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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File No. 0-20100
 BELDEN & BLAKE CORPORATION
  Ohio
    
    34-1686642(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 1001 Fannin Street, Suite 800
Houston, Texas 77002
 (713) 659-3500
 None
 None
 o þ
 þ o
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 o þ




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Forward-Looking Statements
  1




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GLOSSARY OF OIL AND NATURAL GAS TERMS
 Bbl.
 Bcf.
 Bcfe.
 Btu
 Development well.
 Developed acres.
 Exploratory well.
 Dry hole well.
 Field.
 Gross acres gross wells.
 MBbl.
 Mcf.
 Mcfe.
 MMBbl.
 MMBtu
 MMcf.
 MMcfe.
 Natural gas liquids.
 Net acres net wells.
 NYMEX.
 Oil.
 Productive well.
 2




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##### Table of Contents



Proved reserves. i.e. www.sec.gov/about.forms/regs-x.pdf
 Proved developed reserves.
 Proved undeveloped drilling location.
 Proved undeveloped reserves PUDs.
 Recompletion.
 Reservoir.
 Standardized measure.
 Successful well.
 Undeveloped acreage.
 Working interest.
 Workover.
 3




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TABLE OF CONTENTS  PART IItems 1 and 2. BUSINESS AND PROPERTIESItem 1A. RISK FACTORSItem 1B. UNRESOLVED STAFF COMMENTSItem 3. LEGAL PROCEEDINGSItem 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIItem 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESItem 6. SELECTED FINANCIAL DATAItem 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAItem 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREItem 9A. CONTROLS AND PROCEDURESItem 9B. OTHER INFORMATIONPART IIIItem 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCEItem 11. EXECUTIVE COMPENSATIONItem 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND RELATED STOCKHOLDER MATTERSItem 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSItem 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVItem 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESItem 15(a) (1) and (2)EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 PART I
 
 Items 1 and 2. BUSINESS AND PROPERTIES
 GENERAL
    SIGNIFICANT EVENTS
 Acquisition by Institutional Funds Managed by EnerVest Ltd.
    Credit Agreement
   4




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DESCRIPTION OF BUSINESS
 Overview
     5




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Oil and Gas Reserves
  December 31,2007
    
    2006
    
    2005Estimated proved reservesGas (Bcf)
    
    
    227.2
    
    
    
    233.0
    
    
    
    246.7Oil (Mbbl)
    
    
    5,149
    
    
    
    5,181
    
    
    
    5,210Bcfe
    
    
    258.1
    
    
    
    264.1
    
    
    
    277.9
    December 31,2007
    
    2006
    
    2005Gas (per Mcf)
    
    $
    7.54
    
    
    $
    5.91
    
    
    $
    9.83Oil (per Bbl)
    
    
    92.77
    
    
    
    57.21
    
    
    
    57.64
   Appalachian Basin  Conventional Properties
  6




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Michigan Basin Properties
    Appalachian Basin  Coalbed Methane Properties
  Oil and Gas Operations and Production
 Operations .
  7




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Production, Sales Prices and Costs .
 Year Ended December 31,2007
    
    2006
    
    2005ProductionGas (MMcf)
    
    
    13,357
    
    
    
    14,104
    
    
    
    14,560Oil (Mbbl)
    
    
    348
    
    
    
    373
    
    
    
    358Total production (MMcfe)
    
    
    15,446
    
    
    
    16,340
    
    
    
    16,710Average price (1)Gas (per Mcf)
    
    $
    6.81
    
    
    $
    8.77
    
    
    $
    8.57Oil (per Bbl)
    
    
    67.42
    
    
    
    62.78
    
    
    
    46.37Per Mcfe
    
    
    7.41
    
    
    
    9.00
    
    
    
    8.46Average costs (per Mcfe)Production expense
    
    $
    1.59
    
    
    $
    1.45
    
    
    $
    1.40Production taxes
    
    
    0.15
    
    
    
    0.15
    
    
    
    0.20Depletion
    
    
    2.31
    
    
    
    2.30
    
    
    
    2.01
 
 (1)
    
    The average prices presented above include non-cash amounts related to our derivatives as a
result of purchase accounting for the Merger and the Transaction. Excluding these non-cash amounts
from oil and gas sales revenues would result in the following average prices: Year Ended December 31,2007
    
    2006
    
    2005Gas (per Mcf)
    
    $
    7.34
    
    
    $
    7.22
    
    
    $
    6.99Oil (per Bbl)
    
    
    67.42
    
    
    
    62.78
    
    
    
    45.38Per Mcfe
    
    
    7.87
    
    
    
    7.67
    
    
    
    7.06
 Exploration and Development
     8




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Range of AverageDrilling and CompletionRange of Well Depths
    
    Costs per Well(in feet)
    
    (in thousands)Ohio:Clinton
    
    
    3,500            -        5,750
    
    
    $
    300             -           340Pennsylvania:Coalbed Methane
    
    
    1,000            -        1,600
    
    
    
    190             -           305Clarendon
    
    
    1,100            -        2,100
    
    
    
    90             -           130Medina
    
    
    5,300            -        6,200
    
    
    
    300             -           370Michigan:Antrim
    
    
    1,300            -        2,100
    
    
    
    170             -           370
   Drilling Results .
 Development Wells
    
    Exploratory Wells2005
    
    2006
    
    2007
    
    2005(1)
    
    2006(2)
    
    2007Productive:Gross
    
    
    120
    
    
    
    177
    
    
    
    96
    
    
    
    2
    
    
    
    
    
    
    
    Net
    
    
    117.2
    
    
    
    170.3
    
    
    
    92.0
    
    
    
    2.0
    
    
    
    
    
    
    
    Dry:Gross
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    Net
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    1.0
    
    
    
    0.5
    
    
    
    Wells in progress:Gross
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    
 
 (1)
    
    Includes one well (dry hole) that was classified as a well in progress in 2004.(2)
    
    Includes one well (dry hole) that was classified as a well in progress in 2005. 9




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Disposition of Assets
   Employees
  Competition
   Principal Customers
  Regulation
 Regulation of Production.
 Federal Regulation of Sales and Transportation of Natural Gas.
  10




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Federal Regulation of Sales and Transportation of Crude Oil.
 Environmental Regulations.
     11




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Producing Well Data
  12




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December 31, 2007Gas Wells
    
    Oil Wells
    
    TotalState
    
    Gross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetOhio
    
    
    1,040
    
    
    
    882
    
    
    
    685
    
    
    
    616
    
    
    
    1,725
    
    
    
    1,498Pennsylvania
    
    
    1,413
    
    
    
    1,329
    
    
    
    104
    
    
    
    104
    
    
    
    1,517
    
    
    
    1,433New York
    
    
    22
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    11Michigan
    
    
    1,187
    
    
    
    590
    
    
    
    19
    
    
    
    4
    
    
    
    1,206
    
    
    
    5943,662
    
    
    
    2,812
    
    
    
    808
    
    
    
    724
    
    
    
    4,470
    
    
    
    3,536
 Acreage Data
  December 31, 2007Developed Acreage
    
    Undeveloped Acreage
    
    Total AcreageState
    
    Gross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetOhio
    
    
    187,742
    
    
    
    178,175
    
    
    
    16,075
    
    
    
    14,816
    
    
    
    203,817
    
    
    
    192,991Pennsylvania
    
    
    216,018
    
    
    
    188,251
    
    
    
    108,671
    
    
    
    71,097
    
    
    
    324,689
    
    
    
    259,348New York
    
    
    14,371
    
    
    
    12,601
    
    
    
    21,983
    
    
    
    8,543
    
    
    
    36,354
    
    
    
    21,144Michigan
    
    
    62,980
    
    
    
    62,870
    
    
    
    26,770
    
    
    
    25,129
    
    
    
    89,750
    
    
    
    87,999Indiana
    
    
    40
    
    
    
    40
    
    
    
    9,672
    
    
    
    9,619
    
    
    
    9,712
    
    
    
    9,659481,151
    
    
    
    441,937
    
    
    
    183,171
    
    
    
    129,204
    
    
    
    664,322
    
    
    
    571,141
  
 Item 1A. RISK FACTORS
  Risks Relating to Our Business
 Hedging transactions may limit our potential gains or expose us to loss.
  
    
    our production is less than expected;
 13




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
    
    there is a narrowing of price differentials between delivery points for our
production and the delivery points assumed in the hedge arrangements;
    
    there is a failure of a hedge counterparty to perform under the Hedge Agreement or
other hedge transactions; or
    
    a sudden, unexpected event materially impacts natural gas and crude oil prices.
 Our operations require large amounts of capital that may not be recovered or raised.
  
    
    the success of our projects in the Appalachian and Michigan basins;
    
    our success in locating and producing new reserves;
    
    the level of production from existing wells; and
    
    prices of oil and natural gas.
  Oil and natural gas prices are volatile, and an extended decline in prices would hurt our
profitability and financial condition.
   If oil and natural gas prices decrease or our drilling efforts are unsuccessful, we may be
required to write down the carrying value of our oil and natural gas properties.
  14




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Information concerning our reserves and future net revenues is uncertain.
      
