##### Table of Contents



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, 2008
 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
 Yes o No þ
 Yes þ No o
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 Yes o No þ




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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)EXHIBIT INDEXExhibit 10.9Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2    Table of Contents     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 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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##### Table of Contents




    
    Set the Borrowing Base at $100 million.
 
    
    Set the Borrowing Base redetermination dates to March 15th and September
15theach year.
 
    
    Prohibit payment of dividends to our shareholder.
 
    
    Prohibit Senior Secured Note repurchases by the Company.
 
    
    Prohibit principal or cash interest payments on the Capital C Subordinated Note.
 
    
    Prohibit borrowings to fund restructuring of the hedge agreements.
 
    
    Require the pay down of the Amended Credit Agreement with certain proceeds of asset
sales and equity contributions, of which $20 million is required to be paid by July
15, 2009.
 
    
    Reduce the Borrowing Base by the amount of each repayment until the aggregate
amount of such repayments is equal to $30 million.
 
    
    Increase the percentage of the value of total proved reserves that is required to
be mortgaged from 75% to 80% effective May 31, 2009.
    Impairment of goodwill
   5




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DESCRIPTION OF BUSINESS
 Overview
      6




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Oil and Gas Reserves
  December 31,2008
    
    
    2007
    
    
    2006Estimated proved reservesGas (Bcf)
    
    
    199.8
    
    
    
    227.2
    
    
    
    233.0Oil (Mbbl)
    
    
    3,833
    
    
    
    5,149
    
    
    
    5,181Bcfe
    
    
    222.8
    
    
    
    258.1
    
    
    
    264.1
    December 31,2008
    
    
    2007
    
    
    2006Gas (per Mcf)
    
    $
    6.38
    
    
    $
    7.54
    
    
    $
    5.91Oil (per Bbl)
    
    
    41.00
    
    
    
    92.77
    
    
    
    57.21
    7




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Appalachian Basin  Conventional Properties
    Michigan Basin Properties
    Appalachian Basin  Coalbed Methane Properties
  Oil and Gas Operations and Production
 Operations .
   8




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Production, Sales Prices and Costs .
 Year Ended December 31,2008
    
    
    2007
    
    
    2006ProductionGas (MMcf)
    
    
    13,217
    
    
    
    13,357
    
    
    
    14,104Oil (Mbbl)
    
    
    334
    
    
    
    348
    
    
    
    373Total production (MMcfe)
    
    
    15,221
    
    
    
    15,446
    
    
    
    16,340Average price (1)Gas (per Mcf)
    
    $
    8.62
    
    
    $
    6.81
    
    
    $
    8.77Oil (per Bbl)
    
    
    94.40
    
    
    
    67.42
    
    
    
    62.78Per Mcfe
    
    
    9.55
    
    
    
    7.41
    
    
    
    9.00Average costs (per Mcfe)Production expense
    
    $
    1.73
    
    
    $
    1.59
    
    
    $
    1.45Production taxes
    
    
    0.20
    
    
    
    0.15
    
    
    
    0.15Depletion
    
    
    2.31
    
    
    
    2.31
    
    
    
    2.30
 (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 31,2008
    
    
    2007
    
    
    2006Gas (per Mcf)
    
    $
    9.31
    
    
    $
    7.34
    
    
    $
    7.22Oil (per Bbl)
    
    
    94.40
    
    
    
    67.42
    
    
    
    62.78Per Mcfe
    
    
    10.15
    
    
    
    7.87
    
    
    
    7.67
 Exploration and Development
      9




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Range of AverageDrilling andCompletion Costs perRange of Well Depths
    
    Well(in feet)
    
    (in thousands)Ohio:Clinton
    
    3,5005,750
    
    $360420Pennsylvania:Coalbed Methane
    
    1,0001,600
    
    210320Clarendon
    
    1,1002,100
    
    120150Medina
    
    5,3006,200
    
    370400Michigan:Antrim
    
    1,3002,100
    
    310370
   Drilling Results .
 Development Wells
    
    
    Exploratory Wells2006
    
    
    2007
    
    
    2008
    
    
    2006(1)
    
    
    2007
    
    
    2008Productive:Gross
    
    
    177
    
    
    
    96
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    Net
    
    
    170.3
    
    
    
    92.0
    
    
    
    83.5
    
    
    
    
    
    
    
    
    
    
    
    Dry:Gross
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    5Net
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    4.9Wells in progress:Gross
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 (1)
    
    Includes one well (dry hole) that was classified as a well in progress in 2005.  10




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Disposition of Assets
   Employees
  Competition
   Principal Customers
  Title to Properties
   11




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Regulation
 Regulation of Production.
 Federal Regulation of Sales and Transportation of Natural Gas.
   Federal Regulation of Sales and Transportation of Crude Oil.
 Environmental Regulations.
   12




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13




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Producing Well Data
   December 31, 2008Gas Wells
    
    
    Oil Wells
    
    
    TotalState
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetOhio
    
    
    1,048
    
    
    
    893
    
    
    
    677
    
    
    
    609
    
    
    
    1,725
    
    
    
    1,502Pennsylvania
    
    
    1,476
    
    
    
    1,392
    
    
    
    104
    
    
    
    104
    
    
    
    1,580
    
    
    
    1,496New York
    
    
    18
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    7Michigan
    
    
    1,210
    
    
    
    601
    
    
    
    17
    
    
    
    2
    
    
    
    1,227
    
    
    
    6033,752
    
    
    
    2,893
    
    
    
    798
    
    
    
    715
    
    
    
    4,550
    
    
    
    3,608
  14




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Acreage Data
  December 31, 2008Developed Acreage
    
    
    Undeveloped Acreage
    
    
    Total AcreageState
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetOhio
    
    
    112,644
    
    
    
    64,701
    
    
    
    115,151
    
    
    
    115,072
    
    
    
    227,795
    
    
    
    179,773Pennsylvania
    
    
    50,642
    
    
    
    49,907
    
    
    
    251,227
    
    
    
    226,981
    
    
    
    301,869
    
    
    
    276,888New York
    
    
    2,828
    
    
    
    2,241
    
    
    
    26,805
    
    
    
    26,226
    
    
    
    29,633
    
    
    
    28,467Michigan
    
    
    64,302
    
    
    
    64,014
    
    
    
    14,752
    
    
    
    11,553
    
    
    
    79,054
    
    
    
    75,567Indiana
    
    
    40
    
    
    
    40
    
    
    
    1,333
    
    
    
    1,333
    
    
    
    1,373
    
    
    
    1,373230,456
    
    
    
    180,903
    
    
    
    409,268
    
    
    
    381,165
    
    
    
    639,724
    
    
    
    562,068
  
 
 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;
 
    
    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 which risk has increased with the current economic and
financial crisis; or
 
    
    a sudden, unexpected event materially impacts natural gas and crude oil prices.
   15




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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.
  We depend upon access to the credit markets to fund our growth strategy. Currently, the
credit markets are experiencing an unprecedented disruption which, if it continues for an extended
period of time, will adversely affect our growth strategy.
  Oil and natural gas prices are volatile, and an extended decline in prices would hurt our
profitability and financial condition.
    16




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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.
     Information concerning our reserves and future net revenues is uncertain.
      17




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##### Table of Contents




    
    the amount and timing of actual production;
 
    
    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.
   We face strong competition in the oil and natural gas industry, and the resources of many of
our competitors are greater than ours.
   18




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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.
   All of our common stock is owned by one controlling shareholder whose interests may differ
from those of the holders of our Senior Secured Notes.
   19




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Our structure may present conflicts of interest.
  The terms of our Amended Credit Agreement, as well as the J. Aron Swap 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
   
    
    Set the Borrowing Base at $100 million.
 
