UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549










FORM
10-Q


(Mark
One)


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





For
the quarterly period ended June 30, 2010





or




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





For
the transition period from _____________ to _______________





Commission
file 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.)1221 McKinney Street, Suite 2975
              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.   Yes  þ   No  ̈





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
      filer     þ
            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  ̈   No þ





As of
August 5, 2010, there were 21,628,202 shares of the registrant’s common stock
outstanding.





TABLE OF
CONTENTS





PART
      I - FINANCIAL INFORMATION
              1Item
      1.
              Consolidated
      Financial Statements
              1Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              28Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              35Item
      4.
              Controls
      and Procedures
              36Item
      4T.
              Controls
      and Procedures
              37PART
      II – OTHER INFORMATION
              38Item
      1.
              Legal
      Proceedings
              38Item
      1A.
              Risk
      Factors
              38Item
      6.
              Exhibits
              38











PART
I - FINANCIAL INFORMATION





Item
1. Consolidated Financial Statements.





NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
BALANCE SHEETS





June 30,
    2010
                                  
                                  
                                  December 31,
      2009(Unaudited)AssetsInvestments in portfolio
      securities at fair valueControl investments - majority
      owned(cost: $123,222,644 and
      $118,590,412, respectively)
                                  
                                  $
                                  76,995,176
                                  
                                  
                                  $
                                  72,449,620Affiliate
      investments(cost: $32,982,230 and
      $30,727,367, respectively)
                                  
                                  
                                  33,644,517
                                  
                                  
                                  
                                  31,578,945Non-affiliate
      investments(cost: $79,260,905 and
      $92,832,647, respectively)
                                  
                                  
                                  76,941,300
                                  
                                  
                                  
                                  86,965,378Investments in corporate notes at
      fair value(cost: $11,514,860 and
      $11,539,564, respectively)
                                  
                                  
                                  9,555,858
                                  
                                  
                                  
                                  9,062,200Investments in commodity
      derivative
      instruments at fair value(cost: $0 and $30,100,
      respectively)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  49,000Total
      investments
                                  
                                  
                                  197,136,851
                                  
                                  
                                  
                                  200,105,143Cash and cash
      equivalents
                                  
                                  
                                  105,350,492
                                  
                                  
                                  
                                  108,288,217Accounts receivable and other
      current assets
                                  
                                  
                                  2,153,923
                                  
                                  
                                  
                                  2,115,663Interest
      receivable
                                  
                                  
                                  1,382,013
                                  
                                  
                                  
                                  1,241,609Prepaid
    assets
                                  
                                  
                                  1,600,885
                                  
                                  
                                  
                                  2,201,468Deferred tax
      assets
                                  
                                  
                                  2,961,948
                                  
                                  
                                  
                                  2,979,209Total current
      assets
                                  
                                  
                                  113,449,261
                                  
                                  
                                  
                                  116,826,166Total
assets
                                  
                                  $
                                  310,586,112
                                  
                                  
                                  $
                                  316,931,309Liabilities and stockholders' equity
      (net assets)Current
      liabilitiesAccounts payable and accrued
      expenses
                                  
                                  $
                                  713,571
                                  
                                  
                                  $
                                  1,098,414Management and incentive fees
      payable
                                  
                                  
                                  1,423,830
                                  
                                  
                                  
                                  1,415,866Dividends
      payable
                                  
                                  
                                  3,676,794
                                  
                                  
                                  
                                  3,676,794Income taxes
      payable
                                  
                                  
                                  33,613
                                  
                                  
                                  
                                  62,321Total current
      liabilities
                                  
                                  
                                  5,847,808
                                  
                                  
                                  
                                  6,253,395Deferred tax
      liabilities
                                  
                                  
                                  3,035,242
                                  
                                  
                                  
                                  3,002,366Long-term
    debt
                                  
                                  
                                  60,000,000
                                  
                                  
                                  
                                  67,500,000Total
      liabilities
                                  
                                  
                                  68,883,050
                                  
                                  
                                  
                                  76,755,761Commitments and
      contingencies  (Note 6)Stockholders’equity (net
      assets)Common stock, $.001 par value,
      250,000,000 shares authorized;21,628,202 shares issued and
      outstanding
                                  
                                  
                                  21,628
                                  
                                  
                                  
                                  21,628Paid-in capital in excess of
      par
                                  
                                  
                                  295,174,063
                                  
                                  
                                  
                                  295,174,063Undistributed net investment
      income (loss)
                                  
                                  
                                  (6,592,176
                                  )
                                  
                                  
                                  (4,944,530
                                  )Undistributed net realized capital
      gain (loss)
                                  
                                  
                                  (18,613
                                  )
                                  
                                  
                                  -Net unrealized appreciation
      (depreciation) of portfolio securities,corporate notes and commodity
      derivative
      instruments
                                  
                                  
                                  (46,881,840
                                  )
                                  
                                  
                                  (50,075,613
                                  )Total stockholders’equity (net
      assets)
                                  
                                  
                                  241,703,062
                                  
                                  
                                  
                                  240,175,548Total liabilities and
      stockholders' equity (net assets)
                                  
                                  $
                                  310,586,112
                                  
                                  
                                  $
                                  316,931,309Net asset value pershare
                                  
                                  $
                                  11.18
                                  
                                  
                                  $
                                  11.10








(See accompanying notes to consolidated
financial statements)





1


NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)





For The Three Months
      Ended
                              
                              
                              For The SixMonths
    EndedJune 30,
    2010
                              
                              
                              June 30,
    2009
                              
                              
                              June 30,
    2010
                              
                              
                              June 30,
    2009Investment
      incomeInterest and
      dividend income:Control
      investments - majority owned
                              
                              $
                              1,095,924
                              
                              
                              $
                              -
                              
                              
                              $
                              2,195,903
                              
                              
                              $
                              -Affiliate
      investments
                              
                              
                              899,981
                              
                              
                              
                              1,445,090
                              
                              
                              
                              1,732,894
                              
                              
                              
                              2,801,166Non-affiliate
      investments
                              
                              
                              3,379,706
                              
                              
                              
                              4,927,247
                              
                              
                              
                              6,557,247
                              
                              
                              
                              9,765,710Royalty income
      (loss), net of amortization:Control
      investments - majority owned
                              
                              
                              459,974
                              
                              
                              
                              42,343
                              
                              
                              
                              754,785
                              
                              
                              
                              65,679Non-affiliate
      investments
                              
                              
                              (444,619
                              )
                              
                              
                              (2,816,146
                              )
                              
                              
                              (962,675
                              )
                              
                              
                              (3,733,783
                              )Commodity
      derivative income, net of expired options
                              
                              
                              -
                              
                              
                              
                              1,880,229
                              
                              
                              
                              16,079
                              
                              
                              
                              5,054,081Other
      income
                              
                              
                              640,000
                              
                              
                              
                              57,940
                              
                              
                              
                              930,000
                              
                              
                              
                              116,739Total
      investment income
                              
                              
                              6,030,966
                              
                              
                              
                              5,536,703
                              
                              
                              
                              11,224,233
                              
                              
                              
                              14,069,592Operating
      expensesManagement and
      incentive fees
                              
                              
                              1,423,830
                              
                              
                              
                              1,647,178
                              
                              
                              
                              2,762,399
                              
                              
                              
                              3,481,026Professional
      fees
                              
                              
                              221,672
                              
                              
                              
                              319,899
                              
                              
                              
                              486,976
                              
                              
                              
                              486,626Insurance
      expense
                              
                              
                              185,658
                              
                              
                              
                              199,959
                              
                              
                              
                              371,316
                              
                              
                              
                              400,180Interest expense
      and fees
                              
                              
                              304,118
                              
                              
                              
                              1,096,709
                              
                              
                              
                              617,181
                              
                              
                              
                              2,094,551Other general
      and administrative expenses
                              
                              
                              843,568
                              
                              
                              
                              745,591
                              
                              
                              
                              1,789,988
                              
                              
                              
                              1,542,539Total
      operating expenses
                              
                              
                              2,978,846
                              
                              
                              
                              4,009,336
                              
                              
                              
                              6,027,860
                              
                              
                              
                              8,004,922Net investment income before
      income taxes
                              
                              
                              3,052,120
                              
                              
                              
                              1,527,367
                              
                              
                              
                              5,196,373
                              
                              
                              
                              6,064,670Benefit for income
      taxes
                              
                              
                              222,496
                              
                              
                              
                              8,702
                              
                              
                              
                              509,570
                              
                              
                              
                              12,993Net investment
      income
                              
                              
                              3,274,616
                              
                              
                              
                              1,536,069
                              
                              
                              
                              5,705,943
                              
                              
                              
                              6,077,663Net realized capital gain (loss)
      on investmentsNet
      realized capital gain (loss) on portfolio
securitiesand
      corporate notes:Control
      investments - majority owned
                              
                              
                              -
                              
                              
                              
                              (350,000
                              )
                              
                              
                              -
                              
                              
                              
                              (350,000
                              )Non-affiliate
      investments
                              
                              
                              -
                              
                              
                              
                              296,037
                              
                              
                              
                              -
                              
                              
                              
                              296,037Benefit
      (provision) for taxes on capital gain (loss)
                              
                              
                              (9,462
                              )
                              
                              
                              119,000
                              
                              
                              
                              (18,613
                              )
                              
                              
                              119,000Total
      net realized capital gain (loss) on investments
                              
                              
                              (9,462
                              )
                              
                              
                              65,037
                              
                              
                              
                              (18,613
                              )
                              
                              
                              65,037Net unrealized gain (loss) on
      investmentsNet
      increase (decrease) in unrealized appreciation(depreciation)
      on portfolio securities, corporatenotes
      and commodity
      derivative instruments:Control
      investments - majority owned
                              
                              
                              (93,176
                              )
                              
                              
                              (669,376
                              )
                              
                              
                              (86,675
                              )
                              
                              
                              (4,745,039
                              )Affiliate
      investments
                              
                              
                              (748,010
                              )
                              
                              
                              388,484
                              
                              
                              
                              (189,291
                              )
                              
                              
                              594,228Non-affiliate
      investments
                              
                              
                              1,733,136
                              
                              
                              
                              (4,148,448
                              )
                              
                              
                              4,047,125
                              
                              
                              
                              (24,838,561
                              )Benefit
      (provision) for taxes
      on unrealized gain (loss)
                              
                              
                              (284,237
                              )
                              
                              
                              255,000
                              
                              
                              
                              (577,386
                              )
                              
                              
                              1,640,826Total
      net unrealized gain (loss) on investments
                              
                              
                              607,713
                              
                              
                              
                              (4,174,340
                              )
                              
                              
                              3,193,773
                              
                              
                              
                              (27,348,546
                              )Net increase (decrease) in
      stockholders' equity(net assets)
      resulting from operations
                              
                              $
                              3,872,867
                              
                              
                              $
                              (2,573,234
                              )
                              
                              $
                              8,881,103
                              
                              
                              $
                              (21,205,846
                              )Net increase (decrease) in
      stockholders' equity (net assets)resulting from
      operations per common share
                              
                              $
                              0.18
                              
                              
                              $
                              (0.12
                              )
                              
                              $
                              0.42
                              
                              
                              $
                              (0.98
                              )





(See accompanying notes to consolidated
financial statements)





2


NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (NET ASSETS)





Net
      UnrealizedAppreciation
      (Depreciation)
                          
                          
                          TotalPaid-in
      Capital
                          
                          
                          Undistributed
                          
                          
                          Undistributed
                          
                          
                          of
      Portfolio Securities,
                          
                          
                          Stockholders'Common Stock
                          
                          
                          in
      Excess
                          
                          
                          Net
      Investment
                          
                          
                          Net
      Realized
                          
                          
                          Corporate
      Notes and Commodity
                          
                          
                          EquityShares
                          
                          
                          Amount
                          
                          
                          of Par
                          
                          
                          Income (Loss)
                          
                          
                          Capital Gain (Loss)
                          
                          
                          Derivative Instruments
                          
                          
                          (Net Assets)Balance
      at December 31, 2009
                          
                          
                          21,628,202
                          
                          
                          $
                          21,628
                          
                          
                          $
                          295,174,063
                          
                          
                          $
                          (4,944,530
                          )
                          
                          $
                          -
                          
                          
                          $
                          (50,075,613
                          )
                          
                          $
                          240,175,548Net
      increase (decrease) instockholders'
      equity (net assets)resulting
      from operations
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          5,705,943
                          
                          
                          
                          (18,613
                          )
                          
                          
                          3,193,773
                          
                          
                          
                          8,881,103Dividends
      declared
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (7,353,589
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (7,353,589
                          )Balance
      at June 30, 2010
      (unaudited)
                          
                          
                          21,628,202
                          
                          
                          $
                          21,628
                          
                          
                          $
                          295,174,063
                          
                          
                          $
                          (6,592,176
                          )
                          
                          $
                          (18,613
                          )
                          
                          $
                          (46,881,840
                          )
                          
                          $
                          241,703,062





(See
accompanying notes to consolidated financial statements)


3


NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





For
      The Six Months EndedJune 30, 2010
                                
                                
                                June 30, 2009Cash
      flows from operating activitiesNet
      increase (decrease) in stockholders' equity (net assets) resulting from
      operations
                                
                                $
                                8,881,103
                                
                                
                                $
                                (21,205,846
                                )Adjustments
      to reconcile net increase (decrease) in stockholders' equity (net
      assets)resulting
      from operations to net cash provided by (used in) operating
      activitiesPayment-in-kind
      interest
                                
                                
                                (2,585,664
                                )
                                
                                
                                (1,378,292
                                )Net
      amortization of premiums, discounts and fees
                                
                                
                                6,856,303
                                
                                
                                
                                6,267,170Change
      in unrealized (appreciation) depreciation on portfolio
      securities,corporate
      notes and commodity derivative instruments before taxes
                                
                                
                                (3,771,159
                                )
                                
                                
                                28,989,372Effects
      of changes in operating assets and liabilitiesAccounts
      receivable and other current assets
                                
                                
                                (38,260
                                )
                                
                                
                                40,775Interest
      receivable
                                
                                
                                (140,404
                                )
                                
                                
                                (1,110,670
                                )Prepaid
      assets
                                
                                
                                600,583
                                
                                
                                
                                903,654Current
      portion of deferred income taxes
                                
                                
                                17,261
                                
                                
                                
                                (2,213,219
                                )Non-current
      deferred income taxes
                                
                                
                                32,876
                                
                                
                                
                                (374,574
                                )Accounts
      payable and accrued expenses
                                
                                
                                (376,879
                                )
                                
                                
                                (3,378,007
                                )Income
      taxes payable
                                
                                
                                (28,708
                                )
                                
                                
                                356,599Purchase
      of investments in portfolio securities, corporate notesand
      commodity derivative instruments
                                
                                
                                (3,967,803
                                )
                                
                                
                                (23,212,163
                                )Redemption
      of investments in portfolio securities, corporate notesand
      commodity derivative instruments
                                
                                
                                6,436,615
                                
                                
                                
                                39,532,549Net
      purchase of investments in U.S. Treasury Bills
                                
                                
                                -
                                
                                
                                
                                (76,151,096
                                )Net
      cash provided by (used in) operating activities
                                
                                
                                11,915,864
                                
                                
                                
                                (52,933,748
                                )Cash
      flows from financing activitiesBorrowings
      under revolving credit facility
                                
                                
                                124,905,200
                                
                                
                                
                                32,000,000Repayments
      on revolving credit facility
                                
                                
                                (132,405,200
                                )
                                
                                
                                (62,000,000
                                )Dividends
      paid
                                
                                
                                (7,353,589
                                )
                                
                                
                                (13,193,203
                                )Net
      cash used in financing activities
                                
                                
                                (14,853,589
                                )
                                
                                
                                (43,193,203
                                )Net
      decrease in cash and cash equivalents
                                