    
    the amount and timing of actual production;
 15




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
    
    supply and demand for natural gas;
    
    curtailments or increases in consumption by natural gas purchasers; and
    
    changes in governmental regulations or taxation.
  Our exploitation and development drilling activities may not be successful.
  
    
    unexpected drilling conditions;
    
    pressure or irregularities in formations;
    
    equipment failures or accidents;
    
    ability to hire and train personnel for drilling and completion services;
    
    adverse weather conditions;
    
    compliance with governmental requirements; and
    
    shortages or delays in the availability of drilling rig services and the delivery of
equipment.
   Our acquisition activities may not be successful.
  
    
    some of the acquired businesses or properties may not produce revenues, earnings or
cash flow at anticipated levels;
    
    we may assume liabilities that were not disclosed or that exceed our estimates;
    
    we may be unable to integrate acquired businesses successfully and realize
anticipated economic, operational and other benefits in a timely manner, which could
result in substantial costs and delays or other operational, technical or financial
problems;
    
    acquisitions could disrupt our ongoing business, distract management, divert
resources and make it difficult to maintain our current business standards, controls and
procedures; and
    
    we may incur additional debt related to future acquisitions.
  16




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We face strong competition in the oil and natural gas industry, and the resources of many of
our competitors are greater than ours.
  Our operations are subject to the business and financial risk of oil and natural gas
exploration.
  Our business is subject to operating hazards that could result in substantial losses.
  We must comply with complex federal, state and local laws and regulations.
  We may incur substantial costs to comply with stringent environmental regulations.
  Our business depends on gathering and transportation facilities owned by others.
  17




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All of our common stock is owned by one controlling shareholder whose interests may differ
from those of the holders of our Notes.
  Our structure may present conflicts of interest.
  The terms of our Amended Credit Agreement, as well as the Hedges and the indenture relating to
the Senior Secured Notes, restrict our current and future operations, particularly our ability to
respond to industry or economic changes or to take certain actions
  
    
    incur additional debt;
    
    pay dividends and make investments, loans or advances;
    
    incur capital expenditures;
    
    create liens;
    
    use the proceeds from sales of assets and capital stock;
    
    enter into sale and leaseback transactions;
    
    enter into transactions with affiliates;
    
    transfer all or substantially all of our assets; and
    
    enter into merger or consolidation transactions.
  
    
    a minimum interest coverage ratio;
    
    a maximum total leverage ratio; and
    
    a minimum current ratio.
  
    
    incur additional indebtedness;
    
    pay dividends or make other distributions on stock, redeem stock or redeem
subordinated obligations;
    
    make investments;
    
    create liens or other encumbrances; and
    
    sell or otherwise dispose of all or substantially all of our assets, or merge or
consolidate with another entity.
 18




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Item 1B. UNRESOLVED STAFF COMMENTS
  
 Item 3. LEGAL PROCEEDINGS
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 Item 5. MARKET
FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
   Dividends
  Equity Compensation Plan Information:
  19




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Item 6. SELECTED FINANCIAL DATA
  Successor Company
    
    
    Predecessor I Company
    
    
    Predecessor II CompanyFor the 138
    
    
    For the 227
    
    For the 178Day Period
    
    
    Day Period
    
    Day Period
    
    
    For the 188
    
    As of or forfrom August
    
    
    From January
    
    from July 7,
    
    
    Day Period
    
    the yearAs of or for the year ended
    
    16, 2005 to
    
    
    1, 2005 to
    
    2004 to
    
    
    from January
    
    endedDecember 31,
    
    December 31,
    
    
    August 15,
    
    December 31,
    
    
    1, 2004 to July
    
    December 31,(in thousands)
    
    2007
    
    2006
    
    2005
    
    
    2005
    
    2004
    
    

6, 2004
    
    2003Continuing Operations:Revenues
    
    
    125,656
    
    
    
    159,090
    
    
    $
    76,671
    
    
    
    $
    78,123
    
    
    $
    62,401
    
    
    
    $
    50,822
    
    
    $
    95,414Depreciation, depletion and amortization
    
    
    36,087
    
    
    
    38,074
    
    
    
    14,341
    
    
    
    
    21,265
    
    
    
    17,527
    
    
    
    
    9,089
    
    
    
    18,098Impairment of oil and gas properties
    
    
    31
    
    
    
    546
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    896Income (loss) from continuing operations before
cumulative effect of change in accounting principle
    
    
    (35,322
    )
    
    
    52,199
    
    
    
    17,563
    
    
    
    
    (320
    )
    
    
    7,263
    
    
    
    
    (18,869
    )
    
    
    5,960Balance sheet data:
    
    
    
    
    
    
    
    
    
    As of 12/31/2005
    
    
    
    
    
    
    As of 12/31/2004Working capital (deficit) from continuing operations
    
    
    (14,224
    )
    
    
    (11,635
    )
    
    
    (38,999
    )
    
    
    
    
    
    
    
    (4,907
    )
    
    
    
    
    
    
    
    (8,168
    )Oil and gas properties and gathering systems, net
    
    
    627,556
    
    
    
    641,879
    
    
    
    648,417
    
    
    
    
    
    
    
    
    502,765
    
    
    
    
    
    
    
    
    224,631Total assets
    
    
    774,225
    
    
    
    777,023
    
    
    
    810,118
    
    
    
    
    
    
    
    
    570,853
    
    
    
    
    
    
    
    
    285,930Long-term debt, less current portion
    
    
    291,118
    
    
    
    285,560
    
    
    
    277,648
    
    
    
    
    
    
    
    
    281,396
    
    
    
    
    
    
    
    
    272,637Total shareholders (deficit) equity
    
    
    102,223
    
    
    
    143,703
    
    
    
    89,399
    
    
    
    
    
    
    
    
    57,088
    
    
    
    
    
    
    
    
    (58,418
    )
 20




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Item 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Overview
        CRITICAL ACCOUNTING POLICIES
  21




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Successful Efforts Method of Accounting
    Oil and Gas Reserves
  
    
    the quality and quantity of available data;
    
    the interpretation of that data;
    
    the accuracy of various mandated economic assumptions; and
    
    the judgment of the persons preparing the estimate.
  Capitalization, Depreciation, Depletion and Impairment of Long-Lived Assets
   22




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Derivatives and Hedging
     23




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Revenue Recognition
  Asset Retirement Obligations
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2007
    
    
    2006Beginning asset retirement obligations
    
    $
    20,734
    
    
    $
    19,389Liabilities incurred
    
    
    220
    
    
    
    523Liabilities settled
    
    
    (219
    )
    
    
    (543
    )Accretion expense
    
    
    1,290
    
    
    
    1,219Revisions in estimated cash flows
    
    
    239
    
    
    
    146Ending asset retirement obligations
    
    $
    22,264
    
    
    $
    20,734
 24




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Results of Operations
  Year Ended December 31,2007
    
    2006
    
    2005RevenuesOil and gas sales
    
    $
    114,427
    
    
    
    91.1
    %
    
    $
    147,122
    
    
    
    92.5
    %
    
    $
    141,354
    
    
    
    91.3
    %Gas gathering and marketing
    
    
    10,275
    
    
    
    8.2
    
    
    
    11,294
    
    
    
    7.1
    
    
    
    12,990
    
    
    
    8.4Other
    
    
    954
    
    
    
    0.7
    
    
    
    674
    
    
    
    0.4
    
    
    
    450
    
    
    
    0.3125,656
    
    
    
    100.0
    
    
    
    159,090
    
    
    
    100.0
    
    
    
    154,794
    
    
    
    100.0ExpensesProduction expense
    
    
    24,585
    
    
    
    19.6
    
    
    
    23,692
    
    
    
    14.9
    
    
    
    23,413
    
    
    
    15.1Production taxes
    
    
    2,265
    
    
    
    1.8
    
    
    
    2,404
    
    
    
    1.5
    
    
    
    3,416
    
    
    
    2.2Gas gathering and marketing
    
    
    8,640
    
    
    
    6.9
    
    
    
    9,360
    
    
    
    5.9
    
    
    
    11,110
    
    
    
    7.2Exploration expense
    
    
    1,935
    
    
    
    1.5
    
    
    
    1,797
    
    
    
    1.1
    
    
    
    3,653
    
    
    
    2.4General and administrative expense
    
    
    8,236
    
    
    
    6.6
    
    
    
    9,796
    
    
    
    6.2
    
    
    
    6,127
    
    
    
    3.9Depreciation, depletion and amortization
    
    
    36,087
    
    
    
    28.7
    
    
    
    38,074
    
    
    
    23.9
    
    
    
    34,450
    
    
    
    22.3Inpairment of oil and gas properties
    
    
    31
    
    
    
    
    
    
    
    546
    
    
    
    0.3
    
    
    
    
    
    
    
    Accretion expense
    
    
    1,290
    
    
    
    1.0
    
    
    
    1,226
    
    
    
    0.8
    
    
    
    1,152
    
    
    
    0.7Derivative
fair value loss (gain)
    
    
    78,120
    
    
    
    62.2
    
    
    
    (37,356
    )
    
    
    (23.5
    )
    
    
    13,312
    
    
    
    8.6Transaction expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,542
    
    
    