    
    Set the Borrowing Base redetermination dates to March 15th and September
15theach year.
 
    
    Prohibit payment of dividends to our shareholder.
 
    
    Prohibit Senior Secured Note repurchases by the Company.
 
    
    Prohibit principal or cash interest payments on the Capital C Subordinated Note.
 
    
    Prohibit borrowings to fund restructuring of the hedge agreements.
 
    
    Require the pay down of the Amended Credit Agreement with certain proceeds of asset
sales and equity contributions, of which $20 million is required to be paid by July
15, 2009.
 
    
    Reduce the Borrowing Base by the amount of each repayment until the aggregate
amount of such repayments is equal to $30 million.
 
    
    Increase the percentage of the value of total proved reserves that is required to
be mortgaged from 75% to 80% effective May 31, 2009.
    
    
    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.
  20




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
    
    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.
 
 
 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
   21




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Item 6. SELECTED FINANCIAL DATA
  Predecessor I
    
    
    Predecessor IISuccessor Company
    
    
    Company
    
    
    CompanyFor the 138
    
    
    For the 227
    
    
    For the 178
    
    
    For the 188Day Period
    
    
    Day Period
    
    
    Day Period
    
    
    Day Periodfrom August
    
    
    From January
    
    
    from July
    
    
    from January16, 2005 to
    
    
    1, 2005 to
    
    
    7, 2004 to
    
    
    1, 2004 toAs of or for the year ended December 31,
    
    
    December 31,
    
    
    August 15,
    
    
    December 31,
    
    
    July 6,(in thousands)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2005
    
    
    2004
    
    
    2004Continuing Operations:Revenues
    
    $
    158,426
    
    
    $
    125,140
    
    
    $
    158,774
    
    
    $
    76,642
    
    
    $
    77,960
    
    
    $
    62,256
    
    
    $
    50,816Depreciation, depletion and amortization
    
    
    35,560
    
    
    
    36,087
    
    
    
    38,074
    
    
    
    14,341
    
    
    
    21,265
    
    
    
    17,527
    
    
    
    9,089Impairment of oil and gas properties
    
    
    3,924
    
    
    
    31
    
    
    
    546
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of goodwill
    
    
    90,076
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from continuing operations
    
    
    (28,944
    )
    
    
    (35,322
    )
    
    
    52,199
    
    
    
    17,563
    
    
    
    (320
    )
    
    
    7,263
    
    
    
    (18,869
    )Balance sheet data:
    
    
    
    
    
    
    
    
    
    
    
    
    
    As of 12/31/2005
    
    
    
    
    
    As of 12/31/2004Working capital (deficit) from continuing operations
    
    
    (16,806
   )
    
    
    (14,224
    )
    
    
    (11,635
    )
    
    
    (38,999
    )
    
    
    
    
    
    
    (4,907
    )Oil and gas properties and gathering systems, net
    
    
    613,834
    
    
    
    627,556
    
    
    
    641,879
    
    
    
    648,417
    
    
    
    
    
    
    
    502,765Total assets
    
    
    669,464
    
    
    
    774,225
    
    
    
    777,023
    
    
    
    810,118
    
    
    
    
    
    
    
    570,853Long-term debt, less current portion
    
    
    265,863
    
    
    
    291,118
    
    
    
    285,560
    
    
    
    277,648
    
    
    
    
    
    
    
    281,396Total shareholders (deficit) equity
    
    
    76,551
    
    
    
    102,223
    
    
    
    143,703
    
    
    
    89,399
    
    
    
    
    
    
    
    57,088
   22




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Item 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
          23




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Impact of the Current Financial and Credit Markets
      CRITICAL ACCOUNTING POLICIES
  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.
   24




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Capitalization, Depreciation, Depletion and Impairment of Long-Lived Assets
        Derivatives and Hedging
    25




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Revenue Recognition
  Asset Retirement Obligations
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2008
    
    
    2007Beginning asset retirement obligations
    
    $
    22,264
    
    
    $
    20,734Liabilities incurred
    
    
    565
    
    
    
    220Liabilities settled
    
    
    (399
    )
    
    
    (219
    )Accretion expense
    
    
    1,412
    
    
    
    1,290Revisions in estimated cash flows
    
    
    43
    
    
    
    239Ending asset retirement obligations
    
    $
    23,885
    
    
    $
    22,264
  26




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Results of Operations
  Year Ended December 31,2008
    
    
    2007
    
    
    2006RevenuesOil and gas sales
    
    $
    145,398
    
    
    
    91.8
    %
    
    $
    114,427
    
    
    
    91.4
    %
    
    $
    147,122
    
    
    
    92.7
    %Gas gathering and marketing
    
    
    12,254
    
    
    
    7.7
    
    
    
    10,275
    
    
    
    8.2
    
    
    
    11,294
    
    
    
    7.1Other
    
    
    774
    
    
    
    0.5
    
    
    
    438
    
    
    
    0.4
    
    
    
    358
    
    
    
    0.2158,426
    
    
    
    100.0
    
    
    
    125,140
    
    
    
    100.0
    
    
    
    158,774
    
    
    
    100.0ExpensesProduction expense
    
    
    26,342
    
    
    
    16.6
    
    
    
    24,585
    
    
    
    19.7
    
    
    
    23,692
    
    
    
    14.9Production taxes
    
    
    3,054
    
    
    
    1.9
    
    
    
    2,265
    
    
    
    1.8
    
    
    
    2,404
    
    
    
    1.5Gas gathering and marketing
    
    
    10,252
    
    
    
    6.5
    
    
    
    8,640
    
    
    
    6.9
    
    
    
    9,360
    
    
    
    5.9Exploration expense
    
    
    2,543
    
    
    
    1.6
    
    
    
    1,935
    
    
    
    1.5
    
    
    
    1,797
    
    
    
    1.1General and administrative expense
    
    
    8,188
    
    
    
    5.2
    
    
    
    8,236
    
    
    
    6.6
    
    
    
    9,796
    
    
    
    6.2Depreciation, depletion and
amortization
    
    
    35,560
    
    
    
    22.4
    
    
    
    36,087
    
    
    
    28.8
    
    
    
