the CCMP Capital Funds is CCMP Capital Associates, L.P. (CCMP Capital Associates). The general partner
of CCMP Capital Associates is CCMP Capital Associates GP, LLC (CCMP Capital Associates GP). CCMP Capital Associates GP is



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wholly owned by CCMP Capital. CCMP Capital ultimately exercises voting and dispositive power over the shares held directly or indirectly by the CCMP Capital Funds.

Each of Karl Kurz and Christopher Behrens is a Managing Director of CCMP Capital Advisors, LLC, an investment advisor which is wholly
owned by CCMP Capital. The address of each of Messrs. Kurz and Behrens, and of each of the CCMP entities described above (other than CCMP Energy and CCMP Cayman) is c/o CCMP Capital, LLC, 245 Park Avenue, New York, NY 10167. The address of CCMP
Energy and CCMP Cayman is c/o Walkers SPV Limited, PO Box 908 GT, Walker House, George Town, Grand Cayman, Cayman Islands.

Each of Messrs. Kurz and Behrens disclaims any beneficial ownership of any shares beneficially owned by CCMP Capital and its related
entities described above.

|(7) | Ownership of the class A common stock is pursuant to restricted stock grants under our 2010 Plan. When granted, the class A common stock related to these grants may
vote, but remain subject to vesting in accordance with the 2010 Plan.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Securities Presently Authorized for Issuance under Our 2010 Plan

The following table provides information for all equity compensation plans as of December 31, 2010, under which our equity securities
were authorized for issuance:



|                                                           |  |                                                                                           |    |   |                                                                           |  |    |                                                                                                                                        |  |  |        |    
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | -- | - | ------------------------------------------------------------------------- |  | -- | -------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------ | ---
|Plan Category                                              |  | Number of Securities 
tobe Issued Upon Exerciseof Outstanding Options,Warrants and Rights |    |   | Weighted AverageExercise 
Price ofOutstanding Options,Warrants and Rights |  |    | Number of 
SecuritiesRemaining Available forFuture Issuance UnderEquity CompensationPlans (ExcludingSecurities 
Reflected inColumn (a) | 
|                                                           |  |                                                                                           | (a | ) |                                                                           |  | (b | )                                                                                                                                      |  |  | (c     | )  
|Equity compensation plans approved by security holders     |  |                                                                                           |   |   |                                                                           |  |   |                                                                                                                                        |  |  |       |    
|Equity compensation plans not approved by security holders |  |                                                                                           |   |   |                                                                           |  |   |                                                                                                                                        |  |  | 34,955 | (1)
|                                                           |  |                                                                                           |    |   |                                                                           |  |    |                                                                                                                                        |  |  |        |    
|Total                                                      |  |                                                                                           |   |   |                                                                           |  |   |                                                                                                                                        |  |  | 34,955 |    
|                                                           |  |                                                                                           |    |   |                                                                           |  |    |                                                                                                                                        |  |  |        |    



|(1) | This number reflects shares available for issuance under our 2010 plan. In addition, shares related to grants that are terminated, canceled, expire unexercised, or
settled in such manner that all or some of the shares are not issued to a participant or are surrendered unvested shall immediately become available for issuance.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

Transactions with Related Persons, Promoters and Certain Control Persons

Participation Interests

Historically, we have granted participation interests in the form of overriding royalty interests to a limited number of employees. We have also granted pro rata certain overriding royalty interests to
our stockholders or their affiliates, including Mark A. Fischer and Charles A. Fischer, Jr. We do not intend to continue the grant of any additional participation interest to our stockholders, or their affiliates, including Mark A. Fischer or
Charles A. Fischer, Jr. We have discontinued the granting of overriding royalty interests under our existing program to other employees effective December 31, 2005, other than certain specified wells that spud prior to April 1, 2006.
Aggregate payments on these interests to all persons were $573,262 in 2010. Payments on these interests to Mark A. Fischer were $85,862 in 2010. Payments on these interests to Charles A. Fischer, Jr. were $22,101 in 2010. Payments on these
interests to James M. Miller were $229,552 in 2010.

Transactions with Chesapeake

CHK Holdings L.L.C (CHK), an indirect wholly owned subsidiary of Chesapeake Energy Corporation (Chesapeake), owns
approximately 20% of our outstanding common stock. We participate in ownership of properties operated by Chesapeake and received revenues and incurred joint interest billings of $6,395,000 and $5,111,000, respectively, for the year ended
December 31, 2010 on these properties. In addition, Chesapeake participates in ownership of properties operated by us. During the year ended December 31, 2010, we paid revenues and recorded joint interest billings of $1,553,000 and
$1,765,000, respectively, to Chesapeake. Amounts receivable from and payable to Chesapeake were $718,000 and $120,000, respectively, as of December 31, 2010.

We were recently notified that CHK intends to sell all of its equity interest in us. The sale by CHK will be subject to the terms and conditions of the Stockholders Agreement described below, including
the restrictions on its ability to sell its equity interest.

Transactions with CCMP

On April 12, 2010, we closed the sale of an aggregate of 475,043 shares of our common stock to CCMP, and as a result of this transaction,
CCMP owns approximately 36% of our total outstanding common stock. Fees and other expenses associated with the sale were $11,769,000, which includes $5,000,000 paid to CCMP for its expenses in connection with the transaction.