    4.9161,189
    
    
    
    128.3
    
    
    
    49,539
    
    
    
    31.1
    
    
    
    104,175
    
    
    
    67.3Operating (loss) income
    
    
    (35,533
    )
    
    
    (28.3
    )
    
    
    109,551
    
    
    
    68.9
    
    
    
    50,619
    
    
    
    32.7Other (income) expense(Gain) on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (436
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    Interest expense
    
    
    23,712
    
    
    
    18.9
    
    
    
    23,553
    
    
    
    14.8
    
    
    
    24,468
    
    
    
    15.8(Loss)
income before income taxes
    
    
    (59,245
    )
    
    
    (47.2
    )
    
    
    86,434
    
    
    
    54.1
    
    
    
    26,151
    
    
    
    16.9(Benefit) provision for income taxes
    
    
    (23,923
    )
    
    
    (19.0
    )
    
    
    34,235
    
    
    
    21.5
    
    
    
    8,908
    
    
    
    5.8Net (loss) income
    
    
    (35,322
    )
    
    
    (28.2
    )
    
    
    52,199
    
    
    
    32.6
    
    
    
    17,243
    
    
    
    11.1
 25




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##### Table of Contents



Production, Sales Prices and Costs
  Year Ended December 31,2007
    
    2006
    
    2005ProductionGas (MMcf)
    
    
    13,357
    
    
    
    14,104
    
    
    
    14,560Oil (Mbbl)
    
    
    348
    
    
    
    373
    
    
    
    358Total production (MMcfe)
    
    
    15,446
    
    
    
    16,340
    
    
    
    16,710Average price (1)Gas (per Mcf)
    
    $
    6.81
    
    
    $
    8.77
    
    
    $
    8.57Oil (per Bbl)
    
    
    67.42
    
    
    
    62.78
    
    
    
    46.37Per Mcfe
    
    
    7.41
    
    
    
    9.00
    
    
    
    8.46Average costs (per Mcfe)Production expense
    
    $
    1.59
    
    
    $
    1.45
    
    
    $
    1.40Production taxes
    
    
    0.15
    
    
    
    0.15
    
    
    
    0.20Depletion
    
    
    2.31
    
    
    
    2.30
    
    
    
    2.01
 
 (1)
    
    The average prices presented above include non-cash amounts related
to our derivatives as a result of purchase accounting for the Merger and
the Transaction. Excluding these non-cash amounts from oil and gas sales
revenues would result in the following average prices: Year Ended December 31,2007
    
    2006
    
    2005Gas (per Mcf)
    
    $
    7.34
    
    
    $
    7.22
    
    
    $
    6.99Oil (per Bbl)
    
    
    67.42
    
    
    
    62.78
    
    
    
    45.38Per Mcfe
    
    
    7.87
    
    
    
    7.67
    
    
    
    7.06
 2007 Compared to 2006
 Revenues
    26




---



##### Table of Contents



Costs and Expenses
          27




---



##### Table of Contents



2006 Compared to 2005
 Revenues
     Costs and Expenses
      28




---



##### Table of Contents



29




---



##### Table of Contents



Liquidity and Capital Resources
 Cash Flows
    Year Ended December 31,2007
    
    
    2006
    
    
    Change(in millions)Cash flows provided by operating activities
    
    $
    68.1
    
    
    $
    66.6
    
    
    $
    1.5Cash flows (used in) investing activities
    
    
    (23.1
    )
    
    
    (30.2
    )
    
    
    7.1Cash flows (used in) financing activities
    
    
    (34.9
    )
    
    
    (38.6
    )
    
    
    3.7Net increase
(decrease) in cash and cash
equivalents
    
    $
    10.1
    
    
    $
    (2.2
    )
    
    $
    12.3
     30




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##### Table of Contents



Capital Expenditures
  Year Ended December 31,2007
    
    
    2006
    
    
    2005(in millions)Total capital expendituresDrilling including exploratory dry hole expense
    
    $
    21
    
    
    $
    35
    
    
    $
    26Production enhancements and field improvements
    
    
    1
    
    
    
    1
    
    
    
    2Leasehold acreage
    
    
    1
    
    
    
    1
    
    
    
    1Total
    
    $
    23
    
    
    $
    37
    
    
    $
    29
   Financing and Credit Facilities
 Senior Secured Notes due 2012
  July 15, 2008
    
    
    104.375
    %July 15, 2009
    
    
    102.188
    %July 15, 2010 and thereafter
    
    
    100.000
    %
  31




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##### Table of Contents



Amended Credit Agreement
        32




---



##### Table of Contents



ISDA Master Agreement
    Derivative Instruments
 The Hedges
     33




---



##### Table of Contents



Natural Gas Swaps
    
    Crude Oil Swaps
    
    Natural Gas Basis SwapsNYMEX
    
    
    
    
    
    NYMEXPrice per
    
    Estimated
    
    Price per
    
    
    
    
    
    BasisYear
Ending
    
    Bbtu
    
    Mmbtu
    
    Mbbls
    
    Bbl
    
    Bbtu
    
    DifferentialDecember 31, 2008
    
    
    10,126
    
    
    $
    4.64
    
    
    
    208
    
    
    $
    29.96
    
    
    
    
    
    
    $
    December 31, 2009
    
    
    9,529
    
    
    
    4.43
    
    
    
    191
    
    
    
    29.34
    
    
    
    3,650
    
    
    
    0.345December 31, 2010
    
    
    8,938
    
    
    
    4.28
    
    
    
    175
    
    
    
    28.86
    
    
    
    3,650
    
    
    
    0.325December 31, 2011
    
    
    8,231
    
    
    
    4.19
    
    
    
    157
    
    
    
    28.77
    
    
    
    3,285
    
    
    
    0.325December 31, 2012
    
    
    7,005
    
    
    
    4.09
    
    
    
    138
    
    
    
    28.70
    
    
    
    
    
    
    December 31, 2013
    
    
    6,528
    
    
    
    4.04
    
    
    
    127
    
    
    
    28.70
    
    
    
    
    
    
    
   Inflation and Changes in Prices
    Contractual Obligations
  34




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##### Table of Contents



Payments Due by PeriodLess than 1
    
    
    
    
    
    
    
    
    
    
    AfterContractual Obligations at December 31, 2007
    
    Total
    
    
    Year
    
    

1 - 3 Years
    
    
    4 - 5 Years
    
    

5 Years(in thousands)Long-term debt
    
    $
    286,361
    
    
    $
    8
    
    
    $
    99,893
    
    
    $
    186,428
    
    
    $
    32Capital lease obligations
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Asset retirement obligations
    
    
    22,264
    
    
    
    359
    
    
    
    3,306
    
    
    
    444
    
    
    
    18,155Derivative liabilities
    
    
    236,291
    
    
    
    44,592
    
    
    
    92,421
    
    
    
    71,187
    
    
    
    28,091Interest on debt
    
    
    94,612
    
    
    
    24,047
    
    
    
    44,702
    
    
    
    25,863
    
    
    
    Operating leases
    
    
    10,792
    
    
    
    4,330
    
    
    
    6,462
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    650,322
    
    
    $
    73,338
    
    
    $
    246,784
    
    
    $
    283,922
    
    
    $
    46,278
   Amount of Commitment Expiration Per PeriodTotalAmounts
    
    
    Less than 1
    
    
    
    
    
    
    
    
    
    
    Over 5Commercial Commitments at December 31, 2007
    
    Committed
    
    
    Year
    
    
    1 - 3 Years
    
    
    4 - 5 Years
    
    
    years(in thousands)Standby Letters of Credit
    
    $
    40,850
    
    
    $
    40,850
    
    
    $
    
    
    
    $
    
    
    
    $
    Total Commercial Commitments
    
    $
    40,850
    
    
    $
    40,850
    
    
    $
    
    
    
    $
    
    
    
    $
    
  Off-Balance Sheet Arrangements
  NEW ACCOUNTING STANDARDS
      Fair
Value Measurements, Effective Date of FASB Statement No.
157
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 35




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##### Table of Contents



Business Combinations
 
    
    acquisition costs will generally be expensed as incurred;
    
    noncontrolling interests will be valued at fair value at the date of acquisition; and
    
    liabilities related to contingent consideration will be recorded at fair value at the
date of acquisition and subsequently remeasured each subsequent reporting period. SFAS No.
141(R) is effective for fiscal years beginning after December 15, 2008. We will adopt SFAS
No. 141(R) on January 1, 2009, and we have not yet determined the impact, if any, on our
consolidated financial statements.
 Noncontrolling Interests in Consolidated Financial
Statements  An Amendment of ARB No. 51
 
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   .
 36




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##### Table of Contents



Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON



ACCOUNTING AND FINANCIAL DISCLOSURE
  
 Item 9A. CONTROLS AND PROCEDURES
 MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  Internal Control  Integrated Framework
 /s/ Mark A. Houser
    
    /s/ James M. VanderhiderMark A. Houser
    
    James M. VanderhiderChief Executive Officer, Chairman of the
    
    President, Chief Financial Officer and DirectorBoard of Directors and Director
 
 37




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##### Table of Contents



Evaluation of Disclosure Controls and Procedures
  Managements Annual Report On Internal Control Over Financial Reporting
   Internal Control  Integrated
Framework
 Changes in Internal Control Over Financial Reporting
  
