UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q

(Mark One)

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



For the quarterly period ended September 30, 2012



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 number: 814-00672












NGP Capital Resources Company

(Exact name of registrant as specified
in its charter)










|Maryland                                                               | 20-1371499                                  
|---------------------------------------------------------------------- | --------------------------------------------
|(State or other jurisdiction of
        incorporation or organization) | (I.R.S. Employer
        Identification No.)
|                                                                       |                                             
|909 Fannin, Suite 3800
        Houston, Texas                          | 77010                                       
|(Address of principal executive offices)                               | (Zip Code)                                  



(713) 752-0062

(Registrant’s telephone number,
including area code)



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.  YesTNo£



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 (§ 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 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 filerT | Non-accelerated filer     £                 | Smaller reporting company   £
|--------------------------- | ------------------ | ------------------------------------------- | -----------------------------
|                            |                    | (Do not check if 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£NoT



As of November 7, 2012, there were 21,378,173
shares of the registrant’s common stock outstanding.













TABLE OF CONTENTS



|PART I - FINANCIAL INFORMATION | 1                                                                                     
|------------------------------ | --------------------------------------------------------------------------------------
|Item 1.                        | Financial Statements.                                                                 
|Item 2.                        | Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|Item 3.                        | Quantitative and Qualitative Disclosures About Market Risk.                           
|Item 4.                        | Controls and Procedures.                                                              
|PART II – OTHER INFORMATION    | 32                                                                                    
|Item 1.                        | Legal Proceedings.                                                                    
|Item 1A.                       | Risk Factors.                                                                         
|Item 6.                        | Exhibits.                                                                             













PART I - FINANCIAL INFORMATION



Item 1. Financial Statements.





|NGP CAPITAL RESOURCES COMPANY                                
|-------------------------------------------------------------
|CONSOLIDATED BALANCE SHEETS                                  
|(In Thousands, Except Share and Per Share Amounts)           
|                                                             
|                                                             
|                                                             
|                                                             
|Assets                                                       
|Investments in portfolio securities at fair value            
|Control investments - majority owned                         
|(cost: $0 and $0, respectively)                              
|Affiliate investments                                        
|(cost: $38,038 and $36,778, respectively)                    
|Non-affiliate investments                                    
|(cost: $195,694 and $135,824, respectively)                  
|Total portfolio investments                                  
|Investments in U.S. Treasury Bills at fair value             
|(cost: $45,994 and $0, respectively)                         
|Total investments                                            
|Cash and cash equivalents                                    
|Accounts receivable and other current assets                 
|Interest receivable                                          
|Prepaid assets                                               
|Total current assets                                         
|Total assets                                                 
|                                                             
|Liabilities and net assets                                   
|Current liabilities                                          
|Accounts payable and accrued expenses                        
|Management and incentive fees payable                        
|Payables for investment securities purchased                 
|Dividends payable                                            
|Income taxes payable                                         
|Short-term debt                                              
|Total current liabilities                                    
|Deferred tax liabilities                                     
|Long-term debt                                               
|Total liabilities                                            
|Commitments and contingencies  (Note 6)                      
|Net assets                                                   
|Common stock, $.001 par value, 250,000,000 shares authorized;
|21,378,173 and 21,628,202, shares issued and outstanding     
|Paid-in capital in excess of par                             
|Undistributed net investment income (loss)                   
|Undistributed net realized capital gain (loss)               
|Net unrealized appreciation (depreciation) on investments    
|Total net assets                                             
|Total liabilities and net assets                             
|Net asset value per share                                    



(See accompanying
notes to consolidated financial statements)





1









|NGP CAPITAL RESOURCES COMPANY                            
|---------------------------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS                    
|(In Thousands, Except Per Share Data)                    
|(Unaudited)                                              
|                                                         
|                                                         
|                                                         
|Investment income                                        
|Interest income:                                         
|Control investments - majority owned                     
|Affiliate investments                                    
|Non-affiliate investments                                
|Dividend income:                                         
|Non-affiliate investments                                
|Royalty income, net of amortization:                     
|Control investments - majority owned                     
|Non-affiliate investments                                
|Other income (loss), net                                 
|Total investment income                                  
|Operating expenses                                       
|Interest expense and bank fees                           
|Management and incentive fees                            
|Professional fees                                        
|Insurance expense                                        
|Other general and administrative expenses                
|Total operating expenses                                 
|Income tax provision (benefit), net                      
|Net investment income                                    
|Net realized capital gain (loss) on investments          
|Control investments - majority owned                     
|Non-affiliate investments                                
|Total net realized capital gain (loss) on investments    
|Net unrealized appreciation (depreciation) on investments
|Control investments - majority owned                     
|Affiliate investments                                    
|Non-affiliate investments                                
|Benefit (provision) for taxes on unrealized              
|appreciation (depreciation) on investments               
|Total net unrealized appreciation (depreciation)         
|on investments                                           
|Net increase (decrease) in net assets resulting          
|from operations                                          
|Net increase (decrease) in net assets resulting          
|from operations per common share                         
|                                                         
|Dividends declared per common share                      
|Weighted average shares outstanding - basic and diluted  



(See accompanying notes to consolidated financial statements)





2









NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED STATEMENT OF CHANGES IN
NET ASSETS



(In
Thousands)

(Unaudited)







|                                                  |  | Common Stock |        | Paid-in
    Capital |  | Undistributed            |    | Undistributed
    Net Realized       |  | Net Unrealized
    Appreciation |         |                                  
|------------------------------------------------- |  | ------------ | ------ | ------------------- |  | ------------------------ | -- | ------------------------------------ |  | ------------------------------- | ------- | ---------------------------------
|                                                  |  | Shares       |        | Amount              |  | in
    Excess
    of Par |    | Net
    Investment
    Income (Loss) |  | Capital
    Gain (Loss)         |         | (Depreciation)
    on Investments
|Balance at December 31, 2011                      |  |              | 21,628 |                     |  | $                        | 22 |                                      |  | $                               | 255,486 |                                  
|Net increase (decrease)                           |  |              |        |                     |  |                          |    |                                      |  |                                 |         |                                  
|in net assets resulting from operations           |  |              | —      |                     |  |                          | —  |                                      |  |                                 | —       |                                  
|Acquisition of common stock under repurchase plan |  |              | (250   | )                   |  |                          | (1 | )                                    |  |                                 | (1,637  | )                                
|Dividends declared                                |  |              | —      |                     |  |                          | —  |                                      |  |                                 | —       |                                  
|Balance at September 30,
    2012                 |  |              | 21,378 |                     |  | $                        | 21 |                                      |  | $                               | 253,849 |                                  



(See accompanying notes to consolidated financial statements)





3









|NGP CAPITAL RESOURCES COMPANY                                  
|---------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS                          
|(In Thousands)                                                 
|(Unaudited)                                                    
|                                                               
|                                                               
|                                                               
|Cash flows from operating activities                           
|Net increase (decrease) in net assets resulting from operations
|Adjustments to reconcile net increase (decrease) in            
|net assets resulting from operations to net cash provided by   
|(used in) operating activities:                                
|Payment-in-kind interest                                       
|Net amortization of premiums, discounts and fees               
|Net realized capital (gain) loss on investments                
|Net unrealized (appreciation) depreciation on investments      
|Net deferred income tax provision (benefit)                    
|Effects of changes in operating assets and liabilities:        
|Accounts receivable and other current assets                   
|Interest receivable                                            
|Prepaid assets                                                 
|Payables and accrued expenses                                  
|Purchase of investments in portfolio securities                
|Proceeds from redemption of investments in portfolio securities
|Purchase of investments in U.S. Treasury Bills                 
|Proceeds from redemption of investments in U.S. Treasury Bills 
|Net cash provided by (used in) operating activities            
|Cash flows from financing activities                           
|Borrowings under revolving credit facilities                   
|Repayments on revolving credit facilities                      
|Acquisition of common stock under repurchase plan              
|Dividends paid                                                 
|Net cash provided by (used in) financing activities            
|Net increase (decrease) in cash and cash equivalents           
|Cash and cash equivalents, beginning of period                 
|Cash and cash equivalents, end of period                       



(See accompanying notes to consolidated financial statements)





4









|NGP CAPITAL RESOURCES COMPANY                       
|----------------------------------------------------
|CONSOLIDATED SCHEDULE OF INVESTMENTS                
|September 30, 2012                                  
|(In Thousands, Except Share Amounts and Percentages)
|(Unaudited)                                         
|                                                    



|Portfolio Company                                                     |  | Industry Segment                                  |  | Investment
    (1)                                                                                                                                        |   | Principal |        | Cost |        | Fair
    
    Value (2)
|--------------------------------------------------------------------- |  | ------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --------- | ------ | ---- | ------ | -----------------------
|PORTFOLIO INVESTMENTS                                                 |  |                                                   |  |                                                                                                                                                           |   |           |        |     
|Control Investments - Majority
    Owned (50% or more owned)          |  |                                                   |  |                                                                                                                                                           |   |          
|DeanLake Operator, LLC (12)                                           |  | Oil & Natural Gas
    Production and Development  |  | Class A membership interests - entitled to
    100% of distribution of DeanLake Operator, LLC                                                             |   |           |        |      |        | $                      
|                                                                      |  |                                                   |  |                                                                                                                                                           |   |           |        |      |        |                        
|Rubicon
    Energy Partners, LLC (12)                                 |  | Oil
    & Natural Gas  Production and Development |  | 4,000 LLC Units -50% ownership
    of the assets of Rubicon Energy Partners, LLC                                                                          |   |           |        |      |        |                        
|                                                                      |  |                                                   |  |                                                                                                                                                           |   |           |        |      |        |                        
|Subtotal Control Investments
    - Majority Owned (50% or more owned) |  |                                                   |  |                                                                                                                                                           | $ | —         |        |      | $      | —                      
|                                                                      |  |                                                   |  |                                                                                                                                                           |   |           |        |      |        |                        
|Affiliate
    Investments - (5% to 25% owned)                         |  |                                                   |  |                                                                                                                                                           |   |           |        |      |        |                        
|BioEnergy Holding, LLC (6)                                            |  | Alternative Fuels and                             |  | Senior Secured Notes                                                                                                                                      |   | $         | 16,662 |      |        | $                      
|                                                                      |  | Specialty Chemicals                               |  | (15%, due 3/06/2015) (5)                                                                                                                                  |   |           |        |      |        |                        
|                                                                      |  |                                                   |  | BioEnergy Holding Units - 11.1% of                                                                                                                        |   |           |        |      |        |                        
|                                                                      |  |                                                   |  | outstanding units of BioEnergy Holding, LLC                                                                                                               |   |           |        |      |        |                        
|                                                                      |  |                                                   |  | Myriant Corporation - 0.56% of outstanding                                                                                                                |   |           |        |      |        |                        
|                                                                      |  |                                                   |  | common shares of Myriant Corporation                                                                                                                      |   |           |        |      |        |                        
|                                                                      |  |                                                   |  | Myriant Corporation Warrants (8)                                                                                                                          |   |           |        |      |        |                        
|                                                                      |  |                                                   |  |                                                                                                                                                           |   |           |        |      |        |                        
|Bionol Clearfield, LLC (6)                                            |  | Alternative Fuels and                             |  | Senior Secured Tranche C                                                                                                                                  |   |           | 4,950  |      |        |                        
|                                                                      |  | Specialty Chemicals                               |  | 2nd Lien Term Loan                                                                                                                                        |   |           |        |      |        |                        
|                                                                      |  |                                                   |  | (LIBOR + 7% cash, LIBOR + 9%                                                                                                                              |   |           |        |      |        |                        
|                                                                      |  |                                                   |  | default, due 9/06/2016) (5)                                                                                                                               |   |           |        |      |        |                        
|                                                                      |  |                                                   |  |                                                                                                                                                           |   |           |        |      |        |                        
|Resaca Exploitation Inc.                                              |  | Oil & Natural Gas                                 |  | Senior Unsecured Term Loan                                                                                                                                |   |           | 12,481 |      |        |                        
|                                                                      |  | Production and Development                        |  | (9.5% cash, 12% PIK or 14%                                                                                                                                |   |           |        |      |        |                        
|                                                                      |  |                                                   |  | default, due 12/31/2014) (19)                                                                                                                             |   |           |        |      |        |                        
|                                                                      |  |                                                   |  | Common Stock (1,360,972 shares) -                                                                                                                         |   |           |        |      |        |                        
|                                                                      |  |                                                   |  | representing 6.56% of outstanding common                                                                                                                  |   |           |        |      |        |                        
|                                                                      |  |                                                   |  | stock of Resaca Exploitation Inc. (3) (9)                                                                                                                 |   |           |        |      |        |                        
|                                                                      |  |                                                   |  | Warrants (13)                                                                                                                                             |   |           |        |      |        |                        
|Subtotal Affiliate Investments - (5% to 25% owned)                    |  |                                                   |  |                                                                                                                                                           |   |           |        | $    | 38,038 |                        
|                                                                      |  |                                                   |  |                                                                                                                                                           |   |           |        |      |        |                        
|Non-affiliate
    Investments - (Less than 5% owned)                  |  |                                                   |  |                                                                                                                                                           |   |           |        |      |        |                        
|ATP Oil & Gas Corporation                                             |  | Oil & Natural Gas                                 |  | Limited Term Royalty Interest                                                                                                                             |   |           |        |      |        | $                      
|                                                                      |  | Production and Development                        |  | (13.2% annual interest)                                                                                                                                   |   |           |        |      |        |                        
|                                                                      |  |                                                   |  |                                                                                                                                                           |   |           |        |      |        |                        
|BP Corporation North America,     Inc.                                |  | Oil & Natural Gas
    Production and Development  |  | Put options to sell up to 110,528 Bbls of crude oil at a strike
    price of $65.00 per Bbl. 12 monthly contracts expiring through September 30, 2013 (3) |   |           |        |      |        |                        
|                                                                      |  |                                                   |  |                                                                                                                                                           |   |           |        |      |        |                        
|Castex Energy Development                                             |  | Oil & Natural Gas                                 |  | Senior Secured Term Loan                                                                                                                                  |   |           | 27,500 |      |        |                        
|Fund, LP                                                              |  | Production and Development                        |  | (The greater of 11.5% or LIBOR +                                                                                                                          |   |           |        |      |        |                        
|                                                                      |  |                                                   |  | 10.5%, due 12/31/2014)                                                                                                                                    |   |           |        |      |        |                        
|                                                                      |  |                                                   |  | Castex Class B Units - 5% (16)                                                                                                                            |   |           |        |      |        |                        
|                                                                      |  |                                                   |  |                                                                                                                                                           |   |           |        |      |        |                        
|Castex 2005 LP                                                        |  | Oil & Natural Gas                                 |  | Redeemable Preferred LP Units                                                                                                                             |   |           | 50,000 |      |        |                        
|                                                                      |  | Production and Development                        |  | (current pay 8% cash, due 7/1/2016) (21)                                                                                                                  |   |           |        |      |        |                        











