##### 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, 2005
 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
(State or other jurisdiction of incorporation or organization)
    
    34-1686642
(I.R.S. Employer Identification Number)
 First City Tower, 1001 Fannin Street, Suite 800
Houston, Texas 77002
 (713) 659-3500
 None
 None
 o þ
 o þ
 þ o
 þ
  o o þ
 o 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 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 PROCEDURESPART IIIItem 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTItem 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 SCHEDULESSIGNATURESEX-10.25 First Amendment to Credit AgreementEX-10.26 Operating Agreement Dated 10-1-05EX-23.1 Consent - E & YEX-23.2 Consent - Deloitte & ToucheEX-31.1 Certification 302 - CEOEX-31.2 Certification 302 - CFOEX-32.1 Certification 906 - CEOEX-32.2 Certification 906 - CFOEX-99.1    Table of Contents  Forward-Looking Statements
  
 PART I
 
 Items 1 and 2. BUSINESS AND PROPERTIES
 GENERAL
    SIGNIFICANT EVENTS
 Acquisition by Institutional Funds Managed by EnerVest Management Partners, Ltd.
    1




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Credit Agreement
   DESCRIPTION OF BUSINESS
 Overview
     2




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Oil and Gas Reserves
  December 31,2003
    
    
    2004
    
    
    2005Estimated proved reservesGas (Bcf)
    
    
    318.1
    
    
    
    251.3
    
    
    
    246.7Oil (Mbbl)
    
    
    6,176
    
    
    
    5,579
    
    
    
    5,210Bcfe
    
    
    355.1
    
    
    
    284.8
    
    
    
    277.9
    December 31,2003
    
    
    2004
    
    
    2005Gas (per Mcf)
    
    $
    6.19
    
    
    $
    6.49
    
    
    $
    9.83Oil (per barrel)
    
    
    29.78
    
    
    
    40.12
    
    
    
    57.64
   Appalachian Basin  Conventional Properties
  3




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Michigan Basin Properties
    Appalachian Basin  Coalbed Methane Properties
  Oil and Gas Operations and Production
 Operations .
  Production, Sales Prices and Costs .
 4




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Year Ended December 31,2003
    
    
    2004
    
    
    2005ProductionGas (Mmcf)
    
    
    14,834
    
    
    
    15,267
    
    
    
    14,560Oil (Mbbl)
    
    
    413
    
    
    
    381
    
    
    
    358Total production (Mmcfe)
    
    
    17,311
    
    
    
    17,553
    
    
    
    16,710Average priceGas (per Mcf)
    
    $
    4.92
    
    
    $
    5.80
    
    
    $
    8.57Oil (per Bbl)
    
    
    28.06
    
    
    
    35.47
    
    
    
    46.37Mcfe
    
    
    4.89
    
    
    
    5.82
    
    
    
    8.46Average costs (per Mcfe)Production expense
    
    
    1.16
    
    
    
    1.35
    
    
    
    1.42Production taxes
    
    
    0.14
    
    
    
    0.16
    
    
    
    0.22Depletion
    
    
    0.85
    
    
    
    1.35
    
    
    
    2.01Operating margin (per Mcfe)
    
    
    3.59
    
    
    
    4.31
    
    
    
    6.82
 
 Mmcf  Million cubic feet
    
    Mmcfe  Million cubic feet equivalentMbbl  Thousand barrels
    
    Mcf  Thousand cubic feet
    
    Bbl  BarrelMcfe
 Thousand cubic feet equivalent
  Exploration and Development
        5




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Range of Average Drillingand Completion Costs perRange of Well Depths
    
    
    Well(in feet)
    
    
    (in thousands)Ohio:Clinton
    
    
    3,000 - 5,500
    
    
    $
    210 - 265Pennsylvania:Coalbed Methane
    
    
    1,100 - 1,700
    
    
    
    170 - 210Clarendon
    
    
    1,100 - 2,000
    
    
    
    75 - 95Medina
    
    
    5,000 - 6,300
    
    
    
    240 - 345Michigan:Antrim
    
    
    700 - 2,000
    
    
    
    180 - 370
   Drilling Results .
 Development Wells
    
    
    Exploratory Wells2003
    
    
    2004
    
    
    2005
    
    
    2003(1)
    
    
    2004
    
    
    2005(2)Productive:Gross
    
    
    82
    
    
    
    100
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    2Net
    
    
    75.7
    
    
    
    92.1
    
    
    
    117.2
    
    
    
    
    
    
    
    
    
    
    
    2.0Dry:Gross
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    5
    
    
    
    5
    
    
    
    1Net
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    3.3
    
    
    
    3.8
    
    
    
    1.0Wells in progress:Gross
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.0
    
    
    
    0.5
 
 (1)
    
    Includes one well that was classified as a well in progress in 2002.(2)
    
    Includes one well (dry hole) that was classified as a well in progress in 2004. Disposition of Assets
    6




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Employees
  Competition
   Customers
  Regulation
 Regulation of Production.
 Federal Regulation of Sales and Transportation of Natural Gas.
   Federal Regulation of Sales and Transportation of Crude Oil.
 7




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Environmental Regulations.
      8




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Producing Well Data
   December 31, 2005Gas Wells
    
    
    Oil Wells
    
    
    TotalState
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetOhio
    
    
    1,033
    
    
    