    38,074
    
    
    
    24.0Impairment of goodwill
    
    
    90,076
    
    
    
    56.9Inpairment of oil and gas properties
    
    
    3,924
    
    
    
    2.5
    
    
    
    31
    
    
    
    
    
    
    
    546
    
    
    
    0.3Accretion expense
    
    
    1,412
    
    
    
    0.9
    
    
    
    1,290
    
    
    
    1.0
    
    
    
    1,226
    
    
    
    0.8Derivative fair value (gain) loss
    
    
    (55,940
    )
    
    
    (35.3
    )
    
    
    78,120
    
    
    
    62.5
    
    
    
    (37,356
    )
    
    
    (23.5
    )125,411
    
    
    
    79.2
    
    
    
    161,189
    
    
    
    128.8
    
    
    
    49,539
    
    
    
    31.2Operating income (loss)
    
    
    33,015
    
    
    
    20.8
    
    
    
    (36,049
    )
    
    
    (28.8
    )
    
    
    109,235
    
    
    
    68.8Other (income) expense(Gain) on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (436
    )
    
    
    (0.3
    )Interest expense
    
    
    22,818
    
    
    
    14.4
    
    
    
    23,712
    
    
    
    18.9
    
    
    
    23,553
    
    
    
    14.8Other income, net
    
    
    (495
    )
    
    
    (0.3
    )
    
    
    (516
    )
    
    
    (0.4
    )
    
    
    (316
    )
    
    
    (0.2
    )Income (loss)
before income taxes
    
    
    10,692
    
    
    
    6.7
    
    
    
    (59,245
    )
    
    
    (47.3
    )
    
    
    86,434
    
    
    
    54.5Provision (benefit) for income taxes
    
    
    39,636
    
    
    
    25.0
    
    
    
    (23,923
    )
    
    
    (19.1
    )
    
    
    34,235
    
    
    
    21.6Net (loss) income
    
    
    (28,944
    )
    
    
    (18.3
    )
    
    
    (35,322
    )
    
    
    (28.2
    )
    
    
    52,199
    
    
    
    32.9
  27




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##### Table of Contents



Production, Sales Prices and Costs
  Year Ended December 31,2008
    
    
    2007
    
    
    2006ProductionGas (MMcf)
    
    
    13,217
    
    
    
    13,357
    
    
    
    14,104Oil (Mbbl)
    
    
    334
    
    
    
    348
    
    
    
    373Total production (MMcfe)
    
    
    15,221
    
    
    
    15,446
    
    
    
    16,340Average price (1)Gas (per Mcf)
    
    $
    8.62
    
    
    $
    6.81
    
    
    $
    8.77Oil (per Bbl)
    
    
    94.40
    
    
    
    67.42
    
    
    
    62.78Per Mcfe
    
    
    9.55
    
    
    
    7.41
    
    
    
    9.00Average costs (per Mcfe)Production expense
    
    $
    1.73
    
    
    $
    1.59
    
    
    $
    1.45Production taxes
    
    
    0.20
    
    
    
    0.15
    
    
    
    0.15Depletion
    
    
    2.31
    
    
    
    2.31
    
    
    
    2.30
 (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 31,2008
    
    
    2007
    
    
    2006Gas (per Mcf)
    
    $
    9.31
    
    
    $
    7.34
    
    
    $
    7.22Oil (per Bbl)
    
    
    94.40
    
    
    
    67.42
    
    
    
    62.78Per Mcfe
    
    
    10.15
    
    
    
    7.87
    
    
    
    7.67
 2008 Compared to 2007
 Revenues
    28




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##### Table of Contents



Costs and Expenses
             29




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##### Table of Contents



2007 Compared to 2006
 Revenues
     Costs and Expenses
       30




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##### Table of Contents



Liquidity and Capital Resources
 Cash Flows
    Year Ended December 31,2008
    
    
    2007
    
    
    Change(in millions)Cash flows provided by operating activities
    
    $
    96.7
    
    
    $
    68.1
    
    
    $
    28.6Cash flows (used in) investing activities
    
    
    (27.5
    )
    
    
    (23.1
    )
    
    
    (4.4
    )Cash flows (used in) financing activities
    
    
    (62.4
    )
    
    
    (34.9
    )
    
    
    (27.5
    )Net increase (decrease) in cash and cash equivalents
    
    $
    6.8
    
    
    $
    10.1
    
    
    $
    (3.3
    )
    31




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##### Table of Contents



Capital Expenditures
  Year Ended December 31,2008
    
    
    2007
    
    
    2006(in millions)Total capital expendituresDrilling including exploratory dry hole expense
    
    $
    25
    
    
    $
    21
    
    
    $
    35Production enhancements and field improvements
    
    
    2
    
    
    
    1
    
    
    
    1Leasehold acreage
    
    
    1
    
    
    
    1
    
    
    
    1Total
    
    $
    28
    
    
    $
    23
    
    
    $
    37
   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
    %
  32




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##### Table of Contents



Amended Credit Agreement
       
    
    Set the Borrowing Base at $100 million.
 
    
    Set the Borrowing Base redetermination dates to March 15th and September
15theach year.
 
    
    Prohibit payment of dividends to our shareholder.
 
    
    Prohibit Senior Secured Note repurchases by the Company.
 
    
    Prohibit principal or cash interest payments on the Capital C Subordinated Note.
 
    
    Prohibit borrowings to fund restructuring of the hedge agreements.
 
    
    Require the pay down of the Amended Credit Agreement with certain proceeds of asset
sales and equity contributions, of which $20 million is required to be paid by July
15, 2009.
 
    
    Reduce the Borrowing Base by the amount of each repayment until the aggregate
amount of such repayments is equal to $30 million.
 
    
    Increase the percentage of the value of total proved reserves that is required to
be mortgaged from 75% to 80% effective May 31, 2009.
   33




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##### Table of Contents



ISDA Master Agreement
     34




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##### Table of Contents



Derivative Instruments
 The Hedges
     Natural Gas Swaps
    
    
    Crude Oil Swaps
    
    
    Natural Gas Basis SwapsNYMEX
    
    
    
    
    
    
    NYMEXPrice per
    
    
    
    
    
    
    Price per
    
    
    
    
    
    
    BasisYear Ending
    
    Bbtu
    
    
    Mmbtu
    
    
    Mbbls
    
    
    Bbl
    
    
    Bbtu
    
    
    DifferentialDecember 31, 2009
    
    
    9,529
    
    
    $
    4.43
    
    
    
    191
    
    
    $
    29.34
    
    
    
    7,390
    
    
    $
    0.337December 31, 2010
    
    
    8,938
    
    
    
    4.28
    
    
    
    175
    
    
    
    28.86
    
    
    
    7,666
    
    
    
    0.243December 31, 2011
    
    
    8,231
    
    
    
    4.19
    
    
    
    157
    
    
    
    28.77
    
    
    
    5,110
    
    
    
    0.252December 31, 2012
    
    
    7,005
    
    
    