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Stockholders Agreement

In connection with the closing of the private sale of our common stock to CCMP, we, CCMP, CHK Holdings, Inc. (CHK), Altoma
Energy GP (Altoma), and Fischer Investments, L.L.C. (Fischer) entered into a Stockholders Agreement on the closing date of the above transaction. The Stockholders Agreement provides for certain general rights and
restrictions, including board observer rights, informational rights, general restrictions on transfer of common stock, tag-along rights, preemptive rights, registration rights following a Qualified IPO (as defined in the Stockholders Agreement) and,
subject to certain limited exceptions, prohibitions on the sale or acquisition of our common stock that would result in a change of control, as such term is defined under our indentures for our senior notes.

The Stockholders Agreement also provides for the following stockholder-specific rights or restrictions:



| |  |  | Prior to a Qualified IPO, Altoma will not vote for the approval of (i) any merger, consolidation, conversion or a Demand IPO (as defined in the
Stockholders Agreement), (ii) certain amendments to our organizational documents, (iii) the sale of all or substantially all of our assets, or (iv) a termination of the business of or liquidation or dissolution of the Company, unless
Fischer votes for such approval.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other than pursuant to the exercise of preemptive rights, CHK may not acquire more than 25% of our outstanding common stock.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | CCMP may sell up to 20% of its common stock owned on the Closing Date (as defined in the Stockholders Agreement) without restriction. Prior to a
Qualified IPO and except in limited circumstances, CCMP is restricted from making further sales before the fourth anniversary of the Closing Date, and any sales thereafter (but before a Qualified IPO) will be subject to certain rights of first offer
provisions set forth in the Stockholders Agreement (the ROFO provisions).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fischer may sell up to 20% of its common stock owned immediately prior to the Closing Date subject to certain restrictions. Prior to a Qualified IPO
and except in limited circumstances, Fischer is restricted from making further sales before the fourth anniversary of the Closing Date, and any sales thereafter (but before a Qualified IPO) will be subject to the ROFO provisions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Prior to a Qualified IPO and except in limited circumstances, CHK is restricted from selling its common stock before the 30 month anniversary of the
Closing Date, and any sales thereafter (but before a Qualified IPO) will be subject to the ROFO provisions.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If our common stock is not listed on a national securities exchange after August 15, 2011, Altoma may request to transfer its shares pursuant to a
demand registration, but only after Altoma first offers such shares to the Company, and then to CHK, Fischer and CCMP in accordance with the procedures set forth in the Stockholders Agreement.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | At any time after the 18 month anniversary of the Closing Date, either (i) CCMP or (ii ) a majority in interest of Fischer, Altoma and CHK may
demand that we engage in a Qualified IPO if (a) the price per share to be received by the Company or such party or parties, as the case may be, in such Demand IPO is at least 1.75 times the price per share paid by CCMP for our common stock and
(b) certain other conditions are met.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | At any time after the four year anniversary of the Closing Date, CCMP may demand a Demand IPO.
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | At any time after the sixth anniversary of the Closing Date, and so long as a Qualified IPO has not yet occurred, CCMP may demand a Company Sale (as
defined in the Stockholders Agreement), subject to a right of first offer to purchase the Company provided to Fischer.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

With the exception of registration rights, the rights and preferences of a stockholder under the Stockholders Agreement will generally terminate on the earlier of (x) the closing date of a Qualified
IPO or (y) the date that such holder and its permitted transferees cease to beneficially own 5% or more of the Companys fully-diluted common stock.



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Review, Approval or Ratification of Transactions with Related Persons

Our board of directors is responsible for approving all related party transactions between us and any officer or director that would
potentially require disclosure. The board expects that any transactions in which related persons have a direct or indirect interest will be presented to the board for review and approval but we have no written policy in place at this time.

Director Independence

Our Board uses the independence standards under the New York Stock Exchange (NYSE) corporate governance rules for determining whether directors are independent. The Board has determined that
Messrs. McClendon, Behrens, Kurz and Charles A. Fischer, Jr. are independent under these NYSE rules for purposes of service on the Board.



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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Independent Auditor and Fees

Grant Thornton LLP, our independent registered public accounting firm, audited our consolidated financial statements for fiscal year 2010. Grant Thornton LLP has billed us and our subsidiaries fees as set
forth in the table below for (i) the audits of our 2010 and 2009 annual financial statements, reviews of quarterly financial statements, and other documents filed with the Securities and Exchange Commission, (ii) assurance and other
services reasonably related to the audit or review of our financial statements, and (iii) services related to tax compliance.



|                    |  |            |         |  |                   |   |        |             |  |   |        | 
|------------------- |  | ---------- | ------- |  | ----------------- | - | ------ | ----------- |  | - | ------ | 
|                    |  | Audit Fees |         |  | Audit-RelatedFees |   |        | Tax Fees(1) | 
|Fiscal year 2010(2) |  | $          | 511,671 |  |                   | $ | 3,990  |             |  | $ | 0      | 
|Fiscal year 2009(2) |  | $          | 504,628 |  |                   | $ | 24,251 |             |  | $ | 10,340 | 



|(1) | The services comprising Tax Fees included tax compliance, planning and advice.
|--- | --------------------------------------------------------------------------------

|(2) | There were no fees billed in 2010 or 2009 that would constitute All Other Fees.
|--- | ---------------------------------------------------------------------------------

Pre-Approved Policies and Procedures

We currently have two board committees, audit and compensation. Our board of directors has adopted policies regarding the pre-approval of auditor services. Specifically, the board of directors approves
all services provided by the independent public accountants at its March meeting. All additional services must be pre-approved on a case-by-case basis. Our board of directors reviews the actual and budgeted fees for the independent public
accountants periodically at regularly scheduled board meetings. All of the services provided by Grant Thornton LLP during fiscal year 2010 were approved by the board of directors.