                                
                                (2,937,725
                                )
                                
                                
                                (96,126,951
                                )Cash
      and cash equivalents, beginning of period
                                
                                
                                108,288,217
                                
                                
                                
                                133,805,575Cash
      and cash equivalents, end of period
                                
                                $
                                105,350,492
                                
                                
                                $
                                37,678,624





(See
accompanying notes to consolidated financial statements)


4


NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
SCHEDULE OF INVESTMENTS


June
30, 2010


(Unaudited)





Portfolio Company
                          
                          Energy Industry Segment
                          
                          Investment (1) (2) (4)
                          
                          Principal
                          
                          Cost
                          
                          Fair Value (3)TARGETED
      INVESTMENTS (19)Control
      Investments - Majority Owned (50% to 100% owned)Alden
      Resources, LLC
                          
                          Coal
      Production
                          
                          Senior
      Secured
                          
                          $    23,100,169
                          
                          $              21,425,946
                          
                          $               21,325,946Multiple-Advance
      Term Loan - Tranche A(The
      greater of 12.00% or LIBOR +9.00
      % cash, 15.00% or LIBOR +12.00%
      PIK, due 1/05/2013)Senior
      Secured
                          
                          22,545,581
                          
                          19,519,841
                          
                          19,519,841Multiple-Advance
      Term Loan - Tranche B(The
      greater of 12.00% or LIBOR +9.00
      % cash, 15.00% or LIBOR +12.00%
      PIK, due 1/05/2013) (6)Class
      E Units - 100% of outstanding units
                          
                          
                          
                          5,800,000
                          
                          5,800,000entitled
      to 100% of distributions ofAlden
      Resources until payout,80%
      after payout (5)Senior
      Secured
                          
                          2,619,389
                          
                          2,619,389
                          
                          2,619,389Multiple-Advance
      Term Loan - Revolver(The
      greater of 12.00% or LIBOR +9.00
      % cash, 15.00% or LIBOR +12.00%
      PIK, due 1/05/2013)Royalty
      Interest
                          
                          
                          
                          2,508,247
                          
                          5,330,000BSR
      Holdings, LLC (7)
                          
                          Oil
      & Natural Gas
                          
                          Units
      - 100% of outstanding units of
                          
                          
                          
                          300,000
                          
                          300,000Production
      and Development
                          
                          BSR
      Holdings, LLC which holds 50% workinginterest
      in certain BSR Loco Bayou, LLCoil
      and gas properties (5)Overriding
      Royalty Interest
                          
                          
                          
                          14,750
                          
                          100,000DeanLake
      Operator, LLC
                          
                          Oil
      & Natural Gas
                          
                          Class
      A Preferred Units - 100% of outstanding
                          
                          
                          
                          14,000,255
                          
                          10,000,000Production
      and Development
                          
                          units
      entitled to 100% of distributions ofDeanLake
      Operator, LLC until payout,80%
      after payout (5)Overriding
      Royalty Interest
                          
                          
                          
                          17,743
                          
                          100,000Formidable,
      LLC
                          
                          Oil
      & Natural Gas
                          
                          Senior
      Secured
                          
                          38,780,316
                          
                          38,780,316
                          
                          5,600,000Production
      and Development
                          
                          Multiple-Advance
      Term Loan(LIBOR
      + 5.50% cash, LIBOR + 8.50%default,
      due 5/31/2008) (6) (11)Warrants
      (5)
                          
                          
                          
                          500,000
                          
                          -Formidable
      Holdings, LLC Units - 100% of
                          
                          
                          
                          10,000
                          
                          -pledged
      stock of Formidable, LLC (5) (11)Rubicon
      Energy Partners,
                          
                          Oil
      & Natural Gas
                          
                          LLC
      Units (4,000 units) representing
                          
                          
                          
                          -
                          
                          -LLC
                          
                          Production
      and Development
                          
                          50%
      ownership of the assets ofRubicon
      Energy Partners, LLC (5)TierraMar
      Energy LP
                          
                          Oil
      & Natural Gas
                          
                          Class
      A Preferred LP Units - 100% of
                          
                          
                          
                          17,710,788
                          
                          6,000,000Production
      and Development
                          
                          outstanding
      units entitled to 100% ofdistributions
      of TierraMar Energy LP untilpayout,
      67% after payout (5)Overriding
      Royalty Interest
                          
                          
                          
                          15,369
                          
                          300,000Total
      Control Investments - Majority Owned (50% to 100% owned)
                          
                          
                          
                          $            123,222,644
                          
                          $               76,995,176





(See
accompanying notes to consolidated financial statements)


5


NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
SCHEDULE OF INVESTMENTS


June
30, 2010


(Unaudited)


(continued)





Portfolio Company
                                                                                                      
                                                                                                      Energy Industry Segment
                                                                                                      
                                                                                                      Investment (1) (2) (4)
                                                                                                      
                                                                                                      Principal
                                                                                                      
                                                                                                      Cost
                                                                                                      
                                                                                                      Fair Value (3)TARGETED
      INVESTMENTS (19) - ContinuedAffiliate
      Investments - (5% to 25% owned)BioEnergy
      Holding, LLC
                                                                                                      
                                                                                                      Alternative
      Fuels and
                                                                                                      
                                                                                                      Senior
      Secured Notes
                                                                                                      
                                                                                                      $                 14,420,170
                                                                                                      
                                                                                                      $               13,111,310
                                                                                                      
                                                                                                      $                13,111,310Specialty
      Chemicals
                                                                                                      
                                                                                                      (15.00%,
      due 3/06/2015)BioEnergy
      International Warrants (5) (12)
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      34,766
                                                                                                      
                                                                                                      34,766BioEnergy
      Holding Units - 11.5% of outstanding
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,296,771
                                                                                                      
                                                                                                      1,296,771units
      of BioEnergy Holdings, LLC (5)Myriant
      Technologies Warrants (5) (13)
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      49,238
                                                                                                      
                                                                                                      49,238Myriant
      Technologies Units - 1.9% of the
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      418,755
                                                                                                      
                                                                                                      418,755outstanding
      units of Myriant Technologies, LLC (5)Bionol
      Clearfield, LLC (9) (17)
                                                                                                      
                                                                                                      Alternative
      Fuels and
                                                                                                      
                                                                                                      Senior
      Secured Tranche C
                                                                                                      
                                                                                                      4,975,000
                                                                                                      
                                                                                                      4,975,000
                                                                                                      
                                                                                                      4,975,000Specialty
      Chemicals
                                                                                                      
                                                                                                      2nd
      Lien Term Loan(LIBOR
      + 7.00% cash, LIBOR + 9.00%default,
      due 9/06/2016)Resaca
      Exploitation Inc.
                                                                                                      
                                                                                                      Oil
      & Natural Gas
                                                                                                      
                                                                                                      Senior
      Secured
                                                                                                      
                                                                                                      10,000,000
                                                                                                      
                                                                                                      9,861,134
                                                                                                      
                                                                                                      9,861,134Production
      and Development
                                                                                                      
                                                                                                      Revolving
      Credit Facility(The
      greater of 8.0% or LIBOR + 5.50%,due
      5/01/2012)Common
      Stock (1,330,219 shares) - representing
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      3,235,256
                                                                                                      
                                                                                                      3,897,5436.86%
      of outstanding common stock ofResaca
      Exploitation Inc. (5) (14)Subtotal
      Affiliate Investments - (5% to 25% owned)
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      $               32,982,230
                                                                                                      
                                                                                                      $                33,644,517Non-affiliate
      Investments - (Less than 5% owned)Anadarko
      Petroleum Corporation
                                                                                                      
                                                                                                      Oil
      & Natural Gas
                                                                                                      
                                                                                                      Multiple-Advance
      Net Profits Interest
                                                                                                      
                                                                                                      $                   9,928,920
                                                                                                      
                                                                                                      $                 9,998,287
                                                                                                      
                                                                                                      $                10,298,2872007-III
      Drilling Fund
                                                                                                      
                                                                                                      Production
      and Development
                                                                                                      
                                                                                                      (Due
      4/23/2032)ATP
      Oil & Gas Corporation
                                                                                                      
                                                                                                      Oil
      & Natural Gas
                                                                                                      
                                                                                                      Limited
      Term Royalty Interest
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      2,018,814
                                                                                                      
                                                                                                      1,636,956Production
      and Development
                                                                                                      
                                                                                                      (Volume
      Denominated - 400 MBBL Pay-off)Limited
      Term Royalty Interest
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      10,911,501
                                                                                                      
                                                                                                      10,911,501(Dollar
      Denominated - 16.00% Return)Black
      Pool Energy
                                                                                                      
                                                                                                      Oil
      & Natural Gas
                                                                                                      
                                                                                                      Senior
      Secured
                                                                                                      
                                                                                                      18,300,000
                                                                                                      
                                                                                                      18,082,943
                                                                                                      
                                                                                                      18,082,943Partners,
      LLC
                                                                                                      
                                                                                                      Production
      and Development
                                                                                                      
                                                                                                      Multiple-Advance
      Term Loan(The
      greater of 15.00% or LIBOR +11.00
      % cash, due 10/24/2011)Overriding
      Royalty Interest
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      9,766
                                                                                                      
                                                                                                      100,000Warrants
      (5) (15)
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      10,000
                                                                                                      
                                                                                                      10,000Chroma
      Exploration &
                                                                                                      
                                                                                                      Oil
      & Natural Gas
                                                                                                      
                                                                                                      10,302
      Shares Series A Participating
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      2,221,710
                                                                                                      
                                                                                                      -Production,
      Inc.
                                                                                                      
                                                                                                      Production
      and Development
                                                                                                      
                                                                                                      Convertible
      Preferred Stock (6)9,408
      Shares Series AA Participating
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      2,089,870
                                                                                                      
                                                                                                      750,000Convertible
      Preferred Stock (6)8.11
      Shares Common Stock (5)
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      -Warrants
      (5) (8)
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      -Greenleaf
      Investments, LLC
                                                                                                      
                                                                                                      Oil
      & Natural Gas
                                                                                                      
                                                                                                      Senior
      Secured
                                                                                                      
                                                                                                      9,476,748
                                                                                                      
                                                                                                      9,368,809
                                                                                                      
                                                                                                      9,368,809Production
      and Development
                                                                                                      
                                                                                                      Multiple-Advance
      Term Loan(The
      greater of 10.50% or LIBOR + 6.50%,due
      4/30/2011)Overriding
      Royalty Interest
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      12,981
                                                                                                      
                                                                                                      400,000Nighthawk
      Transport I, LP
                                                                                                      
                                                                                                      Energy
      Services
                                                                                                      
                                                                                                      Second
      Lien Term Loan B (10)
                                                                                                      
                                                                                                      13,022,642
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      -LP
      Units (5) (10)
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      -Warrants
      (5) (10)
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      -Second
      Lien Delayed Draw Term Loan B (10)
                                                                                                      
                                                                                                      1,457,656
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      -








(See
accompanying notes to consolidated financial statements)


6


NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
SCHEDULE OF INVESTMENTS


June
30, 2010


(Unaudited)


(continued)





Portfolio Company
                                                
                                                Energy Industry Segment
                                                
                                                Investment (1) (2) (4)
                                                
                                                Principal
                                                
                                                Cost
                                                
                                                Fair Value (3)TARGETED INVESTMENTS (19) -
      ContinuedNon-affiliate Investments - (Less than 5% owned) -
      ContinuedTammany
      Oil & Gas, LLC
                                                
                                                Oil
      & Natural Gas
                                                
                                                Senior
      Secured
                                                
                                                $    24,382,804
                                                
                                                $              
        24,382,804
                                                
                                                $              
          24,382,804Production
      and Development
                                                
                                                Multiple-Advance
      Term Loan(The
      greater of 13.0% or LIBOR + 8.00%,due
      3/21/2010) (16)Overriding
      Royalty Interest
                                                
                                                
                                                
                                                153,420
                                                
                                                1,000,000Subtotal
      Non-affiliate Investments - (Less than 5% owned)
                                                
                                                
                                                
                                                
                                                
                                                $            
          79,260,905
                                                
                                                $                76,941,300Subtotal
      Targeted Investments (62.01% of total investments)
                                                
                                                
                                                
                                                
                                                $              235,465,779
                                                
                                                $              187,580,993CORPORATE NOTES (18)Pioneer
      Natural Resources Co.
                                                
                                                Oil
      & Natural Gas
                                                
                                                Senior
      Notes, 7.2%, due 2028
                                                
                                                $    10,000,000
                                                
                                                $              
        11,514,860
                                                
                                                $                  9,555,858Production
      and DevelopmentSubtotal
      Corporate Notes ( 3.16% of total investments)
                                                
                                                
                                                
                                                
                                                
                                                $         
             11,514,860
                                                
                                                $                  9,555,858CASH AND CASH EQUIVALENTSSubtotal
      Cash and Cash Equivalents (34.83% of total investments)
                                                
                                                
                                                
                                                $        
            105,350,492
                                                
                                                $              105,350,492TOTAL INVESTMENTS, CASH AND CASH
      EQUIVALENTS
                                                
                                                
                                                
                                                
                                                
                                                $     
               352,331,131
                                                
                                                $       
             302,487,343LIABILITIES IN EXCESS OF OTHER
      ASSETS
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                $      
              (60,784,281)NET ASSETS
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                $              241,703,062





NOTES TO CONSOLIDATED
SCHEDULE OF INVESTMENTS





(1)
            All
      investments are pledged as collateral for obligations under the Company's
      credit facility.


(2)
            Percentages
      represent interest rates in effect at the end of the period and due dates
      represent the contractual maturity
dates.


(3)
            Fair
      value of targeted investments is determined by or under the direction of
      the Board of Directors.


(4)
            All
      investments are in entities with primary operations in the United States
      of America.


(5)
            Non-income
      producing securities.


(6)
            Non-accrual
      status.


(7)
            BSR
      Loco Bayou repaid its term note in full on July 31, 2009.  The
      Company retains ownership of ORRI and has exercised warrants in exchange
      for 50% working interest in certain BSR Loco Bayou properties which have
      been contributed to NGPC Asset Holdings II, LP in exchange for 100% of the
      outstanding units in BSR Holdings,
LLC.


(8)
            Chroma
      warrants expire on April 5, 2012 and provide the Company the right to
      purchase 2,462 shares of common stock at a purchase price of $75.00 per
      share.


(9)
            Bionol
      Clearfield, LLC is owned 100% by BioEnergy Holdings,
  LLC.


(10)
            Due
      to insufficient recoveries in the liquidation under Nighthawk's voluntary
      petition under Chapter 7 of the United States Bankruptcy Code, the Company
      recognized a realized loss of its total remaining investment in Nighthawk
      notes, warrants and units in December
2009.


(11)
            Formidable
      senior note was accelerated and the Company foreclosed on the member units
      of Formidable, LLC on September 28,
2009.


(12)
            BioEnergy
      International, LLC warrants expire on August 15, 2010 and provide the
      Company the right to purchase 140,687 units, representing membership
      interests of BioEnergy International, LLC, at the  purchase
      price of $10.00 per unit.


(13)
            Myriant
      Technologies, LLC warrants expire on August 15, 2015 and provide the
      Company the right to purchase  32,680 units, representing
      membership interests of Myriant Technologies, LLC, at
      the  purchase price of $10.00 per
  unit.


(14)
            Resaca
      stock is listed on the Alternative Investment Market of the London Stock
      Exchange and, beginning on April 1, 2010, denominated in U.S. Dollars.
      Resaca Exploitation Inc. announced a five-to-one reverse stock split,
      effective June 23, 2010.


(15)
            Black
      Pool warrants expire seven years after repayment of principal and interest
      and provide the Company the right to purchase approximately 25% of
      membership interest at the exercise price of $0.01 per
    unit.