    4.09
    
    
    
    138
    
    
    
    28.70
    
    
    
    3,660
    
    
    
    0.110December 31, 2013
    
    
    6,528
    
    
    
    4.04
    
    
    
    127
    
    
    
    28.70
    
    
    
    
    
    
    
    
    35




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##### Table of Contents



Inflation and Changes in Prices
    Contractual Obligations
   Payments Due by PeriodContractual Obligations at
    
    
    
    
    
    Less than 1
    
    
    
    
    
    
    
    
    
    
    After 5December 31, 2008
    
    Total
    
    
    Year
    
    
    1 - 3 Years
    
    
    4 - 5 Years
    
    
    Years(in thousands)Long-term debt
    
    $
    287,044
    
    
    $
    25,008
    
    
    $
    74,895
    
    
    $
    187,109
    
    
    $
    32Asset retirement obligations
    
    
    23,885
    
    
    
    229
    
    
    
    386
    
    
    
    17
    
    
    
    23,253Derivative liabilities
    
    
    120,792
    
    
    
    20,512
    
    
    
    55,868
    
    
    
    44,412
    
    
    
    Interest on debt
    
    
    64,565
    
    
    
    19,874
    
    
    
    35,406
    
    
    
    9,285
    
    
    
    Operating leases
    
    
    6,749
    
    
    
    4,523
    
    
    
    2,226
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    503,035
    
    
    $
    70,146
    
    
    $
    168,781
    
    
    $
    240,823
    
    
    $
    23,285
   Total
    
    
    Amount of Commitment Expiration Per PeriodCommercial Commitments at
    
    Amounts
    
    
    Less than 1
    
    
    1 - 3
    
    
    4 - 5
    
    
    Over 5December 31, 2008
    
    Committed
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    years(in thousands)Standby Letters of Credit
    
    $
    40,850
    
    
    $
    40,850
    
    
    $
    
    
    
    $
    
    
    
    $
    Total Commercial Commitments
    
    $
    40,850
    
    
    $
    40,850
    
    
    $
    
    
    
    $
    
    
    
    $
    
   36




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##### Table of Contents



Off-Balance Sheet Arrangements
  NEW ACCOUNTING STANDARDS
            37




---



##### Table of Contents



Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      38




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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
   39




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##### Table of Contents



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
Board of Directors and Director
    
    
    
    President, Chief Financial Officer and Director
 
 Evaluation of Disclosure Controls and Procedures
  Managements Annual Report On Internal Control Over Financial Reporting
   40




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##### Table of Contents



Internal Control  Integrated
Framework
 Changes in Internal Control Over Financial Reporting
   
 
 Item 9B. OTHER INFORMATION
   41




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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
    
    
    47
    
    
    Chief Executive Officer and Chairman of the Board of DirectorsJames M. Vanderhider
    
    
    50
    
    
    President, Chief Financial Officer and DirectorKenneth Mariani
    
    
    47
    
    
    Senior Vice President, Chief Operating Officer and DirectorFrederick J. Stair
    
    
    49
    
    
    Vice President of AccountingBarry K. Lay
    
    
    52
    
    
    Vice President of OperationsSandra K. Fraley
    
    
    43
    
    
    Vice President of Land and Legal and SecretaryDavid M. Elkin
    
    
    43
    
    
    Vice President of EngineeringMark L. Barnhill
    
    
    53
    
    
    Vice President of ExplorationMatthew Coeny
    
    
    38
    
    
    Director
  Mark A. Houser.
 James M. Vanderhider.
 .
  42




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##### Table of Contents



Kenneth Mariani.
  Frederick J. Stair.
 Barry K. Lay.
  Sandra K. Fraley.
   David M. Elkin.
  43




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##### Table of Contents



Mark L. Barnhill.
  Matthew Coeny.
 Audit Committee
  Code of Ethics
  
  44




---



##### Table of Contents



Item 11. EXECUTIVE COMPENSATION
  Compensation of Directors
  Compensation Committee Interlocks and Insider Participation
   45




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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:
   46




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##### Table of Contents



Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
      47




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##### Table of Contents



Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  December 31,2008
    
    
    2007Audit fees
    
    $
    470,000
    
    
    $
    408,500Audit-related fees
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    $
    470,000
    
    
    $
    408,500
  Audit Committee Pre-Approval Policies and Procedures
  
 
 PART IV
 
 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
       48




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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.
  49




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##### Table of Contents



No.
    
    Description10.9
    *
    
    Fourth
Amendment, Waiver and Agreement to the First Amended and Restated
Credit and Guaranty Agreement dated as of August 16, 2005.14.1
    
    
    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, 2003.23.1
    *
    

Consent
of Independent Petroleum Engineering Consultants.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  50




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##### Table of Contents



SIGNATURES
  BELDEN & BLAKE CORPORATIONApril 9, 2009
    
    
    
    By:
    
    /s/ Mark A. HouserDate
    
    
    
    
    
    Mark A. Houser, Chief Executive Officer, Chairman
of the Board of Directors and Director
  /s/ Mark A. Houser
    
    Chief Executive Officer
    
    April 9, 2009Mark A. Houser
    
    Chairman of the Board
of Directors and Director
(Principal Executive Officer)
    
    Date/s/ James M. Vanderhider
    
    President, Chief Financial
    
    April 9, 2009James M. Vanderhider
    
    Officer and Director
(Principal Financial Officer)
    
    Date/s/ Frederick J. Stair
    
    Vice President of Accounting
    
    April 9, 2009Frederick J. Stair
    
    (Principal Accounting Officer)
    
    Date/s/ Kenneth Mariani
    
    Senior Vice President, Chief
    
    April 9, 2009Kenneth Mariani
    
    Operating Officer and Director
    
    Date/s/ Matthew Coeny
    
    Director
    
    April 9, 2009Matthew Coeny
    
    
    
    Date
  51




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##### Table of Contents



BELDEN & BLAKE CORPORATION
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS AND SCHEDULES
 
 Item 15(a) (1) and (2)
 PageCONSOLIDATED FINANCIAL STATEMENTSReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2008 and 2007
    
    
    F-3Consolidated Statements of Operations:
Years ended December 31, 2008, 2007 and 2006
    
    
    F-4Consolidated Statements of Shareholders Equity (Deficit):
Years ended December 31, 2008, 2007 and 2006
    
    
    F-5Consolidated Statements of Cash Flows:
Years Ended December 31, 2008, 2007 and 2006
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
   F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
  F-2




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##### Table of Contents



BELDEN & BLAKE CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share data)
 December 31,2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    22,816
    
    
    $
    16,014Accounts receivable (less accumulated provision for doubtful accounts:
December 31, 2008  $312; December 31, 2007  $806)
    
    
    19,244
    
    
    
    18,071Inventories
    
    
    1,004
    
    
    
    1,084Deferred income taxes
    
    
    7,946
    
    
    
    17,282Other current assets
    
    
    332
    
    
    