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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements, Schedules and Exhibits

(1) Financial
StatementsChaparral Energy, Inc. and Subsidiaries:

The Financial Statements listed in the Index to Consolidated
Financial Statements are filed as part of this report on Form 10-K (see Part II, Item 8-Financial Statements and Supplementary Data).

(2) Financial Statement Schedules

All other consolidated financial statement
schedules have been omitted because they are not required, are not applicable, or the required information has been included elsewhere within this Form 10-K.

(3) Exhibits



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|3.1*        |  | Second Amended and Restated Certificate of Incorporation of Chaparral Energy, Inc. (the Company), dated as of April 12, 2010. (Incorporated by reference to Exhibit 3.1
to the Companys Annual Report on Form 10-K filed on April 14, 2010)                                                                                                                                                            
|            | 
|3.2*        |  | Second Amended and Restated Bylaws of the Company, dated as of April 12, 2010. (Incorporated by reference to Exhibit 3.2 to the Companys Annual Report on Form 10-K filed on
April 14, 2010)                                                                                                                                                                                                             
|            | 
|4.1*        |  | Form of 81/2%
Senior Note due 2015 (included in Exhibit 4.2). (Incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form S-1 (SEC File No. 333-130749), filed on December 29, 2005)                                                                                                                                                                                        
|            | 
|4.2*        |  | Indenture, dated as of December 1, 2005, among the Company, as Issuer, the subsidiaries of the Company party thereto as Guarantors and Wells Fargo Bank, National Association, as
Trustee. (Incorporated by reference to Exhibit 4.3 to the Companys Registration Statement on Form S-1 (SEC File No. 333-130749), filed on December 29, 2005)                                                           
|            | 
|4.3*        |  | First Supplemental Indenture, dated as of August 24, 2006, to Indenture dated as of December 1, 2005 among the Company, as Issuer, the Guarantors named therein and Wells Fargo Bank,
National Association, as Trustee. (Incorporated by reference to Exhibit 4.1 of the Companys Current Report on Form 8-K (SEC File No. 333-134748), filed on August 28, 2006)                                        
|            | 
|4.4*        |  | Second Supplemental Indenture, dated as of October 31, 2006, to Indenture dated as of December 1, 2005 among the Company, as Issuer, the Guarantors named therein and Wells Fargo
Bank, National Association, as Trustee. (Incorporated by reference to Exhibit 4.1 of the Companys Current Report on Form 8-K (SEC File No. 333-134748), filed on November 6, 2006)                                     
|            | 
|4.5*        |  | Third Supplemental Indenture, dated as of July 30, 2007 and effective as of April 16, 2007, to Indenture dated as of December 1, 2005 among the Company, as Issuer, the Guarantors
named therein and Wells Fargo Bank, National Association, as Trustee. (Incorporated by reference to Exhibit 4.5 to the Companys Registration Statement on Form S-4 (SEC File No. 333-145128), filed on August 3,
2007)



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|4.6*        |  | Indenture dated January 18, 2007, among the Company, as Issuer, the subsidiaries of the Company party thereto as Guarantors and Wells Fargo Bank, National Association, as
Trustee. (Incorporated by reference to Exhibit 4.1 of the Companys Current Report on Form 8-K (SEC File No. 333-134748), filed on January 24, 2007)                                                                                           
|            | 
|4.7*        |  | Form of 87/8%
Senior Note due 2017 (included in Exhibit 4.6). (Incorporated by reference to Exhibit 4.2 of the Companys Current Report on Form 8-K (SEC File No. 333-134748), filed on January 24, 2007)                                                                                                                                                                                                                 
|            | 
|4.8*        |  | First Supplemental Indenture, dated as of July 30, 2007 and effective as of April 16, 2007, to Indenture dated as of January 18, 2007 among the Company, as Issuer, the Guarantors
named therein and Wells Fargo Bank, National Association, as Trustee. (Incorporated by reference to Exhibit 4.8 to the Companys Registration Statement on Form S-4 (SEC File No. 333-145128), filed on August 3, 2007)                
|            | 
|4.9*        |  | Indenture dated September 16, 2010, among Chaparral Energy, Inc., the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee. (Incorporated by reference to
Exhibit 4.1 of the Companys Current Report on Form 8-K (SEC File No.333-134748) filed on September 16, 2010)                                                                                                                       
|            | 
|4.10*       |  | Form of 97/8% Senior Note due 2020 (included in Exhibit 4.9). (Incorporated by reference to Exhibit 4.2 of the Companys Current Report on Form 8-K (SEC File No. 333-134748) filed on September 16,
2010)                                                                                                                                                                                                                
|            | 
|4.11*       |  | Indenture dated February 22, 2011, among Chaparral Energy, Inc., the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee. (Incorporated by reference to
Exhibit 4.1 of the Companys Current Report on Form 8-K filed on February 22, 2011)                                                                                                                                                  
|            | 
|4.12*       |  | Form of 81⁄4 % Senior Note due 2021 (included as Exhibit A to Exhibit 4.11) (Incorporated by reference to Exhibit 4.2 of the Companys Current Report on Form 8-K filed on
February 22, 2011)                                                                                                                                                                                                                               
|            | 
|4.13*       |  | Fourth Supplemental Indenture dated February 22, 2011, among Chaparral Energy, Inc., the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee.
(Incorporated by reference to Exhibit 4.3 of the Companys Current Report on Form 8-K filed on February 22, 2011)                                                                                                                              
|            | 
|10.1*      |  | Form of Indemnification Agreements, between the Company and each of the directors and certain executive officers thereof (Incorporated by reference to Exhibit 10.6 to Form S-4
(SEC File No. 333-134748), filed on June 6, 2006)                                                                                                                                                                                         
|            | 
|10.2*      |  | Form of Assignment of Overriding Royalty Interest to James M. Miller (Incorporated by reference to Exhibit 10.7 to Form S-1 (SEC File No. 333-130749), filed on December 29,
2005)                                                                                                                                                                                                                                        
|            | 
|10.3*       |  | Seventh Restated Credit Agreement, dated as of October 31, 2006, by and among the Company, Chaparral Energy, L.L.C., in its capacity as Borrower Representative for the Borrowers,
JPMorgan Chase Bank, N.A., as Administrative Agent, and each of the Lenders named therein. (Incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K (SEC File No. 333-134748), filed on November 6,
2006)
|            | 
|10.4*       |  | First Amendment to Seventh Restated Credit Agreement, dated as of May 11, 2007, by and among the Company, Chaparral Energy, L.L.C., as Borrower Representative for the Borrowers,
JPMorgan Chase Bank, N.A., as Administrative Agent, and the Lenders party thereto. (Incorporated by reference to Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q, filed May 15, 2007)                                       
|            | 
|10.5*       |  | Second Amendment to Seventh Restated Credit Agreement, dated as of July 3, 2007, by and among the Company, Chaparral Energy, L.L.C., as Borrower Representative for the Borrowers, JP
Morgan Chase Bank, N.A., as Administrative Agent, and the Lenders party thereto. (Incorporated by reference to Exhibit 10.11 to the Companys Registration on Form S-l (SEC File No. 333-130749), filed on July 20, 2007)           
|            | 
|10.6*       |  | Third Amendment to Seventh Restated Credit Agreement, dated as of May 13, 2008, by and among the Company, Chaparral Energy, L.L.C., as Borrower Representative for the Borrowers, JP
Morgan Chase Bank, N.A., as Administrative Agent, and the Lenders party thereto. (Incorporated by reference to Exhibit 10.18 of the Companys Quarterly Report on Form 10-Q, filed on May 15, 2009)                                  
|            | 
|10.7*       |  | Fourth Amendment to Seventh Restated Credit Agreement, dated as of December 24, 2008, by and among the Company, Chaparral Energy, L.L.C., as Borrower Representative for the
Borrowers, JP Morgan Chase Bank, N.A., as Administrative Agent, and the Lenders party thereto. (Incorporated by reference to Exhibit 10.19 of the Companys Quarterly Report on Form 10-Q, filed on May 15, 2009)                            