(See accompanying notes to consolidated financial
statements)





5









|NGP CAPITAL RESOURCES COMPANY                                   
|----------------------------------------------------------------
|CONSOLIDATED SCHEDULE OF INVESTMENTS                            
|September 30, 2012                                              
|(In Thousands, Except Share Amounts and Percentages)            
|(Unaudited)                                                     
|(Continued)                                                     
|                                                                
|Portfolio
    Company                                           
|PORTFOLIO
    INVESTMENTS - Continued                           
|Non-affiliate
    Investments - (Less than 5% owned) - Continued
|Chroma Exploration &                                            
|Production, Inc.                                                
|                                                                
|                                                                
|                                                                
|                                                                
|EP Energy, LLC                                                  
|                                                                
|                                                                
|Globe BG, LLC                                                   
|                                                                
|                                                                
|GMX Resources, Inc.                                             
|                                                                
|                                                                
|                                                                
|Huff Energy Holdings, Inc.                                      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|Pallas Contour Mining, LLC                                      
|                                                                
|                                                                
|Powder River Acquisitions,
    LLC                              
|                                                                
|                                                                
|Southern Pacific Resources                                      
|                                                                
|                                                                
|                                                                
|                                                                
|Spirit Resources, LLC                                           
|                                                                
|                                                                
|                                                                
|                                                                
|Tammany Oil & Gas, LLC                                          
|                                                                
|                                                                
|Subtotal
    Non-affiliate Investments - (Less than 5% owned)   
|Subtotal
    Portfolio Investments (82.2% of total investments) 
|                                                                
|GOVERNMENT
    SECURITIES                                       
|U.S. Treasury Bills (4)                                         
|Subtotal Government Securities (17.8% of total investments)     
|                                                                
|TOTAL
    INVESTMENTS                                           





(See accompanying notes to consolidated
financial statements)



6











|NGP CAPITAL RESOURCES COMPANY                                
|-------------------------------------------------------------
|CONSOLIDATED SCHEDULE OF INVESTMENTS                         
|September 30, 2012                                           
|(Unaudited)                                                  
|(Continued)                                                  
|                                                             
|NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS                
|(1)                                                          
|                                                             
|                                                             
|                                                             
|                                                             
|(2)                                                          
|                                                             
|(3)                                                          
|                                                             
|(4)                                                          
|                                                             
|(5)                                                          
|(6)                                                          
|                                                             
|(7)                                                          
|                                                             
|(8)                                                          
|                                                             
|(9)                                                          
|                                                             
|(10)                                                         
|                                                             
|                                                             
|(11)                                                         
|                                                             
|(12)                                                         
|(13)                                                         
|                                                             
|(14)                                                         
|                                                             
|(15)                                                         
|                                                             
|(16)                                                         
|                                                             
|(17)                                                         
|                                                             
|                                                             
|                                                             
|(18)                                                         
|                                                             
|(19)                                                         
|                                                             
|(20)                                                         
|(21)                                                         
|                                                             
|                                                             
|                                                             
|(See accompanying notes to consolidated financial statements)





7









|NGP CAPITAL RESOURCES COMPANY                                        
|---------------------------------------------------------------------
|CONSOLIDATED SCHEDULE OF INVESTMENTS                                 
|December 31, 2011                                                    
|(In Thousands, Except Share Amounts and Percentages)                 
|                                                                     
|                                                                     
|Portfolio
    Company                                                
|Control
    Investments - Majority Owned (50% or more owned)         
|BSR Holdings, LLC (11)                                               
|                                                                     
|                                                                     
|DeanLake Operator, LLC (11)                                          
|                                                                     
|                                                                     
|Rubicon Energy Partners,                                             
|LLC (11)                                                             
|                                                                     
|                                                                     
|Subtotal
    Control Investments - Majority Owned (50% or more owned)
|                                                                     
|Affiliate
    Investments - (5% to 25% owned)                        
|BioEnergy Holding, LLC (6)                                           
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Bionol Clearfield, LLC (6)                                           
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Resaca Exploitation Inc.                                             
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Subtotal
    Affiliate Investments - (5% to 25% owned)               
|                                                                     
|Non-affiliate
    Investments - (Less than 5% owned)                 
|Anadarko Petroleum Corporation                                       
|2007-III Drilling
    Fund                                           
|                                                                     
|ATP Oil & Gas Corporation                                            
|                                                                     
|                                                                     
|                                                                     
|BP Corporation North America,                                        
|Inc.                                                                 
|                                                                     
|                                                                     
|                                                                     
|Black Pool Energy                                                    
|Partners, LLC                                                        
|                                                                     
|                                                                     
|                                                                     



(See accompanying notes to consolidated
financial statements)



8











|NGP CAPITAL RESOURCES COMPANY                                   
|----------------------------------------------------------------
|CONSOLIDATED SCHEDULE OF INVESTMENTS                            
|December 31, 2011                                               
|(In Thousands, Except Share Amounts and Percentages)            
|(Continued)                                                     
|                                                                
|Portfolio
    Company                                           
|Non-affiliate
    Investments - (Less than 5% owned) - Continued
|Castex Energy Development                                       
|Fund, LP                                                        
|                                                                
|                                                                
|                                                                
|Chroma Exploration &                                            
|Production, Inc.                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|Crestwood Holdings, LLC                                         
|                                                                
|                                                                
|                                                                
|Globe BG, LLC                                                   
|                                                                
|                                                                
|GMX Resources, Inc. (3)                                         
|                                                                
|                                                                
|Nighthawk Transport I, LP                                       
|                                                                
|                                                                
|Pallas Contour Mining, LLC                                      
|                                                                
|                                                                
|Powder River Acquisitions, LLC                                  
|                                                                
|                                                                
|Spirit Resources, LLC                                           
|                                                                
|                                                                
|                                                                
|                                                                
|Tammany Oil & Gas, LLC                                          
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|Subtotal
    Non-affiliate Investments - (Less than 5% owned)   
|                                                                
|TOTAL
    INVESTMENTS                                           





(See accompanying notes to consolidated
financial statements)



9











|NGP CAPITAL RESOURCES COMPANY                                
|-------------------------------------------------------------
|CONSOLIDATED SCHEDULE OF INVESTMENTS                         
|December 31, 2011                                            
|(Continued)                                                  
|                                                             
|NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS                
|(1)                                                          
|                                                             
|                                                             
|                                                             
|(2)                                                          
|                                                             
|(3)                                                          
|                                                             
|(4)                                                          
|(5)                                                          
|                                                             
|(6)                                                          
|                                                             
|(7)                                                          
|                                                             
|(8)                                                          
|                                                             
|(9)                                                          
|(10)                                                         
|                                                             
|(11)                                                         
|(12)                                                         
|                                                             
|                                                             
|(13)                                                         
|                                                             
|(14)                                                         
|                                                             
|(15)                                                         
|                                                             
|(16)                                                         
|                                                             
|(17)                                                         
|                                                             
|(18)                                                         
|                                                             
|(19)                                                         
|(20)                                                         
|                                                             
|(21)                                                         
|                                                             
|                                                             
|(See accompanying notes to consolidated financial statements)







10







NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED FINANCIAL HIGHLIGHTS

(Unaudited)



|                                                                |  | For The Nine Months Ended September 30,
|--------------------------------------------------------------- |  | ---------------------------------------
|Per Share Data  (1)                                             |  | 2012                                   
|Net asset value, beginning of period                            |  | $                                      
|Net investment income                                           |  |                                        
|Net realized and unrealized gain (loss) on investments (2)      |  |                                        
|Net increase (decrease) in net assets resulting from operations |  |                                        
|Dividends declared                                              |  |                                        
|Other (3)                                                       |  |                                        
|Net asset value, end of period                                  |  | $                                      
|                                                                |  |                                        
|Market value, beginning of period                               |  | $                                      
|Market value, end of period                                     |  | $                                      
|Market value return  (4)                                        |  |                                        
|Net asset value return (4)                                      |  |                                        
|                                                                |  |                                        
|                                                                |  |                                        
|Ratios and Supplemental Data                                    |  |                                        
|($ and shares in thousands)                                     |  |                                        
|Net assets, end of period                                       |  | $                                      
|Average net assets                                              |  | $                                      
|Common shares outstanding end of period                         |  |                                        
|Net investment income/average net assets (5)                    |  |                                        
|Portfolio turnover rate (6)                                     |  |                                        
|Total operating expenses/average net assets (5)                 |  |                                        
|Net increase (decrease) in net assets resulting from            |  |                                        
|operations/average net assets (5)                               |  |                                        
|                                                                |  |                                        
|Expense Ratios (as a percentage of average net assets) (5)      |  |                                        
|Interest expense and bank fees                                  |  |                                        
|Management and incentive fees                                   |  |                                        
|Other operating expenses                                        |  |                                        
|Total operating expenses                                        |  |                                        





|(1)  Per Share Data is based on weighted average number of common shares outstanding for the period.    
|--------------------------------------------------------------------------------------------------------
|(2)  May include a balancing amount necessary to reconcile the change in net asset value per            
|share with other per share information presented.  This amount may not agree with the                   
|aggregate gains and losses for the period because the difference in the net asset value at the          
|beginning and end of the period may not equal the per share changes of the line items disclosed.        
|(3)  Represents the impact of common stock repurchases.  See Note 8.                                    
|(4)  Return calculations assume reinvestment of dividends and are not annualized.                       
|(5)  Annualized.                                                                                        
|(6)  Portfolio turnover rate for the nine months ended September 30, 2011 has been corrected from 76.6%.



(See accompanying notes to consolidated
financial statements)





11







NGP CAPITAL
RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)



Note 1: Organization



These consolidated financial statements
present the financial position, results of operations and cash flows of NGP Capital Resources Company and its consolidated subsidiaries.
The terms “we,” “us,” “our” and “NGPC” refer to NGP Capital Resources Company and
its consolidated subsidiaries. We are a financial services company organized in July 2004 as a Maryland corporation to invest primarily
in small and mid-size private energy companies. In early 2012, we expanded our investment strategy to also include middle market
companies not engaged in the energy industry. Our investment objective is to generate both current income and capital appreciation
primarily through debt investments with certain equity components. We are a closed-end, non-diversified management investment company
that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, or the 1940
Act. In addition, for federal income tax purposes we operate so as to be treated as a regulated investment company, or RIC, under
the Internal Revenue Code of 1986, as amended, or the Code. We have several direct and indirect subsidiaries that are single member
limited liability companies and wholly-owned limited partnerships established to hold certain portfolio investments or provide
services to us in accordance with specific rules prescribed for a company operating as a RIC. We consolidate the financial results
of our wholly-owned subsidiaries for financial reporting purposes, and we do not consolidate the financial results of our portfolio
companies. Our external manager, NGP Investment Advisor, LP, or our Manager, conducts our operations pursuant to an Investment
Advisory Agreement (see Note 4). NGP Energy Capital Management, L.L.C., or NGP, and NGP Administration, LLC, or our Administrator,
together own 100% of our Manager.



Note 2: Basis of Presentation



These interim unaudited consolidated financial
statements include the accounts of NGPC and its subsidiaries.  We eliminate all significant intercompany accounts and transactions.



We prepare the interim consolidated financial
statements, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. We omit
certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America, or GAAP, pursuant to such rules and regulations.  We believe we include
all adjustments, which are of a normal recurring nature, so that these financial statements fairly present our financial position,
results of operations and cash flows.  Interim results are not necessarily indicative of results for a full year. 
You should read these unaudited consolidated financial statements in conjunction with the consolidated financial statements and
related notes included in our Annual Report on Form 10-K for the year ended December 31, 2011.



Preparing interim consolidated financial
statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and the accompanying notes to the consolidated financial statements, including the estimated fair values of
our investment portfolio discussed in Note 7.  Although we believe our estimates and assumptions are reasonable, actual results
could differ from these estimates.



Recent Accounting Pronouncements



In May 2011, the Financial Accounting Standards
Board, or FASB, issued Accounting Standards Update No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRS," or ASU 2011-04.  This guidance requires additional disclosure regarding
fair value measurement and sensitivity, and improves consistency between U.S. GAAP and international financial reporting standards,
or IFRS. This guidance became effective for interim and annual periods beginning after December 15, 2011. Accordingly, we adopted
this standard on January 1, 2012. The adoption of ASU 2011-04 did not have a significant impact on our process for measuring fair
values or on our consolidated financial statements, other than the inclusion of additional required disclosures.