    876
    
    
    
    679
    
    
    
    609
    
    
    
    1,712
    
    
    
    1,485Pennsylvania
    
    
    1,223
    
    
    
    1,112
    
    
    
    92
    
    
    
    92
    
    
    
    1,315
    
    
    
    1,204New York
    
    
    28
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    17Michigan
    
    
    1,180
    
    
    
    597
    
    
    
    19
    
    
    
    4
    
    
    
    1,199
    
    
    
    6013,464
    
    
    
    2,602
    
    
    
    790
    
    
    
    705
    
    
    
    4,254
    
    
    
    3,307
 Acreage Data
  9




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##### Table of Contents



December 31, 2005Developed Acreage
    
    
    Undeveloped Acreage
    
    
    Total AcreageState
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetOhio
    
    
    187,551
    
    
    
    177,984
    
    
    
    21,786
    
    
    
    20,303
    
    
    
    209,337
    
    
    
    198,287Pennsylvania
    
    
    209,564
    
    
    
    182,100
    
    
    
    118,301
    
    
    
    94,974
    
    
    
    327,865
    
    
    
    277,074New York
    
    
    14,305
    
    
    
    12,568
    
    
    
    38,458
    
    
    
    20,323
    
    
    
    52,763
    
    
    
    32,891Michigan
    
    
    61,332
    
    
    
    41,289
    
    
    
    41,573
    
    
    
    38,484
    
    
    
    102,905
    
    
    
    79,773Indiana
    
    
    40
    
    
    
    40
    
    
    
    9,672
    
    
    
    9,619
    
    
    
    9,712
    
    
    
    9,659472,792
    
    
    
    413,981
    
    
    
    229,790
    
    
    
    183,703
    
    
    
    702,582
    
    
    
    597,684
  
 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; 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;
 10




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
    
    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.
     11




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Information concerning our reserves and future net revenues is uncertain.
      
    
    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;
 12




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
    
    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.
  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.
  13




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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 Notes.
  Our structure may present conflicts of interest.
  The terms of our Senior Facilities, as well as the Hedges and the indenture relating to the
Notes, restrict our current and future operations, particularly our ability to respond to industry
or economic changes or to take certain actions.
  14




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
    
    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.
  
 Item 1B. UNRESOLVED STAFF COMMENTS
  
 Item 3. LEGAL PROCEEDINGS
   15




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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:
  
 Item 6. SELECTED FINANCIAL DATA
  SuccessorPredecessor II Company
    
    
    
    Predecessor I Company
    
    
    
    CompanyFor the 188 Day
    
    
    
    For the 178 Day
    
    
    For the 227 Day
    
    
    
    For the 138 DayPeriod from
    
    
    
    Period from July
    
    
    Period From
    
    
    
    Period fromJanuary 1, 2004
    
    
    
    7, 2004 to
    
    
    January 1, 2005
    
    
    
    August 16, 2005As of or for the Years Ended December 31,
    
    
    to July 6, 2004
    
    
    
    December 31,
    
    
    to August 15,
    
    
    
    to December 31,(in thousands)
    
    2001
    
    
    2002(2)
    
    
    2003(1)(2)
    
    
    (2)
    
    
    
    2004
    
    
    2005
    
    
    
    2005Continuing Operations:Revenues
    
    $
    110,732
    
    
    $
    105,338
    
    
    $
    95,414
    
    
    $
    50,822
    
    
    
    $
    62,401
    
    
    $
    78,123
    
    
    
    $
    76,671Depreciation, depletion and amortization
    
    
    25,132
    
    
    
    21,339
    
    
    
    18,098
    
    
    
    9,089
    
    
    
    
    17,527
    
    
    
    21,265
    
    
    
    
    14,341Impairment of oil and gas properties
    
    
    1,398
    
    
    
    
    
    
    
    896
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from continuing operations before
cumulative effect of change in accounting principle
    
    
    7,200
    
    
    
    8,935
    
    
    
    5,960
    
    
    
    (18,869
    )
    
    
    
    7,263
    
    
    
    (320
    )
    
    
    
    17,563Balance sheet data:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    As of 12/31/2004
    
    
    
    
    
    
    
    As of 12/31/2005Working capital (deficit) from continuing operations
    
    
    10,236
    
    
    
    (7,914
    )
    
    
    (8,168
    )
    
    
    
    
    
    
    
    (4,907
    )
    
    
    
    
    
    
    
    (38,999
    )Oil and gas properties and gathering systems, net
    
    
    220,389
    
    
    
    211,776
    
    
    
    224,631
    
    
    
    
    
    
    
    
    502,765
    
    
    
    
    
    
    
    
    648,417Total assets
    
    
    306,089
    
    
    
    264,091
    
    
    
    285,930
    
    
    
    
    
    
    
    
    570,853
    
    
    
    
    
    
    
    
    810,118Long-term
debt, less current portion
    
    
    284,745
    
    
    
    251,959
    
    
    
    272,637
    
    
    
    
    
    
    
    
    281,396
    
    
    
    
    
    
    
    
    277,648Total
shareholders (deficit) equity
    
    
    (28,572
    )
    
    
    (45,038
    )
    
    
    (58,418
    )
    
    
    
    
    
    
    