 Item 9B. OTHER INFORMATION
  38




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##### Table of Contents



PART III
 
 Item 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE
  Name
    
    Age
    
    PositionMark A. Houser
    
    
    46
    
    
    Chief Executive Officer and Chairman of the Board of DirectorsJames M. Vanderhider
    
    
    49
    
    
    President, Chief Financial Officer and DirectorKenneth Mariani
    
    
    46
    
    
    Senior Vice President, Chief Operating Officer and DirectorFrederick J. Stair
    
    
    48
    
    
    Vice President of AccountingBarry K. Lay
    
    
    51
    
    
    Vice President of OperationsSandra K. Fraley
    
    
    42
    
    
    Vice President of Land and Legal and SecretaryDavid M. Elkin
    
    
    42
    
    
    Vice President of EngineeringMark L. Barnhill
    
    
    52
    
    
    Vice President of ExplorationMatthew Coeny
    
    
    37
    
    
    Director
  Mark A. Houser.
 James M. Vanderhider.
 .
 39




---



##### Table of Contents



Kenneth Mariani.
  Frederick J. Stair.
 Barry K. Lay.
  Sandra K. Fraley.
  David M. Elkin.
 Mark L. Barnhill.
 40




---



##### Table of Contents



Matthew Coeny.
 Audit Committee
  Code of Ethics
  
 41




---



##### Table of Contents



Item 11. EXECUTIVE COMPENSATION
  Compensation of Directors
  Compensation Committee Interlocks and Insider Participation
  42




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##### Table of Contents



Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  Percentage ofFive Percent Shareholders
    
    Number of Shares
    
    SharesCapital C Energy Operations, LP (1)
1001 Fanin Street, Suite 800
Houston, Texas 77002
    
    
    1,534
    
    
    
    100.0
    %
 
 (1)
    
    Subsidiaries of EnerVest, Ltd., are the general partners of
the limited partnership that owns Capital C Energy
Operations, L.P. EnerVest, therefore, also may be deemed to
be a beneficial owner of the 1,534 shares (100%) of our
Common Stock. The address of EnerVest, Ltd., is 1001
Fannin Street, Suite 800, Houston, Texas 77002. EnerVest
is a Texas limited partnership. Messrs. John B. Walker,
Jon Rex Jones and A.V. Jones by virtue of their direct and
indirect ownership of the limited liability company that
acts as EnerVests general partner, may be deemed to
beneficially own the Common Stock beneficially owned by
EnerVest. Messrs. Walker, John Rex Jones and A.V. Jones
disclaim beneficial ownership of such Common Stock. The
addresses for Messrs. Walker, Jon Rex Jones and A.V. Jones
are the same as for EnerVest. Equity Compensation Plan Information:
  43




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##### Table of Contents



Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
     44




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##### Table of Contents



Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  December 31,2007
    
    
    2006Audit fees
    
    $
    408,500
    
    
    $
    390,000Audit-related fees
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    1,500$
    408,500
    
    
    $
    391,500
  Audit Committee Pre-Approval Policies and Procedures
  
 PART IV
 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
      45




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##### Table of Contents



No.
    
    Description2.1
    
    Agreement and Plan of Merger, dated as of June 15, 2004, by and among Capital C Energy
Operations, LP, Capital C Ohio, Inc. and Belden & Blake Corporation, incorporated by reference
to Exhibit 2.1 to Belden & Blake Corporations Form 8-K dated July 7, 2004 (as amended).3.1
    
    Amended and Restated Articles of Incorporation of Belden & Blake Corporation (fka Belden &
Blake Energy Corporation), incorporated by reference to Exhibit 3.1 to Belden & Blake
Corporations Form 8-K dated November 29, 2004.3.2
    
    Amended and Restated Code of Regulations of Belden & Blake Corporation, incorporated by
reference to Exhibit 3.2 to the Companys Registration Statement on Form S-4 (Registration No.
333-119194).4.1
    
    Indenture, dated as of July 7, 2004, by and among Belden & Blake Corporation, The Canton Oil
& Gas Company, Ward Lake Drilling, Inc. and BNY Midwest Trust Company, incorporated by
reference to Exhibit 4.2 to Belden & Blake Corporations Form 8-K dated July 7, 2004 (as
amended).10.1
    
    ISDA Master Agreement, dated as of June 30, 2004, between Capital C Ohio, Inc. and J. Aron &
Company, incorporated by reference to Exhibit 10.1 to Belden & Blake Corporations Form 8-K
dated July 7, 2004 (as amended).10.2
    
    First Amended and Restated Credit and Guaranty Agreement, dated as of August 16, 2005, by and
among Belden & Blake Corporation, as borrower, certain subsidiaries of Belden & Blake
Corporation, as guarantors, various lenders signatory thereto, and BNP Paribas., as sole lead
arranger, sole bookrunner, syndication agent and administrative agent (incorporated by
reference to Exhibit 10.1 to Belden & Blake Corporations Form 8-K dated August 22, 2005.10.3
    
    Collateral Trust Agreement, dated as of July 7, 2004, among Belden & Blake Corporation, the
other Pledgors party from time to time thereto, Goldman Sachs Credit Partners L.P., as
Administrative Agent under the Credit Agreement, J. Aron & Company, as Hedge Counterparty
under the Hedge Agreement, BNY Midwest Trust Company, as Trustee under the Indenture, and
Wells Fargo Bank, N.A., as Collateral Trustee, incorporated by reference to Exhibit 10.7 to
Belden & Blake Corporations Form 8-K dated July 7, 2004 (as amended).10.4
    
    Schedule to the ISDA Master Agreement, dated as of June 30, 2004 and amended and restated as
of August 16, 2005, by and between J. Aron & Company and Belden & Blake Corporation
(incorporated by reference to Exhibit 10.2 to Belden & Blakes 8- K filed on August 22, 2005)10.5
    
    Credit Support Annex to the Schedule to the ISDA Master Agreement, dated as of June 30, 2004
and amended and restated as of August 16, 2005, by and between J. Aron & Company and Belden &
Blake Corporation (incorporated by reference to Exhibit 10.3 to Belden & Blakes 8-K filed on
August 22, 2005)10.6
    
    Subordinated Promissory Note, dated August 16, 2005, between Capital C Energy Operations, LP
and Belden & Blake Corporation (incorporated by reference to Exhibit 10.8 to Belden & Blakes
8-K filed on August 22, 2005)10.7
    
    First Amendment to Credit Agreement, dated as of September 27, 2005, by and among Belden &
Blake Corporation and BNP Paribas, incorporated by reference to Exhibit 10.25 to the Belden &
Blake Corporations annual report on Form 10-K for the year ended December 31, 2005.10.8
    
    Operating Agreement dated October 1, 2005, by and between Belden & Blake Corporation and
EnerVest Operating L.L.C. incorporated by reference to Exhibit 10.26 to the Belden & Blake
Corporations annual report on Form 10-K for the year ended December 31, 2005.
 46




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##### Table of Contents



No.
    
    Description14.1
    
    Code of Ethics for Senior Financial Officers, incorporated by reference to Exhibit 14.1 to
Belden & Blake Corporations Annual Report on Form 10-K for the year ended December 31, 2003.31.1*
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2*
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1*
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2*
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith     47




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##### Table of Contents



SIGNATURES
  BELDEN & BLAKE CORPORATIONMarch 28, 2008
    
    By: /s/ Mark A. HouserDate
    
    Mark A. Houser, Chief Executive Officer, Chairman of the Board ofDirectors and Director
  /s/ Mark A. Houser

Mark A. Houser
    
    Chief Executive Officer
Chairman of the Board
of Directors and Director
(Principal Executive Officer)
    
    March 28, 2008
Date/s/ James M. Vanderhider

James M. Vanderhider
    
    President, Chief Financial
Officer and Director
(Principal Financial Officer)
    
    March 28, 2008
Date/s/ Frederick J. Stair

Frederick J. Stair
    
    Vice President of Accounting
(Principal Accounting Officer)
    
    March 28, 2008
DateKenneth Mariani
    
    Senior Vice President, Chief
Operating Officer and Director
    
    Date/s/ Matthew Coeny

Matthew Coeny
    
    Director
    
    March 28, 2008
Date
 48




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##### Table of Contents



BELDEN & BLAKE CORPORATION
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS AND SCHEDULES
 
 Item 15(a) (1) and (2)
 CONSOLIDATED FINANCIAL STATEMENTS
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2007 (Successor Company)
and December 31, 2006 (Successor Company)
    
    
    F-3Consolidated Statements of Operations:Years ended December 31, 2007 and 2006 (Successor Company)

138 day period from August 16, 2005 to December 31, 2005 (Successor Company)
227 day period from January 1, 2005 to August 15, 2005 (Predecessor I Company)
    
    
    F-4Consolidated Statements of Shareholders Equity (Deficit):Years ended December 31, 2007 and 2006 (Successor Company)
138 day period from August 16, 2005 to December 31, 2005 (Successor Company)
227 day period from January 1, 2005 to August 15, 2005 (Predecessor I Company)
    