(16)
            Tammany
      Oil & Gas, LLC maturity date extended until September 21,
      2010.


(17)
            Bionol
      Clearfield, LLC issued forebearance agreement on June 16, 2010 due to
      default event.


(18)
            Investments
      in corporate notes are level 2 securities
  hierarchy.


(19)
            All
      investments in targeted portfolio securities are level 3 securities
      hierarchy.





(See
accompanying notes to consolidated financial statements)


7


NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
SCHEDULE OF INVESTMENTS


December
31, 2009





Portfolio Company
                  
                  Energy Industry Segment
                  
                  Investment(1)(2)(4)
                  
                  Principal
                  
                  Cost
                  
                  Fair Value(3)Targeted
      Investments (17)Control
      Investments – Majority Owned (50% to 100% owned)Alden
      Resources, LLC
                  
                  Coal
      Production
                  
                  Senior
      Secured
                    Multiple-Advance
      Term Loan - Tranche A
                    (The
      greater of 12.00% or LIBOR +
                    9.00%
      cash, 15.00% or LIBOR +
                    12.00%
      PIK, due 1/05/2013)
                  
                  $
                  21,432,224
                  
                  
                  $
                  19,499,779
                  
                  
                  $
                  19,399,779Senior
      Secured
                    Multiple-Advance
      Term Loan - Tranche B
                    (The
      greater of 12.00% or LIBOR +
                    9.00%
      cash, 15.00% or LIBOR +
                    12.00%
      PIK, due 1/05/2013) (6)
                  
                  
                  20,917,680
                  
                  
                  
                  19,519,841
                  
                  
                  
                  19,519,841Class
      E Units – 100% of outstanding units
                    entitled
      to 100% of distributions of
                    Alden
      Resources until payout,
                    80%
      after payout (5)
                  
                  
                  
                  
                  
                  
                  5,800,000
                  
                  
                  
                  5,800,000Royalty
      Interest
                  
                  
                  
                  
                  
                  
                  2,519,051
                  
                  
                  
                  5,330,000BSR
      Holdings, LLC (7)
                  
                  Oil
      & Natural Gas
                    Production
      and Development
                  
                  Units – 100%
      of outstanding units of
                    BSR
      Holdings, LLC which holds 50%
                    working
      interest in certain BSR Loco
                    Bayou,
      LLC oil and gas properties (5)
                  
                  
                  
                  
                  
                  
                  300,000
                  
                  
                  
                  300,000Overriding
      Royalty Interest
                  
                  
                  
                  
                  
                  
                  16,460
                  
                  
                  
                  100,000DeanLake
      Operator, LLC
                  
                  Oil
      & Natural Gas
                    Production
      and Development
                  
                  Senior
      Secured Term Loan
                    (10.00%
      cash, 12.00% PIK,
                    payable
      quarterly, due 6/30/2011)
                  
                  
                  3,500,000
                  
                  
                  
                  3,500,000
                  
                  
                  
                  3,500,000Class
      A Preferred Units – 100%
                    of
      outstanding units entitled to 100%
                    of
      distributions of DeanLake Operator, LLC
                    until
      payout, 80% after payout (5)
                  
                  
                  
                  
                  
                  
                  10,400,255
                  
                  
                  
                  6,500,000Overriding
      Royalty Interest
                  
                  
                  
                  
                  
                  
                  18,046
                  
                  
                  
                  100,000Formidable,
      LLC
                  
                  Oil
      & Natural Gas
                    Production
      and Development
                  
                  Senior
      Secured
                    Multiple-Advance
      Term Loan
                    (LIBOR
      + 5.50% cash, LIBOR + 8.50%
                    default,
      due 5/31/2008) (6)
                  
                  
                  38,780,316
                  
                  
                  
                  38,780,316
                  
                  
                  
                  5,600,000Warrants
      (5)
                  
                  
                  
                  
                  
                  
                  500,000
                  
                  
                  
                  —Formidable
      Holdings, LLC Units – 100%
                    of
      pledged stock of Formidable, LLC (5)(11)
                  
                  
                  
                  
                  
                  
                  10,000
                  
                  
                  
                  —Rubicon
      Energy Partners, LLC
                  
                  Oil
      & Natural Gas
                    Production
      and Development
                  
                  LLC
      Units (4,000 units) representing 50%
                    ownership
      of the assets of
                    Rubicon
      Energy Partners, LLC (5)
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —TierraMar
      Energy LP
                  
                  Oil
      & Natural Gas
                    Production
      and Development
                  
                  Class
      A Preferred LP Units – 100%
                    of
      outstanding units entitled to 100%
                    of
      distributions of TierraMar Energy LP
                    until
      payout, 67% after payout (5)
                  
                  
                  
                  
                  
                  
                  17,710,788
                  
                  
                  
                  6,000,000Overriding
      Royalty Interest
                  
                  
                  
                  
                  
                  
                  15,876
                  
                  
                  
                  300,000Total
      Control Investments – Majority Owned (50% to 100%
      owned)
                  
                  $
                  118,590,412
                  
                  
                  $
                  72,449,620





8


NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
SCHEDULE OF INVESTMENTS


December
31, 2009


(continued)





Portfolio Company
                
                Energy Industry Segment
                
                Investment(1)(2)(4)
                
                Principal
                
                Cost
                
                Fair Value(3)Targeted
      Investments (17)
       – ContinuedAffiliate
      Investments – (5% to 25% owned)BioEnergy
      Holding, LLC
                
                Alternative
      Fuels and
                  Specialty
      Chemicals
                
                Senior
      Secured Notes
                  (15.00%,
      due 3/06/2015)
                
                $
                12,255,231
                
                
                $
                10,862,125
                
                
                $
                10,862,125BioEnergy
      International Warrants (5)(12)
                
                
                
                
                
                
                34,766
                
                
                
                34,766BioEnergy
      Holding Units – 11.5%
                  of
      outstanding units of BioEnergy
                  Holdings,
      LLC (5)
                
                
                
                
                
                
                1,296,771
                
                
                
                1,296,771Myriant
      Technologies Warrants (5)(13)
                
                
                
                
                
                
                49,238
                
                
                
                49,238Myriant
      Technologies Units – 1.9%
                  of
      the outstanding units of
                  Myriant
      Technologies, LLC (5)
                
                
                
                
                
                
                418,755
                
                
                
                418,755Bionol
      Clearfield, LLC (9)
                
                Alternative
      Fuels and
                  Specialty
      Chemicals
                
                Senior
      Secured Tranche C
                  Construction
      Loan
                  (LIBOR
      + 7.00%, due 9/06/2016)
                
                
                5,000,000
                
                
                
                5,000,000
                
                
                
                5,000,000Resaca
      Exploitation Inc.
                
                Oil
      & Natural Gas
                  Production
      and Development
                
                Senior
      Secured
                  Revolving
      Credit Facility
                  (The
      greater of 8.0% or LIBOR + 5.50%,
                  due
      5/01/2012)
                
                
                10,000,000
                
                
                
                9,830,456
                
                
                
                9,830,456Common
      Stock (6,651,098 shares) –
                  representing
      6.86% of outstanding common stock of
                  Resaca
      Exploitation Inc. (5)(15)
                
                
                
                
                
                
                3,235,256
                
                
                
                4,086,834Subtotal
      Affiliate Investments – (5% to 25% owned)
                
                $
                30,727,367
                
                
                $
                31,578,945Non-affiliate
      Investments – (Less than 5% owned)Anadarko
      Petroleum
                  Corporation
      2007 – III Drilling Fund
                
                Oil
      & Natural Gas
                  Production
      and Development
                
                Multiple-Advance
      Net Profits Interest
                  (Due
      4/23/2032)
                
                $
                10,579,495
                
                
                $
                10,662,801
                
                
                $
                11,012,799ATP
      Oil & Gas Corporation
                
                Oil
      & Natural Gas
                  Production
      and Development
                
                Limited
      Term Royalty Interest
                  (Volume
      Denominated – 400 MBBL Pay-off)
                
                
                
                
                
                
                9,335,754
                
                
                
                5,642,113Limited
      Term Royalty Interest
                  (Dollar
      Denominated – 16.00% Return)
                
                
                
                
                
                
                14,935,631
                
                
                
                14,935,631Black
      Pool Energy Partners, LLC
                
                Oil
      & Natural Gas
                  Production
      and Development
                
                Senior
      Secured
                  Multiple-Advance
      Term Loan
                  (The
      greater of 12.00% or LIBOR + 8.00% cash,
                  14.00%
      or LIBOR + 10.00% PIK,
                  due
      10/24/2011)
                
                
                18,300,000
                
                
                
                18,013,814
                
                
                
                18,013,814Overriding
      Royalty Interest
                
                
                
                
                
                
                9,884
                
                
                
                100,000Warrants
      (5)(16)
                
                
                
                
                
                
                10,000
                
                
                
                10,000Chroma
      Exploration &
                  Production,
      Inc.
                
                Oil
      & Natural Gas
                  Production
      and Development
                
                10,302
      Shares Series A Participating
                  Convertible
      Preferred Stock (6)
                
                
                
                
                
                
                2,221,710
                
                
                
                —9,408
      Shares Series AA Participating
                  Convertible
      Preferred Stock (6)
                
                
                
                
                
                
                2,089,870
                
                
                
                500,0008.11
      Shares Common Stock (5)
                
                
                
                
                
                
                —
                
                
                
                —Warrants
      (5)(8)
                
                
                
                
                
                
                —
                
                
                
                —Greenleaf
      Investments, LLC
                
                Oil
      & Natural Gas
                  Production
      and Development
                
                Senior
      Secured
                  Multiple-Advance
      Term Loan
                  (The
      greater of 10.50% or LIBOR + 6.50%,
                  due
      4/30/2011)
                
                
                10,783,558
                
                
                
                10,616,048
                
                
                
                10,616,048Overriding
      Royalty Interest
                
                
                
                
                
                
                31,028
                
                
                
                400,000Nighthawk
      Transport I,  LP
                
                Energy
      Services
                
                Second
      Lien Term Loan B (10)
                
                
                13,022,642
                
                
                
                —
                
                
                
                —LP
      Units (5)(10)
                
                
                
                
                
                
                —
                
                
                
                —Warrants
      (5)(10)
                
                
                
                
                
                
                —
                
                
                
                —Second
      Lien Delayed Draw Term Loan B (10)
                
                
                1,457,656
                
                
                
                —
                
                
                
                —





(See
accompanying notes to consolidated financial statements)


9


NGP CAPITAL RESOURCES
COMPANY





CONSOLIDATED
SCHEDULE OF INVESTMENTS


December
31, 2009


(continued)





Portfolio Company
                  
                  Energy Industry Segment
                  
                  Investment(1)(2)(4)
                  
                  Principal
                  
                  Cost
                  
                  Fair Value(3)Targeted
      Investments (17)
       – ContinuedNon-affiliate
      Investments – (Less than 5%
      owned) – ContinuedTammany
      Oil & Gas, LLC
                  
                  Oil
      & Natural Gas
                    Production
      and Development
                  
                  Senior
      Secured
                    Multiple-Advance
      Term Loan
                    (The
      greater of 13.0% or LIBOR + 8.00%,
                    due
      3/21/2010)
                  
                  $
                  24,782,804
                  
                  
                  $
                  24,734,973
                  
                  
                  $
                  24,734,973Overriding
      Royalty Interest
                  
                  
                  
                  
                  
                  
                  171,134
                  
                  
                  
                  1,000,000Subtotal
      Non-affiliate Investments – (Less than 5% owned)
                  
                  $
                  92,832,647
                  
                  
                  $
                  86,965,378Subtotal
      Targeted Investments (61.93% of total investments)
                  
                  $
                  242,150,426
                  
                  
                  $
                  190,993,943Corporate
      Notes (17)Pioneer
      Natural Resources Co.
                  
                  Oil
      & Natural Gas
                    Production
      and Development
                  
                  Senior
      Notes, 7.2%, due 2028
                  
                  $
                  10,000,000
                  
                  
                  $
                  11,539,564
                  
                  
                  $
                  9,062,200Subtotal
      Corporate Notes (2.94% of total investments)
                  
                  $
                  11,539,564
                  
                  
                  $
                  9,062,200Commodity
      Derivative Instruments (17)Put
      Options (14)
                  
                  
                  
                  Put
      Options with BP Corporation North
                    America,
      Inc. to sell up to 32,750 Bbls of
                    crude
      oil at a strike price of $85.00 per Bbl.
                    4 monthly contracts beginning on
      October 1, 2009
                    and
      expiring on January 31, 2010.
                  
                  
                  
                  
                  
                  $
                  30,100
                  
                  
                  $
                  49,000Subtotal
      Commodity Derivatives (0.02% of total investments)
                  
                  $
                  30,100
                  
                  
                  $
                  49,000Cash
      and Cash EquivalentsSubtotal
      Cash and Cash Equivalents (35.11% of total
    investments)
                  
                  $
                  108,288,217
                  
                  
                  $
                  108,288,217Total
      investments, cash and cash equivalents
                  
                  $
                  362,008,307
                  
                  
                  $
                  308,393,360Liabilities
      in excess of other assets
                  
                  $
                  (68,217,812)Net
      assets
                  
                  $
                  240,175,548





10


NGP
CAPITAL RESOURCES COMPANY





CONSOLIDATED
SCHEDULE OF INVESTMENTS


December
31, 2009


(continued)





Notes
to Consolidated Schedule of Investments


(1)
            All investments are pledged as
      collateral for obligations under the Company’s credit
      facility.


(2)
            Percentages represent interest
      rates in effect at the end of the period and due dates represent the
      contractual maturity dates.


(3)
            Fair value of targeted
      investments is determined by or under the direction of the Board of
      Directors.


(4)
            All investments are in entities
      with primary operations in the United States of
      America.


(5)
            Non-income producing
      securities.


(6)
            Non-accrual
      status.


(7)
            BSR Loco Bayou repaid its term
      note in full on July 31, 2009. The Company retains ownership of ORRI and
      has exercised warrants in exchange for 50% working interest in certain BSR
      Loco Bayou properties which have been contributed to NGPC Asset Holdings
      II, LP in exchange for 100% of the outstanding units in BSR Holdings,
      LLC.


(8)
            Chroma warrants expire on April
      5, 2012 and provide the Company the right to purchase 2,462 shares of
      common stock at a purchase price of $75.00 per
    share.


(9)
            Bionol Clearfield, LLC is owned
      100% by BioEnergy Holdings,
LLC.


(10)
            Due to insufficient recoveries in
      the liquidation under Nighthawk’s voluntary petition under Chapter 7 of
      the United States Bankruptcy Code, the Company recognized a realized loss
      of its total remaining investment in Nighthawk notes, warrants and units
      in December 2009.


(11)
            Formidable senior note was
      accelerated and the Company foreclosed on the member units of Formidable,
      LLC on September 28, 2009.


(12)
            BioEnergy International, LLC
      warrants expire on August 15, 2010 and provide the Company the right to
      purchase 140,687 units, representing membership interests of BioEnergy
      International, LLC, at the purchase price of $10.00 per
      unit.


(13)
            Myriant Technologies, LLC
      warrants expire on August 15, 2015 and provide the Company the right to
      purchase 32,680 units, representing membership interests of Myriant
      Technologies, LLC, at the purchase price of $10.00 per
      unit.


(14)
            Put
      Options are related to the limited term royalty interest purchased from
      ATP Oil & Gas Corporation.


(15)
            Resaca stock is listed on the
      Alternative Investment Market of the London Stock Exchange, denominated in
      British pounds and its reported fair value at December 31, 2009 has been
      converted to U.S. dollars at the exchange rate effective on December 31,
      2009.


(16)
            Black Pool warrants expire seven
      years after repayment of principal and interest and provide the Company
      the right to purchase approximately 25% of membership interest at the
      exercise price of $0.01 per
unit.