    57,088
    
    
    
    
    
    
    
    
    89,399
 
 (1)
    
    See Note 2 to the Consolidated Financial Statements. The cumulative effect of change in accounting principle, net of tax, was $2.4 million.(2)
    
    See Note 5 to the Consolidated Financial Statements for information on discontinued operations. 16




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Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
        17




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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.
  Capitalization, Depreciation, Depletion and Impairment of Long-Lived Assets
  18




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Derivatives and Hedging
     19




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Revenue Recognition
  Asset Retirement Obligations
    Successor
    
    
    
    
    
    
    
    
    
    
    
    
    Predecessor IICompany
    
    
    
    Predecessor I Company
    
    
    
    CompanyFor The 138 Day
    
    
    
    
    
    
    
    For The 178 DayPeriod From
    
    
    
    For the 227 Day
    
    
    Period From July
    
    
    
    For The 188 DayAugust 16, 2005 to
    
    
    
    Period From
    
    
    7, 2004 to
    
    
    
    Period FromDecember 31,
    
    
    
    January 1, 2005 to
    
    
    December 31,
    
    
    
    January 1, 2004 to2005
    
    
    
    August 15, 2005
    
    
    2004
    
    
    
    July 6, 2004Beginning asset retirement obligations
    
    $
    18,884
    
    
    
    $
    14,942
    
    
    $
    14,274
    
    
    
    $
    4,595Liabilities incurred
    
    
    173
    
    
    
    
    142
    
    
    
    101
    
    
    
    
    9Liabilities settled
    
    
    (75
    )
    
    
    
    (239
    )
    
    
    (85
    )
    
    
    
    (30
    )Accretion expense
    
    
    407
    
    
    
    
    745
    
    
    
    633
    
    
    
    
    195Revisions in estimated cash flows
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    24Ending asset retirement obligations
    
    $
    19,389
    
    
    
    $
    15,590
    
    
    $
    14,942
    
    
    
    $
    4,793
 20




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New Accounting Pronouncements
   
    
    A modified prospective method in which compensation cost is
recognized beginning with the effective date based on the requirements
of SFAS 123(R) for all share-based payments granted after the adoption
date and based on the requirements of SFAS 123 for all awards granted
to employees prior to the effective date of SFAS 123(R) that remain
unvested on the adoption date.
    
    A modified retrospective method which includes the requirements of
the modified prospective method described above, but also permits
entities to restate either all prior periods presented or prior
interim periods of the year of adoption based on the amounts
previously recognized under SFAS 123 for purposes of pro forma
disclosures.
     Results of Operations
  21




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Year Ended December 31,2005
    
    
    2004
    
    
    2003RevenuesOil and gas sales
    
    $
    141,354
    
    
    
    91.3
    %
    
    $
    102,089
    
    
    
    90.2
    %
    
    $
    84,610
    
    
    
    88.7
    %Gas gathering and marketing
    
    
    12,990
    
    
    
    8.4
    
    
    
    9,980
    
    
    
    8.8
    
    
    
    10,538
    
    
    
    11.0Other
    
    
    450
    
    
    
    0.3
    
    
    
    1,154
    
    
    
    1.0
    
    
    
    266
    
    
    
    0.3154,794
    
    
    
    100.0
    
    
    
    113,223
    
    
    
    100.0
    
    
    
    95,414
    
    
    
    100.0ExpensesProduction expense
    
    
    23,800
    
    
    
    15.3
    
    
    
    23,756
    
    
    
    21.1
    
    
    
    20,017
    
    
    
    20.9Production taxes
    
    
    3,672
    
    
    
    2.4
    
    
    
    2,767
    
    
    
    2.4
    
    
    
    2,449
    
    
    
    2.6Gas gathering and marketing
    
    
    11,110
    
    
    
    7.2
    
    
    
    9,101
    
    
    
    8.0
    
    
    
    9,570
    
    
    
    10.0Exploration expense
    
    
    3,653
    
    
    
    2.4
    
    
    
    5,970
    
    
    
    5.3
    
    
    
    6,849
    
    
    
    7.2General and administrative expense
    
    
    5,290
    
    
    
    3.4
    
    
    
    6,323
    
    
    
    5.6
    
    
    
    4,559
    
    
    
    4.8Franchise, property and other taxes
    
    
    194
    
    
    
    0.1
    
    
    
    167
    
    
    
    0.1
    
    
    
    202
    
    
    
    0.2Depreciation, depletion and amortization
    
    
    35,606
    
    
    
    23.0
    
    
    
    26,616
    
    
    
    23.5
    
    
    
    18,098
    
    
    
    19.0Impairment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    896
    
    
    
    0.9Accretion expense
    
    
    1,152
    
    
    
    0.7
    
    
    
    828
    
    
    
    0.7
    
    
    
    343
    
    
    
    0.4Derivative fair value (gain) loss
    
    
    13,312
    
    
    
    8.6
    
    
    
    2,409
    
    
    
    2.1
    
    
    
    (319
    )
    
    
    (0.3
    )Transaction expense
    
    
    7,542
    
    
    
    4.9
    
    
    
    26,001
    
    
    
    23.0
    
    
    
    
    
    
    
    105,331
    
    
    
    68.0
    
    
    
    103,938
    
    
    
    91.8
    
    
    