    
    F-5Consolidated Statements of Cash Flows:Years Ended December 31, 2007 and 2006 (Successor Company)
138 day period from August 16, 2005 to December 31, 2005 (Successor Company)
227 day period from January 1, 2005 to August 15, 2005 (Predecessor I Company)
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
  F-1




---



##### Table of Contents



F-2




---



##### Table of Contents



BELDEN & BLAKE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 Successor CompanyDecember 31,2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    16,014
    
    
    $
    5,927Accounts receivable (less accumulated provision for doubtful accounts:
    
    
    18,071
    
    
    
    19,855December 31, 2007- $806; December 31, 2006 - $1,271)Inventories
    
    
    1,084
    
    
    
    885Deferred income taxes
    
    
    17,282
    
    
    
    12,607Other current assets
    
    
    370
    
    
    
    510Fair value of derivatives
    
    
    37
    
    
    
    378Total current assets
    
    
    52,858
    
    
    
    40,162Property and equipment, at costOil and gas properties (successful efforts method)
    
    
    713,912
    
    
    
    692,576Gas gathering systems
    
    
    1,308
    
    
    
    1,305Land, buildings, machinery and equipment
    
    
    2,761
    
    
    
    3,031717,981
    
    
    
    696,912Less accumulated depreciation, depletion and amortization
    
    
    88,549
    
    
    
    52,564Property and equipment, net
    
    
    629,432
    
    
    
    644,348Goodwill
    
    
    90,076
    
    
    
    90,076Fair value of derivatives
    
    
    29
    
    
    
    193Other assets
    
    
    1,830
    
    
    
    2,244$
    774,225
    
    
    $
    777,023LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    2,656
    
    
    $
    2,259Accrued expenses
    
    
    20,363
    
    
    
    21,554Current portion of long-term liabilities
    
    
    367
    
    
    
    408Fair value of derivatives
    
    
    43,696
    
    
    
    27,576Total current liabilities
    
    
    67,082
    
    
    
    51,797Long-term liabilitiesBank and other long-term debt
    
    
    99,947
    
    
    
    95,454Senior secured notes
    
    
    164,240
    
    
    
    165,106Subordinated promissory note  related party
    
    
    26,931
    
    
    
    25,000Asset retirement obligations and other long-term liabilities
    
    
    22,164
    
    
    
    20,627Fair value of derivatives
    
    
    192,661
    
    
    
    160,011Deferred income taxes
    
    
    98,977
    
    
    
    115,325Total long-term liabilities
    
    
    604,920
    
    
    
    581,523Shareholders equityCommon stock: without par value; 3,000 shares
authorized; 1,534 shares issued
    
    
    
    
    
    
    Additional paid in capital
    
    
    125,000
    
    
    
    125,000Retained earnings
    
    
    (3,810
    )
    
    
    41,262Accumulated other comprehensive loss
    
    
    (18,967
    )
    
    
    (22,559
    )Total shareholders equity
    
    
    102,223
    
    
    
    143,703$
    774,225
    
    
    $
    777,023
  F-3




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##### Table of Contents



BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
 Successor Company
    
    
    
    Predecessor I CompanyFor the 138 DayPeriod From August
    
    
    
    For the 227 Day PeriodFor the Year Ended
    
    
    For the Year Ended
    
    
    16, 2005 to
    
    
    
    From January 1, 2005December 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005
    
    
    
    to August 15, 2005RevenuesOil and gas sales
    
    $
    114,427
    
    
    $
    147,122
    
    
    $
    69,954
    
    
    
    $
    71,400Gas gathering and marketing
    
    
    10,275
    
    
    
    11,294
    
    
    
    6,551
    
    
    
    
    6,439Other
    
    
    954
    
    
    
    674
    
    
    
    166
    
    
    
    
    284125,656
    
    
    
    159,090
    
    
    
    76,671
    
    
    
    
    78,123ExpensesProduction expense
    
    
    24,585
    
    
    
    23,692
    
    
    
    9,831
    
    
    
    
    13,582Production taxes
    
    
    2,265
    
    
    
    2,404
    
    
    
    1,674
    
    
    
    
    1,742Gas gathering and marketing
    
    
    8,640
    
    
    
    9,360
    
    
    
    5,481
    
    
    
    
    5,629Exploration expense
    
    
    1,935
    
    
    
    1,797
    
    
    
    1,229
    
    
    
    
    2,424General and administrative expense
    
    
    8,236
    
    
    
    9,796
    
    
    
    2,163
    
    
    
    
    3,964Depreciation, depletion and amortization
    
    
    36,087
    
    
    
    38,074
    
    
    
    14,183
    
    
    
    
    20,267Impairment of oil and gas properties
    
    
    31
    
    
    
    546
    
    
    
    
    
    
    
    
    Accretion expense
    
    
    1,290
    
    
    
    1,226
    
    
    
    407
    
    
    
    
    745Derivative
fair value loss (gain)
    
    
    78,120
    
    
    
    (37,356
    )
    
    
    5,054
    
    
    
    
    8,258Transaction expense
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    7,535161,189
    
    
    
    49,539
    
    
    
    40,029
    
    
    
    
    64,146Operating (loss) income
    
    
    (35,533
    )
    
    
    109,551
    
    
    
    36,642
    
    
    
    
    13,977Other (income) expense(Gain) on early extinguishment of debt
    
    
    
    
    
    
    (436
    )
    
    
    
    
    
    
    
    Interest expense
    
    
    23,712
    
    
    
    23,553
    
    
    
    8,684
    
    
    
    
    15,784(Loss) income before income taxes
    
    
    (59,245
    )
    
    
    86,434
    
    
    
    27,958
    
    
    
    
    (1,807
    )(Benefit) provision for income taxes
    
    
    (23,923
    )
    
    
    34,235
    
    
    
    10,395
    
    
    
    
    (1,487
    )Net (loss) income
    
    $
    (35,322
    )
    
    $
    52,199
    
    
    $
    17,563
    
    
    
    $
    (320
    )
  F-4




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##### Table of Contents



BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
(in thousands)
 Successor Company
    
    
    Predecessor I Company
    
    
    
    
    
    
    
    
    
    
    Accumulated Other
    
    
    TotalCommon
    
    
    Common
    
    
    Common
    
    
    Common
    
    
    Paid in
    
    
    Equity
    
    
    Comprehensive
    
    
    EquityShares
    
    
    Stock
    
    
    Shares
    
    
    Stock
    
    
    Capital
    
    
    (Deficit)
    
    
    Income
    
    
    (Deficit)January 1, 2005
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    77,500
    
    
    
    7,263
    
    
    
    (27,675
    )
    
    
    57,088Predecessor I Company:Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (320
    )
    
    
    
    
    
    
    (320
    )Other comprehensive income (loss), net of tax:Change in derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (140,613
    )
    
    
    (140,613
    )Reclassification adjustment for derivative (gain) loss
reclassified into oil and gas sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,888
    
    
    
    11,888Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (129,045
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,586
    
    
    
    
    
    
    
    
    
    
    
    2,586Redemption of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80,086
    )
    
    
    (6,943
    )
    
    
    156,400
    
    
    
    69,371Equity
adjustment due to purchase accounting
    
    
    2
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    116,000
    
    
    
    
    
    
    
    
    
    
    
    116,000Equity contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    9,000August 16, 2005
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000
    
    
    
    
    
    
    
    
    
    
    
    125,000Successor Company:Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,563
    
    
    
    
    
    
    
    17,563Other comprehensive income (loss), net of tax:Change in derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,654
    )
    
    
    (55,654
    )Reclassification adjustment for derivative (gain) loss
reclassified into oil and gas sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,990
    
    
    
    10,990Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,101
    )Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,500
    )
    
    
    
    
    
    
    (8,500
    )December 31, 2005
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000
    
    
    
    9,063
    
    
    
    (44,664
    )
    
    
    89,399Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,199
    
    
    
    
    
    
    
    52,199Other comprehensive income (loss), net of tax:Change in derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,933
    
    
    
    19,933Reclassification adjustment for derivative (gain) loss
reclassified into oil and gas sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,172
    
    
    
    2,172Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,304Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,000
    )
    
    
    
    
    
    
    (20,000
    )December 31, 2006
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    125,000
    
    
    $
    41,262
    
    
    $
    (22,559
    )
    
    $
    143,703Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,322
    )
    
    
    
    
    
    
    (35,322
    )Other comprehensive income (loss), net of tax:Change in derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,371
    
    
    
    4,371Reclassification adjustment for derivative (gain) loss
reclassified into oil and gas sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (779
    )
    
    
    (779
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,730
    )Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,750
    )
    
    
    
    
    
    
    (9,750
    )December 31, 2007
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    125,000
    
    
    $
    (3,810
    )
    
    $
    (18,967
    )
    
    $
    102,223
  F-5




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##### Table of Contents



BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Predecessor ISuccessor Company
    
    
    
    CompanyFor the 138 Day
    
    
    
    For the 227 DayFor the Year
    
    
    For the Year
    
    
    Period From
    
    
    
    Period FromEnded
    
    
    Ended
    
    
    August 16, 2005 to
    
    
    