12







Dividends



We record dividends to stockholders on the
ex-dividend date.  We currently intend that our distributions each year will be sufficient to maintain our status as a RIC
for federal income tax purposes and to eliminate federal excise tax liability.  We currently intend to make distributions
to stockholders on a quarterly basis that total substantially all net taxable income for the year.  We also intend to make
distributions of net realized capital gains, if any, at least annually.  However, we may in the future decide to retain such
capital gains for investment and designate such retained amounts as deemed distributions.  Each quarter, our Manager estimates
our annual taxable earnings.  The Board of Directors considers this estimate and determines the distribution amount, if any. 
We generally declare our dividends each quarter and pay them shortly thereafter. The following table summarizes our recent distribution
history:





|                   |  | Per Share |        |  |  |                   
|------------------ |  | --------- | ------ |  |  | ------------------
|Declaration Date   |  |           | Amount |  |  | Record Date       
|March 9, 2011      |  | $         | 0.18   |  |  | March 31, 2011    
|June 14, 2011      |  | $         | 0.18   |  |  | June 30, 2011     
|September 13, 2011 |  | $         | 0.18   |  |  | September 30, 2011
|December 13, 2011  |  | $         | 0.18   |  |  | December 31, 2011 
|March 19, 2012     |  | $         | 0.12   |  |  | April 2, 2012     
|June 12, 2012      |  | $         | 0.13   |  |  | June 29, 2012     
|September 11, 2012 |  | $         | 0.16   |  |  | September 28, 2012





Note 3: Credit Facilities and Borrowings



On December 6, 2011, we entered into a $72.0
million Amended and Restated Revolving Credit Agreement, or the Investment Facility.  The total amount outstanding under
the Investment Facility was $37.5 million and $50.0 million, as of September 30, 2012 and December 31, 2011, respectively. 
Substantially all of our assets, except our investments in U.S. Treasury Bills, are collateral for the obligations under the Investment
Facility.  The Investment Facility matures on August 31, 2014, and bears interest, at our option, at either (i) LIBOR
plus 325 to 475 basis points, or (ii) the base rate plus 225 to 375 basis points, both based on our amounts outstanding.  As
of September 30, 2012, the weighted average interest rate on our outstanding balance of $37.5 million was 5.8%.  We repaid
$18 million of this balance in October 2012.  As of September 30, 2012, we had a letter of credit outstanding of $0.1 million,
and there was $34.4 million available for borrowing under the Investment Facility.



On March 31, 2011, we entered into a $30.0
million Treasury Secured Revolving Credit Agreement, or the Treasury Facility, which can only be used to purchase U.S. Treasury
Bills. Proceeds from the Treasury Facility facilitate the growth of our investment portfolio and provide flexibility in the sizing
of our portfolio investments.  On September 25, 2012, we entered into a second amendment to the Treasury Facility which increased
the aggregate commitment amount from $30.0 million to $45.0 million. As amended, the Treasury Facility matures on September 25,
2013 and bears interest, at our option, at either (i) LIBOR plus 100 basis points or (ii) the base rate.  We have the right
at any time to prepay the loans, in whole or in part, without premium or penalty.  As of September 30, 2012, we had $45 million
outstanding and no additional amount available for borrowing under the Treasury Facility, and the interest rate on our outstanding
balance was 1.36% (LIBOR plus 100 basis points).



The Investment Facility and Treasury Facility
contain affirmative and reporting covenants and certain financial ratio and restrictive covenants that apply to our subsidiaries
and us.  We complied with these covenants as of September 30, 2012 and had no events of default under either facility.  The
most restrictive covenants are:



| | · | maintaining a ratio of net asset value
to consolidated total indebtedness (excluding net hedging liabilities) of not less than 2.25:1.0,
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | · | maintaining a ratio of net asset value
to consolidated total indebtedness (including net hedging liabilities) of not less than 2.0:1.0,
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

| | · | maintaining a ratio of EBITDA (excluding
revenue from cash collateral) to interest expense (excluding interest on loans under the Treasury Facility) of not less than 3.0:1.0,
and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | maintaining a ratio of collateral to
the aggregate principal amount of loans under the Treasury Facility of not less than 1.02:1.0.
| | - | -----------------------------------------------------------------------------------------------------------------------------------



Note 4: Investment Management



Investment Advisory Agreement



We have an Investment Advisory Agreement
with our Manager under which our Manager administers our day-to-day operations and provides investment advisory services to us. 
Our Manager is subject to the overall supervision of our Board of Directors.  For providing these services, we pay our Manager
a fee, consisting of two components — a base management fee and an incentive fee.



Base Management Fee:   According
to the Investment Advisory Agreement, we calculate the base management fee as 0.45% of the average of our total assets as of the
end of the two previous quarters.  We record and pay this base management fee quarterly in arrears.





13







Incentive Fee:   The incentive
fee under the Investment Advisory Agreement consists of two parts. We calculate the first part of the incentive fee, the Investment
Income Incentive Fee, as 20% of the excess, if any, of our net investment income for the quarter that exceeds a quarterly hurdle
rate equal to 2% (8% annualized) of our net assets.  We calculate and pay this Investment Income Incentive Fee quarterly in
arrears.  For the purpose of this fee calculation, net investment income means interest income, dividend income, royalty
income and any other income (including any other fees, such as commitment, origination, syndication, structuring, diligence, managerial
assistance, monitoring, and consulting fees or other fees that we receive from portfolio companies) accrued during the fiscal quarter,
minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement,
and interest expense, but excluding the incentive fee).   Accordingly, we may pay an incentive fee based partly on accrued
interest, the collection of which is uncertain or deferred.  Net investment income includes, in the case of investments with
a deferred interest feature (such as original issue discount, or OID, debt instruments with payment-in-kind interest and zero coupon
securities), accrued income that we have not yet received in cash.  Net investment income does not include any realized capital
gains, realized capital losses, or unrealized capital appreciation or depreciation.  For the three and nine months ended
September 30, 2012, we did not incur any Investment Income Incentive Fees. For the three and nine months ended September 30, 2011,
we incurred $30,303 and $311,323, respectively, of Investment Income Incentive Fees.



We calculate the second part of the incentive
fee, the Capital Gains Fee, as (1) 20% of (a) our net realized capital gains (realized capital gains less realized capital losses)
on a cumulative basis from the closing date of our initial public offering to the end of such fiscal year, less (b) any unrealized
capital depreciation at the end of such fiscal year, less (2) the aggregate amount of all Capital Gains Fees paid to our Manager
in prior fiscal years.  We determine and pay the Capital Gains Fee in arrears as of the end of each fiscal year (or upon termination
of the Investment Advisory Agreement, as of the termination date).  For accounting purposes only, in order to reflect the
theoretical Capital Gains Fee that would be payable for a given period as if all unrealized capital gains were realized, we accrue
a Capital Gains Fee as described above (in accordance with the terms of the Investment Advisory Agreement), plus 20% of unrealized
capital gains on investments held at the end of such period. It should be noted that the portion of the accruals for the Capital
Gains Fees attributable to unrealized capital gains will not necessarily be payable under the Investment Advisory Agreement, and
may never be paid based on the computation of Capital Gains Fees in subsequent periods.  As of September 30, 2012, we
had cumulative net capital losses of $54.2 million and cumulative net unrealized capital depreciation of $17.6 million.  We
have not incurred or paid any Capital Gains Fees in 2012 or 2011.



Our Board of Directors originally approved
the Investment Advisory Agreement on November 9, 2004.  Our Board of Directors or the holders of a majority of our outstanding
voting securities must approve the continuation of the Investment Advisory Agreement at least annually.  Additionally, in
either case, the approval must be by a majority of our independent directors.  On October 30, 2012, our Board of Directors,
including all of the independent directors, approved an extension of the Investment Advisory Agreement through November 9, 2013.



The Investment Advisory Agreement may be
terminated at any time, without the payment of any penalty, by a vote of our Board of Directors or the holders of a majority of
our shares on 60 days’ written notice to our Manager, and would automatically terminate in the event of its “assignment”
(as defined in the 1940 Act). Either party may terminate the Investment Advisory Agreement without penalty upon not more than 60
days’ written notice to the other.



Pursuant to the Investment Advisory Agreement,
our Manager pays the compensation and routine overhead expenses of the investment professionals of our management team and their
respective staffs, when and to the extent engaged in providing management and investment advisory services to us.  We bear
all other costs and expenses of our operations and transactions.  Our Manager is a registered investment adviser under
the Investment Advisers Act of 1940.



Administration Agreement



We have an Administration Agreement with
our Administrator, under which our Administrator furnishes us with office facilities, equipment and clerical, bookkeeping and recordkeeping
services at such facilities.  Under the Administration Agreement, our Administrator also performs, or oversees the performance
by third parties of, our required administrative services which include responsibility for the financial records that we are required
to maintain and preparation of reports to our stockholders and reports filed with the SEC.  In addition, our Administrator
assists in determining and publishing our net asset value, oversees the preparation and filing of our tax returns, the printing
and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative
and professional services rendered to us by others.  To the extent permitted under the 1940 Act, our Administrator may also
provide on our behalf, significant managerial assistance to our portfolio companies.  We base payments under the Administration
Agreement upon the allocable portion of our Administrator’s costs and expenses incurred in connection with administering
our business.  The Administration Agreement may be terminated at any time, without penalty, by a vote of our Board of Directors
or by our Administrator upon 60 days’ written notice to the other party, and will automatically terminate in the event of
its “assignment” (as defined in the 1940 Act).



We owed $200,000 and $210,000 to our Administrator
as of September 30, 2012 and December 31, 2011, respectively, for expenses incurred on our behalf for the final month of the respective
quarterly period.  We include these amounts in accounts payable and accrued expenses. Our Board of Directors originally approved
the Administration Agreement on November 9, 2004.  Our Board of Directors and a majority of our independent directors must
approve the continuation of the Administration Agreement at least annually.  On October 30, 2012, our Board of Directors,
including all of the independent directors, approved an extension of the Administration Agreement through November 9, 2013.





14







Note 5: Federal Income Taxes



We currently qualify for tax purposes as
a RIC under Subchapter M of Chapter 1 of the Code, as amended.  As a RIC, the IRS generally will not tax the portion of our
investment company taxable income and net capital gain (i.e., realized net long term capital gains in excess of realized net short
term capital losses) distributed to stockholders.  To qualify as a RIC, we are required, among other things, to distribute
to our stockholders at least 90% of investment company taxable income, as defined by the Code, and to meet certain asset diversification
requirements.



Certain of our wholly-owned subsidiaries,
or Taxable Subsidiaries, have elected to be taxed as corporations for federal income tax purposes.  The Taxable Subsidiaries
hold certain of our portfolio investments, and are consolidated for financial reporting purposes but not for income tax reporting
purposes.  These Taxable Subsidiaries permit us to hold equity investments in portfolio companies that are “pass
through” entities for tax purposes, in order to comply with the “source income” requirements contained in the
RIC tax regulations.  The Taxable Subsidiaries may generate net income tax expense or benefit, which is reflected on
our consolidated statements of operations.



Note 6: Commitments and Contingencies



As of September 30, 2012, we had investments
in or commitments to fund investments in 18 portfolio companies totaling $250.9 million.  Of this total, $235.9 million was
outstanding and $15.0 million remained committed and available to fund. Generally, these commitments have fixed expiration dates,
and we do not expect to fund the entire $15.0 million of commitments before they expire.  We do not report the unused portions
of these commitments on our consolidated balance sheets.



In February 2010, we arranged for a letter
of credit issued under the Investment Facility with respect to our investment in one of our portfolio companies. As of September
30, 2012, the letter of credit balance was $0.1 million.



We have continuing obligations under the
Investment Advisory Agreement with our Manager and under the Administration Agreement with our Administrator.  The agreements
provide that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard
of its duties and obligations, our Manager, our Administrator and their officers, managers, agents, employees, controlling persons,
members and any other person or entity affiliated with them will be entitled to indemnification from us for any damages, liabilities,
costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering
of our Manager’s or Administrator’s services under the agreements or otherwise as our investment adviser or administrator.
The agreements also provide that our Manager, our Administrator and their affiliates will not be liable to us or any stockholder
for any error of judgment, mistake of law, any loss or damage with respect to any of our investments or any action taken or omitted
to be taken by our Manager or our Administrator in connection with the performance of any of their duties or obligations under
the agreements or otherwise as investment adviser or administrator to us, except to the extent specified in Section 36(b) of the
1940 Act concerning loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services. In
the normal course of business, we enter into a variety of undertakings containing a variety of representations that may expose
us to some risk of loss.  We do not expect significant losses, if any, from such undertakings.



Note 7: Fair Value



Investments consisted of the following as of September
30, 2012 and December 31, 2011:





|                                 |  | September 30, 2012
|-------------------------------- |  | ------------------
|                                 |  |                   
|(Dollar amounts in thousands)    |  | Cost              
|Portfolio investments            |  |                   
|Senior secured debt              |  | $                 
|Subordinated debt                |  |                   
|Limited term royalties           |  |                   
|Contingent earn-out              |  |                   
|Commodity derivative instruments |  |                   
|Royalty interests                |  |                   
|Equity securities                |  |                   
|Membership and partnership units |  |                   
|Participating preferred stock    |  |                   
|Common stock                     |  |                   
|Warrants                         |  |                   
|Total equity securities          |  |                   
|Total portfolio investments      |  |                   
|Government securities            |  |                   
|U.S. Treasury Bills              |  |                   
|Total investments                |  | $                 







15









|                                 |  | December 31, 2011
|-------------------------------- |  | -----------------
|                                 |  |                  
|(Dollar amounts in thousands)    |  | Cost             
|Senior secured debt              |  | $                
|Subordinated debt                |  |                  
|Senior convertible notes         |  |                  
|Limited term royalties           |  |                  
|Net profits interests            |  |                  
|Contingent earn-out              |  |                  
|Commodity derivative instruments |  |                  
|Royalty interests                |  |                  
|Equity securities                |  |                  
|Membership and partnership units |  |                  
|Participating preferred stock    |  |                  
|Common stock                     |  |                  
|Warrants                         |  |                  
|Total equity securities          |  |                  
|Total  investments               |  | $                



We account for all of the assets in our
portfolio at fair value, following the provisions of the FASB Accounting Standards Codification Fair Value Measurements and
Disclosures, or ASC 820.  ASC 820 defines fair value, establishes a framework for measuring fair value, establishes
a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair
value measurements.