    62,664
    
    
    
    65.7Operating income
    
    
    49,463
    
    
    
    32.0
    
    
    
    9,285
    
    
    
    8.2
    
    
    
    32,750
    
    
    
    34.3Other expenseInterest expense
    
    
    23,312
    
    
    
    15.1
    
    
    
    24,061
    
    
    
    21.3
    
    
    
    23,580
    
    
    
    24.7Income (loss) from continuing operations
before income taxes and cumulative effect
of change in accounting principle
    
    
    26,151
    
    
    
    16.9
    
    
    
    (14,776
    )
    
    
    (13.1
    )
    
    
    9,170
    
    
    
    9.6Provision (benefit) for income taxes
    
    
    8,908
    
    
    
    5.8
    
    
    
    (3,170
    )
    
    
    (2.8
    )
    
    
    3,210
    
    
    
    3.4Income (loss) from continuing operations
before cumulative effect of change in
accounting principle
    
    
    17,243
    
    
    
    11.1
    
    
    
    (11,606
    )
    
    
    (10.3
    )
    
    
    5,960
    
    
    
    6.2Income (loss) from discontinued
operations, net of tax
    
    
    
    
    
    
    
    
    
    
    28,868
    
    
    
    25.5
    
    
    
    (10,681
    )
    
    
    (11.2
    )Income (loss) before cumulative effect of
change in accounting principle
    
    
    17,243
    
    
    
    11.1
    
    
    
    17,262
    
    
    
    15.2
    
    
    
    (4,721
    )
    
    
    (5.0
    )Cumulative effect of change in accounting
principle, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,397
    
    
    
    2.5Net income (loss)
    
    $
    17,243
    
    
    
    11.1
    %
    
    $
    17,262
    
    
    
    15.2
    %
    
    $
    (2,324
    )
    
    
    (2.5
    )%
 22




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##### Table of Contents



Production, Sales Prices and Costs
  Year Ended December 31,2005
    
    
    2004
    
    
    2003ProductionGas (Mmcf)
    
    
    14,560
    
    
    
    15,267
    
    
    
    14,834Oil (Mbbl)
    
    
    358
    
    
    
    381
    
    
    
    413Total production (Mmcfe)
    
    
    16,708
    
    
    
    17,553
    
    
    
    17,311Average priceGas (per Mcf)
    
    $
    8.57
    
    
    $
    5.80
    
    
    $
    4.92Oil (per Bbl)
    
    
    46.37
    
    
    
    35.47
    
    
    
    28.06Mcfe
    
    
    8.46
    
    
    
    5.82
    
    
    
    4.89Average costs (per Mcfe)Production expense
    
    
    1.42
    
    
    
    1.35
    
    
    
    1.16Production taxes
    
    
    0.22
    
    
    
    0.16
    
    
    
    0.14Depletion
    
    
    2.01
    
    
    
    1.35
    
    
    
    0.85Operating margin (per Mcfe)
    
    
    6.82
    
    
    
    4.31
    
    
    
    3.59
 
 Mmcf  Million cubic feet
    
    Mmcfe  Million cubic feet equivalent
    
    Bbl  BarrelMbbl  Thousand barrels
    
    Mcf  Thousand cubic feet
  2005 Compared to 2004
 Revenues
     23




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Costs and Expenses
           24




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##### Table of Contents



2004 Compared to 2003
 Revenues
     Costs and Expenses
    25




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##### Table of Contents



Liquidity and Capital Resources
 Cash Flows
    26




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##### Table of Contents



Year Ended December 31,2005
    
    
    2004
    
    
    Change(in millions)Cash provided by operating activities
    
    $
    91.3
    
    
    $
    31.2
    
    
    $
    60.1Cash (used
in) provided by investing activities
    
    
    (32.5
    )
    
    
    36.5
    
    
    
    (69.0
    )Cash (used
in) financing activities
    
    
    (69.0
    )
    
    
    (50.7
    )
    
    
    (18.3
    )Net increase or decrease in cash and cash equivalents
    
    $
    (10.2
    )
    
    $
    17.0
    
    
    $
    (27.2
    )
     27




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##### Table of Contents



Capital Expenditures
  Year Ended December 31,2005
    
    
    2004
    
    
    2003(in millions)Total capital expendituresDrilling including exploratory dry hole expense
    
    $
    26
    
    
    $
    21
    
    
    $
    20Production enhancements and field improvements
    
    
    2
    
    
    
    3
    
    
    
    3Leasehold acreage
    
    
    1
    
    
    
    1
    
    
    
    Other capital expenditures
    
    
    
    
    
    
    
    
    
    
    1Total
    
    $
    29
    
    
    $
    25
    
    
    $
    24
   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
    %
  Amended Credit Agreement
  28




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##### Table of Contents



ISDA Master Agreement
  29




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##### Table of Contents



30




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##### Table of Contents



Derivative Instruments
 The Hedges
       31




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##### Table of Contents



Natural Gas Swaps
    
    
    Crude Oil SwapsNYMEXPrice per
    
    
    Estimated
    
    
    NYMEXQuarter Ending
    
    Bbtu
    
    
    Mmbtu
    
    
    Mbbls
    
    
    Price per BblMarch 31, 2006
    
    
    2,829
    
    
    $
    6.14
    
    
    