    January 1, 2005December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    
    to August 15,2007
    
    
    2006
    
    
    2005
    
    
    
    2005Cash flows from operating activities:Net (loss) income
    
    $
    (35,322
    )
    
    $
    52,199
    
    
    $
    17,563
    
    
    
    $
    (320
    )Adjustments to reconcile net (loss) income
to net cash provided by operating activities:Depreciation, depletion and amortization
    
    
    36,087
    
    
    
    38,074
    
    
    
    14,183
    
    
    
    
    20,267Impairment of oil and gas properties
    
    
    31
    
    
    
    546
    
    
    
    
    
    
    
    
    Accretion expense
    
    
    1,290
    
    
    
    1,226
    
    
    
    407
    
    
    
    
    745(Gain) loss on debt extinguishment and disposal of property and equipment
    
    
    (75
    )
    
    
    (472
    )
    
    
    57
    
    
    
    
    86Amortization of derivatives and other noncash derivative activities
    
    
    84,901
    
    
    
    (56,057
    )
    
    
    9,511
    
    
    
    
    12,344Exploration expense
    
    
    610
    
    
    
    738
    
    
    
    1,229
    
    
    
    
    2,424Deferred income taxes
    
    
    (23,923
    )
    
    
    33,710
    
    
    
    10,395
    
    
    
    
    (1,487
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,586Other non-cash expense
    
    
    2,783
    
    
    
    1,483
    
    
    
    158
    
    
    
    
    998Change in operating assets and liabilities, net of
effects of acquisition and disposition of businesses:Accounts receivable and other operating assets
    
    
    1,734
    
    
    
    5,210
    
    
    
    (1,421
    )
    
    
    
    213Inventories
    
    
    (266
    )
    
    
    100
    
    
    
    484
    
    
    
    
    (85
    )Accounts payable and accrued expenses
    
    
    219
    
    
    
    (10,201
    )
    
    
    9,813
    
    
    
    
    (8,845
    )Net cash provided by operating activities
    
    
    68,069
    
    
    
    66,556
    
    
    
    62,379
    
    
    
    
    28,926Cash flows from investing activities:Proceeds from property and equipment disposals
    
    
    267
    
    
    
    7,419
    
    
    
    21
    
    
    
    
    5Exploration expense
    
    
    (610
    )
    
    
    (738
    )
    
    
    (1,229
    )
    
    
    
    (2,424
    )Additions to property and equipment
    
    
    (22,696
    )
    
    
    (36,839
    )
    
    
    (11,640
    )
    
    
    
    (17,177
    )Decrease (increase) in other assets
    
    
    (10
    )
    
    
    (18
    )
    
    
    (26
    )
    
    
    
    (34
    )Net cash used in investing activities
    
    
    (23,049
    )
    
    
    (30,176
    )
    
    
    (12,874
    )
    
    
    
    (19,630
    )Cash flows from financing activities:Repayment of senior secured notes
    
    
    
    
    
    
    (33,933
    )
    
    
    
    
    
    
    
    Proceeds from senior secured facility
    
    
    
    
    
    
    
    
    
    
    37,000
    
    
    
    
    57,000Proceeds from subordinated promissory note
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000Payment to shareholders and optionholders or dividends
    
    
    (9,750
    )
    
    
    (20,000
    )
    
    
    (8,500
    )
    
    
    
    Settlement of derivative liabilities recorded in purchase accounting
    
    
    (29,659
    )
    
    
    (28,042
    )
    
    
    (34,360
    )
    
    
    
    (20,440
    )Debt issue costs
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    
    (2,120
    )Repayment of senior secured facility  term loan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (89,500
    )Repayment of senior secured facility
    
    
    
    
    
    
    
    
    
    
    (42,000
    )
    
    
    
    Proceeds from revolving line of credit
    
    
    6,500
    
    
    
    55,376
    
    
    
    
    
    
    
    
    Repayment of revolving line of credit
    
    
    (2,000
    )
    
    
    (12,000
    )
    
    
    
    
    
    
    
    Repayment of long-term debt and other obligations
    
    
    (24
    )
    
    
    (26
    )
    
    
    (5
    )
    
    
    
    (84
    )Equity contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,000Net cash used in financing activities
    
    
    (34,933
    )
    
    
    (38,625
    )
    
    
    (47,892
    )
    
    
    
    (21,144
    )Net increase (decrease)in cash and equivalents
    
    
    10,087
    
    
    
    (2,245
    )
    
    
    1,613
    
    
    
    
    (11,848
    )Cash and cash equivalents at beginning of period
    
    
    5,927
    
    
    
    8,172
    
    
    
    6,559
    
    
    
    
    18,407Cash and cash equivalents at end of period
    
    $
    16,014
    
    
    $
    5,927
    
    
    $
    8,172
    
    
    
    $
    6,559
 See accompanying notes.
 F-6




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##### Table of Contents



BELDEN & BLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) Transaction and Merger
      
    
    Cost savings and operational synergies of the Company when combined with the other
operations managed by EnerVest. These savings include the elimination of duplicative
facilities, reduction of personnel and operating and development costs through the
management of a larger asset base.
    
    The affiliation with EnerVest, an acquisition-focused company, coupled with the enhanced
presence in the Appalachian and Michigan basins with EnerVests other operations, provides
the opportunity to create value by highgrading investment opportunities and identifying new
investment opportunities.
    
    The going-concern value of the Company, including its experienced workforce.
    
    A deferred tax liability was recorded to recognize the difference between the historical
tax basis of the assets and the acquisition costs recorded for book purposes. Goodwill was
recorded to recognize this tax basis differential.
 F-7




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##### Table of Contents



Goodwill and Other Intangible Assets
         F-8




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##### Table of Contents



(2) Business and Significant Accounting Policies
 Business
  Principles of Consolidation and Financial Presentation
  Use of Estimates in the Financial Statements
  F-9




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##### Table of Contents



Cash Equivalents
  Concentrations of Credit Risk
  Inventories
  Property and Equipment
      F-10




---



##### Table of Contents



Goodwill and Other Intangible Assets
    Revenue Recognition
  Income Taxes
  Stock-Based Compensation
  F-11




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##### Table of Contents



Derivatives and Hedging
   F-12




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##### Table of Contents



Asset Retirement Obligations
   Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2007
    
    
    2006Beginning asset retirement obligations
    
    $
    20,734
    
    
    $
    19,389Liabilities incurred
    
    
    220
    
    
    
    523Liabilities settled
    
    
    (219
    )
    
    
    (543
    )Accretion expense
    
    
    1,290
    
    
    
    1,219Revisions in estimated cash flows
    
    
    239
    
    
    
    146Ending asset retirement obligations
    
    $
    22,264
    
    
    $
    20,734
 (3) New Accounting Pronouncements
      Fair
Value Measurements, Effective Date of FASB Statement No.
157
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 F-13




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##### Table of Contents



Business Combinations
 
    
    acquisition costs will generally be expensed as incurred;
    
    noncontrolling interests will be valued at fair value at the date of acquisition; and
    
    liabilities related to contingent consideration will be recorded at fair value at the
date of acquisition and subsequently remeasured each subsequent reporting period. SFAS No.
141(R) is effective for fiscal years beginning after December 15, 2008. We will adopt SFAS
No. 141(R) on January 1, 2009, and we have not yet determined the impact, if any, on our
consolidated financial statements.
 Noncontrolling Interests in Consolidated
Financial Statements  An Amendment of ARB No. 51
 (4) Dispositions
   (5) Derivatives and Hedging
  F-14




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##### Table of Contents



Natural Gas Swaps
    
    Crude Oil Swaps
    
    Natural Gas Basis SwapsNYMEX
    
    
    
    
    
    NYMEXPrice per
    
    Estimated
    
    Price per
    
    
    
    BasisYear Ending
    
    Bbtu
    
    Mmbtu
    
    Mbbls
    
    Bbl
    
    Bbtu
    
    DifferentialDecember 31, 2008
    
    
    10,126
    
    
    $
    4.64
    
    
    
    208
    
    
    $
    29.96
    
    
    
    
    
    
    $
    December 31, 2009
    
    
    9,529
    
    
    
    4.43
    
    
    
    191
    
    
    
    29.34
    
    
    
    3,650
    
    
    
    0.345December 31, 2010
    
    
    8,938
    
    
    
    4.28
    
    
    
    175
    
    
    
    28.86
    
    
    
    3,650
    
    
    
    0.325December 31, 2011
    
    
    8,231
    
    
    
    4.19
    
    
    
    157
    
    
    
    28.77
    
    
    
    3,285
    
    
    
    0.325December 31, 2012
    
    
    7,005
    
    
    
    4.09
    
    
    
    138
    
    
    
    28.70
    
    
    
    
    
    
    
    December 31, 2013
    
    
    6,528
    
    
    
    4.04
    
    
    
    127
    
    
    
    28.70
    
    
    
    
    
    
    
    
 F-15




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##### Table of Contents



F-16




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##### Table of Contents



(6) Details of Balance Sheets
 December 31,2007
    
    
    
    2006(in thousands)Accounts receivableAccounts receivable
    
    $
    3,509
    
    
    