164



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|10.8*       |  | Fifth Amendment to Seventh Restated Credit Agreement, dated as of May 21, 2009, by and among the Company, Chaparral Energy, L.L.C., as Borrower Representative for the
Borrowers, JP Morgan Chase Bank, N.A., as Administrative Agent, and the Lenders party thereto. (Incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K (SEC File No. 333-134748), filed on May 26,
2009)
|            | 
|10.9*      |  | Form of Change of Control Severance Agreement for Corporate Officers, between the Company and certain executive officers thereof (Incorporated by reference to Exhibit 10.15 to the
Companys Annual Report on Form 10-K (SEC File No. 333-134748), filed on March 31, 2008)                                                                                                                                  
|            | 
|10.10*      |  | Stock Purchase Agreement, dated as of March 23, 2010, by and among the Company, CCMP Capital Investors II (AV-2), L.P., CMP Energy I LTD. and CCMP Capital Investors (Cayman) II,
L.P. (Incorporated by reference to Exhibit 10.18 to the Companys Current Report on Form 8-K (SEC File No. 333-134748), filed on March 24, 2010)                                                                            
|            | 
|10.11*      |  | Stockholders Agreement, dated as of April 12, 2010, by and among the Company, CHK Holidngs, L.L.C. CCMP Capital Investors II (AV-2), L.P., CMP Energy I LTD., CCMP Capital
Investors (Cayman) II, L.P Altoma Energy GP and Fischer Investments, L.L.C. (Incorporated by reference to Exhibit 10.17 to the Companys Annual Report on Form 10-K filed on April 14, 2010)                                      
|            | 
|10.12*      |  | Eighth Restated Credit Agreement, dated as of April 12, 2010, by and among the Company, Chaparral Energy, L.L.C., in its capacity as Borrower Representative for the Borrowers,
JPMorgan Chase Bank, N.A., as Administrative Agent, and each of the Lenders named therein. (Incorporated by reference to Exhibit 10.18 to the Companys Annual Report on Form 10-K filed on April 14, 2010)                   
|            | 
|10.13*      |  | First Amendment to Eighth Restated Credit Agreement dated as of July 26, 2010. (Incorporated by reference to Exhibit 10.28 to the Companys Quarterly Report on Form 10-Q filed
on August 11, 2010)                                                                                                                                                                                                           
|            | 
|10.14*      |  | Second Amendment to Eighth Restated Credit Agreement dated as of January 11, 2011(Incorporated by reference to Exhibit 4.3 of the Companys Current Report on Form 8-K filed on
February 8, 2011)                                                                                                                                                                                                             
|            | 
|10.15*      |  | Third Amendment to Eighth Restated Credit Agreement dated as of February 7, 2011 (Incorporated by reference to Exhibit 4.3 of the Companys Current Report on Form 8-K filed on
February 8, 2011)                                                                                                                                                                                                             
|            | 
|10.16*     |  | Second Amended and Restated Phantom Stock Plan dated December 31, 2008 (Incorporated by reference to Exhibit 10.22 of the Companys Quarterly Report on Form 10-Q, filed on
November 10, 2009)                                                                                                                                                                                                                
|            | 
|10.17*     |  | 2010 Equity Incentive Plan dated April 12, 2010. (Incorporated by reference to Exhibit 10.20 of the Companys Annual Report on Form 10-K, filed on April 14, 2010)                                                                                                                                                                                                                                            
|            | 
|10.18      |  | Form of Restricted Stock Award Grant Notice and Restricted Stock Agreement (Time Vesting). (Incorporated by reference to Exhibit 10.21 of the Companys Annual Report on Form
10-K, filed on April 14, 2010)                                                                                                                                                                                                  
|            | 
|10.19*     |  | Form of Restricted Stock Award Grant Notice and Restricted Stock Agreement (Performance Vesting). (Incorporated by reference to Exhibit 10.22 of the Companys Annual Report on
Form 10-K, filed on April 14, 2010)                                                                                                                                                                                           
|            | 
|10.20*     |  | Employment Agreement, dated as of April 12, 2010, by and among the Company and Mark A. Fischer. (Incorporated by reference to Exhibit 10.23 of the Companys Annual Report on
Form 10-K, filed on April 14, 2010)                                                                                                                                                                                             
|            | 
|10.21*     |  | Employment Agreement, dated as of April 12, 2010, by and among the Company and Joseph O. Evans. (Incorporated by reference to Exhibit 10.24 of the Companys Annual Report on
Form 10-K, filed on April 14, 2010)                                                                                                                                                                                             
|            | 
|10.22*     |  | Employment Agreement, dated as of April 12, 2010, by and among the Company and Larry E. Gateley. (Incorporated by reference to Exhibit 10.25 of the Companys Annual Report on
Form 10-K, filed on April 14, 2010)                                                                                                                                                                                            
|            | 