    63
    
    
    $
    32.71June 30, 2006
    
    
    2,829
    
    
    
    5.24
    
    
    
    62
    
    
    
    32.35September 30, 2006
    
    
    2,829
    
    
    
    5.22
    
    
    
    62
    
    
    
    32.02December 31, 2006
    
    
    2,829
    
    
    
    5.39
    
    
    
    62
    
    
    
    31.7111,316
    
    
    $
    5.50
    
    
    
    249
    
    
    $
    32.20Year EndingDecember 31, 2007
    
    
    10,745
    
    
    $
    4.97
    
    
    
    227
    
    
    $
    30.91December 31, 2008
    
    
    10,126
    
    
    
    4.64
    
    
    
    208
    
    
    
    29.96December 31, 2009
    
    
    9,529
    
    
    
    4.43
    
    
    
    191
    
    
    
    29.34December 31, 2010
    
    
    8,938
    
    
    
    4.28
    
    
    
    175
    
    
    
    28.86December 31, 2011
    
    
    8,231
    
    
    
    4.19
    
    
    
    157
    
    
    
    28.77December 31, 2012
    
    
    7,005
    
    
    
    4.09
    
    
    
    138
    
    
    
    28.70December 31, 2013
    
    
    6,528
    
    
    
    4.04
    
    
    
    127
    
    
    
    28.70
 
 Mcf  Thousand cubic feet
    
    Mmbtu  Million British thermal units
    
    Bbl  BarrelMmcf  Million cubic feet
    
    Bbtu  Billion British thermal units
    
    Mbbls  Thousand barrels
  
 Inflation and Changes in Prices
    Contractual Obligations
   32




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##### Table of Contents



Payments Due by PeriodContractual Obligations at
    
    
    
    
    
    Less than 1December 31, 2005
    
    Total
    
    
    Year
    
   

1 - 3 Years



    
    4 - 5 Years
        
    After 5 Years(in thousands)Long-term debt
    
    $
    269,592
    
    
    $
    7
    
    
    $
    14
    
    
    $
    52,017
    
    
    $
    217,554Fixed-rate interest
    
    
    134,139
    
    
    
    19,352
    
    
    
    38,702
    
    
    
    38,699
    
    
    
    37,386Capital lease obligations
    
    
    106
    
    
    
    77
    
    
    
    29
    
    
    
    
    
    
    
    Operating leases
    
    
    6,431
    
    
    
    3,324
    
    
    
    2,821
    
    
    
    286
    
    
    
    Total contractual cash obligations
    
    $
    410,268
    
    
    $
    22,760
    
    
    $
    41,566
    
    
    $
    91,002
    
    
    $
    254,940
   Total
    
    
    Amount of Commitment Expiration Per PeriodCommercial Commitments at
    
    Amounts
    
    
    Less than 1December 31, 2005
    
    Committed
    
    
    Year
    
    
    1 - 3 Years
    
    
    4 - 5 Years
    
    
    Over 5 years(in thousands)Standby Letters of Credit
    
    $
    40,850
    
    
    $
    40,850
    
    
    $
    
    
    
    $
    
    
    
    $
    Total Commercial Commitments
    
    $
    40,850
    
    
    $
    40,850
    
    
    $
    
    
    
    $
    
    
    
    $
    
   Off-Balance Sheet Arrangements
  
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    33




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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
 Material Weakness Previously Disclosed
  Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
 34




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##### Table of Contents




    
    Revised our accounting procedures for derivative accounting by correcting how we
calculate our journal entries related to derivative instruments and hedge accounting.
    
    Implemented a reconciliation calculation for our hedges to help ensure proper financial
statement recognition of hedge accounts.
    
    Engaged a consulting firm to assist us in reviewing our approach to derivative
instruments and hedge accounting.
   Item 9B. OTHER INFORMATION
  35




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##### Table of Contents



PART III
 
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    PositionMark A. Houser
    
    
    44
    
    
    Chief Executive Officer and Chairman of the Board of DirectorsJames M. Vanderhider
    
    
    47
    
    
    President, Chief Financial Officer and DirectorKenneth Mariani
    
    
    44
    
    
    Senior Vice President, Chief Operating Officer and DirectorPatricia A. Harcourt
    
    
    42
    
    
    Vice President AdministrationFrederick J. Stair
    
    
    46
    
    
    Vice President and Corporate ControllerMatthew Coeny
    
    
    35
    
    
    DirectorJohn B. Walker
    
    
    60
    
    
    Director
  Mark A. Houser.
  James M. Vanderhider
 .
 36




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##### Table of Contents



Kenneth Mariani.
  Patricia A. Harcourt.
 Frederick J. Stair.
 Matthew Coeny.
 John B. Walker. Institutional
Investor
  Audit Committee
 37




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##### Table of Contents



Code of Ethics
  
 38




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##### Table of Contents



Item 11. EXECUTIVE COMPENSATION
  Summary Compensation Table
 Long-TermCompensationAwardsAnnual Compensation    
    No. of SharesOther Annual
    
    Underlying
    
    All OtherName and Principal Position
    
    Year
    
    Salary
    
    Bonus
    
    Compensation
    
    Options/SARs
    
    Compensation (5)Mark A. Houser (1)
    