(17)
            All investments in portfolio
      securities, corporate notes and commodity derivative instruments are level
      3 securities hierarchy.





(See
accompanying notes to consolidated financial statements)





11


NGP
CAPITAL RESOURCES COMPANY


CONSOLIDATED
FINANCIAL HIGHLIGHTS


(Unaudited)





For
      The Six Months EndedJune 30, 2010
                                        
                                        
                                        June 30, 2009Per
      Share Data  (1)Net
      asset value, beginning of period
                                        
                                        $
                                        11.10
                                        
                                        
                                        $
                                        12.15Net
      investment income
                                        
                                        
                                        0.26
                                        
                                        
                                        
                                        0.28Net
      realized and unrealized gain (loss) on portfolio
    securities,corporate
      notes and commodity derivative instruments (3)
                                        
                                        
                                        0.16
                                        
                                        
                                        
                                        (1.26
                                        )Net
      increase (decrease) in stockholders' equity (net assets)resulting
      from operations
                                        
                                        
                                        0.42
                                        
                                        
                                        
                                        (0.98
                                        )Dividends
      declared
                                        
                                        
                                        (0.34
                                        )
                                        
                                        
                                        (0.32
                                        )Net
      asset value, end of period
                                        
                                        $
                                        11.18
                                        
                                        
                                        $
                                        10.85Market
      value, beginning of period
                                        
                                        $
                                        8.13
                                        
                                        
                                        $
                                        8.37Market
      value, end of period
                                        
                                        $
                                        7.17
                                        
                                        
                                        $
                                        5.87Market
      value return  (2)
                                        
                                        
                                        (7.96
                                        %)
                                        
                                        
                                        (26.16
                                        %)Net
      asset value return (2)
                                        
                                        
                                        5.11
                                        %
                                        
                                        
                                        (5.98
                                        %)Ratios
      and Supplemental Data($
      and shares in thousands)Net
      assets, end of period
                                        
                                        $
                                        241,703
                                        
                                        
                                        $
                                        234,710Average
      net assets
                                        
                                        $
                                        240,939
                                        
                                        
                                        $
                                        248,773Common
      shares outstanding at the end of the period
                                        
                                        
                                        21,628
                                        
                                        
                                        
                                        21,628Total
      operating expenses/average net assets (4)
                                        
                                        
                                        5.05
                                        %
                                        
                                        
                                        6.49
                                        %Total
      operating expenses less management andincentive
      fees and interest expense/average net assets (4)
                                        
                                        
                                        2.22
                                        %
                                        
                                        
                                        1.97
                                        %Total
      operating expenses less managementand
      incentive fees/average net assets (4)
                                        
                                        
                                        2.73
                                        %
                                        
                                        
                                        3.67
                                        %Net
      investment income/average net assets (4)
                                        
                                        
                                        4.78
                                        %
                                        
                                        
                                        4.93
                                        %Net
      increase (decrease) in net assets resulting fromoperations/average
      net assets (4)
                                        
                                        
                                        7.43
                                        %
                                        
                                        
                                        (17.19
                                        %)Portfolio
      turnover rate
                                        
                                        
                                        2.67
                                        %
                                        
                                        
                                        15.89
                                        %




(1)
            Per
      Share Data is based on common shares outstanding at the end of the
      period.


(2)
            Return
      calculations assume reinvestment of dividends and are not
      annualized.


(3)
            Calculated
      as a balancing amount necessary to reconcile the change in net assets
      value per share with the 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 year may not equal the per share changes of the
      line items disclosed.


(4)
            Annualized.





(See
accompanying notes to consolidated financial statements)


12


NGP
CAPITAL RESOURCES COMPANY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2010


(Unaudited)





Note 1:
            Organization





NGP
Capital Resources Company (together with its consolidated subsidiaries, where
applicable, “NGPC”, or the “Company,” which may also be referred to as “we,”
“us,” or “our”) was organized as a Maryland corporation in July 2004. The
Company has elected to be regulated as a business development company (“BDC”)
under the Investment Company Act of 1940, as amended (the “1940
Act”).  In addition, for federal income tax purposes the Company has
elected to be treated as a regulated investment company (“RIC”) under the
Internal Revenue Code of 1986, as amended (the “Code”).  The Company
has 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 the Company in accordance
with specific rules prescribed for a company operating as a
RIC.  These subsidiaries are: NGPC Funding GP, LLC, a Texas limited
liability company; NGPC Nevada, LLC, a Nevada limited liability company; NGPC
Funding, LP, a Texas limited partnership; NGPC Asset Holdings GP, LLC, a Texas
limited liability company; NGPC Asset Holdings, LP, a Texas limited partnership;
NGPC Asset Holdings II, LP, a Texas limited partnership (“NGPC II”); NGPC Asset
Holdings III, LP, a Texas limited partnership; NGPC Asset Holdings V, LP, a
Texas limited partnership and NGPC Asset Holdings VI, LP, a Texas limited
partnership.  The Company consolidates the financial results of its
direct subsidiaries for financial reporting purposes.  The Company
does not consolidate the financial results of its portfolio
companies.





The
Company was created to invest primarily in small and mid-size private energy
companies, which, until July 21, 2008, were generally defined as companies that
have net asset values or annual revenues of less than $500 million and are not
issuers of publicly traded securities. On July 21, 2008, the Securities and
Exchange Commission expanded the definition of eligible portfolio companies
(“Eligible Portfolio Companies”) to include domestic operating companies with
securities listed on a national securities exchange so long as the company has a
market capitalization of less than $250 million. The Company’s investment
objective is to generate both current income and capital appreciation through
debt investments with certain equity components.





The
Company is managed and advised, subject to the overall supervision of the
Company’s Board of Directors, by NGP Investment Advisor, LP (the “Manager”), a
Delaware limited partnership owned by NGP Energy Capital Management, L.L.C. and
NGP Administration, LLC (the “Administrator”), the Company’s
administrator.





Note
      2:
            Significant Accounting
      Policies





The
interim unaudited consolidated financial statements include the accounts of the
Company and its subsidiaries.  All significant intercompany accounts and
transactions have been eliminated in consolidation. The management of the
Company prepares the interim consolidated financial statements, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(the “SEC”).  Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) have been
omitted pursuant to such rules and regulations, although the Company believes
the disclosures included herein are adequate to make the information presented
not misleading.  In the opinion of management, all adjustments, which
are of a normal recurring nature considered necessary for presentation of the
information, have been included.  These unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2009.  Interim results
are not necessarily indicative of results for a full year.





The
following is a summary of the significant accounting policies consistently
applied by the Company in the preparation of its consolidated financial
statements:





Use
of Estimates





The
interim consolidated financial statements have been prepared in accordance with
GAAP that require management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and the accompanying
notes to the consolidated financial statements.  Actual results could
differ from these estimates.


13


Cash
and Cash Equivalents





Cash and
cash equivalents include short-term, liquid investments with an original
maturity of three months or less in accounts such as demand deposit accounts,
money market accounts, certain overnight investment sweep accounts and money
market fund accounts.  Cash and cash equivalents are carried at cost,
which approximates fair value.





Prepaid
Assets





Prepaid
assets consist of premiums paid for directors’ and officers’ insurance and
fidelity bonds with a policy term of one year and fees associated with the
establishment of the policy or credit facility.





Concentration
of Credit Risk





The
Company places its cash and cash equivalents with financial institutions and, at
times, cash held in checking or money market accounts may exceed the Federal
Deposit Insurance Corporation insured limit.





Valuation
of Investments





Investments
are carried at fair value, as determined in good faith by the Company’s Board of
Directors.  On a quarterly basis, the investment team of the Manager
prepares valuations for all of the assets in the Company’s portfolio and
presents the valuations to the Company’s valuation committee, which we refer to
as the Valuation Committee, and Board of Directors.  The valuations
are determined and recommended by the Valuation Committee to the Board of
Directors, which reviews and ratifies the final portfolio
valuations.





Investments
in securities for which market quotations are readily available are recorded in
the financial statements at such market quotations 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 the Manager prepares valuation analyses, as generally
described below.





Using the
most recently available financial statements, forecasts and, when applicable,
comparable transaction data, the investment team of the Manager prepares
valuation analyses for the various securities in the Company’s investment
portfolio.  These valuation analyses are prepared using traditional
valuation methodologies, which rely on estimates of the asset values and
enterprise values of portfolio companies issuing securities.





The
methodologies for determining asset valuations include estimates based
on:  the liquidation or sale value of a portfolio company’s assets,
the discounted value of expected future net cash flows from the assets and third
party valuations of a portfolio company’s assets, such as engineering reserve
reports of oil and natural gas properties.  The investment team of the
Manager considers some or all of the above valuation methods to determine the
estimated asset value of a portfolio company.





The 1940
Act requires the separate identification of investments according to the
percentage ownership in a portfolio company’s outstanding voting
securities.  The percentages and categories are as
follows:





·
            Non-affiliate
      investments - the Company owns less than 5% of a portfolio company’s
      outstanding voting securities


·
            Affiliate
      investments - the Company owns more than 5% but not more than 25% of a
      portfolio company’s outstanding voting
  securities


·
            Control
      investments - the Company owns more than 25% of a portfolio company’s
      outstanding voting securities


·
            Control
      investments – majority owned - the Company owns more than 50% of a
      portfolio company’s outstanding voting
  securities.





The
methodologies for determining enterprise valuations include estimates based
on:  valuations of comparable public companies, recent sales of
comparable companies, the value of recent investments in the equity securities
of a portfolio company and also on the methodologies used for asset
valuations.  The investment team of the Manager considers some or all
of the above valuation methods to determine the estimated enterprise value of a
portfolio company.


14


The
methodologies for determining estimated current market values of comparable
securities include estimates based on: recent initial offerings of comparable
securities of public and private companies; recent secondary market sales of
comparable securities of public and private companies; current market implied
interest rates for comparable securities in general; and current market implied
interest rates for non-comparable securities in general, with adjustments for
such elements as size of issue, tenor and liquidity. The investment team of the
Manager considers some or all of the above valuation methods to determine the
estimated current market value of a comparable security.





Debt Securities: The Company
records its investments in non-convertible debt securities at fair value which
generally approximates cost  plus amortized original issue discount,
or OID, to the extent that the estimated asset or enterprise value of the
portfolio company exceeds the outstanding debt of the portfolio company, subject
to comparison to the estimated current market values of comparable
securities.  The Company records its investment in convertible debt
securities at fair value which generally approximates the higher of: 1) cost
plus amortized OID, to the extent that the estimated asset or enterprise value
of the portfolio company equals or exceeds the outstanding debt of the portfolio
company; and 2) the Company’s pro rata share, upon conversion, of the residual
equity value of the portfolio company available after deducting all outstanding
debt from its estimated enterprise value, both subject to comparison to the
estimated current market values of comparable securities. If the estimated asset
or enterprise value is less than the sum of the value of the Company’s debt
investment and all other debt securities of the portfolio company pari passu or senior to the
Company’s debt investment, the Company reduces the value of the debt investment
beginning with the junior-most debt investment such that the asset or enterprise
value less the value of the outstanding pari passu or senior debt is
zero, subject to comparison to the estimated current market values of comparable
securities.  Investments in debt securities for which market
quotations are readily available are recorded in the financial statements at
such market quotations as of the valuation date.





Equity Securities: The
Company records its  investments in preferred and common equity
securities (including warrants or options to acquire equity securities) at fair
value based on its pro rata share of the residual equity value available after
deducting all outstanding debt from the estimated enterprise value, subject to
comparison to the estimated current market values of comparable
securities.





Property-Based Equity Participation
Rights: The Company records its 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. 
Appropriate cash flow multiples are derived from the review of comparable
transactions involving similar assets. The discounted value of future net cash
flows is derived, when appropriate, from third party valuations of a portfolio
company’s assets, such as engineering reserve reports of oil and natural gas
properties.





The
Company estimates the fair value of the crude oil and natural gas options using
a combined income and market based valuation methodology based upon forward
commodity price and volatility curves. Independent pricing services provide the
curves which reflect broker market quotes.





Due to
the uncertainty inherent in the valuation process, such estimates of fair value
may differ significantly from the values that would have been used had a ready
market for the securities existed, and the differences could be
material.  Additionally, changes in the market environment and other
events that may occur over the life of the investments may cause the gains or
losses ultimately realized on these investments to be different from the
valuations currently assigned.





Securities
Transactions, Interest and Dividend Income Recognition





All
securities transactions are accounted for on a trade-date basis. Interest income
is recorded on the accrual basis to the extent that such amounts are expected to
be collected.  Premiums and discounts are accreted into interest
income using the effective interest method. Detachable warrants, other equity
securities or property interests such as overriding royalty interests obtained
in conjunction with the acquisition of debt securities are recorded separately
from the debt securities at their initial fair value, with a corresponding
amount recorded as a discount to the associated debt security.  Income
from overriding royalty interests is recognized as received and the recorded
assets are charged amortization using the units of production
method.  The portion of the loan origination fees paid that represent
additional yield or discount on a loan are deferred and accreted into interest
income over the life of the loan using the effective interest
method.  Upon the prepayment of a loan or debt security, any
unamortized loan origination fees are recorded as interest income and any
unamortized premium or discount is recorded as a realized gain or
loss.  Market premiums or discounts on acquired loans or fixed income
investments are accreted into interest income using the effective interest
method.  Dividend income is recognized on the ex-dividend
date.  The Company accrues interest and dividends on investments when
there is no question as to collectability. When collectability of interest or
dividends is doubtful, the Company places the investment on non-accrual status
and any existing interest or dividend receivable balances are evaluated to
determine if a write off is necessary. Collectability of the interest and
dividends is assessed based on many factors, including the portfolio company’s
ability to service its loan based on current and projected cash flows as well as
the current valuation of the portfolio company’s assets.


15


Payment-in-Kind
Interest and Dividends





The
Company may have investments in its portfolio that contain payment-in-kind
(“PIK”) provisions.   PIK interest or dividends, computed at the
contractual rate specified in each investment agreement, are added to the
principal balance of the investment and recorded as interest or dividend
income.  For investments with PIK interest or dividends, the Company
bases income accruals on the principal balance including any PIK.  If
the portfolio company’s asset valuation is not sufficient to cover the
contractual interest, the Company will not accrue interest income or dividend
income on the investment. To maintain the Company’s RIC status, this non-cash
source of income must be paid out to stockholders in the form of dividends, even
though the Company has not yet collected the cash. For the quarter ended June
30, 2010, PIK interest income was $0.9 million, net of a $0.8 million reserve.
For the quarter ended June 30, 2009, PIK interest income was $0.5 million, with
no reserve adjustment.  No PIK dividend income was recognized during
the quarter ended June 30, 2010 or 2009.





Net
Realized Gains or Losses and Net Change in Unrealized Appreciation or
Depreciation





Realized
gains and losses are measured by the difference between the net proceeds from
the repayment or sale and the amortized cost basis of the investment,
considering unamortized fees and prepayment premiums, and without regard to
unrealized appreciation or depreciation previously recognized, and include
investments charged off during the year, net of recoveries.  Net
unrealized appreciation or depreciation reflects the change in portfolio
investment values during the reporting period including the reversal of
previously recorded unrealized appreciation or depreciation, when capital gains
or losses are realized.





The
Company has decided not to designate commodity derivative instruments as hedging
instruments for financial accounting purposes. Net unrealized appreciation
or depreciation reflects the change in derivative values during the reporting
period including the reversal of previously recorded unrealized appreciation or
depreciation, when settled gains or losses are realized.