On a quarterly basis, the investment team
of our Manager prepares fair value estimates for all of the assets in our portfolio utilizing the income approach and market approach
in accordance with ASC 820 and presents them to our Valuation Committee. The Valuation Committee recommends its fair value estimates
to our Board of Directors, which in good faith determines the final estimates of fair value for each investment. We record investments
in securities for which market quotations are readily available at such market quotations in our financial statements as of the
valuation date. For investments in securities for which market quotations are unavailable, or which have various degrees of trading
restrictions, the investment team of our Manager prepares valuation analyses as generally described below.



| | • | Investment Team Valuation.   The investment professionals of our Manager prepare
fair value estimates for each investment.
| | - | --------------------------------------------------------------------------------------------------------------------------



| | • | Investment Team Valuation Documentation.   The investment team documents and
discusses its preliminary fair value estimates with senior management of our Manager.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Presentation to Valuation Committee.   Senior management presents the valuation
analyses and fair value estimates to the Valuation Committee of our Board of Directors.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Third Party Valuation Activity.   The Valuation Committee and our Board of Directors,
in their discretion, may retain an independent valuation firm to review any or all of the valuation analyses and fair value estimates
provided by the investment team of our Manager.  The Valuation Committee has not retained an independent valuation firm
in connection with any fair value estimates during the year ended December 31, 2011 or the nine months ended September 30, 2012.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Board of Directors and Valuation Committee.   The Board of Directors and Valuation
Committee review and discuss the valuation analyses and fair value estimates provided by the investment team of our Manager and
the analysis of the independent valuation firm, if applicable.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Final Valuation Determination.   Our Board of Directors discusses the fair value
estimates recommended by the Valuation Committee and determines the fair value of each investment in our portfolio, in good faith,
based on the input of the investment team of our Manager, our Valuation Committee and the independent valuation firm, if any.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ASC 820 defines fair value as the price
that a seller would receive for an asset or pay to transfer a liability in an orderly transaction between independent, knowledgeable
and willing market participants at the measurement date. The fair value definition focuses on exit price in the principal, or most
advantageous, market and prioritizes the use of observable market inputs over unobservable entity-specific inputs.  In
accordance with ASC 820, we categorize our investments based on the inputs to our valuation methodologies as follows:



| | • | Level 1  — Quoted unadjusted prices for identical instruments in active
markets to which we have access at the date of measurement.
| | - | -----------------------------------------------------------------------------------------------------------------------------------





16







| | • | Level 2  — Quoted prices for similar instruments in active markets; quoted
prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant
inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are
few transactions, the prices are not current, little public information exists or instances where prices vary substantially over
time or among brokered market makers.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Level 3  — Model-derived valuations in which one or more significant inputs
or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect our own assumptions that market
participants would use to price the asset or liability based on the best available information.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Fair value accounting classifies financial
assets and liabilities in their entirety based on the lowest level of input that is significant to the estimated fair value measurement.
Our assessment of the significance of a particular input to the estimated fair value measurement requires judgment, and may affect
the valuation of assets and liabilities and their placement within the fair value hierarchy levels.



Senior Debt Securities, Limited-Term
Royalties and Subordinated Debt Securities:  In estimating the fair value of our debt investments, we first assess
the overall financial health of the portfolio company through an evaluation of a number of factors, including, as relevant, historical
and projected financial results, the portfolio company's enterprise value, and the nature and realizable value of any collateral.  In
estimating the portfolio company’s enterprise value, we analyze the discounted value of estimated future net cash flows of
the portfolio company, derived, when appropriate, from third party valuations of a portfolio company’s assets, such as engineering
reserve reports of oil and natural gas properties. We also use a market approach in estimating the portfolio company’s estimated
enterprise value, considering recent comparable transactions involving similar businesses or assets. We also may consider the markets
in which the portfolio company operates; comparison to a peer group of publicly traded securities; the size and scope of the portfolio
company and its specific strengths and weaknesses; recent purchases or sales of securities by the portfolio company; recent offers
to purchase the portfolio company; the estimated value of comparable securities; and other relevant factors.  Based upon
these analyses, we assess the sources of cash flow available to the portfolio company to service its debt and the underlying credit
risk, and determine an appropriate yield, or discount rate, to apply to our anticipated cash flows to be collected from each debt
investment, recognizing that the collection of contractual cash flows may come from one or a combination of cash flows generated
from continuing operations of the portfolio company, liquidation of collateral or sale of the portfolio company.  The
appropriateness of the yield on our investments is directly relative to our judgment of the associated risks, using observable
yield or price data for similar or comparable debt investments when available.  Fair value measurements using the discounted
cash flow method can be sensitive to significant changes in the inputs. A significant increase (decrease) in the discount rate
for a particular security may result in a lower (higher) value for that security.



We invest primarily in illiquid debt investments
in small private energy companies, many of which are in the early stages of development, or are start-up companies in need of growth
development capital.  There is limited activity, transparency and variable data in the markets in which we invest.  We
have observed that there is limited correlation in yield and price data in our principle market when compared to overall market
trends based upon debt investments we have made throughout our history.  In circumstances where there is limited  observable  price
or yield data of similar or comparable securities, we base our considerations on our assessments of the credit trends and underlying
performance of our portfolio companies and of the markets in which we invest, relying on the collective judgment of the investment
team of our Manager, our Valuation Committee members and our Board of Directors, which is based on their extensive experience and
expertise investing in public and non-public securities in energy markets.



Equity Securities: We
record our investments in preferred and common equity securities (including warrants or options to acquire equity securities) at
fair value based on our pro rata share of the residual equity value available after deducting all outstanding debt and other obligations,
as applicable, from the estimated enterprise value of the portfolio company. To estimate the enterprise value of the portfolio
company, we analyze the discounted cash flows of the portfolio company and indicative pricing (on a proved reserve and/or units-of-production
basis, as appropriate) in recent comparable market transactions as mentioned above, adjusted for lack of marketability due to the
illiquid nature or other restrictions on the sale of the security. In most cases, we may compute an average of the calculated values
of our share of the residual equity value (using multiple approaches or various assumptions) in determining the fair value of the
equity security to be reported in our financial statements. Estimating a company’s enterprise value involves judgment, and
residual equity values can be relatively volatile based on changes in market conditions, the company’s financial performance
and outlook, and other factors. Fair value measurements using market comparables can be sensitive to significant changes in the
inputs. A significant increase (decrease) in the reserve multiple, or a significant decrease (increase) in the discount for lack
of marketability, for a particular equity security may result in a higher (lower) fair value for that security.



In some cases, where we deem recent or pending
financing or recapitalization transactions involving the portfolio company to be more indicative of enterprise value, we use such
recent transactions to value the enterprise, in lieu of the discounted cash flow or market comparables. In addition, in cases where
we deem appropriate, we utilize an option pricing method, or OPM, to value the various preferred stock, common stock and warrants
we have in companies with complex capital structures. The OPM treats preferred stock, common stock and warrants as call options
on the enterprise value, with exercise prices based on liquidation preference of the security. The OPM commonly uses the Black-Scholes
model to price the call option and considers the various terms of the stockholder agreements upon liquidation of the enterprise.
In addition, the OPM implicitly considers the effect of the liquidation preference as of a future liquidation date, not as of the
valuation date.



Net Profits Interests and Royalty Interests:
  We record our investments in overriding royalty and net profits interests at fair value based on a multiple of cash
flows generated by such investments, multiples from transactions involving the sale of comparable assets and/or the discounted
value of expected future net cash flows from such investments, adjusted for lack of marketability due to the illiquid nature or
other restrictions on the sale of our investment. We derive appropriate cash flow multiples from the review of comparable transactions
involving similar assets. We derive the discounted value of future net cash flows, when appropriate, from third party valuations
of a portfolio company’s assets, such as engineering reserve reports of oil and natural gas properties. A significant increase
(decrease) in the cash flow multiple, or a significant decrease (increase) in the discount for lack of marketability, for a particular
investment may result in a higher (lower) fair value for that investment.





17







Contingent Earn-Out: Our contingent
earn-out investment resulted from the sale of our investment in Alden Resources, LLC to Globe BG, LLC (“Globe”) in
July 2011. The amount of the payment, up to $6.8 million, is based on a formula involving the number of clean tons produced multiplied
by the difference between the company’s cost of production in 2010 and the cost of production during the optimal consecutive
12-month period during the 3-year period ending July 2014. We based our valuation of the earn-out on a weighted average of the
discounted value of the earn-out payment computed under twenty scenarios with various production and production cost assumptions.
A significant increase (decrease) in production, a significant decrease (increase) in cost of production, or a significant decrease
(increase) in the discount rate may result in a higher (lower) value of the earn-out. During the third quarter of 2012, we received
historical data from Globe that revised our outlook for production and costs during the earn-out period, this reducing the estimated
fair value.



Commodity Derivative Instruments:
We record all derivative instruments at fair value. Quoted market prices are the best evidence of estimated fair value. We estimate
the fair value of the crude oil and natural gas options using a market-based valuation methodology based upon forward commodity
price and volatility curves. Independent pricing services provide the curves, which reflect broker market quotes. We consider these
investments as Level 2 on the valuation hierarchy, as the values represent quoted prices for similar instruments in active markets.



We hold certain investments in debt or equity
securities that are publicly traded, but for which there are relatively few transactions or for which trading activity is relatively
infrequent. We value these investments at broker quotes as of the balance sheet date or at prices for which such securities were
most recently traded. We consider these investments as Level 2 on the valuation hierarchy, as the values represent quoted prices
for identical instruments in thinly-traded markets.



Due to the inherent uncertainty in the valuation
process, the fair value estimates for our investments may differ materially from the values that would have been used had a ready
market for the securities existed.  Additionally, changes in the market environment, portfolio company performance and
other events that may occur over the lives of the investments may cause the gains or losses ultimately realized on our investments
to be materially different than the valuations currently assigned.



We may have investments in our portfolio
that contain payment-in-kind, or PIK, provisions. We compute PIK interest income or PIK dividend income at the contractual rate
specified in each investment agreement and add that amount to the principal balance of the investment. For those investments with
PIK interest or PIK dividends, we calculate our income accruals on the principal balance plus any PIK amounts. If the portfolio
company’s projected cash flows, further supported by estimated total enterprise value, are not sufficient to cover the contractual
principal and interest or dividend amounts, as applicable, we do not accrue interest income or dividend income on the investment.  To
maintain our RIC status, we must pay out this non-cash income to stockholders in the form of dividends, even though we have not
yet collected the cash.



Fair value accounting classifies financial
assets and liabilities in their entirety based on the lowest level of input that is significant to the estimated fair value measurement.
Our assessment of the significance of a particular input to the estimated fair value measurement requires judgment, and may affect
the valuation assets and liabilities and their placement within the fair value hierarchy levels.   We did not have
any liabilities measured at fair value at September 30, 2012 or December 31, 2011. The following tables set forth our financial
assets by level within the fair value hierarchy that we accounted for at fair value as of September 30, 2012 and December 31, 2011.





18









|                                 |  | Fair Value Measurements as of September 30, 2012
|-------------------------------- |  | ------------------------------------------------
|                                 |  | (In Thousands)                                  
|                                 |  |                                                 
|                                 |  |                                                 
|                                 |  |                                                 
|                                 |  |                                                 
|                                 |  | Total                                           
|Portfolio investments            |  |                                                 
|Affiliate investments            |  |                                                 
|Subordinated debt                |  | $                                               
|Equity securities                |  |                                                 
|Total affiliate investments      |  |                                                 
|Non-affiliate investments        |  |                                                 
|Senior secured debt              |  |                                                 
|Subordinated debt                |  |                                                 
|Limited term royalties           |  |                                                 
|Contingent earn-out              |  |                                                 
|Commodity derivative instruments |  |                                                 
|Royalty interests                |  |                                                 
|Equity securities                |  |                                                 
|Total non-affiliate investments  |  |                                                 
|Total portfolio investments      |  |                                                 
|Government securities            |  |                                                 
|U.S. Treasury Bills              |  |                                                 
|Total investments                |  | $                                               







|                                 |  | Fair Value Measurements as of December 31, 2011
|-------------------------------- |  | -----------------------------------------------
|                                 |  | (In Thousands)                                 
|                                 |  |                                                
|                                 |  |                                                
|                                 |  |                                                
|                                 |  |                                                
|                                 |  | Total                                          
|Control investments              |  |                                                
|Equity securities                |  | $                                              
|Total control investments        |  |                                                
|Affiliate investments            |  |                                                
|Subordinated debt                |  |                                                
|Equity securities                |  |                                                
|Total affiliate investments      |  |                                                
|Non-affiliate investments        |  |                                                
|Senior secured debt              |  |                                                
|Senior convertible notes         |  |                                                
|Limited term royalties           |  |                                                
|Net profits interests            |  |                                                
|Contingent earn-out              |  |                                                
|Commodity derivative instruments |  |                                                
|Royalty interests                |  |                                                
|Equity securities                |  |                                                
|Total non-affiliate investments  |  |                                                
|Total investments                |  | $                                              



The following tables present roll-forwards
of the changes in the estimated fair value during the three- and nine-month periods ended September 30, 2012 and 2011 for all investments
for which we determine estimated fair value using unobservable (Level 3) factors.  During the three- and nine-month periods
ended September 30, 2012 and 2011, none of the investments in portfolio companies changed between the categories of Control Investments
– Majority Owned, Affiliate Investments and Non-Affiliate Investments and there were no transfers between Levels 3, 2 or
1.