|10.23*     |  | Employment Agreement, dated as of April 12, 2010, by and among the Company and James M. Miller. (Incorporated by reference to Exhibit 10.26 of the Companys Annual Report on
Form 10-K, filed on April 14, 2010)                                                                                                                                                                                             
|            | 
|10.24*     |  | Employment Agreement, dated as of April 12, 2010, by and among the Company and Robert W. Kelly II. (Incorporated by reference to Exhibit 10.27 of the Companys Annual Report on
Form 10-K, filed on April 14, 2010)                                                                                                                                                                                          
|            | 
|10.25*     |  | Purchase Agreement dated as of September 13, 2010, by and among Chaparral Energy, Inc. and certain of its subsidiaries named therein, and J.P. Morgan Securities LLC, as
representative of the several Initial Purchasers named therein. (Incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K (SEC File No. 333-134748) filed on September 16, 2010)                        
|            | 
|10.26*      |  | Registration Rights Agreement dated September 16, 2010, among Chaparral Energy, Inc., the guarantors party thereto and the initial purchasers party thereto. (Incorporated by
reference to Exhibit 10.1 of the Companys Current Report on form 8-K (SEC File No.333-134748) filed on September 16, 2010)                                                                                                     
|            | 
|10.27      |  | Employment Agreement, dated as of February 1, 2011, by and among the Company and K. Earl Reynolds                                                                                                                                                                                                                                                                                                             
|            | 
|10.28*      |  | Purchase Agreement dated as of February 7, 2011, by and among Chaparral Energy, Inc. and certain of its subsidiaries named therein, and Wells Fargo Securities, LLC, as
Representative of the several Initial Purchasers named therein (Incorporated by reference to Exhibit 4.3 of the Companys Current Report on Form 8-K filed on February 8, 2011)                                                       
|            | 
|10.29*      |  | Solicitation Agent and Dealer Manager Agreement dated February 7, 2011 by and among Chaparral Energy, Inc. and Wells Fargo Securities, LLC (Incorporated by reference to Exhibit 4.3
of the Companys Current Report on Form 8-K filed on February 8, 2011)                                                                                                                                                   
|            | 
|10.30*      |  | Registration Rights Agreement dated February 22, 2011, among Chaparral Energy, Inc., the guarantors party thereto, and the initial purchasers party thereto. (Incorporated by
reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed on February 22, 2011)                                                                                                                               
|            | 
|10.31       |  | Carbon Dioxide Purchase and Sale Agreement dated March 24, 2011, by and between Chaparral CO2, LLC, as buyer and Coffeyville Resources Nitrogen Fertilizers, LLC, as seller                                                                                                                                                                                                                                   
|            | 
|21.1        |  | Subsidiaries of the Company.                                                                                                                                                                                                                                                                                                                                                                                  
|            | 
|31.1        |  | Certification by Chief Executive Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act                                                                                                                                                                                                                                                                                                      
|            | 
|31.2        |  | Certification by Chief Financial Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act                                                                                                                                                                                                                                                                                                      
|            | 
|32.1        |  | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                             
|            | 
|32.2        |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                             
|            | 
|99.1        |  | Report of Cawley, Gillespie & Associates, Inc.                                                                                                                                                                                                                                                                                                                                                                
|            | 
|99.2        |  | Report of Ryder Scott Company, L.P.                                                                                                                                                                                                                                                                                                                                                                           



|* | Incorporated by reference
|- | -------------------------

| | Management contract or compensatory plan or arrangement
|- | -------------------------------------------------------



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SIGNATURES

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



CHAPARRAL ENERGY, INC.By:

/S/    MARK A.
FISCHERName:

Mark A. FischerTitle:

President and Chief Executive OfficerBy:

/S/    JOSEPH O.
EVANSName:

Joseph O. EvansTitle:

Chief Financial Officer and Treasurer


Date: March 29, 2011

Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                                       |  |                                                                               |  |               
|------------------------------------------------------ |  | ----------------------------------------------------------------------------- |  | --------------
|Signature                                              |  | Title                                                                         |  | Date          
|                                                       |  |                                                                              
|/S/    MARK A.
FISCHER Mark A. Fischer                 |  | President, Chief Executive Officer
and Chairman (Principal Executive Officer) |  | March 29, 2011
|                                                       |  |                                                                              
|/S/    CHARLES A.
FISCHER, JR. Charles A. Fischer,
Jr. |  | Director                                                                      |  | March 29, 2011
|                                                       |  |                                                                              
|/S/    AUBREY K.
MCCLENDON Aubrey K.
McClendon         |  | Director                                                                      |  | March 29, 2011
|                                                       |  |                                                                              
|/S/    KARL
KURZ Karl Kurz                             |  | Director                                                                      |  | March 29, 2011
|                                                       |  |                                                                              
|/S/    CHRISTOPHER
BEHRENS Christopher Behrens         |  | Director                                                                      |  | March 29, 2011



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EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|3.1*        |  | Second Amended and Restated Certificate of Incorporation of Chaparral Energy, Inc. (the Company), dated as of April 12, 2010. (Incorporated by reference to Exhibit 3.1
to the Companys Annual Report on Form 10-K filed on April 14, 2010)                                                                                                                                                            
|            | 
|3.2*        |  | Second Amended and Restated Bylaws of the Company, dated as of April 12, 2010. (Incorporated by reference to Exhibit 3.2 to the Companys Annual Report on Form 10-K filed on
April 14, 2010)                                                                                                                                                                                                             
|            | 
|4.1*        |  | Form of 81/2% Senior Note due 2015 (included in Exhibit 4.2). (Incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form S-1 (SEC File No. 333-130749), filed on December 29,
2005)                                                                                                                                                                                        
|            | 
|4.2*        |  | Indenture, dated as of December 1, 2005, among the Company, as Issuer, the subsidiaries of the Company party thereto as Guarantors and Wells Fargo Bank, National Association, as
Trustee. (Incorporated by reference to Exhibit 4.3 to the Companys Registration Statement on Form S-1 (SEC File No. 333-130749), filed on December 29, 2005)                                                           
|            | 
|4.3*        |  | First Supplemental Indenture, dated as of August 24, 2006, to Indenture dated as of December 1, 2005 among the Company, as Issuer, the Guarantors named therein and Wells Fargo Bank,
National Association, as Trustee. (Incorporated by reference to Exhibit 4.1 of the Companys Current Report on Form 8-K (SEC File No. 333-134748), filed on August 28, 2006)                                        
|            | 
|4.4*        |  | Second Supplemental Indenture, dated as of October 31, 2006, to Indenture dated as of December 1, 2005 among the Company, as Issuer, the Guarantors named therein and Wells Fargo
Bank, National Association, as Trustee. (Incorporated by reference to Exhibit 4.1 of the Companys Current Report on Form 8-K (SEC File No. 333-134748), filed on November 6, 2006)                                     
|            | 
|4.5*        |  | Third Supplemental Indenture, dated as of July 30, 2007 and effective as of April 16, 2007, to Indenture dated as of December 1, 2005 among the Company, as Issuer, the Guarantors
named therein and Wells Fargo Bank, National Association, as Trustee. (Incorporated by reference to Exhibit 4.5 to the Companys Registration Statement on Form S-4 (SEC File No. 333-145128), filed on August 3, 2007)
|            | 
|4.6*        |  | Indenture dated January 18, 2007, among the Company, as Issuer, the subsidiaries of the Company party thereto as Guarantors and Wells Fargo Bank, National Association, as
Trustee. (Incorporated by reference to Exhibit 4.1 of the Companys Current Report on Form 8-K (SEC File No. 333-134748), filed on January 24, 2007)                                                                           
|            | 
|4.7*        |  | Form of 87/8% Senior Note due 2017 (included in Exhibit 4.6). (Incorporated by reference to Exhibit 4.2 of the Companys Current Report on Form 8-K (SEC File No. 333-134748), filed on January 24,
2007)                                                                                                                                                                                                 
|            | 
|4.8*        |  | First Supplemental Indenture, dated as of July 30, 2007 and effective as of April 16, 2007, to Indenture dated as of January 18, 2007 among the Company, as Issuer, the Guarantors
named therein and Wells Fargo Bank, National Association, as Trustee. (Incorporated by reference to Exhibit 4.8 to the Companys Registration Statement on Form S-4 (SEC File No. 333-145128), filed on August 3, 2007)
|            | 
|4.9*        |  | Indenture dated September 16, 2010, among Chaparral Energy, Inc., the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee. (Incorporated by reference to
Exhibit 4.1 of the Companys Current Report on Form 8-K (SEC File No.333-134748) filed on September 16, 2010)                                                                                                       
|            | 
|4.10*       |  | Form of 97/8% Senior Note due 2020 (included in Exhibit 4.9). (Incorporated by reference to Exhibit 4.2 of the Companys Current Report on Form 8-K (SEC File No. 333-134748) filed on September 16,
2010)                                                                                                                                                                                                
|            | 
|4.11*       |  | Indenture dated February 22, 2011, among Chaparral Energy, Inc., the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee. (Incorporated by reference to
Exhibit 4.1 of the Companys Current Report on Form 8-K filed on February 22, 2011)                                                                                                                                  
|            | 
|4.12*       |  | Form of 81/4% Senior Note due 2021 (included as Exhibit A to Exhibit 4.11) (Incorporated by reference to Exhibit 4.2 of the Companys Current Report on Form 8-K filed on February 22,
2011)                                                                                                                                                                                                              
|            | 
|4.13*       |  | Fourth Supplemental Indenture dated February 22, 2011, among Chaparral Energy, Inc., the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee.
(Incorporated by reference to Exhibit 4.3 of the Companys Current Report on Form 8-K filed on February 22, 2011)                                                                                                              
|            | 
|10.1*      |  | Form of Indemnification Agreements, between the Company and each of the directors and certain executive officers thereof (Incorporated by reference to Exhibit 10.6 to Form S-4
(SEC File No. 333-134748), filed on June 6, 2006)                                                                                                                                                                         
|            | 
|10.2*      |  | Form of Assignment of Overriding Royalty Interest to James M. Miller (Incorporated by reference to Exhibit 10.7 to Form S-1 (SEC File No. 333-130749), filed on December 29,
2005)                                                                                                                                                                                                                        