    370Fair value of derivatives
    
    
    430
    
    
    
    37Total current assets
    
    
    51,772
    
    
    
    52,858Property and equipment, at costOil and gas properties (successful efforts method)
    
    
    735,398
    
    
    
    713,912Gas gathering systems
    
    
    1,413
    
    
    
    1,308Land, buildings, machinery and equipment
    
    
    2,836
    
    
    
    2,761739,647
    
    
    
    717,981Less accumulated depreciation, depletion and amortization
    
    
    124,175
    
    
    
    88,549Property and equipment, net
    
    
    615,472
    
    
    
    629,432Goodwill
    
    
    
    
    
    
    90,076Fair value of derivatives
    
    
    868
    
    
    
    29Other assets
    
    
    1,352
    
    
    
    1,830$
    669,464
    
    
    $
    774,225LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    3,570
    
    
    $
    2,656Accrued expenses
    
    
    19,251
    
    
    
    20,363Current portion of long-term liabilities
    
    
    25,237
    
    
    
    367Fair value of derivatives
    
    
    20,520
    
    
    
    43,696Total current liabilities
    
    
    68,578
    
    
    
    67,082Long-term liabilitiesBank and other long-term debt
    
    
    74,938
    
    
    
    99,947Senior secured notes
    
    
    163,302
    
    
    
    164,240Subordinated promissory note  related party
    
    
    27,623
    
    
    
    26,931Asset retirement obligations and other long-term liabilities
    
    
    23,863
    
    
    
    22,164Fair value of derivatives
    
    
    101,570
    
    
    
    192,661Deferred income taxes
    
    
    133,039
    
    
    
    98,977Total long-term liabilities
    
    
    524,335
    
    
    
    604,920Shareholders equityCommon stock: without par value; 3,000 shares authorized; 1,534 shares issued
    
    
    
    
    
    
    Additional paid in capital
    
    
    122,500
    
    
    
    125,000Retained earnings
    
    
    (32,754
    )
    
    
    (3,810
    )Accumulated other comprehensive loss
    
    
    (13,195
    )
    
    
    (18,967
    )Total shareholders equity
    
    
    76,551
    
    
    
    102,223$
    669,464
    
    
    $
    774,225
   F-3




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##### Table of Contents



BELDEN & BLAKE CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands)
 For the Year Ended December 31,2008
    
    
    2007
    
    
    2006RevenuesOil and gas sales
    
    $
    145,398
    
    
    $
    114,427
    
    
    $
    147,122Gas gathering and marketing
    
    
    12,254
    
    
    
    10,275
    
    
    
    11,294Other
    
    
    774
    
    
    
    438
    
    
    
    358158,426
    
    
    
    125,140
    
    
    
    158,774ExpensesProduction expense
    
    
    26,342
    
    
    
    24,585
    
    
    
    23,692Production taxes
    
    
    3,054
    
    
    
    2,265
    
    
    
    2,404Gas gathering and marketing
    
    
    10,252
    
    
    
    8,640
    
    
    
    9,360Exploration expense
    
    
    2,543
    
    
    
    1,935
    
    
    
    1,797General and administrative expense
    
    
    8,188
    
    
    
    8,236
    
    
    
    9,796Depreciation, depletion and amortization
    
    
    35,560
    
    
    
    36,087
    
    
    
    38,074Impairment of goodwill
    
    
    90,076
    
    
    
    
    
    
    
    Impairment of oil and gas properties
    
    
    3,924
    
    
    
    31
    
    
    
    546Accretion expense
    
    
    1,412
    
    
    
    1,290
    
    
    
    1,226Derivative fair value (gain) loss
    
    
    (55,940
    )
    
    
    78,120
    
    
    
    (37,356
    )125,411
    
    
    
    161,189
    
    
    
    49,539Operating income (loss)
    
    
    33,015
    
    
    
    (36,049
    )
    
    
    109,235Other expense (income)Gain on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (436
    )Interest expense
    
    
    22,818
    
    
    
    23,712
    
    
    
    23,553Other income, net
    
    
    (495
    )
    
    
    (516
    )
    
    
    (316
    )Income (loss) before income taxes
    
    
    10,692
    
    
    
    (59,245
    )
    
    
    86,434Provision (benefit) for income taxes
    
    
    39,636
    
    
    
    (23,923
    )
    
    
    34,235Net (loss) income
    
    $
    (28,944
    )
    
    $
    (35,322
    )
    
    $
    52,199
   F-4




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##### Table of Contents



BELDEN & BLAKE CORPORATION
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
 (in thousands)
 Accumulated OtherCommon
    
    
    Common
    
    
    Paid in
    
    
    Equity
    
    
    Comprehensive
    
    
    TotalShares
    
    
    Stock
    
    
    Capital
    
    
    (Deficit)
    
    
    Income
    
    
    EquityJanuary 1, 2006
    
    
    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 earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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 loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (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 earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (779
    )
    
    
    (779
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,730
    )Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,750
    )
    
    
    
    
    
    
    (9,750
    )December 31, 2007
    
    
    2
    
    
    
    
    
    
    $
    125,000
    
    
    $
    (3,810
    )
    
    $
    (18,967
    )
    
    $
    102,223Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,944
    )
    
    
    
    
    
    
    (28,944
    )Other comprehensive income (loss), net of tax:Change in derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (409
    )
    
    
    (409
    )Reclassification adjustment for
derivative (gain) loss
reclassified into earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,181
    
    
    
    6,181Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,172
    )Dividends
    
    
    
    
    
    
    
    
    
    
    (2,500
    )
    
    
    
    
    
    
    
    
    
    
    (2,500
    )December 31, 2008
    
    
    2
    
    
    
    
    
    
    $
    122,500
    
    
    $
    (32,754
    )
    
    $
    (13,195
    )
    
    $
    76,551
   F-5




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##### Table of Contents



BELDEN & BLAKE CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 For the Year
    
    
    For the Year
    
    
    For the YearEnded
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Net (loss) income
    
    $
    (28,944
    )
    
    $
    (35,322
    )
    
    $
    52,199Adjustments to reconcile net (loss) income
to net cash provided by operating activities:Depreciation, depletion and amortization
    
    
    35,560
    
    
    
    36,087
    
    
    
    38,074Impairment of goodwill
    
    
    90,076
    
    
    
    
    
    
    
    Impairment of oil and gas properties
    
    
    3,924
    
    
    
    31
    
    
    
    546Accretion expense
    
    
    1,412
    
    
    
    1,290
    
    
    
    1,226(Gain) loss on debt extinguishment and disposal of property and equipment
    
    
    
    
    
    
    (75
    )
    
    
    (472
    )Amortization of derivatives and other noncash derivative activities
    
    
    (46,064
    )
    
    
    84,901
    
    
    
    (56,057
    )Exploration expense
    
    
    1,974
    
    
    
    610
    
    
    
    738Deferred income taxes
    
    
    39,636
    
    
    