    
    2005
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    Chief Executive Officer and
Chairman of the BoardJames A. Winne III (2)
    
    
    2005
    
    
    
    155,769
    
    
    
    56,250
    
    
    
    
    
    
    
    
    
    
    
    1,550,696
    (6)Former Chief Executive Officer
    
    
    2004
    
    
    
    41,666
    
    
    
    56,250
    
    
    
    
    
    
    
    
    
    
    
    1,250and Chairman of the BoardMichael Becci (3)
    
    
    2005
    
    
    
    155,769
    
    
    
    56,250
    
    
    
    
    
    
    
    
    
    
    
    1,550,696
    (6)Former President and
    
    
    2004
    
    
    
    41,666
    
    
    
    56,250
    
    
    
    
    
    
    
    
    
    
    
    1,083Chief Operating OfficerRobert W. Peshek (4)
    
    
    2005
    
    
    
    203,061
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    410,713
    (7)Former Senior Vice President
    
    
    2004
    
    
    
    185,891
    
    
    
    634,600

(8)
    
    
    
    
    
    
    
    
    
    
    10,250and Chief Financial Officer
    
    
    2003
    
    
    
    178,924
    
    
    
    63,108
    
    
    
    
    
    
    
    
    
    
    
    10,000Frederick J. Stair
    
    
    2005
    
    
    
    125,948
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    256,169
    (7)Vice President and
    
    
    2004
    
    
    
    113,406
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    10,250Corporate Controller
    
    
    2003
    
    
    
    109,392
    
    
    
    23,000
    
    
    
    
    
    
    
    
    
    
    
    5,532Patricia A. Harcourt
    
    
    2005
    
    
    
    99,069
    
    
    
    3,669
    
    
    
    
    
    
    
    
    
    
    
    201,563
    (7)Vice President of
    
    
    2004
    
    
    
    94,777
    
    
    
    366,308
    (8)
    
    
    
    
    
    
    
    
    
    
    10,250Administration
    
    
    2003
    
    
    
    89,623
    
    
    
    31,500
    
    
    
    
    
    
    
    
    
    
    
    5,799
 
 (1)
    
    Mr. Houser was appointed Chairman and Chief Executive Officer on August 16, 2005 when the
partners of Belden & Blake Corporations direct parent company, Capital C Energy Operations, L.P.
(Capital C) completed the sale of all the partnership interests in Capital C to certain
institutional funds managed by EnerVest Management Partners, Ltd. Mr. Houser did not receive any
remuneration from Belden & Blake Corporation during 2005.(2)
    
    Mr. Winne was our Chief Executive Officer and Chairman of the Board from December 16, 2004
until he resigned from his position on August 16, 2005.(3)
    
    Mr. Becci was our President and Chief Operating Officer from December 16, 2004 until he
resigned from his position on August 16, 2005.(4)
    
    Mr. Peshek resigned from his position effective October 6, 2005.(5)
    
    Primarily represents contributions of cash to our 401(k) Profit Sharing Plan for the account of
the named executive officer, unless otherwise indicated.(6)
    
    Reflects a severance payment of $250,000 made to each indicated executive officer during 2005
pursuant to applicable severance agreements, and a payment of $1,293,196 made to each indicated
executive officer during 2005 on the sale of common shares awarded to such officers pursuant to
closing documents on the sale of all of the partnership interests in Capital C to institutional
funds managed by EnerVest Management Partners, Ltd. effective August 16, 2005. Reimbursement of
401(k) contributions of $7,500 each are also included.(7)
    
    Includes the following amounts paid in 2006 pursuant to our 1999 Change in Control Protection
Plan for Key Employees for the indicated executive officers: Peshek  $400,000, Stair  $250,000
and Harcourt  $190,800.(8)
    
    Includes amounts paid during 2005 under our Retention Plan dated February 12, 2004 for Mr.
Peshek $549,600 and to Ms. Harcourt $366,308. 39




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##### Table of Contents



Compensation of Directors
  Employment and Severance Agreements
    Compensation Committee Interlocks and Insider Participation
  40




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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)First City Tower, 1001 Fanin Street, Suite 800Houston, Texas 77002
    
    
    1,534
    
    
    
    100.0
    %
 
 (1)
    
    EnerVest Management Partners, Ltd., controls Capital C Energy Operations, L.P.
and is therefore also deemed to be a beneficial owner of the 1,534 shares (100%) of our Common
Stock. The address of EnerVest Management Partners, Ltd., is First City Tower, 1001 Fannin Street,
Suite 800, Houston, Texas 77002. Equity Compensation Plan Information:
  41




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##### Table of Contents



Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
         42




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##### Table of Contents



Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  December 31,2005
    
    
    2004Audit fees
    
    $
    824,338
    
    
    $
    637,000Audit-related fees
    
    
    
    
    
    
    Tax fees
    
    

    35,800

    
    
    
    110,000All other fees
    
    

    1,590

    
    
    
    2,663$
    861,728
    
    
    $
    749,663
  Audit Committee Pre-Approval Policies and Procedures
  
 PART IV
 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
      43




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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 book
runner, sole syndication agent and administrative agent (incorporated by reference to Exhibit 10.1
to Belden & Blakes 8-K filed on August 22, 2005)10.3
    