Fee
Income Recognition





Fees
primarily include financial advisory, transaction structuring, loan
administration, commitment and prepayment fees. Financial advisory fees
represent amounts received for providing advice and analysis to companies and
are recognized as earned when such services are performed provided collection is
probable.  Transaction structuring fees represent amounts received for
structuring, financing and executing transactions and are generally payable only
if the transaction closes. Such fees are deferred and accreted into interest
income over the life of the loan using the effective interest
method.  Commitment fees represent amounts received for committed
funding and are generally payable whether or not the transaction
closes.  On transactions that close within the commitment period,
commitment fees are deferred and accreted into interest income over the life of
the loan using the effective interest method.  Commitment fees on
transactions that do not close are recognized in the month the commitment period
expires.  Prepayment and loan administration fees are recognized as
they are received.  For the quarters ended June 30, 2010 and 2009, the
Company accreted approximately $0.2 million and $0.5 million of fee income,
respectively, into interest income.





Dividends





Dividends
to stockholders are recorded on the ex-dividend date.  The Company
currently intends that its distributions each year will be sufficient to
maintain the Company’s status as a RIC for federal income tax purposes and to
eliminate excise tax liability.  The Company currently intends to make
distributions to stockholders on a quarterly basis of substantially all net
taxable income.  The Company also intends to make distributions of net
realized capital gains, if any, at least annually.  However, the
Company may in the future decide to retain such capital gains for investment and
designate such retained amount as a deemed distribution.  The amount
to be paid out as a dividend, if any, is determined by the Board of Directors
each quarter and is based on the annual taxable earnings estimated by the
Manager.  Based on that estimate, a dividend is declared each quarter
and paid shortly thereafter.





The
following table summarizes the Company’s recent distribution
history:





Distribution HistoryDeclaration Date
                    
                    Amount
                    
                    Record Date
                    
                    Payment DateMarch
      10, 2009
                    
                    $       0.200
                    
                    March
      31, 2009
                    
                    April
      10, 2009June
      11, 2009
                    
                    $       0.120
                    
                    June
      30, 2009
                    
                    July
      10, 2009September
      10, 2009
                    
                    $       0.150
                    
                    September
      30, 2009
                    
                    October
      9, 2009December
      3, 2009
                    
                    $       0.170
                    
                    December
      31, 2009
                    
                    January
      7, 2010March
      10, 2010
                    
                    $       0.170
                    
                    March
      31, 2010
                    
                    April
      9, 2010June
      15, 2010
                    
                    $       0.170
                    
                    June
      30, 2010
                    
                    July
      9, 2010





16


The
Company has established an “opt out” dividend reinvestment plan for its common
stockholders.  As a result, if the Company declares a dividend, then a
stockholder’s cash dividend will be automatically reinvested in additional
shares of the Company’s common stock unless the stockholder, or his or her
broker, specifically “opts out” of the dividend reinvestment plan and elects to
receive cash dividends. It is customary practice for many brokers to “opt out”
of dividend reinvestment plans on behalf of their clients unless specifically
instructed otherwise.  As of July 9, 2010, the date of the most recent
dividend payment, holders of 2,262,290 shares, or approximately 10.5% of the
21,628,202 outstanding common shares, participated in the Company’s dividend
reinvestment plan.





The
Company’s dividend reinvestment plan provides for the plan agent to purchase
shares in the open market for credit to the accounts of plan participants unless
the average of the closing sales prices for the shares for the five days
immediately preceding the payment date exceeds 110% of the most recently
reported net asset value per share.





The table
below summarizes participation in the Company’s recent dividend reinvestment
plan:





Dividend
Reinvestment Plan Participation





Percentage
      of
                      
                      
                      
                      
                      
                      
                      
                      Common Stock DividendsParticipating
                      
                      
                      Outstanding
                      
                      Total
                      
                      
                      
                      
                      
                      Purchased
      in
                      
                      
                      PurchasedDividend
                      
                      Shares
                      
                      
                      Shares
                      
                      Distribution
                      
                      
                      Cash Dividends
                      
                      
                      Open Market (1)
                      
                      
                      PriceMarch
      2009
                      
                      
                      2,179,204
                      
                      
                      
                      10.1
                      %
                      
                      $
                      4,325,640
                      
                      
                      $
                      3,889,799
                      
                      
                      $
                      435,841
                      
                      
                      $
                      6.4340June
      2009
                      
                      
                      1,889,207
                      
                      
                      
                      8.7
                      %
                      
                      $
                      2,595,384
                      
                      
                      $
                      2,368,679
                      
                      
                      $
                      226,705
                      
                      
                      $
                      5.7848September
      2009
                      
                      
                      2,306,518
                      
                      
                      
                      10.7
                      %
                      
                      $
                      3,244,230
                      
                      
                      $
                      2,898,252
                      
                      
                      $
                      345,978
                      
                      
                      $
                      7.6243December
      2009
                      
                      
                      2,372,306
                      
                      
                      
                      11.0
                      %
                      
                      $
                      3,676,794
                      
                      
                      $
                      3,273,502
                      
                      
                      $
                      403,292
                      
                      
                      $
                      8.8884March
      2010
                      
                      
                      2,343,298
                      
                      
                      
                      10.8
                      %
                      
                      $
                      3,676,794
                      
                      
                      $
                      3,278,433
                      
                      
                      $
                      398,361
                      
                      
                      $
                      7.7955June
      2010
                      
                      
                      2,262,290
                      
                      
                      
                      10.5
                      %
                      
                      $
                      3,676,794
                      
                      
                      $
                      3,292,205
                      
                      
                      $
                      384,589
                      
                      
                      $
                      7.7944





(1)  Shares
are purchased or issued in the following month.





Income
Taxes





We
currently qualify as a RIC for federal income tax purposes, which generally
allows us to avoid paying corporate income taxes on income or gains that we
distribute to our stockholders. We have distributed and intend to distribute
sufficient dividends to eliminate taxable income. We may also be subject to
federal excise tax if we do not distribute at least 98% of our investment
company taxable income in any calendar year and 98% of our capital gains in any
calendar year. Dividends to stockholders are recorded on the ex-dividend
date.  The Company currently intends that its distributions each year
will be sufficient to maintain the Company’s status as a RIC for federal income
tax purposes and to eliminate excise tax liability.





Certain
of our wholly owned subsidiaries have elected to be taxed as a corporation for
federal income tax purposes. Each of these subsidiaries may hold one or more
portfolio investments listed on our Consolidated Schedule of Investments. These
taxable subsidiaries allow us to hold portfolio companies organized as LLCs or
other forms of pass-through entities and still satisfy the RIC tax requirement
that at least 90% of our gross revenue for income tax purposes must consist of
investment income. The income of the LLCs or other pass-through entities owned
by our taxable subsidiaries is taxed to the subsidiary only and does not flow
through to the RIC. We do not consolidate the taxable subsidiaries for income
tax purposes. We do consolidate the results of our taxable subsidiaries for
financial reporting purposes and therefore our Consolidated Statements of
Operations reflects any income tax expense of those
subsidiaries.


17





Note 3:
            Credit Facilities and
      Borrowings





Under the
terms of the Company’s Amended and Restated Revolving Credit Agreement (as
amended, the “Investment Facility”), the lenders have agreed to extend revolving
credit to the Company in an amount not to exceed $67.5 million, with the ability
to increase the credit available to an amount not to exceed $107.5 million by
obtaining additional commitments from existing lenders or new lenders. The
total amount committed was $67.5 million and the amount outstanding was $60.0
million under the Investment Facility as of June 30, 2010.  By
comparison, the total amount committed as of June 30, 2009 was $87.5 million and
the amount outstanding was $15.0 million under the Investment
Facility.  The Investment Facility matures on August 31, 2012, and
bears interest, at the Company’s option, at either (i) LIBOR plus 425 to 575
basis points, based on the degree of leverage of the Company or (ii) the base
rate plus 325 to 475 basis points, based on the degree of leverage of the
Company.  Proceeds from the Investment Facility will be used to
supplement the Company’s equity capital to make portfolio
investments.  As of June 30, 2010, the interest rate was 7.0% on $60.0
million (Prime plus 375 basis points).





In
February 2010, the Company had a letter of credit of $2.594 million issued under
the Investment Facility with respect to its investment in Alden Resources, LLC
(“Alden”). As of June 30, 2010, the letter of credit balance was $1.845 million
but was not drawn. The letter of credit balance was $2.296 million on July 8,
2010 but was not drawn.





As of
June 30, 2010, the amount available under the Investment Facility was $5.66
million.  The Company repaid the entire $60.0 million balance in July
2010.





The
obligations under the Investment Facility are collateralized by substantially
all of the Company’s assets and are guaranteed by the Company’s existing and
future subsidiaries, other than special purpose subsidiaries and certain other
subsidiaries.  The Investment Facility contains affirmative and
reporting covenants and certain financial ratio and restrictive covenants,
including: (a) maintaining a ratio of net asset value to consolidated total
indebtedness (excluding net hedging liabilities) of the Company and its
subsidiaries, of not less than 2.25:1.0, (b) maintaining a ratio of net asset
value to consolidated total indebtedness (including net hedging liabilities) of
the Company and its subsidiaries, of not less than 2.0:1.0, (c) maintaining a
ratio of EBITDA to interest expense of the Company and its subsidiaries of not
less than 3.0:1.0, (d) limitations on additional indebtedness, (e) limitations
on liens, (f) limitations on mergers and other fundamental changes, (g)
limitations on dividends, (h) limitations on disposition of assets other than in
the normal course of business, (i) limitations on transactions with affiliates,
(j) limitations on agreements that prohibit liens on properties of the Company
and its subsidiary guarantors, (k) limitations on sale and leaseback
transactions, (l) limitations on speculative hedging transactions and (m)
limitations on the aggregate amount of unfunded commitments. From time to time,
certain of the lenders may provide customary commercial and investment banking
services to the Company.





In
addition to the Company’s Investment Facility, the Company may also fund a
portion of its investments with issuances of equity or senior debt
securities.  The Company may also securitize a portion of its
investments in mezzanine or senior secured loans or other assets.  The
Company expects its primary use of funds to be investments in portfolio
companies, cash distributions to holders of its common stock and payment of fees
and other operating expenses.





Note 4:
            Investment
      Management





Investment
Advisory Agreement





The
Company has entered into an investment advisory agreement with the Manager under
which the Manager, subject to the overall supervision of the Company’s Board of
Directors, manages the day-to-day operations of, and provides investment
advisory services to, the Company.





For
providing these services, the Manager receives a fee from the Company,
consisting of two components — a base management fee and an incentive
fee.





Base Management
Fee:  Under the investment advisory agreement, the base
management fee is calculated quarterly as 0.45% of the average of total assets
of the Company as of the end of the two previous quarters, and is payable
quarterly in arrears.  The Manager has agreed to waive permanently,
subsequent to September 30, 2007, that portion of the management fee
attributable to U.S. Treasury securities acquired with borrowings under the
Company’s credit facilities to the extent the amount of such securities exceeds
$100 million.





The
entire amount of the $1,423,830 management and incentive fees payable to the
Manager as of June 30, 2010 consists of the base management fee for the quarter
ended June 30, 2010.


18


Incentive Fee:  The
incentive fee under the investment advisory agreement consists of two
parts.





The first
part, which is calculated and payable quarterly in arrears, equals 20% of the
excess, if any, of the Company’s net investment income for the quarter that
exceeds a quarterly hurdle rate equal to 2% (8% annualized) of the Company’s net
assets.





For this
purpose, net investment income means interest income, dividend 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 the Company receives from portfolio
companies) accrued during the fiscal quarter, minus the Company’s operating
expenses for the quarter (including the base management fee, expenses payable
under the administration agreement, any interest expense and dividends paid on
issued and outstanding preferred stock, if any, but excluding the incentive
fee).   Accordingly, the Company 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, debt
instruments with payment-in-kind interest and zero coupon securities), accrued
income that the Company has not yet received in cash.  Net investment
income does not include any realized capital gains, realized capital losses, or
unrealized capital appreciation or depreciation.





The
incentive fees due in any fiscal quarter will be calculated as
follows:





·
            No
      incentive fee in any fiscal quarter in which the Company’s net investment
      income does not exceed the hurdle rate.·
            20%
      of the amount of the Company’s net investment income, if any, that exceeds
      the hurdle rate in any fiscal
quarter.





There
were no investment income incentive fees earned for the second quarters of 2010
and 2009.





The
second part of the incentive fee (the “Capital Gains Fee”) is determined and
payable in arrears as of the end of each fiscal year (or upon termination of the
investment advisory agreement, as of the termination date) and equals (1) 20% of
(a) the Company’s net realized capital gain (realized capital gains less
realized capital losses) on a cumulative basis from the closing date of the
Company’s 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 the Manager in prior fiscal
years. No capital gains incentive fees were paid for the second quarters of
2010 and 2009.





Realized
capital gains on a security are calculated as the excess of the net amount
realized from the sale or other disposition of such security over the amortized
cost for the security.  Realized capital losses on a security are
calculated as the amount by which the net amount realized from the sale or other
disposition of such security is less than the amortized cost of such
security.  Unrealized capital depreciation on a security is calculated
as the amount by which the original cost of such security exceeds the fair value
of such security at the end of a fiscal year. All period-end valuations are
determined by the Company in accordance with GAAP and the 1940 Act.





The investment advisory agreement was originally approved by the Company’s Board
of Directors on November 9, 2004.  The investment advisory agreement
provides that unless terminated earlier as described below, the agreement shall
remain in effect from year-to-year after November 9, 2006, provided continuation
is approved at least annually by the Board of Directors or by the affirmative
vote of the holders of a majority of the Company’s outstanding voting
securities, including, in either case, approval by a majority of the Company’s
directors who are not interested persons.  On November 3, 2009, the
Company’s Board of Directors, including all of the independent directors,
approved an extension of the investment advisory agreement through November 9,
2010.





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





The
investment advisory agreement provides that, absent willful misfeasance, bad
faith or gross negligence in the performance of its duties or the reckless
disregard of its duties and obligations, the Manager and its officers, manager,
agents, employees, controlling persons, members and any other person or entity
affiliated with it are entitled to indemnification from the Company for any
damages, liabilities, costs and expenses (including reasonable attorneys’ fees
and amounts reasonably paid in settlement) arising from the rendering of the
Manager’s services under the investment advisory agreement or otherwise as the
Company’s Manager.


19


Pursuant
to the investment advisory agreement the compensation and routine overhead
expenses of the investment professionals of the Company’s management team and
their respective staffs, when and to the extent engaged in providing management
and investment advisory services to the Company, will be paid for by the
Manager.  The Company will bear all other costs and expenses of our
operations and transactions.





The
Manager, NGP Investment Advisor, LP, was formed in 2004 and maintains an office
at 1221 McKinney Street, Suite 2975, Houston, Texas 77010.  The
Manager’s sole activity is to perform management and investment advisory
services for the Company.  The Manager is a registered investment
adviser under the Investment Advisers Act of 1940.





Administration Agreement





The
Company has entered into an administration agreement with the Administrator,
under which the Administrator furnishes the Company with office facilities,
equipment and clerical, bookkeeping and record keeping services at such
facilities.  Under the administration agreement, the Administrator
also performs, or oversees the performance by third parties of, the Company’s
required administrative services, which include being responsible for the
financial records that the Company is required to maintain and preparing reports
to the Company’s stockholders and reports filed with the SEC.  In
addition, the Administrator assists in determining and publishing the Company’s
net asset value, oversees the preparation and filing of the Company’s tax
returns and the printing and dissemination of reports to the Company’s
stockholders and generally oversees the payment of the Company’s expenses and
the performance of administrative and professional services rendered to the
Company by others.  To the extent permitted under the 1940 Act, the
Administrator may also provide on the Company’s behalf, significant managerial
assistance to the Company’s portfolio companies.  Payments under the
agreement are equal to amounts based upon the allocable portion of the
Administrator’s costs and expenses incurred in connection with administering the
Company’s business.  The Administrator bills the Company for charges
under the administration agreement monthly in arrears.  The agreement
may be terminated by either party without penalty 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).