19









|Fair Value Measurements For The Three Months Ended September 30, 2012, Using Unobservable Inputs (Level 3)
|----------------------------------------------------------------------------------------------------------
|(Dollar Amounts in Thousands)                                                                             
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|Fair value at June 30, 2012                                                                               
|Total gains, (losses) and amortization:                                                                   
|Net realized gains (losses)                                                                               
|Net unrealized gains (losses)                                                                             
|Net amortization of premiums, discounts and
    fees                                                      
|New investments, repayments and settlements,
    net:                                                     
|New investments                                                                                           
|Payment-in-kind                                                                                           
|Repayments and settlements                                                                                
|Fair value at September
    30, 2012                                                                      







|Fair Value Measurements For The Nine Months Ended September 30, 2012, Using Unobservable Inputs (Level 3)
|---------------------------------------------------------------------------------------------------------
|(Dollar Amounts in Thousands)                                                                            
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Fair value at December 31, 2011                                                                          
|Total gains, (losses) and amortization:                                                                  
|Net realized gains (losses)                                                                              
|Net unrealized gains (losses)                                                                            
|Net amortization of premiums, discounts and
    fees                                                     
|New investments, repayments and settlements,
    net:                                                    
|New investments                                                                                          
|Payment-in-kind                                                                                          
|Repayments and settlements                                                                               
|Fair value at September
    30, 2012                                                                     





Of the $3.9 million in net unrealized gains
presented in the table above, $4.5 million was attributable to assets we held at September 30, 2012. We present net unrealized
gains (losses) on our consolidated statements of operations as “Net unrealized appreciation (depreciation) on investments.”





|Fair Value Measurements For The Three Months Ended September 30, 2011, Using Unobservable Inputs (Level 3)
|----------------------------------------------------------------------------------------------------------
|(Dollar Amounts in Thousands)                                                                             
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|Fair value at June 30, 2011                                                                               
|Total gains, (losses) and amortization:                                                                   
|Net realized gains (losses)                                                                               
|Net unrealized gains (losses)                                                                             
|Net amortization of premiums, discounts and
    fees                                                      
|New investments, repayments and settlements,
    net:                                                     
|New investments                                                                                           
|Payment-in-kind                                                                                           
|Repayments and settlements                                                                                
|Fair value at September
    30, 2011                                                                      





20









|Fair Value Measurements For The Nine Months Ended September 30, 2011, Using Unobservable Inputs (Level 3)
|---------------------------------------------------------------------------------------------------------
|(Dollar Amounts in Thousands)                                                                            
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Fair value at December 31, 2010                                                                          
|Total gains, (losses) and amortization:                                                                  
|Net realized gains (losses)                                                                              
|Net unrealized gains (losses)                                                                            
|Net amortization of premiums, discounts and
    fees                                                     
|New investments, repayments and settlements,
    net:                                                    
|New investments                                                                                          
|Payment-in-kind                                                                                          
|Repayments and settlements                                                                               
|Fair value at September
    30, 2011                                                                     



Of the $2.6 million in net unrealized losses
presented in the table above, $20.9 million was attributable to assets we held at September 30, 2011.



The following table summarizes the significant
unobservable inputs in the fair value measurements of our Level 3 investments by category of investment and valuation technique
as of September 30, 2012.





|                                                      |  |   | Fair
                                                                                Value                                     |  |  |                                       |  |                                      |  |  |                                                                                                                       |   |  |   |          |  
|----------------------------------------------------- |  | - | ------------------------------------------------------------------------------------------------------------------------------ |  |  | ------------------------------------- |  | ------------------------------------ |  |  | --------------------------------------------------------------------------------------------------------------------- | - |  | - | -------- | -
|                                                      |  |   | as
                                                                                of                                          |  |  |                                       |  | Significant                          |  |  |                                                                                                                       |   |  |   |          |  
|                                                      |  |   | September
                                                                                30, 2012                             |  |  | Valuation                             |  | Unobservable                         |  |  | Range
                                                                                of                              |   |  |   | Weighted |  
|Type of Investment                                    |  |   | (in
                                                                                                                thousands) |  |  | Technique                             |  | Inputs                               |  |  | Inputs                                                                                                                |   |  |   | Average  |  
|                                                      |  |   |                                                                                                                                |  |  |                                       |  |                                      |  |  |                                                                                                                       |   |  |   |          |  
|Senior debt securities and limited
    term royalties |  | $ | 110,068                                                                                                                        |  |  | Discounted cash flow                  |  | Discount rate                        |  |  | 11.0%
                                                                                                        - 17.0% |   |  |   | 12.5     | %
|                                                      |  |   |                                                                                                                                |  |  |                                       |  |                                      |  |  |                                                                                                                       |   |  |   |          |  
|Subordinated debt securities                          |  |   | 22,246                                                                                                                         |  |  | Discounted cash flow                  |  | Discount rate                        |  |  | 10.8%
                                                             - 14.0%                                            |   |  |   | 12.6     | %
|                                                      |  |   | 9,243                                                                                                                          |  |  | Recent transactions of similar assets |  | Implied yield to maturity            |  |  | 17.0                                                                                                                  | % |  |   | 17.0     | %
|                                                      |  |   | 31,489                                                                                                                         |  |  |                                       |  |                                      |  |  |                                                                                                                       |   |  |   |          |  
|                                                      |  |   |                                                                                                                                |  |  |                                       |  |                                      |  |  |                                                                                                                       |   |  |   |          |  
|Net profits interest, royalty                         |  |   | 53,967                                                                                                                         |  |  | Discounted cash flow                  |  | Discount rate                        |  |  | 10%
                                                             - 20%                                                |   |  |   | 15.1     | %
|interest and equity securities                        |  |   |                                                                                                                                |  |  | Market comparables                    |  | Reserve multiples (1)                |  |  | $10.50
                                                             - $15.00                                          |   |  | $ | 12.92    |  
|                                                      |  |   |                                                                                                                                |  |  |                                       |  | Discount for lack of marketability   |  |  | 20%
                                                             - 50%                                                |   |  |   | 39.4     | %
|                                                      |  |   |                                                                                                                                |  |  |                                       |  | EBITDA multiples                     |  |  | 2.8x
                                                             - 6.0x                                              |   |  |   | 4.92     | x
|                                                      |  |   |                                                                                                                                |  |  |                                       |  |                                      |  |  |                                                                                                                       |   |  |   |          |  
|                                                      |  |   | 3,126                                                                                                                          |  |  | Recent or pending transactions        |  | N/A                                  |  |  | N/A                                                                                                                   |   |  |   | N/A      |  
|                                                      |  |   | 136                                                                                                                            |  |  | Option pricing model                  |  | Implied volatility                   |  |  | 16%
                                                                                             -77%                 |   |  |   | 23.2     | %
|                                                      |  |   | 57,229                                                                                                                         |  |  |                                       |  |                                      |  |  |                                                                                                                       |   |  |   |          |  
|                                                      |  |   |                                                                                                                                |  |  |                                       |  |                                      |  |  |                                                                                                                       |   |  |   |          |  
|Contingent earn-out                                   |  |   | 370                                                                                                                            |  |  | Discounted cash flow                  |  | Estimated annual coal production (2) |  |  | 326
                                                             - 632                                                |   |  |   | 461      |  
|                                                      |  |   |                                                                                                                                |  |  |                                       |  | Cost of production per ton           |  |  | $80.13
                                                             - $146.39                                         |   |  | $ | 108.94   |  
|                                                      |  |   |                                                                                                                                |  |  |                                       |  | Discount rate                        |  |  | 20                                                                                                                    | % |  |   | 20       | %
|                                                      |  | $ | 199,156                                                                                                                        |  |  |                                       |  |                                      |  |  |                                                                                                                       |   |  |   |          |  





(1)
Based on recent comparable transactions involving similar assets, expressed as price per unit of equivalent barrel of oil in proved
reserves

(2) In thousands of tons



Note 8: Common Stock Repurchases



In May 2012, we repurchased an aggregate
of 250,029 shares of our common stock in the open market at an average price of $6.51 per share, totaling $1.6 million, in accordance
with the stock repurchase plan approved by the Board of Directors in November 2011.  Under the terms of the stock repurchase
plan, we have remaining authorization to repurchase up to an additional $8.4 million of common stock.  Any future repurchases
will be made in accordance with applicable securities laws and regulations that set certain restrictions on the method, timing,
price and volume of stock repurchases. We did not repurchase any shares of our common stock during the third quarter of 2012.



21









Note 9: Commodity Derivative Instruments



We use commodity derivative instruments
from time to time to manage our exposure to commodity price fluctuations. We use all of our derivatives for risk management purposes
and do not hold any amounts for speculative or trading purposes. These contracts generally consist of options contracts on underlying
commodities. We do not designate these instruments as hedging instruments for financial accounting purposes and, as a result, we
recognize the change in the instruments’ fair value currently on the consolidated statement of operations as net increase
(decrease) in unrealized appreciation (depreciation) on investments. As shown on our consolidated schedule of investments, at September
30, 2012, we had oil put options expiring from October 2012 through September 2013 with an aggregate cost and fair value of $326,000
and $44,000, respectively.





|                                                      |  | For the Three Months Ended |      | For the Nine Months Ended
|----------------------------------------------------- |  | -------------------------- | ---- | -------------------------
|                                                      |  | September 30,              |      | September 30,            
|(In thousands)                                        |  | 2012                       |      | 2011                     
|                                                      |  |                            |      |                          
|Unrealized gains (losses) on commodity derivatives    |  | $                          | (23  | )                        
|Realized gains (losses) on commodity derivatives      |  |                            | (91  | )                        
|                                                      |  |                            |      |                          
|Net gain (losses) on commodity derivative instruments |  | $                          | (114 | )                        







22









Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.



You should read the following analysis
of our financial condition and results of operations in conjunction with management’s discussion and analysis contained in
our 2011 Annual Report on Form 10-K, as well as our consolidated financial statements and the notes thereto included in this Quarterly
Report on Form 10-Q.



Forward-Looking Statements



Certain statements in this Quarterly Report
on Form 10-Q that relate to estimates or expectations of our future performance or financial condition may constitute “forward-looking
statements” as defined under the Private Securities Litigation Reform Act of 1995.  These forward-looking statements
are subject to various risks and uncertainties, which could cause actual results and conditions to differ materially from those
projected, including, but not limited to,



| | • | uncertainties associated with the timing of transaction closings;
| | - | -----------------------------------------------------------------

| | • | changes in the prospects of our portfolio companies;
| | - | ----------------------------------------------------

| | • | changes in interest rates;
| | - | --------------------------

| | • | the future operating results of our portfolio companies and their ability to achieve their objectives;
| | - | ------------------------------------------------------------------------------------------------------

| | • | changes in regional, national or international economic conditions and their impact on the industries
in which we invest;
| | - | -------------------------------------------------------------------------------------------------------------------------

| | • | continued disruption of credit and capital markets;
| | - | ---------------------------------------------------

| | • | changes in the conditions of the industries in which we invest;
| | - | ---------------------------------------------------------------

| | • | the adequacy of our cash resources and working capital;
| | - | -------------------------------------------------------

| | • | the timing of cash flows, if any, from the operations of our portfolio companies;
| | - | ---------------------------------------------------------------------------------

| | • | the ability of our Manager to locate suitable investments for us and to monitor and administer
the investments; and
| | - | -------------------------------------------------------------------------------------------------------------------

| | • | other factors enumerated in our filings with the Securities and Exchange Commission, or the SEC.
| | - | ------------------------------------------------------------------------------------------------



We may use words such as “anticipates,”
“believes,” “intends,” “plans,” “expects,” “projects,” “estimates,”
“will,” “should,” “may” and similar expressions to identify forward-looking statements.  These
forward-looking statements are subject to various risks and uncertainties. Certain factors could cause actual results and conditions
to differ materially from those projected and our historical experience.  You should not place undue reliance on such
forward-looking statements, which speak only as of the date they are made.  We undertake no obligation to update any
forward-looking statements made herein, unless required by law.



Overview



We are a financial services company created
to invest primarily in debt securities of small and mid-size private energy companies.  In early 2012, we expanded our
investment strategy to also include middle market companies not engaged in the energy industry. We have elected to be regulated
as a business development company, or BDC, under the Investment Company Act of 1940, or the 1940 Act, and, as such, we are required
to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying
assets,” which include securities of private U.S. companies, U.S. companies whose securities are listed on a national
securities exchange but whose market capitalization is less than $250 million, cash, cash equivalents, U.S. government securities
and high-quality debt investments that mature in one year or less. In addition, for federal income tax purposes we operate so as
to be treated as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, as amended. Pursuant to these
elections, we generally do not have to pay corporate-level taxes on any income and capital gains we distribute to our stockholders.
We have several direct and indirect subsidiaries that are single member limited liability companies and wholly-owned limited partnerships
established to hold certain portfolio investments or provide services to us in accordance with specific rules prescribed for a
company operating as a RIC. We consolidate the financial results of our subsidiaries for financial reporting purposes, and do not
consolidate the financial results of our portfolio companies.





23







Our investment objective is to generate
both current income and capital appreciation primarily through debt investments with certain equity components.  A key
focus area for our investments in the energy industry is domestic upstream businesses that produce, develop, acquire and explore
for oil and natural gas.  We also evaluate investment opportunities in such businesses as coal, power and energy services. Beginning
in 2012, we are also seeking middle market investments within diversified industry sectors, including manufacturing, value-added
distribution, business services, healthcare products and services, consumer services and select other sectors.  Our investments
generally range in size from $10 million to $50 million; however, we may invest more or less depending on market conditions and
our Manager’s view of a particular investment opportunity. Our portfolio investments primarily consist of debt instruments,
including senior and subordinated loans combined in one facility, sometimes with an equity component, and subordinated loans, sometimes
with equity components.  We may also invest in preferred stock and other equity securities or royalty interests on a
stand-alone basis.



We generate revenue in the form of interest
income on the debt securities, limited-term royalty interests and net profits interests that we own, dividend income on common
or preferred stock that we own, royalty income on royalty interests that we own and capital gains or losses on debt or equity securities
that we acquire in portfolio companies and subsequently sell. Our investments, if in the form of debt securities, typically have
a term of three to seven years and bear interest at a fixed or floating rate. To the extent achievable, we seek to collateralize
our investments by obtaining security interests in our portfolio companies' assets.  We also may acquire minority or
majority equity interests in our portfolio companies, which may pay cash or paid-in-kind, or PIK, dividends on a recurring or otherwise
negotiated basis.  In addition, we may generate revenue in other forms including commitment, origination, structuring,
administration or due diligence fees; fees for providing managerial assistance; and possibly consultation fees.  We recognize
any such fees generated in connection with our investments as earned.