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|10.3*       |  | Seventh Restated Credit Agreement, dated as of October 31, 2006, by and among the Company, Chaparral Energy, L.L.C., in its capacity as Borrower Representative for the Borrowers,
JPMorgan Chase Bank, N.A., as Administrative Agent, and each of the Lenders named therein. (Incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K (SEC File No. 333-134748), filed on November 6,
2006)
|            | 
|10.4*       |  | First Amendment to Seventh Restated Credit Agreement, dated as of May 11, 2007, by and among the Company, Chaparral Energy, L.L.C., as Borrower Representative for the Borrowers,
JPMorgan Chase Bank, N.A., as Administrative Agent, and the Lenders party thereto. (Incorporated by reference to Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q, filed May 15, 2007)                                       
|            | 
|10.5*       |  | Second Amendment to Seventh Restated Credit Agreement, dated as of July 3, 2007, by and among the Company, Chaparral Energy, L.L.C., as Borrower Representative for the Borrowers, JP
Morgan Chase Bank, N.A., as Administrative Agent, and the Lenders party thereto. (Incorporated by reference to Exhibit 10.11 to the Companys Registration on Form S-l (SEC File No. 333-130749), filed on July 20, 2007)           
|            | 
|10.6*       |  | Third Amendment to Seventh Restated Credit Agreement, dated as of May 13, 2008, by and among the Company, Chaparral Energy, L.L.C., as Borrower Representative for the Borrowers, JP
Morgan Chase Bank, N.A., as Administrative Agent, and the Lenders party thereto. (Incorporated by reference to Exhibit 10.18 of the Companys Quarterly Report on Form 10-Q, filed on May 15, 2009)                                  
|            | 
|10.7*       |  | Fourth Amendment to Seventh Restated Credit Agreement, dated as of December 24, 2008, by and among the Company, Chaparral Energy, L.L.C., as Borrower Representative for the
Borrowers, JP Morgan Chase Bank, N.A., as Administrative Agent, and the Lenders party thereto. (Incorporated by reference to Exhibit 10.19 of the Companys Quarterly Report on Form 10-Q, filed on May 15, 2009)                            