Of the
$713,571 in accounts payable and accrued expenses as of June 30, 2010, $280,792
was due to the Administrator for expenses incurred on the Company’s behalf for
the month of June 2010.  By comparison, $194,273 was due to the
Administrator for expenses incurred on the Company’s behalf for the month of
June 2009.





The
administration agreement was originally approved by the Company’s Board of
Directors on November 9, 2004.  The administration agreement provides
that unless terminated earlier, the agreement will continue in effect until
November 9, 2006, and from year-to-year thereafter provided such
continuance is approved at least annually by (i) the Company’s Board of
Directors and (ii) a majority of the Company’s directors who are not
parties to the administration agreement or “interested persons” of any such
party.  On November 3, 2009, the Company’s Board of Directors,
including all of the independent directors, approved the continuation of the
administration agreement through November 9, 2010.


20





Note 5:
            Federal Income
      Taxes





The
Company intends to qualify for tax purposes as a RIC under Subchapter M of
Chapter 1 of the Code, as amended.  As a RIC, the Company generally
will not be subject to federal income tax on the portion of its 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, the Company is required, among
other things, to distribute to its stockholders at least 90% of investment
company taxable income, as defined by the Code, and to meet certain asset
diversification requirements.





For the
five years ended December 31, 2009, the Company met all RIC requirements. The
Company distributed substantially all of its investment company taxable income
for these years.  Thus, the Company did not incur any federal income
tax liability for any of these periods.





When a
“C” corporation qualifies to be taxed as a RIC, it is subject to corporate-level
tax on appreciation inherent in its assets on the date it becomes a RIC (i.e.,
built-in gain) that it recognizes within the first 10 years of its RIC status. A
RIC generally may use loss carryforwards arising in taxable years while it was a
“C” corporation to reduce its net recognized built-in gain, although a RIC is
not otherwise allowed to utilize such loss carryforwards. Because the Company
intends to qualify as a RIC under Subchapter M of the Code for 2005 and later
years, it is uncertain whether the Company will fully utilize the tax benefit of
its loss carryforward.





Certain
of our wholly owned subsidiaries have elected to be taxed as a corporation for
federal income tax purposes. The following Company consolidated subsidiaries are
taxable entities: NGPC Asset Holdings, LP, NGPC Asset Holdings II, LP, NGPC
Asset Holdings III, LP, NGPC Asset Holdings V, LP and NGPC Asset Holdings VI,
LP, collectively NGPCAH.





The
difference between the effective income tax rate of 0.79% and the statutory
federal tax rate of 34% for the six months ended June 30, 2010 is primarily
attributable to RIC investment company taxable income that generally will not be
subject to federal income tax.





The
difference between the effective income tax rate of 0.49% and the statutory
federal tax rate of 34% for the three months ended June 30, 2010 is attributable
to RIC investment company taxable income that generally will not be subject to
federal income tax.




Note 6:
            Commitments and
      Contingencies





As of
June 30, 2010, the Company had investments in or commitments to fund investments
to fifteen portfolio companies totaling $242.5 million, of which $237.1 million
was outstanding and $5.4 million remained available.  In addition, the
Company has continuing obligations under the investment advisory agreement with
the Manager and the administration agreement with the
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, the Manager, the
Administrator and its officers, managers, agents, employees, controlling
persons, members and any other person or entity affiliated with them will be
entitled to indemnification from the Company for any damages, liabilities, costs
and expenses (including reasonable attorneys’ fees and amounts reasonably paid
in settlement) arising from the rendering of the Manager’s or Administrator’s
services under the agreements or otherwise as the Company’s investment adviser
or administrator. The agreements also provide that the Manager, the
Administrator and their affiliates will not be liable to the Company or any
stockholder for any error of judgment, mistake of law, any loss or damage with
respect to any of the Company’s investments or any action taken or omitted to be
taken by the Manager or the Administrator in connection with the performance of
any of their duties or obligations under the agreements or otherwise as
investment adviser or administrator to the Company, 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, the Company enters into a variety of
undertakings containing a variety of representations that may expose the Company
to some risk of loss.  The amount of future loss, if any arising from
such undertakings, while not quantifiable, is not expected to be
significant.


21





Note
      7:
            Reclassifications





GAAP
requires adjustments to certain components of net assets to reflect permanent
differences between financial and tax reporting. These reclassifications have no
effect on total net assets or net asset value per share. The table below
summarizes the reclassifications from undistributed net investment income
(loss), undistributed net realized capital gain (loss), and paid-in capital in
excess of par for the year ended December 31, 2009. These reclassifications are
primarily due to operating losses, return of capital distributions,
reclassification of the distribution of dividends paid, non-deductible meal
expenses, non-deductible excise taxes, income and expenses from wholly owned
subsidiaries and the $13.9 million write-off of the Company’s investment in
Nighthawk.




Year
                
                Undistributed Net
                  Investment
                  Income(Loss)
                
                
                Undistributed
                  NetRealized
                  Capital Gain(Loss)
                
                
                Paid-inCapital
                  inExcess ofPar2009
                
                $
                2,293,828
                
                
                $
                12,180,142
                
                
                $
                (14,473,970
                )








Note
      8:
            Investments
      and Fair Value





Investments
consisted of the following as of June 30, 2010 and December 31,
2009:








Investments,
      Cash and Cash EquivalentsJune 30, 2010Cost
                    
                    
                    % of total
                    
                    
                    Fair Value
                    
                    
                    % of totalLong
      term investmentsSenior
      secured debt
                    
                    $
                    162,127,492
                    
                    
                    
                    46.0
                    %
                    
                    $
                    128,847,176
                    
                    
                    
                    42.6
                    %Royalty
      interests
                    
                    
                    2,732,276
                    
                    
                    
                    0.8
                    %
                    
                    
                    7,330,000
                    
                    
                    
                    2.4
                    %Limited
      term royalties
                    
                    
                    12,930,315
                    
                    
                    
                    3.7
                    %
                    
                    
                    12,548,457
                    
                    
                    
                    4.1
                    %Net
      profits interests
                    
                    
                    9,998,287
                    
                    
                    
                    2.8
                    %
                    
                    
                    10,298,287
                    
                    
                    
                    3.4
                    %Membership
      and partnership units
                    
                    
                    39,536,569
                    
                    
                    
                    11.2
                    %
                    
                    
                    23,815,526
                    
                    
                    
                    7.9
                    %Participating
      preferred stock
                    
                    
                    4,311,580
                    
                    
                    
                    1.2
                    %
                    
                    
                    750,000
                    
                    
                    
                    0.3
                    %Common
      stock
                    
                    
                    3,235,256
                    
                    
                    
                    0.9
                    %
                    
                    
                    3,897,543
                    
                    
                    
                    1.3
                    %Warrants
                    
                    
                    594,004
                    
                    
                    
                    0.2
                    %
                    
                    
                    94,004
                    
                    
                    
                    0.0
                    %Total
      long term investments
                    
                    $
                    235,465,779
                    
                    
                    
                    66.8
                    %
                    
                    $
                    187,580,993
                    
                    
                    
                    62.0
                    %Corporate
      notes
                    
                    
                    11,514,860
                    
                    
                    
                    3.3
                    %
                    
                    
                    9,555,858
                    
                    
                    
                    3.2
                    %Total
      Investments
                    
                    $
                    246,980,639
                    
                    
                    
                    70.1
                    %
                    
                    $
                    197,136,851
                    
                    
                    
                    65.2
                    %Cash
      and cash equivalents
                    
                    
                    105,350,492
                    
                    
                    
                    29.9
                    %
                    
                    
                    105,350,492
                    
                    
                    
                    34.8
                    %Total
      investments, cashand
      cash equivalents
                    
                    $
                    352,331,131
                    
                    
                    
                    100.0
                    %
                    
                    $
                    302,487,343
                    
                    
                    
                    100.0
                    %





22





Investments,
      Cash and Cash EquivalentsDecember 31, 2009Cost
                    
                    
                    % of total
                    
                    
                    Fair Value
                    
                    
                    % of totalLong
      term investmentsSenior
      secured debt
                    
                    $
                    160,357,352
                    
                    
                    
                    44.3
                    %
                    
                    $
                    127,077,036
                    
                    
                    
                    41.2
                    %Royalty
      interests
                    
                    
                    2,781,479
                    
                    
                    
                    0.8
                    %
                    
                    
                    7,330,000
                    
                    
                    
                    2.4
                    %Limited
      term royalties
                    
                    
                    24,271,385
                    
                    
                    
                    6.7
                    %
                    
                    
                    20,577,744
                    
                    
                    
                    6.7
                    %Net
      profits interests
                    
                    
                    10,662,801
                    
                    
                    
                    2.9
                    %
                    
                    
                    11,012,799
                    
                    
                    
                    3.6
                    %Membership
      and partnership units
                    
                    
                    35,936,569
                    
                    
                    
                    9.9
                    %
                    
                    
                    20,315,526
                    
                    
                    
                    6.6
                    %Participating
      preferred stock
                    
                    
                    4,311,580
                    
                    
                    
                    1.2
                    %
                    
                    
                    500,000
                    
                    
                    
                    0.2
                    %Common
      stock
                    
                    
                    3,235,256
                    
                    
                    
                    0.9
                    %
                    
                    
                    4,086,834
                    
                    
                    
                    1.3
                    %Warrants
                    
                    
                    594,004
                    
                    
                    
                    0.2
                    %
                    
                    
                    94,004
                    
                    
                    
                    0.0
                    %Total
      long term investments
                    
                    $
                    242,150,426
                    
                    
                    
                    66.9
                    %
                    
                    $
                    190,993,943
                    
                    
                    
                    62.0
                    %Corporate
      notes
                    
                    
                    11,539,564
                    
                    
                    
                    3.2
                    %
                    
                    
                    9,062,200
                    
                    
                    
                    2.9
                    %Crude
      oil put options
                    
                    
                    30,100
                    
                    
                    
                    0.0
                    %
                    
                    
                    49,000
                    
                    
                    
                    0.0
                    %Total
      Investments
                    
                    $
                    253,720,090
                    
                    
                    
                    70.1
                    %
                    
                    $
                    200,105,143
                    
                    
                    
                    64.9
                    %Cash
      and cash equivalents
                    
                    
                    108,288,217
                    
                    
                    
                    29.9
                    %
                    
                    
                    108,288,217
                    
                    
                    
                    35.1
                    %Total
      investments, cashand
      cash equivalents
                    
                    $
                    362,008,307
                    
                    
                    
                    100.0
                    %
                    
                    $
                    308,393,360
                    
                    
                    
                    100.0
                    %








The
following three broad categories comprise the hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value:




•
            Level 1
       — Quoted unadjusted prices for identical instruments in active
      markets to which the Company has access at the date of
      measurement.





•
            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 the Company’s own assumptions that market
      participants would use to price the asset or liability based on the best
      available information.





23





The
following tables sets forth by level within the fair value hierarchy the
Company’s financial assets that were accounted for at fair value on a recurring
basis as of June 30, 2010 and December 31, 2009. Fair value accounting
classifies financial assets and liabilities in their entirety based on the
lowest level of input that is significant to the fair value measurement. The
Company’s assessment of the significance of a particular input to the fair value
measurement requires judgment, and may affect the valuation of fair value assets
and liabilities and their placement within the fair value hierarchy
levels.   The Company did not have any liabilities that were
measured at fair value on a recurring basis at June 30, 2010 or December 31,
2009.





Fair Value Measurements as of June 30,
      2010Assets at Fair Value
                                          
                                          Total
                                          
                                          
                                          Quoted
      Prices
                                            in
      Active
                                            Markets
                                            (Level 1)
                                          
                                          
                                          Prices
      with
                                            Observable
                                            Market
                                            Inputs
                                            (Level 2)
                                          
                                          
                                          Unobservable
                                            Inputs
                                            (Level 3)Long
      Term InvestmentsControl
      investmentsSenior
      secured debt
                                          
                                          $
                                          49,065,176
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          49,065,176Royalty
      interests
                                          
                                          
                                          5,830,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          5,830,000Preferred
      units
                                          
                                          
                                          22,100,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          22,100,000Total
      control investments
                                          
                                          
                                          76,995,176
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          76,995,176Affiliate
      investmentsSenior
      secured debt
                                          
                                          
                                          27,947,444
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          27,947,444EquityCommon
      stock
                                          
                                          
                                          3,897,543
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          3,897,543Preferred
      units
                                          
                                          
                                          1,715,526
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,715,526Warrants
                                          
                                          
                                          84,004
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          84,004Sub-total
      equity
                                          
                                          
                                          5,697,073
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          5,697,073Total
      affiliate investments
                                          
                                          
                                          33,644,517
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          33,644,517Non-affiliate
      investmentsSenior
      secured debt
                                          
                                          
                                          51,834,556
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          51,834,556Royalty
      interests
                                          
                                          
                                          1,500,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,500,000Limited
      term royalties
                                          
                                          
                                          12,548,457
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          12,548,457Net
      profits interests
                                          
                                          
                                          10,298,287
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          10,298,287EquityParticipating
      preferred stock
                                          
                                          
                                          750,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          750,000Warrants
                                          
                                          
                                          10,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          10,000Sub-total
      equity
                                          
                                          
                                          760,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          760,000Total
      non-affiliate investments
                                          
                                          
                                          76,941,300
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          76,941,300Corporate
      notes
                                          
                                          
                                          9,555,858
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          9,555,858
                                          
                                          
                                          
                                          -Total
      assets at fair value
                                          
                                          $
                                          197,136,851
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          9,555,858
                                          
                                          
                                          $
                                          187,580,993





24





Fair Value Measurements as of December 31,
      2009Assets at Fair Value
                                                      
                                                      Total
                                                      
                                                      
                                                      Quoted
      Prices
                                                        in
      Active
                                                        Markets
                                                        (Level 1)
                                                      
                                                      
                                                      Prices
      with
                                                        Observable
                                                        Market
                                                        Inputs
                                                        (Level 2)
                                                      
                                                      
                                                      Unobservable
                                                        Inputs
                                                        (Level 3)Long
      Term InvestmentsControl
      investmentsSenior
      secured debt
                                                      
                                                      $
                                                      48,019,620
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      48,019,620Royalty
      interests
                                                      
                                                      
                                                      5,830,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      5,830,000Preferred
      units
                                                      
                                                      
                                                      18,600,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      18,600,000Total
      control investments
                                                      
                                                      
                                                      72,449,620
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      72,449,620Affiliate
      investmentsSenior
      secured debt
                                                      
                                                      
                                                      25,692,581
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      25,692,581EquityCommon
      stock
                                                      
                                                      
                                                      4,086,834
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      4,086,834Preferred
      units
                                                      
                                                      
                                                      1,715,526
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,715,526Warrants
                                                      
                                                      
                                                      84,004
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      84,004Sub-total
      equity
                                                      
                                                      
                                                      5,886,364
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      5,886,364Total
      affiliate investments
                                                      
                                                      
                                                      31,578,945
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      31,578,945Non-affiliate
      investmentsSenior
      secured debt
                                                      
                                                      
                                                      53,364,835
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      53,364,835Royalty
      interests
                                                      
                                                      
                                                      1,500,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,500,000Limited
      term royalties
                                                      
                                                      
                                                      20,577,744
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      20,577,744Net
      profits interests
                                                      
                                                      
                                                      11,012,799
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      11,012,799EquityParticipating
      preferred stock
                                                      
                                                      
                                                      500,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      500,000Warrants
                                                      
                                                      
                                                      10,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      10,000Sub-total
      equity
                                                      
                                                      
                                                      510,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      510,000Total
      non-affiliate investments
                                                      
                                                      
                                                      86,965,378
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      86,965,378Corporate
      notes
                                                      
                                                      
                                                      9,062,200
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      9,062,200Crude
      oil put options
                                                      
                                                      
                                                      49,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      49,000Total
      assets at fair value
                                                      
                                                      $
                                                      200,105,143
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      200,105,143


25





The
following tables present roll-forwards of the changes in the fair value during
the three and six-month periods ended June 30, 2010 for all investments for
which the Company determines fair value using unobservable (Level 3) factors.
During the three and six-month periods ended June 30, 2010, none of the
investments in portfolio companies changed between the categories of Control
Investments – Majority Owned, Affiliate Investments and Non-Affiliate
Investments. During the three and six-month periods ended June 30, 2010,
investments in corporate notes were transferred from Level 3 to Level 2 due to
change in observability of significant inputs.