Our level of investment activity can and
does vary substantially from period to period depending on many factors.  Some of these factors are the amount of
debt and equity capital available to energy companies, the level of acquisition and divestiture activity for such companies, the
level and volatility of energy commodity prices, the general economic environment and the competitive environment for the types
of investments we make, and our own ability to raise capital to fund our investments, both through issuance of debt and equity
securities.  While we currently have capital available to invest, we do not have unlimited capital.  We remain
committed to our underwriting and investment disciplines in selectively investing in appropriate risk-reward opportunities within
the energy and middle market sectors.



Portfolio and Investment Activity



On October 1, 2012, we funded a $6.0 million
participation in the Midstates Petroleum Company, Inc., or Midstates, $600 million private placement of 10.75% Senior Unsecured
Notes due 2020, or the Midstates Notes. Proceeds from the Midstates Notes offering were used primarily to fund the cash portion
of the purchase price for Midstates’ acquisition of assets of Eagle Energy Production, LLC.



On September 19, 2012, GMX Resources, Inc.,
or GMX, consummated an exchange offer for its outstanding 5% Senior Convertible Notes due 2013, or the 2013 Notes, pursuant to
which holders tendering the 2013 Notes received new Senior Secured Second-Priority Notes due 2018, or the 2018 Notes, and shares
of GMX common stock. We tendered our 2013 Notes in the exchange offer, and consequently received 2018 Notes with a face value of
$12.7 million and 3,646,368 shares of GMX common stock. We sold 300,000 shares of GMX common stock in September 2012 and an additional
254,000 shares in October 2012. Interest on the 2018 Notes accrues at a rate of 9% per annum and is payable quarterly (commencing
March 2, 2013) at GMX’s option, in cash or, with respect to interest paid prior to September 19, 2014, either in the form
of cash, GMX common stock, or a combination thereof. The number of shares of GMX stock, if any, to be issued in lieu of cash interest
is calculated by assigning a value per share equal to the product of (a) 0.75 and (b) the 10-day volume weighted average price
ending the business day prior to the interest payment date. As a result of the GMX exchange offer, the estimated fair value of
our investment in GMX increased from $9.6 million at June 30, 2012 to $11.9 million at September 30, 2012.



In February 2012, our Net Profits Interest,
or NPI, in Anadarko Petroleum Corporation, or APC, achieved its 12.375% simple yield and converted to a Tail NPI of 3% which was
to last for 36 months, then revert back to APC. In August 2012, APC purchased the remaining Tail NPI for $0.4 million, with an
effective date of July 1, 2012. Our effective yield on the APC investment was 13.7%.



Effective as of July 31, 2012, our Senior
Secured Term Loan with Black Pool Energy Partners, LLC, or Black Pool, which had a balance of $15.7 million as of June 30, 2012,
was restructured. Huff Energy Holdings, Inc., or HEH, a newly-formed private oil and gas company which merged with Black Pool,
agreed to assume the Term Loan (including accrued and unpaid interest of $0.4 million, which was rolled into the principal balance)
and became the new borrower under the related credit agreement. We retained our first lien on the original Black Pool properties
and were granted a first lien on additional proved developed properties of certain HEH subsidiaries. In exchange for the additional
collateral, we agreed to reduce the interest rate under the Term Loan to 11% and to extend the maturity to April 15, 2013. In connection
with the restructuring, we agreed to sell our 3% overriding royalty interest, or ORRI, in oil and gas wells operated by Black Pool,
and penny warrants to purchase approximately 25% of the membership interests in Black Pool, back to Black Pool for $0.1 million.
As a result of this restructuring, the estimated fair value of our investment in Black Pool/HEH increased from $9.8 million at
June 30, 2012 to $16.2 million at September 30, 2012.





24







In 2011 and 2012, we have purchased from
ATP Oil & Gas Corporation, or ATP, limited-term ORRIs in certain offshore oil and gas producing properties operated by ATP
in the Gulf of Mexico, including $25.0 million advanced on July 3, 2012. Under this arrangement, we own the right to portions (ranging
from 5.0% to 10.8%) of the monthly revenues from the various oil and gas properties subject to the ORRI in ATP’s Gomez and
Telemark properties. Our unrecovered investment as of September 30, 2012 was $42.9 million. The terms of the ORRI provide that
it will terminate after we receive payments that equal our investments in the ORRI plus a time-value factor that is calculated
at a rate of 13.2 % per annum. On August 17, 2012, ATP filed for protection under Chapter 11 of the U.S. Bankruptcy Code, and received
debtor-in-possession financing of approximately $600 million. On August 23, 2012, the bankruptcy judge presiding over ATP’s
case signed an order allowing ATP to pay amounts received after August 17, 2012 to those parties entitled to receive them, including
the ORRIs, provided that the owners of the ORRIs execute an agreement providing for the repayment to ATP of any amounts that the
bankruptcy court later finds to have been inappropriately paid, or a Disgorgement Agreement. We executed a Disgorgement Agreement
and began receiving monthly distributions in September from ATP of our share of production proceeds received by ATP after August
17, 2012.



On April 26, 2012, we funded a $25.0 million
participation in a $2 billion Senior Notes offering by Everest Acquisition, LLC, which subsequently changed its name to EP Energy,
LLC, or EP Energy. EP Energy is owned by a group of investors led by Apollo Global Management, LLC. Proceeds of the EP Energy Senior
Notes offering were used to finance EP Energy’s acquisition of all of El Paso Corporation’s U.S. oil and gas exploration
and production assets. The EP Energy Senior Notes are unsecured, earn interest at a rate of 9.375% per annum, and are due May 1,
2020. In August 2012, we sold $15.0 million face amount of our EP Energy Senior Notes for an average price of 108.5, resulting
in a realized short-term capital gain of $1.3 million, or $0.06 per share. This portion of our investment in EP Energy Senior Notes
generated a 46.2% internal rate of return and a return on investment of 1.12x.



On July 10, 2012, we acquired $50.0 million
of redeemable Preferred Units in Castex Energy 2005, L.P., or Castex 2005, a private oil and gas limited partnership engaged in
the acquisition, exploration and development of oil and natural gas properties in South Louisiana and the shallow waters of the
Gulf of Mexico. The Preferred Units earn 8% cumulative cash dividends, payable quarterly. Upon redemption, holders of the Preferred
Units have the option to elect to receive the outstanding face amount plus either (a) a cash payment resulting in a total 12% internal
rate of return (inclusive of the 8% cash dividends), or (b) a limited partnership interest, of which our share would be two-thirds
of a 1% limited partnership interest. The Preferred Units are callable by Castex 2005 at any time after one year subject to the
redemption rights described above. Each holder of the Preferred Units has the right to put its Preferred Units to Castex 2005 on
the redemption terms described above on or after the earlier of (a) July 1, 2016, (b) a change of control or (c) liquidation.



In May 2012, we purchased in the secondary
market an additional $2.7 million of the Southern Pacific Resource Corporation, or STP, $275 million Second Lien Term Loan, or
the STP Term Loan. During the first quarter of 2012, we purchased $7.1 million of the STP Term Loan in the secondary market at
a cost of $7.2 million. STP is a publicly traded Canadian company, engaged in the exploration and development in the Athabasca
oil sands region of Alberta and the thermal production of heavy oil in Senlac, Saskatchewan. Proceeds of the STP Term Loan were
used to construct a new Steam-Assisted Gravity Drainage facility in Alberta, Canada. The STP Term Loan matures in January 2016
and earns interest payable quarterly at an annual rate of LIBOR + 8.5% with a 2% LIBOR floor or Prime rate + 7.5% with a 3% Prime
floor.



In March 2012, Crestwood Holdings, LLC,
or Crestwood, refinanced its Senior Secured Term Loan and repaid in full our balance outstanding of $8.0 million with a 2% call
premium, generating additional interest income of $0.2 million. Our investment in Crestwood generated a 14.2% internal rate of
return and a return on investment of 1.2x.



From commencement of investment operations
in November 2004 through September 30, 2012, we have invested $985.9 million in 42 portfolio companies, all energy-related, and
received principal repayments, realizations and settlements of $750.0 million. The following table summarizes our investment activity
for the nine months ended September 30, 2012 and 2011 (dollars in millions):





|                                                   |  | 2012 |       | 2011
|-------------------------------------------------- |  | ---- | ----- | ----
|Investment portfolio, beginning of period          |  | $    | 175.0 |     
|New investments                                    |  |      | 84.8  |     
|Additional investments in existing clients         |  |      | 28.2  |     
|Principal repayments, realizations and settlements |  |      | (52.1 | )   
|Investment portfolio, end of period                |  | $    | 235.9 |     
|                                                   |  |      |       |     
|Number of portfolio companies at end of period     |  |      | 18    |     





The table below shows our portfolio investments
by type as of September 30, 2012 and December 31, 2011. We compute yields on investments using interest rates as of the balance
sheet date and include amortization of original issue discount, or OID, and market premium or discount, royalty interest income,
net profits income and other similar investment income, weighted by their respective costs when averaged. We compute the yield
on income from derivatives using estimated derivative income, net of expired options costs. These yields do not include income
from any investments on non-accrual status but do include the cost basis of such investments in the denominator.  Such
weighted average yields are not necessarily indicative of expected total returns on a portfolio.





25









|                                 |  | September 30, 2012 |       | December 31, 2011      
|-------------------------------- |  | ------------------ | ----- | -----------------------
|                                 |  | Weighted           |       |                        
|                                 |  | Average            |       | Percentage of Portfolio
|                                 |  | Yields             |       | Cost                   
|Senior secured debt              |  |                    | 9.6   | %                      
|Subordinated debt                |  |                    | 12.1  | %                      
|Senior convertible notes         |  |                    | 0.0   | %                      
|Limited term royalties           |  |                    | 13.5  | %                      
|Net profits interests            |  |                    | N/A   |                        
|Contingent earn-out              |  |                    | 0.0   | %                      
|Commodity derivative instruments |  |                    | 0.0   | %                      
|Royalty interests                |  |                    | 561.1 | %                      
|Equity securities                |  |                    |       |                        
|Membership and partnership units |  |                    | 7.7   | %                      
|Participating preferred stock    |  |                    | 0.0   | %                      
|Common stock                     |  |                    | 0.0   | %                      
|Warrants                         |  |                    | 0.0   | %                      
|Total equity securities          |  |                    | 7.7   | %                      
|Total portfolio investments      |  |                    | 10.1  | %                      



As of September 30, 2012 and December 31,
2011, the total fair value of our portfolio investments was $213.1 million and $145.1 million, respectively. Of those fair value
totals, approximately $199.2 million, or 93%, and $135.3 million, or 93%, are measured using significant unobservable (i.e., Level
3) inputs.



The table below summarizes our non-accruing
and non-income producing investments:





|                                                            |  | September 30, 2012 |        | December 31, 2011
|----------------------------------------------------------- |  | ------------------ | ------ | -----------------
|(Dollars in thousands)                                      |  | Cost               |        | Fair Value       
|Non-accruing investments                                    |  |                    |        |                  
|BioEnergy Holding, LLC                                      |  | $                  | 15,511 |                  
|Bionol Clearfield, LLC                                      |  |                    | 4,950  |                  
|Chroma Exploration & Production, Inc.                       |  |                    | 4,312  |                  
|Total non-accruing investments                              |  |                    | 24,773 |                  
|Non-income producing investments                            |  |                    |        |                  
|BioEnergy Holding, LLC units                                |  |                    | 1,297  |                  
|BP Corporation NA, Inc. put options                         |  |                    | 326    |                  
|Castex Energy Development Fund, LP units                    |  |                    | 0      |                  
|DeanLake Operator, LLC preferred units                      |  |                    | —      |                  
|Globe BG, LLC (contingent Alden Resources royalty earn-out) |  |                    | —      |                  
|GMX Resources, Inc. common stock                            |  |                    | 2,606  |                  
|Black Pool Energy Partners, LLC warrants                    |  |                    | 10     |                  
|Myriant Corporation common stock and warrants               |  |                    | 468    |                  
|Resaca Exploitation, Inc. common stock and warrants         |  |                    | 3,485  |                  
|Spirit Resources, LLC warrants                              |  |                    | 25     |                  
|Tammany Oil & Gas, LLC warrants                             |  |                    | 5      |                  
|Total non-income producing investments                      |  |                    | 8,222  |                  
|Total non-accruing and non-income                           |  |                    |        |                  
|producing investments                                       |  | $                  | 32,995 |                  



Results of Operations



Investment Income



During the threemonths ended September 30, 2012, our total investment income was $6.3 million, decreasing $1.0 million, or 14%, compared
to the corresponding period of 2011. The decrease in 2012 was primarily attributable to the recognition, in the three-month period
ended September 30, 2011, of $2.0 million of interest and royalty income (including $1.1 million of previously unamortized OID)
from our investment in Alden Resources, LLC, or Alden, which was sold in the third quarter of 2011, partially offset by dividend
income of $0.9 million in the third quarter of 2012 from our new investment in Castex 2005.



During the nine months ended September 30,
2012, investment income decreased by $5.7 million, or 25%, to $17.3 million compared to the same period in 2011. For the nine months
ended September 30, 2012, we recorded $16.3 million of interest from investments in debt instruments and $0.9 million attributable
to royalties and other income, compared to $20.8 million of interest and $2.1 million of royalties and other income for the nine
months ended September 30, 2011. The decrease in 2012 is primarily attributable to the recognition in the second quarter of 2011,
of $4.5 million of previously unrecognized payment-in-kind, or PIK, interest on Tranche B of a Term Loan issued to Alden, which
was sold in July 2011.