    (23,923
    )
    
    
    33,710Other non-cash expense
    
    
    747
    
    
    
    2,783
    
    
    
    1,483Change in operating assets and liabilities, net of
effects of acquisition and disposition of businesses:Accounts receivable and other current assets
    
    
    (1,135
    )
    
    
    1,734
    
    
    
    5,210Inventories
    
    
    147
    
    
    
    (266
    )
    
    
    100Accounts payable and accrued expenses
    
    
    (630
    )
    
    
    219
    
    
    
    (10,201
    )Net cash provided by operating activities
    
    
    96,703
    
    
    
    68,069
    
    
    
    66,556Cash flows from investing activities:Proceeds from property and equipment disposals
    
    
    3,049
    
    
    
    267
    
    
    
    7,419Exploration expense
    
    
    (1,974
    )
    
    
    (610
    )
    
    
    (738
    )Additions to property and equipment
    
    
    (28,620
    )
    
    
    (22,696
    )
    
    
    (36,839
    )Decrease (increase) in other assets
    
    
    54
    
    
    
    (10
    )
    
    
    (18
    )Net cash used in investing activities
    
    
    (27,491
    )
    
    
    (23,049
    )
    
    
    (30,176
    )Cash flows from financing activities:Repayment of senior secured notes
    
    
    
    
    
    
    
    
    
    
    (33,933
    )Payment to shareholders and optionholders or dividends
    
    
    (2,500
    )
    
    
    (9,750
    )
    
    
    (20,000
    )Settlement of derivative liabilities recorded in purchase accounting
    
    
    (59,901
    )
    
    
    (29,659
    )
    
    
    (28,042
    )Proceeds from revolving line of credit
    
    
    
    
    
    
    6,500
    
    
    
    55,376Repayment of revolving line of credit
    
    
    
    
    
    
    (2,000
    )
    
    
    (12,000
    )Repayment of long-term debt and other obligations
    
    
    (9
    )
    
    
    (24
    )
    
    
    (26
    )Net cash used in financing activities
    
    
    (62,410
    )
    
    
    (34,933
    )
    
    
    (38,625
    )Net increase (decrease) in cash and equivalents
    
    
    6,802
    
    
    
    10,087
    
    
    
    (2,245
    )Cash and cash equivalents at beginning of period
    
    
    16,014
    
    
    
    5,927
    
    
    
    8,172Cash and cash equivalents at end of period
    
    $
    22,816
    
    
    $
    16,014
    
    
    $
    5,927
   F-6




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##### Table of Contents



BELDEN & BLAKE CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) Transaction and Merger
       (2) Business and Significant Accounting Policies
 Business
   F-7




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##### Table of Contents



Principles of Consolidation and Financial Presentation
  Use of Estimates in the Financial Statements
  Cash Equivalents
  Concentrations of Credit Risk
  Inventories
  Property and Equipment
     F-8




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##### Table of Contents



Goodwill and Other Intangible Assets
    Revenue Recognition
   F-9




---



##### Table of Contents



Income Taxes
  Stock-Based Compensation
   Derivatives and Hedging
   Asset Retirement Obligations
   F-10




---



##### Table of Contents



Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2008
    
    
    2007Beginning asset retirement obligations
    
    $
    22,264
    
    
    $
    20,734Liabilities incurred
    
    
    565
    
    
    
    220Liabilities settled
    
    
    (399
    )
    
    
    (219
    )Accretion expense
    
    
    1,412
    
    
    
    1,290Revisions in estimated cash flows
    
    
    43
    
    
    
    239Ending asset retirement obligations
    
    $
    23,885
    
    
    $
    22,264
 (3) New Accounting Pronouncements
         F-11




---



##### Table of Contents



(4) Dispositions
    F-12




---



##### Table of Contents



(5) Derivatives and Hedging
     F-13




---



##### Table of Contents



Natural Gas Swaps
    
    
    Crude Oil Swaps
    
    
    Natural Gas Basis SwapsNYMEX
    
    
    
    
    
    
    NYMEXPrice per
    
    
    
    
    
    
    Price per
    
    
    
    
    
    
    BasisYear Ending
    
    Bbtu
    
    
    Mmbtu
    
    
    Mbbls
    
    
    Bbl
    
    
    Bbtu
    
    
    DifferentialDecember 31, 2009
    
    
    9,529
    
    
    $
    4.43
    
    
    
    191
    
    
    $
    29.34
    
    
    
    6,388
    
    
    $
    0.344December 31, 2010
    
    
    8,938
    
    
    
    4.28
    
    
    
    175
    
    
    
    28.86
    
    
    
    6,388
    
    
    
    0.255December 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-14




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##### Table of Contents



(6) Details of Balance Sheets
 December 31,2008
    
    
    2007(in thousands)
    
    
    (in thousands)Accounts receivableAccounts receivable
    
    $
    3,884
    
    
    $
    3,509Allowance for doubtful accounts
    
    
    (312
    )
    
    
    (806
    )Oil and gas production receivable
    
    
    15,672
    
    
    
    15,368$
    19,244
    
    
    $
    18,071InventoriesOil
    
    $
    755
    
    
    $
    671Natural gas
    
    
    
    
    
    
    Material, pipe and supplies
    
    
    249
    
    
    
    413$
    1,004
    
    
    $
    1,084Property and equipment, gross
oil and gas propertiesProducing properties
    
    $
    662,473
    
    
    $
    628,707Non-producing propertiesProved
    
    
    58,995
    
    
    
    66,793Unproved
    
    
    13,930
    
    
    
    18,344Other
    
    
    
    
    
    
    68$
    735,398
    
    
    $
    713,912Land, buildings, machinery and equipmentLand, buildings and improvements
    
    $
    838
    
    
    $
    838Machinery and equipment
    
    
    1,998
    
    
    
    1,923$
    2,836
    
    
    $
    2,761Accrued expensesAccrued interest expense
    
    $
    6,418
    
    
    $
    6,499Accrued other expenses
    
    
    5,837
    
    
    
    6,230Accrued drilling and completion costs
    
    
    1,727
    
    
    
    1,296Accrued income taxes
    
    
    
    
    
    
    2Ad valorem and other taxes
    
    
    968
    
    
    
    985Undistributed production revenue
    
    
    4,301
    
    
    
    5,351$
    19,251
    
    
    $
    20,363
  F-15




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##### Table of Contents



(7) Long-Term Debt
  December 31,2008
    
    
    2007Senior secured notes
    
    $
    159,475
    
    
    $
    159,475Bank revolving credit facility
    
    
    99,876
    
    
    
    99,876Subordinated promissory note (related party)
    
    
    27,623
    
    
    
    26,931Other
    
    
    70
    
    
    
    79287,044
    
    
    
    286,361Less current portion
    
    
    25,008
    
    
    
    8Long-term debt
    
    
    262,036
    
    
    
    286,353Fair value adjustment  senior secured notes
    
    
    3,827
    
    
    
    4,765$
    265,863
    
    
    $
    291,118
 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-16




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##### Table of Contents




    
    Set the Borrowing Base at $100 million.
 