Assets at Fair Value Using Unobservable Inputs
      (Level 3)Control
                  
                  
                  Affiliate
                  
                  
                  Non-affiliate
                  
                  
                  Corporate
                  
                  
                  TotalInvestments
                  
                  
                  Investments
                  
                  
                  Investments
                  
                  
                  Notes
                  
                  
                  InvestmentsBalance
      as of March 31, 2010
                  
                  $
                  75,435,448
                  
                  
                  $
                  34,346,136
                  
                  
                  $
                  83,256,296
                  
                  
                  $
                  9,416,400
                  
                  
                  $
                  202,454,280Transfers
      in (out) of Level 3
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (9,062,200
                  )
                  
                  
                  (9,062,200
                  )Net
      amortization of premiums, discounts and fees
                  
                  
                  125,511
                  
                  
                  
                  58,891
                  
                  
                  
                  (4,059,893
                  )
                  
                  
                  12,323
                  
                  
                  
                  (3,863,168
                  )Net
      unrealized gains (losses)
                  
                  
                  (93,176
                  )
                  
                  
                  (748,010
                  )
                  
                  
                  1,581,297
                  
                  
                  
                  (366,523
                  )
                  
                  
                  373,588Purchases
                  
                  
                  673,218
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  673,218Payment-in-kind
                  
                  
                  854,175
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  854,175Sales
      and repayments
                  
                  
                  -
                  
                  
                  
                  (12,500
                  )
                  
                  
                  (3,836,400
                  )
                  
                  
                  -
                  
                  
                  
                  (3,848,900
                  )Balance
      as of June 30, 2010
                  
                  $
                  76,995,176
                  
                  
                  $
                  33,644,517
                  
                  
                  $
                  76,941,300
                  
                  
                  $
                  -
                  
                  
                  $
                  187,580,993














Assets at Fair Value Using Unobservable Inputs
      (Level 3)Control
                  
                  
                  Affiliate
                  
                  
                  Non-affiliate
                  
                  
                  Corporate
                  
                  
                  Commodity
                    Derivative
                  
                  
                  TotalInvestments
                  
                  
                  Investments
                  
                  
                  Investments
                  
                  
                  Notes
                  
                  
                  Instruments
                  
                  
                  InvestmentsBalance
      as of December 31, 2009
                  
                  $
                  72,449,620
                  
                  
                  $
                  31,578,945
                  
                  
                  $
                  86,965,378
                  
                  
                  $
                  9,062,200
                  
                  
                  $
                  49,000
                  
                  
                  $
                  200,105,143Transfers
      in (out) of Level 3
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (9,062,200
                  )
                  
                  
                  -
                  
                  
                  
                  (9,062,200
                  )Net
      amortization of premiums, discounts and fees
                  
                  
                  244,897
                  
                  
                  
                  114,924
                  
                  
                  
                  (7,191,420
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (6,831,599
                  )Net
      unrealized gains (losses)
                  
                  
                  (86,675
                  )
                  
                  
                  (189,291
                  )
                  
                  
                  3,547,663
                  
                  
                  
                  -
                  
                  
                  
                  (18,900
                  )
                  
                  
                  3,252,797Purchases
                  
                  
                  2,719,389
                  
                  
                  
                  1,247,220
                  
                  
                  
                  1,194
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,967,803Payment-in-kind
                  
                  
                  1,667,945
                  
                  
                  
                  917,719
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,585,664Sales
      and repayments
                  
                  
                  -
                  
                  
                  
                  (25,000
                  )
                  
                  
                  (6,381,515
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (6,406,515
                  )Settlements
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (30,100
                  )
                  
                  
                  (30,100
                  )Balance
      as of June 30, 2010
                  
                  $
                  76,995,176
                  
                  
                  $
                  33,644,517
                  
                  
                  $
                  76,941,300
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  187,580,993





26




Note
      9:
            Commodity
      Derivative Instruments





The
Company may periodically enter into commodity derivative instruments to manage
our exposure to commodity price fluctuations. The Company uses all of its
derivatives for risk management purposes and does not hold any amounts for
speculative or trading purposes. These contracts generally consist of options
contracts on underlying commodities.  Investments in derivative
instruments represent future commitments or options to purchase or sell other
financial instruments or commodities at specific prices on specified future
dates, which expose the Company to market risk if the market value of the
contract is higher or lower than the contract price at the maturity date.
Additionally, these derivative instruments expose the Company to credit risk
arising from the potential inability of counterparties to perform under the
terms of the contracts.





The
Company acquired a limited term royalty interest from ATP Oil & Gas
Corporation and received royalty payments from this investment based on crude
oil and natural gas production and prices. As a result, the Company was exposed
to fluctuations in crude oil and natural gas prices. As of June 4, 2008, the
Company had entered into option contracts to manage the price risk associated
with these royalty payments. The Company decided not to designate these
instruments as hedging instruments for financial accounting purposes. We
recognized the change in the instruments’ fair value currently on the
Consolidated Statements of Operations as net increase (decrease) in unrealized
appreciation (depreciation) on portfolio securities, corporate notes and
commodity derivative instruments.  The realized gains (losses) on
commodity derivatives consist of revenues received on favorable expired options
less the cost of all expired positions, and we recognized these gains in
investment income.





All of
the Company’s commodity derivative instruments were expired as of January 31,
2010.





The
components of gains (losses) on commodity derivative instruments are as
follows:




For
      the Six Months EndedJune 30, 2010
                
                
                June 30, 2009Unrealized
      losses on commodity derivatives
                
                $
                (18,900
                )
                
                $
                (6,307,927
                )Realized
      gains on commodity derivatives
                
                
                16,079
                
                
                
                5,054,081Net
      losses on commodity derivative instruments
                
                $
                (2,821
                )
                
                $
                (1,253,846
                )











Note
    10:
            Recent Accounting
      Pronouncements





In
January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and
Disclosures, which amends ASC 820 and requires additional disclosure
related to recurring and non-recurring fair value measurements in respect to
transfers in and out of Levels 1 and 2 and activity in Level 3 fair value
measurements. The update also clarifies existing disclosure requirements related
to activity in Level 3 fair value measurements, which are effective for fiscal
years beginning after December 15, 2010 and for interim periods within those
fiscal years. The Company adopted the new guidance in its Annual Report on Form
10-K for the year ended December 31, 2009.


27




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





The
following analysis of our financial condition and results of operations should
be read in conjunction with management’s discussion and analysis contained in
our 2009 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;·
            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;·
            the
      future operating results of our portfolio companies and their ability to
      achieve their objectives;·
            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
SEC.





We may
use words such as “anticipates,” “believes,” “expects,” “intends,” “will,”
“should,” “may” and similar expressions to identify forward-looking
statements.  Such statements are based on currently available
operating, financial and competitive information and are subject to various
risks and uncertainties that could cause actual results to differ materially
from our historical experience and present expectations.  Undue
reliance should not be placed on such forward-looking statements, as such
statements speak only as of the date on which they are
made.  Additional information regarding these and other risks and
uncertainties is contained in our periodic filings with the SEC.





Overview





We are a
financial services company created to invest primarily in debt securities of
small and mid-size private energy companies.  We have elected to be
regulated as a BDC under 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 RIC under the Code.  Pursuant to these
elections, we generally will not have to pay corporate-level taxes on any income
and capital gains we distribute to our stockholders.  The Company has
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 the Company in accordance
with specific rules prescribed for a company operating as a RIC.  The
Company consolidates the results of its subsidiaries for financial reporting
purposes. The Company does not consolidate the financial results of its
portfolio companies.





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 targeted 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, electricity, energy services and alternative
energy.  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 targeted
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 on a stand-alone
basis.


28


We
generate revenue in the form of interest income on the debt securities that we
own, dividend income on any common or preferred stock that we own and capital
gains or losses on any 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 in-kind 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.  Any such fees generated in connection with our
investments are recognized as earned.





Our level
of investment activity can and does vary substantially from period to period
depending on many factors, including 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, both through issuance
of debt and equity securities, to fund our investments.  We believe
that the recent dislocation in the credit markets and decline in energy
commodity prices should favorably impact the competitive environment, in that it
is reducing the debt capital available to energy companies from other
sources. Though the same macro economic factors also make our access to new
debt and equity capital less certain, in October 2009, we extended the maturity
date of our Investment Facility to August 2012. While we currently have
capital available to invest, it is not unlimited.  We remain committed
to our underwriting and investment disciplines in selectively investing in
appropriate risk-reward opportunities within the energy sector.





Accounting
Policies





Our
discussion and analysis of our financial condition and results of operations are
based upon our financial statements, which have been prepared in accordance with
GAAP.  The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses.  Changes in the economic
environment, financial markets and any other parameters used in determining such
estimates could cause actual results to differ materially.  In
addition to the discussion below, our significant accounting policies are
further described in Note 2 of our consolidated financial statements included in
this Quarterly Report on Form 10-Q.





Valuation
of Investments





Investments
are carried at fair value, as determined in good faith by the Company’s Board of
Directors.  On a quarterly basis, the investment team of the Manager
prepares valuations for all of the assets in the Company’s portfolio and
presents the valuations to the Company’s Valuation Committee and Board of
Directors.  The valuations are determined and recommended by the Valuation
Committee to the Board of Directors, which reviews and ratifies the final
portfolio valuations.





Investments
in securities for which market quotations are readily available are recorded in
the financial statements at such market quotations 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 the Manager prepares valuation analyses.





Using the
most recently available financial statements, forecasts and, when applicable,
comparable transaction data, the investment team of the Manager prepares
valuation analyses for the various securities in the Company’s investment
portfolio.  These valuation analyses are prepared using traditional
valuation methodologies, which rely on estimates of the asset values and
enterprise values of portfolio companies issuing securities, as well as
estimated current market values for comparable securities.


29


The
following three broad categories comprise the hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value:




·
            Level 1
      — Quoted unadjusted prices for identical instruments in active
      markets to which the Company has access at the date of
      measurement.





·
            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 the Company’s 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 fair value
measurement. The Company’s assessment of the significance of a particular input
to the fair value measurement requires judgment, and may affect the valuation of
fair value assets and liabilities and their placement within the fair value
hierarchy levels. The Company estimates the fair value of the crude oil and
natural gas options using a combined income and market based valuation
methodology based upon forward commodity price and volatility curves.
Independent pricing services provide the curves which reflect broker market
quotes.





Portfolio
and Investment Activity





In
April 2010, the Company and Tammany Oil & Gas, LLC (“Tammany”) agreed to
further amend the Company’s credit agreement with Tammany.  Under the
amended terms, the Company extended the maturity of the Tammany credit agreement
from April 21, 2010 to September 21, 2010.  The Company had previously
amended the Tammany credit agreement to extend the maturity from March 21, 2010
to April 21, 2010.





In total
for the quarter ended June 30, 2010, investments in existing portfolio companies
decreased by a net amount of $5.6 million.  No investments expired,
and we did not add any new companies to our portfolio during the second quarter
of 2010.





Following
these transactions our investment portfolio consisted of fifteen portfolio
companies and was invested as follows based on their fair values as of June 30,
2010: 45.0% in senior secured term loans, 0.3% in participating convertible
preferred stock, 1.3% in common stock, 3.2% in corporate notes, 7.9% in
membership and partnership units, 3.4% in net profits interests, and 4.1% in
limited term royalty interests.  The balance of our investment
portfolio (as a percentage of the whole portfolio) was comprised 34.8% of cash
and cash equivalents.


30


Results
of Operations





Investment
Income





Investment
income for the quarter ended June 30, 2010 was $6.0 million, primarily
attributable to $5.2 million in interest from targeted investments in ten
portfolio companies and to $0.8 million from corporate notes, investments in
cash and cash equivalents and fee income from third parties and
affiliates.  This compares to investment income for the quarter ended
June 30, 2009 of $5.5 million, with $6.2 million attributable to interest from
targeted investments in eleven portfolio companies, $1.9 million attributable to
income from commodity derivative instruments, a $2.8 million net loss
attributable to royalty income net of amortization, and $0.2 million from
corporate notes, investments in cash and cash equivalents and fee income from
third parties and affiliates.





For the
six months ended June 30, 2010, investment income decreased by $2.8 million, or
20.2%, to $11.2 million from $14.1 million for the same period in 2009. For the
six months ended June 30, 2010, we recorded $10.0 million attributable to
targeted investments in portfolio companies, a $0.2 million net loss
attributable to royalty income net of amortization and $1.4 million from
corporate notes, investments in cash and cash equivalents and fee income from
third parties and affiliates. This compares to $12.1 million attributable to
targeted investments in portfolio companies, $5.1 million attributable to income
from commodity derivative instruments, a $3.7 million net loss attributable to
royalty income net of amortization and $0.6 million from corporate notes,
investments in cash and cash equivalents and fee income from third parties and
affiliates for the six months ended June 30, 2009.





Our total
targeted portfolio balance decreased on a cost basis by approximately $38.3
million from $273.8 million on June 30, 2009 to $235.5 million on June 30,
2010.  The balance of non-accruing and non-income producing
investments on a cost basis increased from approximately $97.2 million at June
30, 2009 to approximately $106.0 million at June 30, 2010.  The
balance of non-accruing and non-income producing investments on a fair value
basis increased from approximately $31.4 million at June 30, 2009 to
approximately $53.7 million at June 30, 2010.  Although LIBOR rates
remained low during the second quarter of 2010, they had a minimal effect on our
targeted investment income because of LIBOR floors established for new portfolio
companies and certain other existing portfolio companies during 2010 and
2009.  Additionally, the continued downward pressure on U.S. Treasury
Bill interest rates during 2010 and 2009 reduced interest from cash and cash
equivalents.





At June
30, 2010, the weighted average yield on targeted portfolio investments,
exclusive of capital gains, was 7.28%.  The weighted average yield of
our corporate notes was 5.82%.  The weighted average yield of our cash
& cash equivalents was 0.51%.  The weighted average yield on our
total capital invested at June 30, 2010 was 5.21%.  Further, three
investments totaling $62.6 million on a cost basis (Formidable, LLC
(“Formidable”), $38.8 million; Alden Tranche B, $19.5 million; and Chroma
Exploration & Production, Inc., $4.3 million) are currently on non-accrual
status.  Investments totaling $43.4 million on a cost basis are
non-income producing and include equity investments in TierraMar Energy LP
preferred units, DeanLake Operator, LLC preferred units, Resaca Exploitation,
Inc. (“Resaca”) common stock, Alden class E units and warrants and units
associated with our investment in BioEnergy.





At June
30, 2009, the weighted average yield on targeted portfolio investments,
exclusive of capital gains, was 4.09%. The weighted average yield of our
corporate notes was 5.82%. The weighted average yield of our U.S. Treasury Bills
and cash equivalents was 0.06% and 0.05%, respectively. The weighted average
yield on our total capital invested at June 30, 2009 was 3.34%.





Yields on
investments are computed using interest rates as of the balance sheet date and
include amortization of loan discount points, original issue discount and market
premium or discount, royalty interest income, net profits income and other
similar investment income, weighted by their respective costs when averaged.
Additionally, these yields do not include income from any investments on
non-accrual status.  Such weighted average yields are not necessarily
indicative of expected total returns on a portfolio.