26







Operating Expenses



The table below summarizes the components
of our operating expenses (in thousands):





|                                                    |  | For The Three Months Ended |       | For The Nine Months Ended
|--------------------------------------------------- |  | -------------------------- | ----- | -------------------------
|                                                    |  | September 30,              |       | September 30,            
|                                                    |  | 2012                       |       | 2011                     
|Interest expense and bank fees                      |  | $                          | 598   |                          
|Management and incentive fees                       |  |                            | 1,127 |                          
|Professional fees, insurance expenses and other G&A |  |                            | 1,169 |                          
|Total operating expenses                            |  | $                          | 2,894 |                          



For the three months ended September 30,
2012, operating expenses were $2.9 million, decreasing $0.1 million, or 3%, compared to the quarter ended September 30, 2011. Interest
expense and fees on our credit facilities were $0.6 million for the three months ended September 30, 2012 compared to $0.4 million
for the three months ended September 30, 2011, as a result of increased average borrowing levels. Management and incentive fees
were lower in the quarter ended September 30, 2012 at $1.1 million compared to $1.3 million for the quarter ended September 30,
2011, primarily as a result of lower average total asset balances, which are the basis for the base management fee computation.
Professional fees, insurance expense and other general and administrative expenses for the quarter ended September 30, 2012 decreased
$0.1 million, or 11%, to $1.2 million, compared to $1.3 million for the quarter ended September 30, 2011, primarily as a result
of lower professional fees.



For the nine months ended September 30,
2012, operating expenses were $8.2 million, decreasing $1.1 million, or 12%, compared to $9.3 million for the nine months ended
September 30, 2011. Interest expense and fees on our credit facilities increased to $1.3 million for the nine months ended September
30, 2012 compared to $1.1 million for the nine months ended September 30, 2011, due to increased average borrowing levels. Management
and incentive fees for the nine months ended September 30, 2012 were $3.3 million, decreasing $1.0 million, compared to $4.3 million
for the first nine months of 2011, primarily as a result of lower base management fees in 2012 and the incurrence of $0.3 million
of investment income incentive fees in 2011. Professional fees, insurance expense and other general and administrative expenses
decreased slightly to $3.7 million for the year-to-date period ended September 30, 2012, compared to $3.8 million for the corresponding
period in 2011.



Operating expenses include our allocable
portion of the total organizational and operating expenses incurred by us, our Manager and our Administrator, as determined by
our Board of Directors and representatives of our Manager and our Administrator.  According to the terms of the Investment
Advisory Agreement, we calculate the base management fee quarterly as 0.45% of the average of our total assets as of the end of
the two previous quarters.  Other general and administrative expenses include our allocated share of employee, facilities,
stockholder services and marketing costs incurred by our Administrator.



Net Investment Income



For the three months ended September 30,
2012, net investment income was $3.4 million, or $0.16 per common share, compared to $4.3 million, or $0.20 per common share, for
the three months ended September 30, 2011.  The $0.9 million, or 20.0%, decrease was attributable to the $1.0 million
decrease in investment income, partially offset by the $0.1 million decrease in operating expenses, both of which are described
above.



For the nine months ended September 30,
2012, net investment income was $9.0 million compared to $13.6 million for the nine months ended September 30, 2011.  The
$4.6 million, or 34%, decrease was attributable to the $5.7 million decrease in investment income, partially offset by the $1.1
million decrease in operating expenses, both of which are described above.



Net Realized Gains (Losses)



For the three months ended September 30,
2012, we recognized net realized capital gains of $1.7 million resulting primarily from the sale of $15.0 million face amount of
EP Energy Senior Unsecured Notes at an average price of 108.5 and the sale of our APC Tail NPI for $0.4 million. For the three
months ended September 30, 2011, we recognized net realized capital losses of $30.9 million resulting primarily from losses on
the sale of our investments in Alden and Gatliff Services, LLC, or Gatliff, $3.7 million; Dean Lake Operator, LLC, or Dean Lake,
$13.9 million; and TierraMar Energy, LP, or TierraMar, $15.3 million, partially offset by realized gains from the sales of the
after pay-out ORRI and 50% of our warrants of Tammany Oil & Gas, LLC, or Tammany, of $2.0 million.



For the nine months ended September 30,
2012, we recognized net realized capital gains of $1.7 million, as described above. For the nine months ended September 30, 2011,
we recognized net realized capital losses of $30.4 million resulting primarily from realized losses on the sale of our investments
in Alden and Gatliff, $3.7 million; DeanLake, $13.9 million; TierraMar, $15.2 million; and Pioneer Natural Resources Co., or Pioneer,
$1.1 million; partially offset by realized gains from the sales of the ORRI associated with Green Leaf Investment, LLC, or Greenleaf,
$1.0 million; and the after pay-out ORRI and 50% of our warrants of Tammany of $2.0 million.





27







Unrealized Appreciation or Depreciation on Investments



For the three months ended September 30,
2012, net unrealized appreciation on portfolio investments was $7.1 million, largely due to increases in the estimated fair value
of our investments in HEH of $6.0 million and GMX of $2.2 million and Castex 2005 Preferred Units of $1.1 million, partially offset
by decreases in the values of our investments in Globe BG, LLC, or Globe, of $2.1 million and Resaca Exploitation Inc., or Resaca,
of $0.6 million. Net increases in the estimated fair value of remaining investments totaled $0.5 million. By comparison, for the
three months ended September 30, 2011, the decrease in net unrealized depreciation was $26.7 million.  The decrease in
unrealized depreciation primarily resulted from the reversal, due to realizations, of prior period net write-downs of investments
in Alden and Gatliff, $2.6 million; DeanLake, $13.5 million and TierraMar, $15.3 million; offset by the reversal, due to realizations,
of prior period write-ups of our investment in limited-term royalties of ATP, $0.5 million.  Additional increases in
unrealized depreciation were due to the reduction in the fair value of the assets underlying our investments in Black Pool, $3.7
million, and GMX, $1.2 million, partially offset by the increase in the fair market value of our warrants associated with our investment
in Tammany of $1.0 million.



For the nine months
ended September 30, 2012, net unrealized appreciation on portfolio investments was $6.9 million, primarily due to increases in
estimated fair value of our investments of $3.7 million for HEH, $3.2 million for GMX, $1.1 million for Castex 2005 Preferred
Units, and $1.9 million for Castex Energy Development Fund LP, or Castex EDF, Class B LP Units, offset by decreases in the estimated
fair value of $2.9 million for Globe and $1.2 million for Resaca. Net increases in the estimated fair value of remaining investments
totaled $1.1 million. By comparison, for the nine months ended September 30, 2011, the increase in net unrealized depreciation
was $2.8 million, primarily due to decreases in the fair value of our investments in BioEnergy Holding, LLC and Bionol Clearfield,
LLC of $21.5 million, Black Pool of $3.7 million and the reversal, due to realizations, of prior period unrealized appreciation
associated with our investments in Alden of $4.3 million, partially offset by the reversal of prior period unrealized depreciation
associated with our investments in DeanLake of $10.7 million and TierraMar of $15.7 million.



Net Increase (Decrease) in Net Assets Resulting from
Operations



For the three months ended September 30,
2012, we recorded a net increase in net assets resulting from operations of $12.2 million, or $0.57 per share, compared to a net
increase in net assets of less than $0.1 million for the three months ended September 30, 2011. The $12.2 million, or $0.57 per
share, net change between the two periods was primarily attributable to the $13.1 million increase in net realized and unrealized
losses on our investments in 2012, partially offset by a $0.9 million decrease in net investment income in the third quarter of
2012.



For the nine months ended September 30,
2012, we had a net increase in net assets resulting from operations of $17.5 million, or $0.82 per share, compared to a net decrease
of $19.6 million, or $0.91 per share, for the corresponding period in 2011.  The $37.1 million, or $1.73 per share, net
improvement was primarily attributable to the $41.7 million decrease in net realized and unrealized losses on our investments
during the nine months ended September 30, 2012, compared to the same period of 2011, partially offset by a $4.6 million decrease
in investment income in 2012.



Financial Condition, Liquidity and Capital Resources



During the nine months ended September 30,
2012, we generated cash from operations of $6.8 million, excluding net purchases of investments, compared to $8.7 million during
the comparable period of 2011. The lower amount of cash generated from operations was primarily attributable to lower overall interest
income due to lower average investment portfolio balances, partially offset by net realized gains on portfolio securities during
2012. In addition, net collections of interest and income tax refunds receivable generated cash of $2.9 million in the first three
quarters of 2011, compared to using cash of $0.2 million in the first three quarters of 2012.



Our net cash used in operating activities
for the nine months ended September 30, 2012 was $96.3 million, compared to $58.4 million provided by operating activities for
the nine months ended September 30, 2011. This increase in net cash used in 2012 was primarily due to higher net purchases of investments
in portfolio securities in 2012. Purchases of portfolio securities during the first nine months of 2012 totaled $111.1 million,
compared to $88.4 million during the first nine months of 2011. Purchases in 2012 primarily included the Castex 2005 Preferred
Units of $50.0 million, EP Energy Senior Notes of $25.0 million, an additional investment in ATP of $25.0 million, the STP Term
Loan of $10.0 million and additional investments in existing portfolio companies totaling $1.1 million. Purchases in the first
nine months of 2011 included an additional investment in ATP of $25.0 million, a $10.0 million Term Loan to Resaca, the Spirit
Resources, LLC, or Spirit, Term Loan of $9.3 million, a $26.9 million Term Loan to Castex EDF, $6.9 million of GMX Senior notes
and additional investments in existing portfolio companies totaling $10.2 million. During the first nine months of 2012, we also
purchased $56.2 million and redeemed $10.2 million in U.S. Treasury Bills with borrowings under our Treasury Facility, compared
to $30.6 million in U.S. Treasury Bills purchased and redeemed during the first nine months of 2011. Proceeds from the redemption
of investments totaled $54.0 million during the first nine months of 2012, compared to $138.2 million during the first nine months
of 2011. Redemptions in 2012 included EP Energy, $16.3 million; ATP, $10.8 million; Tammany, $10.1 million; Crestwood, $8.3 million;
Pallas Contour Mining, LLC, or Pallas, $4.1 million, APC, $3.6 million; and other redemptions totaling $0.8 million. Redemptions
in 2011 included Alden, $55.6 million; Gatliff, $15.6 million; Resaca, $10.0 million; Pioneer, $10.4 million; Greenleaf, $9.6 million;
ATP, $10.8 million; Tammany, $12.7 million and other redemptions totaling $13.5 million.



At September 30, 2012, we had cash and cash
equivalents totaling $31.9 million. At September 30, 2012, the amount outstanding under our $72.0 million Amended and Restated
Revolving Credit Agreement, or the Investment Facility, was $37.5 million and an additional $34.4 million was available for borrowing.
We repaid $18.0 million of the $37.5 million balance outstanding under the Investment Facility in October 2012. As of September
30, 2012, the amount outstanding under our $45.0 million Treasury Secured Revolving Credit Agreement, or the Treasury Facility,
was $45.0 million and there was no additional amount available for borrowing.





28







During the nine months ended September 30,
2012, we paid cash dividends totaling $9.3 million, or $0.43 per share, to our common stockholders.  In September 2012,
we declared a third quarter dividend totaling $3.4 million, or $0.16 per share, which was paid in October 2012. We currently intend
to continue to distribute, in the form of quarterly dividends, a minimum of 90% of our annual investment company taxable income
to our stockholders.



On October 31, 2011, our Board of Directors
approved a stock repurchase plan, pursuant to which we may, from time to time, repurchase up to $10.0 million of our common stock
in the open market at prices not to exceed net asset value during our open trading periods.  Our Board of Directors authorized
this plan, because it believes that general market trading activity may cause our common stock to be undervalued from time to time.  The
repurchase program does not obligate us to purchase any shares and may be discontinued at any time. Pursuant to this plan, in May
2012, we repurchased an aggregate of 250,029 shares of our common stock in the open market at an average price of $6.51 per share,
totaling $1.6 million. Under the terms of the stock repurchase plan, we are authorized to repurchase up to an additional $8.4 million
of our common stock.



Commodity Derivative Instruments



We use commodity derivative instruments
from time to time to manage our exposure to commodity price fluctuations.  We use all of our derivatives for risk management
purposes and do not hold any amounts for speculative or trading purposes. We do not designate these instruments as hedging instruments
for financial accounting purposes, and, as a result, we recognize the change in the instruments’ fair value currently on
the consolidated statements of operations as net increase (decrease) in unrealized appreciation (depreciation) on investments.
In December 2011, in connection with our purchase of a limited term royalty interest from ATP, we purchased a series of oil put
options to provide insurance against downside price movements. See Note 9 of Notes to Consolidated Financial Statements included
elsewhere herein for further description of our put options.



Credit Facilities and Borrowings



On December 6, 2011, we entered into the
Investment Facility.  The total amount outstanding under the Investment Facility was $37.5 million and $50.0 million,
as of September 30, 2012 and December 31, 2011, respectively.  Substantially all of our assets, except our investments in
U.S. Treasury Bills, are collateral for the obligations under the Investment Facility.  The Investment Facility matures
on August 31, 2014, and bears interest, at our option, at either (i) LIBOR plus 325 to 475 basis points, or (ii) the base rate
plus 225 to 375 basis points, both based on our amounts outstanding. As of September 30, 2012, the weighted average interest
rate on our outstanding balance was 5.8%.  We repaid $18.0 million of the $37.5 million balance in October 2012.  As
of September 30, 2012, we had a letter of credit outstanding of $0.1 million, and amount available for borrowing under the
Investment Facility was $34.4 million.



On March 31, 2011, we entered into the Treasury
Facility, which can only be used to purchase U.S. Treasury Bills.  Proceeds from the Treasury Facility facilitate the
growth of our investment portfolio and provide flexibility in the sizing of our portfolio investments.  On September 25, 2012,
we entered into a second amendment to the Treasury Facility which increased the aggregate commitment amount from $30.0 million
to $45.0 million. As amended, the Treasury Facility matures on September 25, 2013 and bears interest, at our option, at either
(i) LIBOR plus 100 basis points or (ii) the base rate.  We have the right at any time to prepay the loans, in whole or in
part, without premium or penalty.  As of September 30, 2012, the total amount outstanding under the Treasury Facility was
$45.0 million and the interest rate on our outstanding balance was 1.36% (LIBOR plus 100 basis points). There was no additional
amount available for borrowing under the Treasury Facility as of September 30, 2012.