    
    Set the Borrowing Base redetermination dates to March 15th and September
15theach year.
 
    
    Prohibit payment of dividends to our shareholder.
 
    
    Prohibit Senior Secured Note repurchases by the Company.
 
    
    Prohibit principal or cash interest payments on the Capital C Subordinated Note.
 
    
    Prohibit borrowings to fund restructuring of the hedge agreements.
 
    
    Require the pay down of the Amended Credit Agreement with certain proceeds of asset
sales and equity contributions, of which $20 million is required to be paid by July
15, 2009.
 
    
    Reduce the Borrowing Base by the amount of each repayment until the aggregate
amount of such repayments is equal to $30 million.
 
    
    Increase the percentage of the value of total proved reserves that is required to
be mortgaged from 75% to 80% effective May 31, 2009.
   F-17




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##### Table of Contents



ISDA Master Agreement
    F-18




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##### Table of Contents



(8) Leases
   OperatingAs of December 31, 2008
    
    Leases(in thousands)2009
    
    $
    4,5232010
    
    
    2,2262011
    
    
    2012
    
    
    2013 and thereafter
    
    
    Total minimum rental payments
    
    $
    6,749
 (9) Goodwill
   (10) Impairment of Oil and Gas Properties
   F-19




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##### Table of Contents



(11) Taxes
  For the year
    
    
    For the year
    
    
    For the yearended
    
    
    ended
    
    
    endedDecember 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006CurrentFederal
    
    $
    
    
    
    $
    (525
    )
    
    $
    525State
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (525
    )
    
    
    525DeferredFederal
    
    
    35,076
    
    
    
    (20,499
    )
    
    
    29,771State
    
    
    4,560
    
    
    
    (2,899
    )
    
    
    3,93839,636
    
    
    
    (23,398
    )
    
    
    33,709Total
    
    $
    39,636
    
    
    $
    (23,923
    )
    
    $
    34,234
  For the year
    
    
    For the year
    
    
    For the yearended
    
    
    ended
    
    
    endedDecember 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Statutory federal income tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Increases (reductions) in taxes resulting from:State income taxes, net of federal tax benefit
    
    
    4.6
    
    
    
    4.6
    
    
    
    4.6Transaction related expensesPermanent differences related to goodwill
impairment
    
    
    333.1
    
    
    
    
    
    
    
    Other, net
    
    
    (2.0
    )
    
    
    0.8
    
    
    
    Effective income tax rate for the period
    
    
    370.7
    %
    
    
    40.4
    %
    
    
    39.6
    %
   F-20




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##### Table of Contents



December 31,
    
    
    December 31,2008
    
    
    2007Deferred income tax liabilities:Property and equipment, net
    
    $
    213,795
    
    
    $
    213,509Other, net
    
    
    3,885
    
    
    
    2,559Total deferred income tax liabilities
    
    
    217,680
    
    
    
    216,068Deferred income tax assets:Accrued expenses
    
    
    881
    
    
    
    882Asset retirement obligations
    
    
    8,620
    
    
    
    8,062Fair value of derivatives
    
    
    56,984
    
    
    
    102,286Net operating loss carryforwards
    
    
    32,226
    
    
    
    29,429Senior Secured Notes
    
    
    2,913
    
    
    
    2,913Tax credit carryforwards
    
    
    1,775
    
    
    
    1,775Other, net
    
    
    664
    
    
    
    502Valuation allowance
    
    
    (11,476
    )
    
    
    (11,476
    )Total deferred income tax assets
    
    
    92,587
    
    
    
    134,373Net deferred income tax liability
    
    $
    125,093
    
    
    $
    81,695Long-term liability
    
    $
    133,039
    
    
    $
    98,977Current asset
    
    
    (7,946
    )
    
    
    (17,282
    )Net deferred income tax liability
    
    $
    125,093
    
    
    $
    81,695
   (12) Stock Option Plans
   F-21




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##### Table of Contents



(13) Commitments and Contingencies
   Payments Due by PeriodContractual Obligations at
    
    
    
    
    
    Less than 1
    
    
    
    
    
    
    
    
    
    
    After 5December 31, 2008
    
    Total
    
    
    Year
    
    
    1 - 3 Years
    
    
    4 - 5 Years
    
    
    Years(in thousands)Long-term debt
    
    $
    287,044
    
    
    $
    25,008
    
    
    $
    74,895
    
    
    $
    187,109
    
    
    $
    32Asset retirement obligations
    
    
    23,885
    
    
    
    229
    
    
    
    386
    
    
    
    17
    
    
    
    23,253Derivative liabilities
    
    
    120,792
    
    
    
    20,512
    
    
    
    55,868
    
    
    
    44,412
    
    
    
    Interest on debt
    
    
    64,565
    
    
    
    19,874
    
    
    
    35,406
    
    
    
    9,285
    
    
    
    Operating leases
    
    
    6,749
    
    
    
    4,523
    
    
    
    2,226
    
    
    
    
    
    
    
    Total contractual cash
obligations
    
    $
    503,035
    
    
    $
    70,146
    
    
    $
    168,781
    
    
    $
    240,823
    
    
    $
    23,285
   Total
    
    
    Amount of Commitment Expiration Per PeriodCommercial Commitments at
    
    Amounts
    
    
    Less than 1
    
    
    
    
    
    
    
    
    
    
    Over 5December 31, 2008
    
    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
    
    
    $
    
    
    
    $
    
    
    
    $
    
   F-22




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##### Table of Contents



(14) Supplemental Disclosure of Cash Flow Information
 For the year
    
    
    For the year
    
    
    For the yearended
    
    
    ended
    
    
    endedDecember 31,
    
    
    December 31,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007
    
    
    2006Cash paid during the period for:Interest
    
    $
    22,764
    
    
    $
    17,939
    
    
    $
    25,317Income taxes, net of refunds
    
    
    
    
    
    
    
    
    
    
    Non-cash investing and financing activities:Non-cash additions to property and equipment
    
    
    (1,728
    )
    
    
    (1,296
    )
    
    
    (1,784
    )Non-cash additions to debt
    
    
    (692
    )
    
    
    (1,931
    )
    
    
    
 (15) Fair Value of Financial Instruments
    F-23




---



##### Table of Contents



(16) Fair Value Measurements
  
    
    Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities.
    
    Level 2 inputs are quoted prices for similar assets and liabilities in active markets or
inputs that are observable for the asset or liability, either directly or indirectly through market
corroboration.
    
    Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets
and liabilities at fair value.
   Fair Value Measurements at December 31, 2008Quoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsTotal Carrying Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Derivative
instruments
    
    $
    (120,792
    )
    
    $
    
    
    
    $
    (120,792
    )
    
    $
    
    F-24




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##### Table of Contents



(17) Supplementary Information on Oil and Gas Activities (Unaudited)
  December 31,
    
    
    December 31,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007
    
    
    2006Acquisition costs:Proved properties
    
    $
    1,504
    
    
    $
    107
    
    
    $
    16Unproved properties
    
    
    802
    
    
    
    567
    
    
    
    511Developmental costs
    
    
    26,845
    
    
    
    21,910
    
    
    
    36,052Exploratory costs
    
    
    2,543
    
    
    
    1,935
    
    
    
    2,34331,694
    
    
    
    24,519
    
    
    
    38,922
 Estimated Proved Oil and Gas Reserves (Unaudited)
   F-25




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##### Table of Contents



Oil
    
    
    Gas(Mbbl)
    
    
    (Mmcf)
    
    
    MmcfeJanuary 1, 2006
    
    
    5,210
    
    
    
    246,680
    
    
    
    277,938Extensions and discoveries
    
    
    156
    
    
    
    12,892
    
    
    
    13,830Purchase of reserves in place
    
    
    41
    
    
    
    881
    
    
    
    1,130Sale of reserves in place
    
    
    
    
    
    
    (1,342
    )
    
    
    (1,342
    )Revisions of previous estimates
    
    
    146
    
    
    
    (11,996
    )
    
    
    (11,123
    )Production
    
    
    (372
    )
    
    
    (14,104
    )
    
    
    (16,337
    )December 31, 2006
    
    
    5,181
    
    
    
    233,011
    
    
    
    264,096Extensions and discoveries
    
    
    153
    
    
    
    4,853
    
    
    
    5,771Purchase of reserves in place
    
    
    
    
    
    
    5,340
    
    
    
    5,340Revisions of previous estimates
    
    
    163
    
    
    
    (2,647
    )
    
    
    (1,668
    )Production
    
    
    (348
    )
    
    
    (13,357
    )
    
    
    (15,445
    )December 31, 2007
    
    
    5,149
    
    
    
    227,200
    
    
    
    258,094Extensions and discoveries
    
    
    78
    
    
    
    6,415
    
    
    
    6,883Purchase of reserves in place
    
    
    22
    
    
    
    61
    
    
    
    193Revisions of previous estimates
    
    
    (1,082
    )
    
    
    (20,625
    )
    
    
    (27,117
    )Production
    
    
    (334
    )
    
    
    (13,217
    )
    
    
    (15,221
    )December 31, 2008
    
    
    3,833
    
    
    
    199,834
    
    
    
    222,832Proved developed reservesDecember 31, 2006
    
    
    3,832
    
    
    
    188,374
    
    
    
    211,368December 31, 2007
    
    
    3,890
    
    
    
    186,765
    
    
    
    210,105December 31, 2008
    
    
    3,559
    
    
    
    176,340
    
    
    
    197,694
 Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
(Unaudited)
  
    
    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.
  F-26




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##### Table of Contents



December 31,2008
    
    
    2007
    
    
    2006(in thousands)Estimated future cash inflows (outflows)Revenues from the sale of oil and gas
    
    $
    1,431,631
    
    
    $
    2,190,884
    
    
    $
    1,672,532Production costs
    
    
    (534,167
    )
    
    
    (590,328
    )
    
    
    (526,928
    )Development costs
    
    
    (57,491
    )
    
    
    (152,465
    )
    
    
    (134,553
    )Future income taxes
    
    
    (262,865
    )
    
    
    (497,904
    )
    
    
    (316,413
    )Future net cash flows
    
    
    577,108
    
    
    
    950,187
    
    
    
    694,63810% timing discount
    
    
    (324,433
    )
    
    
    (561,301
    )
    
    
    (395,157
    )Standardized measure of discounted
future net cash flows
    
    $
    252,675
    
    
    $
    388,886
    
    
    $
    299,481
   December 31,2008
    
    
    2007
    
    
    2006Gas (per Mcf)
    
    $
    6.38
    
    
    $
    7.54
    
    
    $
    5.91Oil (per Bbl)
    
    
    41.00
    
    
    
    92.77
    
    
    
    57.21
  F-27




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##### Table of Contents



Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Beginning of year
    
    $
    388,886
    
    
    $
    299,481
    
    
    $
    545,764Sale of oil and gas, net of production costs
    
    
    (125,165
    )
    
    
    (96,317
    )
    
    
    (102,710
    )Extensions and discoveries, less related estimated
future development and production costs
    
    
    9,514
    
    
    
    14,720
    
    
    
    25,806Previously estimated development costs incurred
during the period
    
    
    26,845
    
    
    
    21,910
    
    
    
    29,477Purchase of reserves in place less
estimated future production costs
    
    
    643
    
    
    
    2,728
    
    
    
    170Sale of reserves in place less
estimated future production costs
    
    
    
    
    
    
    
    
    
    
    (4,122
    )Changes in estimated future development costs
    
    
    31,949
    
    
    
    (7,337
    )
    
    
    (33,665
    )Revisions of previous quantity estimates
    
    
    (47,442
    )
    
    
    (237
    )
    
    
    (20,621
    )Net changes in prices and production costs
    
    
    (195,400
    )
    
    
    196,244
    
    
    
    (354,397
    )Change in income taxes
    
    
    101,046
    
    
    
    (75,511
    )
    
    
    148,217Accretion of 10% timing discount
    
    
    38,889
    
    
    
    29,948
    
    
    
    83,145Changes in production rates (timing) and other
    
    
    22,910
    
    
    
    3,257
    
    
    
    (17,583
    )End of period
    
    $
    252,675
    
    
    $
    388,886
    
    
    $
    299,481
 (18) Industry Segment Financial Information
  Major customers
   F-28




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##### Table of Contents



(19) Quarterly Results of Operations (Unaudited)
  First
    
    
    Second
    
    
    Third
    
    
    Fourth2008Operating revenues
    
    $
    34,307
    
    
    $
    50,302
    
    
    $
    45,463
    
    
    $
    28,354Gross profit
    
    
    15,526
    
    
    
    30,884
    
    
    
    24,926
    
    
    
    8,565Net (loss) income
    
    
    (11,634
    )
    
    
    (58,907
    )
    
    
    91,705
    
    
    
    (50,108
    )2007Operating revenues
    
    $
    29,422
    
    
    $
    34,801
    
    
    $
    29,420
    
    
    $
    31,059Gross profit
    
    
    11,580
    
    
    
    15,676
    
    
    
    11,555
    
    
    
    12,379Net income
    
    
    (23,299
    )
    
    
    2,415
    
    
    
    7,268
    
    
    
    (21,706
    )
 (20) Related Party Transactions
       F-29




---



##### Table of Contents



(21) Subsequent Events
   F-30




---



##### Table of Contents



EXHIBIT INDEX
 10.9*
    
    Fourth
Amendment, Waiver and Agreement to the First Amended and Restated
Credit and Guaranty Agreement dated as of August 16, 2005.23.1*
    
    Consent
of Independent Petroleum Engineering Consultants.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