31


Operating
Expenses





For the
quarter ended June 30, 2010, operating expenses were $3.0 million compared to
$4.0 million for the quarter ended June 30, 2009.  The 2010 amount
consisted of investment advisory and management fees of $1.4 million and credit
facility interest expense and fees of $0.3 million.  In comparison,
for the quarter ended June 30, 2009, investment advisory and management fees
were $1.6 million and credit facility interest expense and fees were $1.1
million.  Overall lower portfolio balances in 2010 resulted in lower
investment advisory and management fees, and lowered levels of borrowings
reduced our credit facility interest expense and fees.





For the
six months ended June 30, 2010, operating expenses were $6.0 million compared to
$8.0 million for the six months ended June 30, 2009. The 2010 amount consisted
of investment advisory and management and incentive fees of $2.8 million,
insurance expenses, administrative services fees, professional fees, directors’
fees and other general and administrative expenses of $2.6 million and credit
facility interest expense and fees of $0.6 million. This compares to investment
advisory and management and incentive fees of $3.5 million, insurance expenses,
administrative services fees, professional fees, directors’ fees and other
general and administrative expenses of $2.4 million and credit facility interest
expense and fees of $2.1 million for the six months ended June 30,
2009.  Overall lower portfolio balances in 2010 resulted in lower
investment advisory and management fees, and lowered levels of borrowings
reduced our credit facility interest expense and fees.





Operating
expenses for the three and six-month periods include our allocable portion of
the total organizational and operating expenses incurred by us, the Manager and
the Administrator, as determined by our Board of Directors and representatives
of the Manager and the 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 allocated
share of employee, facilities and stockholder services and marketing
costs.





Net
Investment Income Before Income Taxes





For the
quarter ended June 30, 2010, net investment income before income taxes was $3.1
million compared to $1.5 million for the quarter ended June 30,
2009.  The 99.8% increase was due to higher investment income
partially offset by lower operating expenses, primarily lower management fees
and credit facility interest expenses and fees.





For the
six months ended June 30, 2010, net investment income before income taxes was
$5.2 million compared to $6.1 million for the six months ended June 30,
2009.  The 14.3% decrease was primarily due to lower interest income
on overall lower principal balances and an increase in the balance of
non-accruing and non-income producing investments, offset by lower credit
facility interest expense and fees on our reduced debt balance.





Net
Realized Gains





There
were no realized capital gains or losses for the quarters ended June 30, 2010
and 2009.





Unrealized
Appreciation or Depreciation on Investments





For the
quarter ended June 30, 2010, the increase in net unrealized appreciation after
income taxes was $0.6 million, comprised of a $0.7 million increase in targeted
portfolio fair value and an increase of $0.2 million in the fair value of our
corporate notes, less a tax provision of $0.3 million resulting from routine
quarterly valuation allowance reallocation.  The increase in targeted
portfolio fair value was largely a result of changes in the estimated current
market values of underlying assets.





For the
quarter ended June 30, 2009, the increase in net unrealized depreciation before
income tax benefit of $0.3 million was $4.4 million, comprised of a $3.0 million
decrease in targeted portfolio fair value and a decrease of $3.1 million in
commodity derivative instruments fair value, offset by an increase of $1.7
million in the fair value of our corporate notes.  The decrease in
targeted portfolio fair value was largely a result of changes in the estimated
current market values of underlying assets.  The decrease in the fair
value of commodity derivative instruments was a result of the reversal of 2008
unrealized appreciation due to realizations in the second quarter of
2009.





For the
six months ended June 30, 2010, the increase in net unrealized appreciation
before income tax provision of $0.6 million was $3.8 million, comprised of an
increase in targeted portfolio fair value of $3.3 million and a $0.5 million
increase in the fair value of our corporate notes. By comparison, for the six
months ended June 30, 2009, the increase in net unrealized depreciation before
income tax benefit of $1.6 million was $29.0 million, comprised of a decrease in
targeted portfolio fair value of $24.2 million and a $6.3 million decrease in
the fair value of commodity derivative instruments, offset by a $1.5 million
increase in the fair value of our corporate notes.





While, in
general, current capital and commodity markets are more stable than during the
prior eighteen months, conditions are such that it remains difficult to predict
capital gains or losses or fluctuations in our portfolio
values.


32


Net
Increase or Decrease in Stockholders’ Equity from Operations





For the
quarter ended June 30, 2010, we had a net increase in stockholders’ equity (net
assets) resulting from operations of $3.9 million, or $0.18 per share, compared
to a net decrease of $2.6 million, or $0.12 per share decrease for the quarter
ended June 30, 2009.  The $6.5 million or $0.30 per share net increase
is attributable to the $1.7 million increase in net investment income after
income taxes and the $4.8 million increase in unrealized appreciation on our
investments during the second quarter of 2010, compared to the second quarter of
2009.





For the
six months ended June 30, 2010, the net increase in stockholders’ equity (net
assets) resulting from operations was $8.9 million, or $0.42 per share, compared
to an decrease of $21.2 million, or $0.98 per share decrease, for the six months
ended June 30, 2009.  The $30.1 million or $1.40 per share net
increase is attributable to the $27.3 million increase in unrealized
depreciation recorded on our investments during the six months ended June 30,
2009, compared to $3.2 million in unrealized appreciation recorded on our
investments during the six months ended June 30, 2010.





Financial
Condition, Liquidity and Capital Resources





During
the quarter ended June 30, 2010, we generated cash from operations, including
interest earned on our portfolio securities, as well as our investments in
corporate notes and from cash and cash equivalents.  At June 30, 2010,
we had cash and cash equivalents of $105.4 million and investments in corporate
notes of $9.6 million.  The amount outstanding on our Investment
Facility at June 30, 2010 was $60.0 million and an additional $5.66 million was
available. We repaid the $60.0 million balance in July 2010.  As of
June 30, 2010, we had investments in or commitments to fund loan facilities to
fifteen portfolio companies totaling $242.5 million, of which $237.1 million was
drawn.  We expect to fund our investments in 2010 from available cash,
income earned on our portfolio and temporary investments, repayments or
realizations of existing investments and from borrowings under our Investment
Facility.  In the future, we may also fund a portion of our
investments with issuances of equity or senior debt securities.  We
may also securitize a portion of our investments in mezzanine or senior secured
loans or other assets.  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.





Commodity
Derivative Instruments





We may
periodically use commodity derivative instruments to manage our exposure to
commodity price fluctuations.  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 portfolio securities, corporate notes and
commodity derivative instruments.





We
acquired a limited term royalty interest from ATP, and the royalty payments
associated with this investment are subject to fluctuations in natural gas and
oil prices.  To manage this risk, we purchased oil and natural gas put
options on approximately 93% of our royalty interest.   See “Note 9:
Commodity Derivative Instruments” in the accompanying notes to the consolidated
financial statements for further description of our put options.





All of
the commodity derivative instruments were expired as of January 31,
2010.


33


Contractual
Obligations





A summary
of our contractual payment obligations at June 30, 2010 is as
follows:





Less
      than
                    
                    
                    
                    
                    
                    
                    
                    
                    More
      thanContractual Obligations
                    
                    Total
                    
                    
                    1 Year
                    
                    
                    1-3 Years
                    
                    
                    3-5 Years
                    
                    
                    5 YearsJune
      30, 2010:Long-term
      debt obligations--revolving
      credit facilities (1)
                    
                    $
                    60,000,000
                    
                    
                    $
                    -
                    
                    
                    $
                    60,000,000
                    
                    
                    $
                    -
                    
                    
                    $
                    -Total
                    
                    $
                    60,000,000
                    
                    
                    $
                    -
                    
                    
                    $
                    60,000,000
                    
                    
                    $
                    -
                    
                    
                    $
                    -


(1)
Excludes accrued interest amounts.





Off-Balance
Sheet Arrangements





Currently,
we do not engage in any off-balance sheet arrangements, including any risk
management of commodity pricing or other hedging practices.





Dividends





We have
elected to operate our business so as to be taxed as a RIC for federal income
tax purposes. As a RIC, we generally will not be required to 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% 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.





We may
not be able to 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 credit
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 a particular level.


34


Portfolio
Credit Quality





Virtually
all of our portfolio investments are in negotiated, and often illiquid,
securities of energy companies. 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. As a consequence of the
general economic downturn and associated weakness in the energy markets, one of
our investments, Formidable, has experienced significant degradation in value
that may not be recoverable. During the quarter ended June 30, 2010, of the
twenty-four rated investments in fifteen portfolio companies, compared to the
quarter ended March 31, 2010, one improved in rating, one declined in rating,
twenty-one retained the same rating and we added one investment into the rating
system.  Beginning this quarter we included our existing corporate
notes in our risk analysis and this accounted for the one additional
investment.  Fifteen investments totaling approximately $160.3
million, or approximately 65% of the $247 million in total investments, on a
cost basis, are carried on our watch list due to slower than expected
development of the assets supporting the investments, the downturn in general
economic and energy market conditions or deterioration in asset
coverage.





For the
second quarter of 2010, the combined increase in unrealized appreciation of our
portfolio securities and corporate notes of $0.9 million was largely due to
increases in the estimated market values of underlying assets, consisting
primarily of the increase in the fair value of our investment in ATP Oil &
Gas Corp limited term royalty of $1.6 million offset by a decrease in the fair
value of our investment in Resaca common stock of $0.7 million.





Recently
Issued Accounting Pronouncements





See
“Note 10: Recent Accounting Pronouncements” in the accompanying notes to
consolidated financial statements for details of recently issued accounting
pronouncements and their expected impact on our financial
statements.





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,
2009.


35





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) promulgated under the Securities Exchange Act of 1934, as amended,
which we refer to as the Exchange Act), designed to ensure that information
required to be disclosed in our reports 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
disclosure.





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, the
Company performed an evaluation, under the supervision and with the
participation of the Company’s management, including our Chief Executive Officer
and our Chief Financial Officer, of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures pursuant to Rules
13a-15(b) and 15d-15(b) promulgated under the Exchange Act.





After
giving effect to the restatement referred to below and based on an evaluation of
our disclosure controls and procedures as of the end of the period covered by
this Form 10-Q conducted by our management, with the participation of our Chief
Executive Officer and our Chief Financial Officer, our Chief Executive Officer
and our Chief Financial Officer concluded that our disclosure controls and
procedures were ineffective in providing reasonable assurance 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 Securities and Exchange Commission and
that such information is accumulated and communicated to management in a manner
that allows timely decisions regarding required disclosure. In light of this
material weakness, the Company performed additional analysis and post-closing
procedures to ensure its financial statements were prepared in accordance with
generally accepted accounting principles. After giving effect to the
restatements referred to below, and subject to the statements below regarding
our inability to maintain effective controls over the determination and
reporting of the provision for income taxes, the Company’s management has
concluded that the financial statements included in this Form 10-Q present
fairly in all material respects the Company’s financial condition, results of
operations and cash flows for the periods presented.





The
certifications of our Chief Executive Officer and our Chief Financial Officer
required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 are
attached as exhibits to this Form 10-Q. The disclosures set forth in this Item 4
contain information concerning (i) the evaluation of our disclosure controls and
procedures referred to in paragraph 4 of the certifications, and (ii) material
weaknesses in the design or operation of our internal control over financial
reporting referred to in paragraph 5 of those certifications. Those
certifications should be read in conjunction with this Item 4 for a more
complete understanding of the matters covered by the
certifications.





Discussion
of Material Weakness





Management’s
assessment identified a material weakness in the Company’s internal control over
financial reporting. As of June 30, 2010, the Company did not maintain effective
controls over the determination and reporting of the provision for income taxes.
This material weakness was initially disclosed in Item 9A of our Annual Report
on Form 10-K for the year ended December 31, 2008. As of June 30, 2010, our
management was unable to conclude that we had remediated this previously
disclosed material weakness in our internal control over financial reporting.
Specifically, management did not perform a sufficiently precise review to ensure
the completeness and accuracy of the Company’s calculation of its income tax
provision and deferred income tax assets and liabilities. This deficiency
resulted in the restatement of the Company’s consolidated financial statements
for the years ended December 31, 2007 and 2008 (and the unaudited selected
quarterly data for each of the quarters in 2007 and 2008 and the first three
quarters in 2009), and results in a reasonable possibility that a material
misstatement of the Company’s annual or interim financial statements would not
be prevented or detected on a timely basis.


36


Remediation
Efforts





The
remediation efforts, as outlined below, are designed to address the material
weakness identified by management and to strengthen the Company’s internal
control over financial reporting.





Beginning
in the first quarter of 2009, the Company implemented the following remediation
steps to address this material weakness discussed above and to improve its
internal controls over financial reporting:





·
            improved
      procedures for the calculation and reconciliation process of our deferred
      income tax assets and liabilities, including validation of underlying
      supporting data;·
            engaged
      external tax experts to support the Company’s financial closing and
      reporting process; and·
            enhanced
      quarterly management review of the calculation of the deferred income tax
      assets and liabilities and underlying supporting
  data.





We
believe that these remediation actions will represent ongoing improvement
measures. While we have taken steps to remediate the material weakness,
additional measures may be required. We will continue to assess the
effectiveness of our remediation efforts in connection with our management’s
tests of internal control over financial reporting in conjunction with our
annual and quarterly reports. The Company anticipates that it will complete its
testing of the additional internal control processes designed to remediate the
previously disclosed material weakness in 2010.





Changes
in Internal Control Over Financial Reporting





There
were no changes in internal control over financial reporting during the quarter
ended June 30, 2010 that have materially affected or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.




Item 4T.
            Controls
      and Procedures.





Not applicable.


37


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, 2009.




Item 1A.
            Risk
      Factors.





Except as
provided below, 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, 2009.





Our
business is subject to increasingly complex corporate governance, public
disclosure and accounting requirements that could adversely affect our business
and financial results.




We are
subject to changing rules and regulations of federal and state government as
well as the stock exchange on which our common stock is listed. These entities,
including the Public Company Accounting Oversight Board, the SEC and the Nasdaq
Global Market, have issued a significant number of new and increasingly complex
requirements and regulations over the course of the last several years and
continue to develop additional regulations and requirements in response to laws
enacted by Congress. On July 21, 2010, the Dodd-Frank Wall Street Reform and
Protection Act, or the Dodd-Frank Act, was enacted. There are significant
corporate governance and executive compensation-related provisions in the
Dodd-Frank Act that require the SEC to adopt additional rules and regulations.
Prior to full implementation, it will be difficult to assess the impact of the
Dodd-Frank Act on the Company. Our efforts to comply with these requirements
have resulted in, and are likely to continue to result in, an increase in
expenses and a diversion of management's time from other business
activities.




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.


38


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 COMPANYDate:  August
      9, 2010
            
            By:
            /s/ John H. HomierJohn
      H. HomierPresident
      and Chief Executive Officer





Date:  August
      9, 2010
            
            By:
            /s/ Stephen K. GardnerStephen
      K. GardnerChief
      Financial Officer, Treasurer and
Secretary








Index
to Exhibits





Exhibits No.
            
            Exhibit3.1
            
            Articles
      of Incorporation (filed as Exhibit (a)(1) to the Company’s 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 to the Company’s 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 the Company’s 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 the Company’s 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 the Company’s Registration
      Statement on Form N-2 filed on August 16, 2004 (Registration No.
      333-118279) and incorporated herein by reference)31.1*
            
            Certification
      required by Rule 13a-14(a)/15d-14(a) by the Chief Executive
      Officer31.2*
            
            Certification
      required by Rule 13a-14(a)/15d-14(a) by the Chief Financial
      Officer32.1*
            
            Section
      1350 Certification by the Chief Executive Officer32.2*
            
            Section
      1350 Certification by the Chief Financial Officer______________
              *Filed
      herewith.