    $
    3,820Allowance for doubtful accounts
    
    
    (806
    )
    
    
    
    (1,271
    )Oil and gas production receivable
    
    
    15,368
    
    
    
    
    17,306$
    18,071
    
    
    
    $
    19,855InventoriesOil
    
    $
    671
    
    
    
    $
    796Natural gas
    
    
    
    
    
    
    
    Material, pipe and supplies
    
    
    413
    
    
    
    
    89$
    1,084
    
    
    
    $
    885Property and equipment, gross
Oil and gas propertiesProducing properties
    
    $
    628,707
    
    
    
    $
    597,631Non-producing propertiesProved
    
    
    66,793
    
    
    
    
    75,483Unproved
    
    
    18,344
    
    
    
    
    18,719Other
    
    
    68
    
    
    
    
    743$
    713,912
    
    
    
    $
    692,576Land, buildings, machinery and equipmentLand, buildings and improvements
    
    $
    838
    
    
    
    $
    1,091Machinery and equipment
    
    
    1,923
    
    
    
    
    1,940$
    2,761
    
    
    
    $
    3,031Accrued expensesAccrued interest expense
    
    $
    6,499
    
    
    
    $
    6,631Accrued other expenses
    
    
    6,230
    
    
    
    
    6,256Accrued drilling and completion costs
    
    
    1,296
    
    
    
    
    1,784Accrued income taxes
    
    
    2
    
    
    
    
    525Ad valorem and other taxes
    
    
    985
    
    
    
    
    911Compensation and related benefits
    
    
    
    
    
    
    
    Undistributed production revenue
    
    
    5,351
    
    
    
    
    5,447$
    20,363
    
    
    
    $
    21,554
 F-17




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##### Table of Contents



(7) Long-Term Debt
  December 31,2007
    
    
    
    2006Senior secured notes
    
    $
    159,475
    
    
    
    $
    159,475Bank revolving credit facility
    
    
    99,876
    
    
    
    
    95,376Subordinated promissory note (related party)
    
    
    26,931
    
    
    
    
    25,000Other
    
    
    79
    
    
    
    
    85286,361
    
    
    
    
    279,936Less current portion
    
    
    8
    
    
    
    
    7Long-term debt
    
    
    286,353
    
    
    
    
    279,929Fair value adjustment  senior secured notes
    
    
    4,765
    
    
    
    
    5,631$
    291,118
    
    
    
    $
    285,560
 Senior Secured Notes due 2012
  July 15, 2008
    
    
    104.375
    %July 15, 2009
    
    
    102.188
    %July 15, 2010 and thereafter
    
    
    100.000
    %
  Amended Credit Agreement
  F-18




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F-19




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##### Table of Contents



ISDA Master Agreement
   (8) Leases
    Operating
    
    
    CapitalAs of December 31, 2007
    
    Leases
    
    
    Leases(in thousands)2008
    
    $
    4,330
    
    
    $
    22009
    
    
    4,091
    
    
    
    2010
    
    
    2,371
    
    
    
    2011
    
    
    
    
    
    
    2012 and thereafter
    
    
    
    
    
    
    Total minimum rental payments
    
    $
    10,792
    
    
    
    2Less amount representing interest
    
    
    
    
    
    
    Present value of net minimum rental payments
    
    
    
    
    
    
    2Less current portion
    
    
    
    
    
    
    2Long-term capitalized lease obligations
    
    
    
    
    
    $
    
 F-20




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##### Table of Contents



(9) Stock Option Plans
  F-21




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##### Table of Contents



(10) Taxes
  Predecessor ISuccessor Company
    
    
    
    CompanyFor the 138
    
    
    
    For the 227Day Period
    
    
    
    Day PeriodFor the year
    
    
    For the year
    
    
    from August
    
    
    
    from Januaryended
    
    
    ended
    
    
    16, 2005 to
    
    
    
    1, 2005 toDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    
    August 15,2007
    
    
    2006
    
    
    2005
    
    
    
    2005CurrentFederal
    
    $
    (525
    )
    
    $
    525
    
    
    $
    
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (525
    )
    
    
    525
    
    
    
    
    
    
    
    
    DeferredFederal
    
    
    (20,499
    )
    
    
    29,771
    
    
    
    9,470
    
    
    
    
    (302
    )State
    
    
    (2,899
    )
    
    
    3,938
    
    
    
    925
    
    
    
    
    (1,185
    )(23,398
    )
    
    
    33,709
    
    
    
    10,395
    
    
    
    
    (1,487
    )Total
    
    $
    (23,923
    )
    
    $
    34,234
    
    
    $
    10,395
    
    
    
    $
    (1,487
    )
  Predecessor ISuccessor Company
        
    
    CompanyFor the 138
        
    
    For the 227Day Period
        
    
    Day PeriodFor the year
    
    For the year
    
    From August
        
    
    from Januaryended
    
    ended
    
    16, 2005 to
        
    
    1, 2005 toDecember 31,
    
    December 31,
    
    December 31,
        
    
    August 15,2007
    
    2006
    
    2005
        
    
    2005Statutory federal income tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %
        
    
    
    35.0Increases (reductions) in taxes
resulting from:State income taxes, net of
federal tax benefit
    
    
    4.6
    
    
    
    4.6
    
    
    
    2.2
    
        
    
    
    42.6Transaction related expensesPermanent differences
    
    
    
    
    
    
    
    
    
    
    
    
        
    
    
    2.0Other, net
    
    
    0.8
    
    
    
    
    
    
    
    
    
        
    
    
    2.7Effective income tax rate for
the period
    
    
    40.4
    %
    
    
    39.6
    %
    
    
    37.2
    %
        
    
    
    82.3
  F-22




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##### Table of Contents



December 31,
    
    
    December 31,2007
    
    
    2006Deferred income tax liabilities:Property and equipment, net
    
    $
    213,509
    
    
    $
    214,292Other, net
    
    
    2,559
    
    
    
    198Total deferred income tax liabilities
    
    
    216,068
    
    
    
    214,490Deferred income tax assets:Accrued expenses
    
    
    882
    
    
    
    882Asset retirement obligations
    
    
    8,062
    
    
    
    7,551Fair value of derivatives
    
    
    102,286
    
    
    
    83,522Net operating loss carryforwards
    
    
    29,429
    
    
    
    26,101Senior Secured Notes
    
    
    2,913
    
    
    
    2,913Tax credit carryforwards
    
    
    1,775
    
    
    
    1,775Other, net
    
    
    502
    
    
    
    503Valuation allowance
    
    
    (11,476
    )
    
    
    (11,476
    )Total deferred income tax assets
    
    
    134,373
    
    
    
    111,771Net deferred income tax liability
    
    $
    81,695
    
    
    $
    102,719Long-term liability
    
    $
    98,977
    
    
    $
    115,326Current asset
    
    
    (17,282
    )
    
    
    (12,607
    )Net deferred income tax liability
    
    $
    81,695
    
    
    $
    102,719
   (11) Profit Sharing and Retirement Plans
   F-23




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##### Table of Contents



(12) Commitments and Contingencies
  F-24




---



##### Table of Contents



(13) Supplemental Disclosure of Cash Flow Information
 PredecessorSuccessor Company
    
    
    I Company138 Day
    
    
    227 DayPeriod From
    
    
    Period FromFor the year
    
    For the year
    
    August 16,
    
    
    January 1,ended
    
    ended
    
    2005 to
    
    
    2005 toDecember 31,
    
    December 31,
    
    December
    
    
    August 15,(in thousands)
    
    2007
    
    2006
    
    31, 2005
    
    
    2005Cash paid during
the period for:Interest
    
    $
    17,939
    
    
    $
    25,317
    
    
    $
    2,433
    
    
    
    $
    21,885Income taxes, net
of refunds
    
    
    
    
    
    
    
    
    
    
    (163
    )
    
    
    
    500Non-cash investing
and financing
activities:Acquisition of
assets in exchange
for long-term
liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 (14) Fair Value of Financial Instruments
   F-25




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##### Table of Contents



(15) Supplementary Information on Oil and Gas Activities (Unaudited)
  Predecessor ISuccessor Company
    
    
    Company138 Day
    
    
    227 DayPeriod From
    
    
    Period FromAugust 15,
    
    
    January 1,2005 to
    
    
    2005 toDecember 31,
    
    December 31,
    
    December 31,
    
    
    August 15,(in thousands)
    
    2007
    
    2006
    
    2005
    
    
    2005Acquisition costs:Proved properties
    
    
    107
    
    
    $
    16
    
    
    $
    33
    
    
    
    $
    16Unproved properties
    
    
    567
    
    
    
    511
    
    
    
    118
    
    
    
    
    317Developmental costs
    
    
    21,910
    
    
    
    36,052
    
    
    
    8,067
    
    
    
    
    18,700Exploratory costs
    
    
    1,935
    
    
    
    2,343
    
    
    
    1,229
    
    
    
    
    2,424
 Estimated Proved Oil and Gas Reserves (Unaudited)
  F-26




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##### Table of Contents



Successor Company
    
    
    Predecessor I Company
    
    
    Total (non-GAAP)Oil
    
    Gas
    
    
    Oil
    
    Gas
    
    
    Oil
    
    Gas(Mbbl)(1)
    