    Priority Lien Pledge and Security Agreement, dated as of July 7, 2004, between Belden & Blake
Corporation, The Canton Oil & Gas Company, Ward Lake Drilling, Inc. and Wells Fargo Bank,
N.A., as Collateral Trustee, incorporated by reference to Exhibit 10.3 to Belden & Blake
Corporations Form 8-K dated July 7, 2004 (as amended).10.4
    
    Parity Lien Pledge and Security Agreement, dated as of July 7, 2004, between Belden & Blake
Corporation, The Canton Oil & Gas Company, Ward Lake Drilling, Inc. and Wells Fargo Bank,
N.A., as Collateral Trustee, incorporated by reference to Exhibit 10.4 to Belden & Blake
Corporations Form 8-K dated July 7, 2004 (as amended).10.5
    
    Priority Lien Pledge Agreement, dated as of July 7, 2004, between Capital C Energy
Operations, LP and Wells Fargo Bank, N.A., as Collateral Trustee, incorporated by reference to
Exhibit 10.5 to Belden & Blake Corporations Form 8-K dated July 7, 2004 (as amended).10.6
    
    Parity Lien Pledge Agreement, dated as of July 7, 2004, between Capital C Energy Operations,
LP and Wells Fargo Bank, N.A., as Collateral Trustee, incorporated by reference to Exhibit
10.6 to Belden & Blake Corporations Form 8-K dated July 7, 2004 (as amended).10.7
    
    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).10.8
    
    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)
 44




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##### Table of Contents



No.
    
    Description10.9
    
    Termination and Release Agreement, dated as of July 7, 2004, by and among Belden & Blake
Corporation, The Canton Oil & Gas Company, Ward Lake Drilling, Inc., Ableco Finance LLC and
Wells Fargo Foothill, Inc., incorporated by reference to Exhibit 10.10 to Belden & Blake
Corporations Form 8-K dated July 7, 2004 (as amended).10.10
    
    Belden & Blake Corporation Retention Plan, incorporated by reference to Exhibit 10.1 to
Belden & Blake Corporations Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.10.11
    
    Change in Control Severance Pay Plan for Key Employees of Belden & Blake Corporation dated
August 12, 1999, incorporated by reference to Exhibit 10.7 to Belden & Blake Corporations
Annual Report on Form 10-K for the year ended December 31, 1999.10.12
    
    Amendment No. 1 of Belden & Blake Corporation 1999 Change in Control Protection Plan Key
Employees dated as of February 26, 2002, incorporated by reference to Exhibit 10.7 (a) to
Belden & Blake Corporations Annual Report on Form 10-K for the year ended December 31, 2002.10.13
    
    Amendment No. 2 of the Belden & Blake Corporation 1999 Change in Control Protection Plan for
Key Employees dated as of October 23, 2002, incorporated by reference to Exhibit 10.7(b) to
the Belden & Blake Corporations Annual Report on Form 10-K for the year ended December 31,
2002.10.14
    
    Severance Pay Plan for Employees of Belden & Blake Corporation dated August 12, 1999,
incorporated by reference to Exhibit 10.8 to Belden & Blake Corporations Annual Report on
Form 10-K for the year ended December 31, 1999.10.15
    
    Amendment 1 to the Belden & Blake Corporation 1999 Severance Pay Plan dated as of May 29,
2000, incorporated by reference to Exhibit 10.8 (a) to Belden & Blake Corporations Annual
Report on Form 10-K for the year ended December 31, 2002.10.16
    
    Amendment 2 to the Belden & Blake Corporation 1999 Severance Pay Plan dated as of September
12, 2002, incorporated by reference to Exhibit 10.8 (b) to the Belden & Blake Corporations
Annual Report on Form 10-K for the year ended December 31, 2002.10.17
    
    Severance Release Agreement dated February 11, 2005 by and between Belden & Blake
Corporation and R. Mark Hackett, incorporated by reference to Exhibit 10.1 to Belden & Blake
Corporations Form 8-K dated February 11, 2005.10.18
    
    Severance Release Agreement dated February 18, 2005 by and between Belden & Blake
Corporation and Richard R. Hoffman, incorporated by reference to Exhibit 10.1 to Belden &
Blake Corporations Form 8-K dated February 18, 2005.10.19
    
    Directors Fees for Outside Directors effective February 14, 200510.20
    
    Amended and restated employment agreement dated July 1, 2004 by and between Belden & Blake
Corporation and John L. Schwager.10.21
    
    Waiver of certain rights to payments or benefits by and between Belden & Blake Corporation
and John L. Schwager.10.22
    
    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)10.23
    
    Contingent Value Agreement, dated August 16, 2005, by and among, James A. Winne III, Michael
Becci, Capital C Energy, LP, Capital C Energy Partners, L.P., EnerVest BB, L.P., EnerVest BB
GP LLC and Belden & Blake Corporation (incorporated by reference to Exhibit 10.7 to Belden &
Blakes 8-K filed on August 22, 2005)10.24
    
    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)10.25*
    
    First Amendment to Credit Agreement, dated as of September 27, 2005, by and among Belden &
Blake Corporation and BNP Paribas.10.26*
    
    Operating Agreement dated October 1, 2005, by and between Belden & Blake Corporation and
EnerVest Operating L.L.C.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, 2003.16
    
    Letter regarding change in
certifying accountant (incorporated by reference to Exhibit 16.1
Belden & Blakes 8-K filed on November 8, 2005).23.1*
    
    Consent of Independent Registered Public Accounting Firm23.2*
    
    Consent of Independent Registered Public Accounting Firm31.1*
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
 45




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##### Table of Contents



No.
    