168



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|10.8*       |  | Fifth Amendment to Seventh Restated Credit Agreement, dated as of May 21, 2009, by and among the Company, Chaparral Energy, L.L.C., as Borrower Representative for the
Borrowers, JP Morgan Chase Bank, N.A., as Administrative Agent, and the Lenders party thereto. (Incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K (SEC File No. 333-134748), filed on May 26,
2009)
|            | 
|10.9*      |  | Form of Change of Control Severance Agreement for Corporate Officers, between the Company and certain executive officers thereof (Incorporated by reference to Exhibit 10.15 to the
Companys Annual Report on Form 10-K (SEC File No. 333-134748), filed on March 31, 2008)                                                                                                                                  
|            | 
|10.10*      |  | Stock Purchase Agreement, dated as of March 23, 2010, by and among the Company, CCMP Capital Investors II (AV-2), L.P., CMP Energy I LTD. and CCMP Capital Investors (Cayman)
II, L.P. (Incorporated by reference to Exhibit 10.18 to the Companys Current Report on Form 8-K (SEC File No. 333-134748), filed on March 24, 2010)                                                                            
|            | 
|10.11*      |  | Stockholders Agreement, dated as of April 12, 2010, by and among the Company, CHK Holidngs, L.L.C. CCMP Capital Investors II (AV-2), L.P., CMP Energy I LTD., CCMP Capital
Investors (Cayman) II, L.P Altoma Energy GP and Fischer Investments, L.L.C. (Incorporated by reference to Exhibit 10.17 to the Companys Annual Report on Form 10-K filed on April 14, 2010)                                      
|            | 
|10.12*      |  | Eighth Restated Credit Agreement, dated as of April 12, 2010, by and among the Company, Chaparral Energy, L.L.C., in its capacity as Borrower Representative for the Borrowers,
JPMorgan Chase Bank, N.A., as Administrative Agent, and each of the Lenders named therein. (Incorporated by reference to Exhibit 10.18 to the Companys Annual Report on Form 10-K filed on April 14, 2010)                   
|            | 
|10.13*      |  | First Amendment to Eighth Restated Credit Agreement dated as of July 26, 2010. (Incorporated by reference to Exhibit 10.28 to the Companys Quarterly Report on Form 10-Q filed
on August 11, 2010)                                                                                                                                                                                                           
|            | 
|10.14*      |  | Second Amendment to Eighth Restated Credit Agreement dated as of January 11, 2011(Incorporated by reference to Exhibit 4.3 of the Companys Current Report on Form 8-K filed on
February 8, 2011)                                                                                                                                                                                                             
|            | 
|10.15*      |  | Third Amendment to Eighth Restated Credit Agreement dated as of February 7, 2011 (Incorporated by reference to Exhibit 4.3 of the Companys Current Report on Form 8-K filed on
February 8, 2011)                                                                                                                                                                                                             
|            | 
|10.16*     |  | Second Amended and Restated Phantom Stock Plan dated December 31, 2008 (Incorporated by reference to Exhibit 10.22 of the Companys Quarterly Report on Form 10-Q, filed on
November 10, 2009)                                                                                                                                                                                                                
|            | 
|10.17*     |  | 2010 Equity Incentive Plan dated April 12, 2010. (Incorporated by reference to Exhibit 10.20 of the Companys Annual Report on Form 10-K, filed on April 14, 2010)                                                                                                                                                                                                                                            
|            | 
|10. 18*    |  | Form of Restricted Stock Award Grant Notice and Restricted Stock Agreement (Time Vesting). (Incorporated by reference to Exhibit 10.21 of the Companys Annual Report on Form
10-K, filed on April 14, 2010)                                                                                                                                                                                                  
|            | 
|10.19*     |  | Form of Restricted Stock Award Grant Notice and Restricted Stock Agreement (Performance Vesting). (Incorporated by reference to Exhibit 10.22 of the Companys Annual Report on
Form 10-K, filed on April 14, 2010)                                                                                                                                                                                           
|            | 
|10.20*     |  | Employment Agreement, dated as of April 12, 2010, by and among the Company and Mark A. Fischer. (Incorporated by reference to Exhibit 10.23 of the Companys Annual Report on
Form 10-K, filed on April 14, 2010)                                                                                                                                                                                             
|            | 
|10.21*     |  | Employment Agreement, dated as of April 12, 2010, by and among the Company and Joseph O. Evans. (Incorporated by reference to Exhibit 10.24 of the Companys Annual Report on
Form 10-K, filed on April 14, 2010)                                                                                                                                                                                             
|            | 
|10.22*     |  | Employment Agreement, dated as of April 12, 2010, by and among the Company and Larry E. Gateley. (Incorporated by reference to Exhibit 10.25 of the Companys Annual Report on
Form 10-K, filed on April 14, 2010)                                                                                                                                                                                            
|            | 
|10.23*     |  | Employment Agreement, dated as of April 12, 2010, by and among the Company and James M. Miller. (Incorporated by reference to Exhibit 10.26 of the Companys Annual Report on
Form 10-K, filed on April 14, 2010)                                                                                                                                                                                             
|            | 
|10.24*      |  | Employment Agreement, dated as of April 12, 2010, by and among the Company and Robert W. Kelly II. (Incorporated by reference to Exhibit 10.27 of the Companys Annual Report on
Form 10-K, filed on April 14, 2010)                                                                                                                                                                                          
|            | 
|10.25*     |  | Purchase Agreement dated as of September 13, 2010, by and among Chaparral Energy, Inc. and certain of its subsidiaries named therein, and J.P. Morgan Securities LLC, as
representative of the several Initial Purchasers named therein. (Incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K (SEC File No. 333-134748) filed on September 16, 2010)                        
|            | 
|10.26*      |  | Registration Rights Agreement dated September 16, 2010, among Chaparral Energy, Inc., the guarantors party thereto and the initial purchasers party thereto. (Incorporated by
reference to Exhibit 10.1 of the Companys Current Report on form 8-K (SEC File No.333-134748) filed on September 16, 2010)                                                                                                     
|            | 
|10.27      |  | Employment Agreement, dated as of February 1, 2011, by and among the Company and K. Earl Reynolds                                                                                                                                                                                                                                                                                                             
|            | 
|10.28*      |  | Purchase Agreement dated as of February 7, 2011, by and among Chaparral Energy, Inc. and certain of its subsidiaries named therein, and Wells Fargo Securities, LLC, as
Representative of the several Initial Purchasers named therein (Incorporated by reference to Exhibit 4.3 of the Companys Current Report on Form 8-K filed on February 8, 2011)                                                       
|            | 
|10.29*      |  | Solicitation Agent and Dealer Manager Agreement dated February 7, 2011 by and among Chaparral Energy, Inc. and Wells Fargo Securities, LLC (Incorporated by reference to Exhibit 4.3
of the Companys Current Report on Form 8-K filed on February 8, 2011)                                                                                                                                                   
|            | 
|10.30*      |  | Registration Rights Agreement dated February 22, 2011, among Chaparral Energy, Inc., the guarantors party thereto, and the initial purchasers party thereto. (Incorporated by
reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed on February 22, 2011)                                                                                                                               
|            | 
|10.31       |  | Carbon Dioxide Purchase and Sale Agreement dated March 24, 2011, by and between Chaparral CO2, LLC, as buyer and Coffeyville Resources Nitrogen Fertilizers, LLC, as seller                                                                                                                                                                                                                                   
|            | 
|21.1        |  | Subsidiaries of the Company.                                                                                                                                                                                                                                                                                                                                                                                  
|            | 
|31.1        |  | Certification by Chief Executive Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act                                                                                                                                                                                                                                                                                                      
|            | 
|31.2        |  | Certification by Chief Financial Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act                                                                                                                                                                                                                                                                                                      
|            | 
|32.1        |  | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                             
|            | 
|32.2        |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                             
|            | 
|99.1        |  | Report of Cawley, Gillespie & Associates, Inc.                                                                                                                                                                                                                                                                                                                                                                
|            | 
|99.2        |  | Report of Ryder Scott Company, L.P.                                                                                                                                                                                                                                                                                                                                                                           



|* | Incorporated by reference
|- | -------------------------

| | Management contract or compensatory plan or arrangement
|- | -------------------------------------------------------



169