    (Mmcf)(2)
    
    

(Mbbl)(1)
    
    (Mmcf)(2)
    
    

(Mbbl)(1)
    
    (Mmcf)(2)
    
    Mmcfe(3)January 1, 2005
    
    
    
    
    
    
    
    
    
    
    
    5,579
    
    
    
    251,326
    
    
    
    
    5,579
    
    
    
    251,326
    
    
    
    284,800Extensions and discoveries
    
    
    32
    
    
    
    2,037
    
    
    
    
    3
    
    
    
    3,532
    
    
    
    
    35
    
    
    
    5,569
    
    
    
    5,779Purchase of reserves in place
    
    
    
    
    
    
    1,586
    
    
    
    
    
    
    
    
    690
    
    
    
    
    
    
    
    
    2,276
    
    
    
    2,276EnerVest transaction
    
    
    5,552
    
    
    
    249,335
    
    
    
    
    (5,552
    )
    
    
    (249,335
    )
    
    
    
    
    
    
    
    
    
    
    
    Revisions of previous estimates
    
    
    (232
    )
    
    
    (794
    )
    
    
    
    186
    
    
    
    2,863
    
    
    
    
    (46
    )
    
    
    2,069
    
    
    
    1,793Production
    
    
    (142
    )
    
    
    (5,484
    )
    
    
    
    (216
    )
    
    
    (9,076
    )
    
    
    
    (358
    )
    
    
    (14,560
    )
    
    
    (16,710
    )December 31, 2005
    
    
    5,210
    
    
    
    246,680
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,210
    
    
    
    246,680
    
    
    
    277,938Extensions and discoveries
    
    
    156
    
    
    
    12,892
    
    
    
    
    
    
    
    
    
    
    
    
    
    156
    
    
    
    12,892
    
    
    
    13,830Purchase of reserves in place
    
    
    41
    
    
    
    881
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    881
    
    
    
    1,130Sale of reserves in place
    
    
    
    
    
    
    (1,342
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,342
    )
    
    
    (1,342
    )Revisions of previous estimates
    
    
    146
    
    
    
    (11,996
    )
    
    
    
    
    
    
    
    
    
    
    
    
    146
    
    
    
    (11,996
    )
    
    
    (11,123
    )Production
    
    
    (372
    )
    
    
    (14,104
    )
    
    
    
    
    
    
    
    
    
    
    
    
    (372
    )
    
    
    (14,104
    )
    
    
    (16,337
    )December 31, 2006
    
    
    5,181
    
    
    
    233,011
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,181
    
    
    
    233,011
    
    
    
    264,096Extensions and discoveries
    
    
    153
    
    
    
    4,853
    
    
    
    
    
    
    
    
    
    
    
    
    
    153
    
    
    
    4,853
    
    
    
    5,771Purchase of reserves in place
    
    
    
    
    
    
    5,340
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,340
    
    
    
    5,340Revisions of previous estimates
    
    
    163
    
    
    
    (2,647
    )
    
    
    
    
    
    
    
    
    
    
    
    
    163
    
    
    
    (2,647
    )
    
    
    (1,668
    )Production
    
    
    (348
    )
    
    
    (13,357
    )
    
    
    
    
    
    
    
    
    
    
    
    
    (348
    )
    
    
    (13,357
    )
    
    
    (15,445
    )December 31, 2007
    
    
    5,149
    
    
    
    227,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,149
    
    
    
    227,200
    
    
    
    258,094Proved developed reservesDecember 31, 2005
    
    
    3,822
    
    
    
    203,443
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,822
    
    
    
    203,443
    
    
    
    226,375December 31, 2006
    
    
    3,832
    
    
    
    188,374
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,832
    
    
    
    188,374
    
    
    
    211,368December 31, 2007
    
    
    3,890
    
    
    
    186,765
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,890
    
    
    
    186,765
    
    
    
    210,105
 
 (1)
    
    Thousand barrels(2)
    
    Million cubic feet(3)
    
    Million cubic feet equivalent, barrels are converted to Mcfe based on one barrel of oil to six Mcf of natural gas equivalent. Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
(Unaudited)
  F-27




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##### Table of Contents



-
    
    Future revenues were based on year-end oil and gas prices. Future
price changes were included only to the extent provided by existing
contractual agreements.-
    
    Production and development costs were computed using year-end costs
assuming no change in present economic conditions.-
    
    Future net cash flows were discounted at an annual rate of 10%.-
    
    Future income taxes were computed using the approximate statutory tax
rate and giving effect to available net operating losses, tax credits
and statutory depletion.
  December 31,2007
    
    
    
    2006
    
    
    
    2005(in thousands)Estimated future cash inflows (outflows)Revenues from the sale of oil and gas
    
    $
    2,190,884
    
    
    
    $
    1,672,532
    
    
    
    $
    2,726,170Production costs
    
    
    (590,328
    )
    
    
    
    (526,928
    )
    
    
    
    (639,366
    )Development costs
    
    
    (152,465
    )
    
    
    
    (134,553
    )
    
    
    
    (128,933
    )Future income taxes
    
    
    (497,904
    )
    
    
    
    (316,413
    )
    
    
    
    (651,594
    )Future net cash flows
    
    
    950,187
    
    
    
    
    694,638
    
    
    
    
    1,306,27710% timing discount
    
    
    (561,301
    )
    
    
    
    (395,157
    )
    
    
    
    (760,513
    )Standardized measure of discounted
future net cash flows
    
    $
    388,886
    
    
    
    $
    299,481
    
    
    
    $
    545,764
   December 31,2007
    
    2006
    
    2005Gas (per Mcf)
    
    $
    7.54
    
    
    $
    5.91
    
    
    $
    9.83Oil (per Bbl)
    
    
    92.77
    
    
    
    57.21
    
    
    
    57.64
 F-28




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##### Table of Contents



Predecessor ISuccessor Company
    
    
    
    Company138 Day Period
    
    
    
    227 Day PeriodFrom August 16,
    
    
    
    From JanuaryYear ended
    
    
    Year ended
    
    
    2005 to
    
    
    
    1, 2005 toDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    
    August 15,2007
    
    
    2006
    
    
    2005
    
    
    
    2005Beginning of year
    
    $
    299,481
    
    
    $
    545,764
    
    
    $
    575,512
    
    
    
    $
    345,712Sale of oil and gas, net of production costs
    
    
    (96,317
    )
    
    
    (102,710
    )
    
    
    (60,103
    )
    
    
    
    (56,391
    )Extensions and discoveries, less related estimated
future development and production costs
    
    
    14,720
    
    
    
    25,806
    
    
    
    6,422
    
    
    
    
    11,608Previously estimated development costs incurred
during the period
    
    
    21,910
    
    
    
    29,477
    
    
    
    8,503
    
    
    
    
    16,667Purchase of reserves in place less
estimated future production costs
    
    
    2,728
    
    
    
    170
    
    
    
    3,014
    
    
    
    
    1,504Sale of reserves in place less
estimated future production costs
    
    
    
    
    
    
    (4,122
    )
    
    
    
    
    
    
    
    Changes in estimated future development costs
    
    
    (7,337
    )
    
    
    (33,665
    )
    
    
    (13,903
    )
    
    
    
    (13,356
    )Revisions of previous quantity estimates
    
    
    (237
    )
    
    
    (20,621
    )
    
    
    (6,964
    )
    
    
    
    13,150Net changes in prices and production costs
    
    
    196,244
    
    
    
    (354,397
    )
    
    
    (28,924
    )
    
    
    
    367,871Change in income taxes
    
    
    (75,511
    )
    
    
    148,217
    
    
    
    20,419
    
    
    
    
    (142,102
    )Accretion of 10% timing discount
    
    
    29,948
    
    
    
    83,145
    
    
    
    33,060
    
    
    
    
    31,857Changes in production rates (timing) and other
    
    
    3,257
    
    
    
    (17,583
    )
    
    
    8,728
    
    
    
    
    (1,008
    )End of period
    
    $
    388,886
    
    
    $
    299,481
    
    
    $
    545,764
    
    
    
    $
    575,512
 (16) Industry Segment Financial Information
  Major customers
  F-29




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##### Table of Contents



(17) Quarterly Results of Operations (Unaudited)
  First
    
    Second
    
    Third
    
    Fourth2007Operating revenues
    
    $
    29,422
    
    
    $
    34,801
    
    
    $
    29,420
    
    
    $
    31,059Gross profit
    
    
    11,580
    
    
    
    15,676
    
    
    
    11,555
    
    
    
    12,379Net (loss) income
    
    
    (23,299
    )
    
    
    2,415
    
    
    
    7,268
    
    
    
    (21,706
    )2006Operating revenues
    
    $
    44,688
    
    
    $
    38,466
    
    
    $
    34,050
    
    
    $
    41,212Gross profit
    
    
    25,314
    
    
    
    21,604
    
    
    
    14,806
    
    
    
    20,941Net income
    
    
    5,388
    
    
    
    4,744
    
    
    
    34,195
    
    
    
    7,872
 (18) Related Party Transactions
       F-30




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F-31