The Investment Facility and Treasury Facility
contain affirmative and reporting covenants and certain financial ratio and restrictive covenants that apply to our subsidiaries
and us.  We complied with these covenants as of September 30, 2012 and had no events of default under either facility.  The
most restrictive covenants are:



| | • | maintaining a ratio of net asset value to consolidated total indebtedness (excluding net hedging
liabilities) of not less than 2.25:1.0,
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | • | maintaining a ratio of net asset value to consolidated total indebtedness (including net hedging
liabilities) of not less than 2.0:1.0,
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

| | • | maintaining a ratio of EBITDA (excluding revenue from cash collateral) to interest expense (excluding
interest on loans under the Treasury Facility) of not less than 3.0:1.0, and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | maintaining a ratio of collateral to the aggregate principal amount of loans under the Treasury
Facility of not less than 1.02:1.0.
| | - | -----------------------------------------------------------------------------------------------------------------------------------



In addition to proceeds from borrowings
under our Investment Facility, we may also fund a portion of our investments with issuances of equity or senior debt securities.
We expect our primary use of funds to be investments in portfolio companies, cash distributions to holders of our common stock
and payment of fees and other operating expenses.



Dividends



We have elected to operate our business
to be taxed as a RIC for federal income tax purposes.  As a RIC, we generally may not pay corporate-level federal income
taxes on any ordinary income or capital gains that we distribute to our stockholders as dividends.  To maintain our RIC
status, we must meet specific source-of-income and asset diversification requirements and distribute annually an amount equal to
at least 90% of our “investment company taxable income” (which generally consists of ordinary income and realized net
short-term capital gains in excess of realized net long-term capital losses, if any, reduced by deductible expenses) and net tax-exempt
interest.  In order to avoid certain excise taxes imposed on RICs, we must distribute during each calendar year an amount
at least equal to the sum of (1) 98% of our ordinary income for the calendar year, (2) 98.2% of our capital gain net income (i.e.,
realized capital gains in excess of realized capital losses) for the one-year period ended on October 31 of that calendar year,
and (3) 100% of any ordinary income or capital gain net income not distributed in prior years. We currently intend to make sufficient
distributions to satisfy the annual distribution requirement and to avoid the excise taxes.





29







We may not achieve operating results that
will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In
addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings when applicable
to us as a BDC under the 1940 Act and due to provisions in our Investment Facility. If we do not distribute a certain percentage
of our income annually, we will suffer adverse tax consequences, including possible loss of our status as a RIC. We cannot assure
stockholders that they will receive any distributions or distributions at any specific level.



Portfolio Credit Quality



Virtually all of our portfolio investments
at September 30, 2012, are in negotiated, and often illiquid, securities of energy-related businesses. We maintain a system to
evaluate the credit quality of these investments. While incorporating quantitative analysis, this system is a qualitative assessment.
This system is intended to reflect the overall, long-term performance of a portfolio company’s business, the collateral coverage
of an investment, and other relevant factors. Our rating scale ranges from 1 to 7, with 1 being the highest credit quality. As
of September 30, 2012, our average portfolio rating on a dollar-weighted fair market value basis was 3.9, compared to 4.1 as of
December 31, 2011. Of the 19 rated investments in 16 portfolio companies as of September 30, 2012, 8 investments retained the same
rating as of December 31, 2011, 4 investments improved in rating, 4 investments declined and we added 3 investments to our portfolio
during the first nine months of 2012. As of September 30, 2012, on a fair value basis, approximately 26% of our portfolio investments
were in the form of senior secured debt securities. As of September 30, 2012, we had 2 investments on non-accrual status with an
aggregate cost and fair value of $24.8 million and $0.1 million, respectively. Our portfolio investments at fair value were approximately
91% and 84% of the related cost basis as of September 30, 2012 and December 31, 2011, respectively.



For the nine months ended September 30,
2012, the increase in net unrealized appreciation was $6.9 million, primarily consisting of increases in the estimated fair value
of our investments in Black Pool/HEH of $3.7 million, GMX Senior Secured Notes of $3.2 million, Castex EDF units of $1.9 million,
Castex 2005 LP units of $1.1 million, Tammany of $1.0 million and EP Energy Term Loan of $0.9 million, partially offset by decreases
in the values of our investments in Globe of $2.9 million and Resaca of $1.2 million.



Contractual Obligations and Off-Balance Sheet Arrangements



The following table summarizes our contractual
payment obligations at September 30, 2012 (in thousands):





|                                |  |       |        | Less than |  |           |        |           |  | More than
|------------------------------- |  | ----- | ------ | --------- |  | --------- | ------ | --------- |  | ---------
|                                |  | Total |        | 1 Year    |  | 1-3 Years |        | 3-5 Years |  | 5 Years  
|                                |  |       |        |           |  |           |        |           |  |          
|Revolving credit facilities (1) |  | $     | 82,500 |           |  | $         | 45,000 |           |  | $        
|Total                           |  | $     | 82,500 |           |  | $         | 45,000 |           |  | $        








|(1)  Excludes accrued interest amounts. |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|--------------------------------------- |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 





We have certain unused commitments to extend
credit to our portfolio companies. Generally, these commitments have fixed expiration dates, and we do not expect to fund the entire
amounts before they expire.  Therefore, these commitment amounts do not necessarily represent future cash requirements.  In
February 2010, we arranged for a letter of credit issued under the Investment Facility with respect to our investment in one of
our portfolio companies.  As of September 30, 2012, the letter of credit balance was $0.1 million.  We do not
report the unused portions of these commitments on our consolidated balance sheets. The following table shows our unused credit
commitments and letter of credit as of September 30, 2012 and December 31, 2011 (in thousands):





|                          |  | September 30, 2012 |        | December 31, 2011
|------------------------- |  | ------------------ | ------ | -----------------
|Unused credit commitments |  | $                  | 15,000 |                  
|Letter of credit          |  |                    | 137    |                  



Item 3. Quantitative and Qualitative Disclosures About
Market Risk.



There have been no material changes from
the information provided in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2011.





30







Item 4. Controls and Procedures.



Disclosure Controls and Procedures



We maintain disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act), designed
to ensure that information required to be disclosed in our reports that we file under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and
accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely
decisions regarding required disclosures.



In connection with the preparation of this
Quarterly Report on Form 10-Q, as of the end of the fiscal period covered by this Quarterly Report on Form 10-Q (September 30,
2012), we performed an evaluation, under the supervision and with the participation of management, including our Chief Executive
Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures
pursuant to Rules 13a-15(b) and 15d-15(b) of the Exchange Act.  Based on this evaluation, our Chief Executive Officer
and our Chief Financial Officer concluded that, as of September 30, 2012, our disclosure controls and procedures were effective
in providing reasonable assurance (i) that information required to be disclosed in the reports we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and (ii)
that such information is accumulated and communicated to management in a manner that allows timely decisions regarding required
disclosure.





Changes in Internal Control over Financial Reporting



No changes in internal control over financial
reporting occurred during the quarter ended September 30, 2012 that have materially affected or are reasonably likely to materially
affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act).





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PART II – OTHER INFORMATION





Item 1.    Legal Proceedings.



There have been no material changes to the
legal proceedings disclosed under Part I, Item 3, “Legal Proceedings” in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2011, except as set forth below:



On August 17, 2012, ATP filed a petition
for relief under Chapter 11 of the U.S. Bankruptcy Code. We own limited term ORRIs in certain offshore oil and gas producing properties
operated by ATP.  On August 23, 2012, the bankruptcy judge presiding over ATP’s case signed an order (Docket No. 191)
allowing ATP to pay proceeds of production received after August 17, 2012 to those parties it believes are entitled to receive
them, including us, provided that we execute a disgorgement agreement providing for the repayment to ATP of any amounts that the
bankruptcy court later finds to have been inappropriately paid.  As of September 30, 2012, our unrecovered investment was
$42.9 million.



On October 17, 2012, we filed a lawsuit
against ATP styled:  NGP Capital Resources Company v. ATP Oil & Gas Corporation, Adv. Proc. No. 12-03443, in the U.S.
Bankruptcy Court for the Southern District of Texas, seeking a declaration that the ORRIs are valid, fully enforceable, and not
avoidable.  ATP filed an answer and counterclaim in which it (a) denies that the ORRIs are valid and enforceable, (b) seeks
a declaration that (i) the ORRIs are a financing agreement and not a true sale and (ii) the ORRIs are executory contracts that
are subject to rejection under 11 U.S.C. Sec. 365, and (c) seeks disgorgement from us of amounts paid to us since August 17, 2012,
the date of filing of ATP’s Chapter 11 proceeding.  The United States has sought to intervene in the lawsuit arguing
that the underlying leases are executory contracts and not real property conveyances; certain service companies holding mechanics
and materialman’s lien privileges have intervened in the lawsuit for the purpose of establishing that their liens and privileges
are superior to our rights.  This lawsuit is currently pending and trial is scheduled for April 30 – May 1, 2013. 
We intend to vigorously defend our position that the ORRIs constitute real property interests and are fully valid and enforceable
pursuant to their terms.



Separately, the Official Committee of Unsecured
Creditors of ATP (the “Committee”) filed a motion (the “Motion”) requesting authority from the U.S. Bankruptcy
Court to be allowed to bring a fraudulent transfer action against us, in which the Committee seeks to allege that (a) ATP was insolvent
at the time of the assignment of the ORRIs to us (b) that ATP received less than fair value from us in exchange for the assignments
of the ORRIs and (c) as a result, the assignments should be set aside.  The Company vigorously denies these allegations and
opposes the Motion.  The Motion has been abated until a date after May 1, 2013.





Item
1A. Risk Factors.



There have been no material changes to the
risk factors disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2011, except as set forth below.



Payments of our limited term ORRI granted
by ATP were delayed for approximately two months as a result of bankruptcy proceedings. There is a risk that the consequences of
any additional delays or future adverse rulings by the bankruptcy court would prevent us from recovering our full investment in
the ORRI.



In 2011 and 2012, we purchased from ATP
limited-term ORRIs in certain offshore oil and gas producing properties operated by ATP in the Gulf of Mexico. Under this arrangement,
we own the right to our proportionate share (ranging from 5.0% to 10.8%) of the monthly production proceeds from the various oil
and gas properties subject to the ORRI in ATP’s Gomez and Telemark properties. On August 17, 2012, ATP filed for protection
under Chapter 11 of the U.S. Bankruptcy Code and received debtor-in-possession financing of approximately $600 million. On August
23, 2012, the bankruptcy judge presiding over ATP’s case signed an order allowing ATP to pay proceeds of production received
after August 17, 2012 to those parties it believes entitled to receive the same, including the ORRI holders, provided that the
owners of the ORRIs execute an agreement providing for the repayment to ATP of any amounts that the bankruptcy court later finds
to have been inappropriately paid. The terms of each ORRI provide that it will terminate after we receive payments that equal our
investments in the ORRI plus a time-value factor that is calculated at a rate of 13.2% per annum. As of September 30, 2012, our
unrecovered investment was $42.9 million.



Payments not made on the ORRIs for pre-petition
production have been delayed, thus extending the time for termination of the ORRI, and may never be made in full. It is also possible
that our rights to payments for post-petition production, as well as post-petition payments actually received, could be delayed
or otherwise adversely affected in ATP’s bankruptcy proceedings, resulting in our inability to recover our investment in
full and our expected return. If we do not receive payments for post-petition production from the wells subject to the ORRI in
amounts sufficient to provide for termination of the ORRI prior to the wells being shut in, then we would fail to recover, in full,
our investment plus the associated time-value factor. In the interim, if production declines significantly, the fair value of our
ORRI could decline accordingly.



Item 6. Exhibits.



See “Index to Exhibits” following
the signature page for a description of the exhibits furnished as part of this Quarterly Report on Form 10-Q.



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SIGNATURES



Pursuant to the requirements 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.



|                        | NGP CAPITAL RESOURCES COMPANY
|----------------------- | -----------------------------
|                        |                              
|Date:  November 8, 2012 | By:                          
|                        |                              



|Date:  November 8, 2012 | By: | /s/ L. Scott Biar                                                                              
|----------------------- | --- | -----------------------------------------------------------------------------------------------
|                        |     | L. Scott BiarChief Financial Officer,
Treasurer, Secretary and
        Chief Compliance Officer



33









Index to Exhibits



|Exhibits No. |  | Exhibit                                                                                                                                                                                                                
|------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1          |  | Articles of Incorporation (filed as Exhibit (a)(1) to our Registration Statement on Form N-2 filed on August 16, 2004 (Registration No. 333-118279) and incorporated herein by reference)                              
|3.2          |  | Articles of Amendment and Restatement (filed as Exhibit 3.2 our Annual Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference)                                                  
|3.3          |  | Bylaws (filed as Exhibit (b) to our Registration Statement on Form N-2 filed on August 16, 2004 (Registration No. 333-118279) and incorporated herein by reference)                                                    
|4.1          |  | Form of Stock Certificate (filed as Exhibit (d) to our Pre-Effective Amendment No. 2 to Registration Statement on Form N-2 filed on October 7, 2004 (Registration No. 333-118279) and incorporated herein by reference)
|4.2          |  | Dividend Reinvestment Plan (filed as Exhibit (e) to our Registration Statement on Form N-2 filed on August 16, 2004 (Registration No. 333-118279) and incorporated herein by reference)                                
|10.1*        |  | Second Amendment to Treasury Secured Revolving Credit Agreement effective as of September 25, 2012, between the Company, the lenders from time to time party thereto and SunTrust Bank                                 
|31.1*        |  | Certification required by Rule 13a-14(a)/15d-14(a) by the Chief Executive Officer                                                                                                                                      
|31.2*        |  | Certification required by Rule 13a-14(a)/15d-14(a) by the Chief Financial Officer                                                                                                                                      
|32.1**       |  | Section 1350 Certification by the Chief Executive Officer                                                                                                                                                              
|32.2**       |  | Section 1350 Certification by the Chief Financial Officer                                                                                                                                                              










*Filed herewith.

**Furnished herewith.



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