    Description31.2*
    
    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 2002.99.1*
    
    Belden and Blake Corporation Audit
Committee Charter as Amended and Approved by the Audit Committee and
Board of Directors on March 27, 2006.
 
 *   Filed herewith     46




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##### Table of Contents



SIGNATURES
   April 5, 2006
    
    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)
    

April 5, 2006
Date/s/ James M. Vanderhider

James M. Vanderhider
    
    President, Chief Financial Officer
and Director
(Principal Financial Officer)
    

April 5, 2006
Date/s/ Frederick J. Stair

Frederick J. Stair
    
    Vice President and Corporate
Controller (Principal Accounting Officer)
    

April 5, 2006
Date/s/ Kenneth Mariani

Kenneth Mariani
    
    Senior Vice President, Chief Operating
Officer and Director
    

April 5, 2006
Date/s/ Matthew Coeny

Matthew Coeny
    
    Director
    
    April 5, 2006
Date/s/ John B. Walker

John B. Walker
    
    Director
    

April 5, 2006
Date
 47




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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 STATEMENTSReports of Independent Registered Public Accounting Firms
    
    
    F-2/3Consolidated Balance Sheets as of December 31, 2005 (Successor Company)
and December 31, 2004 (Predecessor I Company)
    
    
    F-4Consolidated Statements of Operations: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)
178 day period from July 7, 2004 to December 31,
2004 (Predecessor I Company)
188 day period from January 1, 2004 to July 6, 2004 (Predecessor II Company)
Year ended December 31, 2003 (Predecessor II Company)
    
    
    F-5Consolidated Statements of Shareholders Equity (Deficit):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)
178 day period from July 7, 2004 to December 31, 2004 (Predecessor I Company)
188 day period from January 1, 2004 to July 6, 2004 (Predecessor II Company)
Year ended December 31, 2003 (Predecessor II Company)
    
    
    F-6Consolidated Statements of Cash Flows: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)
178 day period from July 7, 2004 to December 31, 2004 (Predecessor I Company)
188 day period from January 1, 2004 to July 6, 2004 (Predecessor II Company)
Year ended December 31, 2003 (Predecessor II Company)
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
  F - 1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
          F - 2




---



##### Table of Contents



REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Accounting for Asset Retirement Obligations
  
 F - 3




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##### Table of Contents



BELDEN & BLAKE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 Successor
    
    
    
    Predecessor ICompany
    
    
    
    CompanyDecember 31,2005
    
    
    
    2004ASSETSCurrent assetsCash and cash equivalents
    
    $
    8,172
    
    
    
    $
    18,407Accounts receivable, net
    
    
    25,225
    
    
    
    
    18,667Inventories
    
    
    1,085
    
    
    
    
    518Deferred income taxes
    
    
    25,752
    
    
    
    
    11,169Other current assets
    
    
    349
    
    
    
    
    439Fair value of derivatives
    
    
    174
    
    
    
    
    Total current assets
    
    
    60,757
    
    
    
    
    49,200Property and equipment, at costOil and gas properties (successful efforts method)
    
    
    661,094
    
    
    
    
    514,904Gas gathering systems
    
    
    1,593
    
    
    
    
    4,485Land, buildings, machinery and equipment
    
    
    6,795
    
    
    
    
    7,720669,482
    
    
    
    
    527,109Less accumulated depreciation, depletion and amortization
    
    
    14,456
    
    
    
    
    16,917Property and equipment, net
    
    
    655,026
    
    
    
    
    510,192Goodwill
    
    
    91,443
    
    
    
    
    Fair value of derivatives
    
    
    285
    
    
    
    
    Other assets
    
    
    2,607
    
    
    
    
    11,461$
    810,118
    
    
    
    $
    570,853LIABILITIES
AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    5,314
    
    
    
    $
    3,796Accrued expenses
    
    
    28,496
    
    
    
    
    23,445Current portion of long-term liabilities
    
    
    776
    
    
    
    
    1,964Fair value of derivatives
    
    
    65,170
    
    
    
    
    24,902Total current liabilities
    
    
    99,756
    
    
    
    
    54,107Long-term liabilitiesBank and other long-term debt
    
    
    52,085
    
    
    
    
    88,592Senior secured notes
    
    
    200,340
    
    
    
    
    192,500Subordinated promissory note  related party
    
    
    25,000
    
    
    
    
    Asset retirement obligations and other long-term liabilities
    
    
    18,919
    
    
    
    
    14,390Fair value of derivatives
    
    
    240,129
    
    
    
    
    55,182Deferred income taxes
    
    
    84,490
    
    
    
    
    108,994Total long-term liabilities
    
    
    620,963
    
    
    
    
    459,658Shareholders equityCommon
stock: without par value Predecessor: 1,500 shares authorized and
issued at December 31, 2004; Successor: 3,000 shares
authorized; 1,534 shares issued at December 31, 2005
    
    
    
    
    
    
    
    Additional paid in capital
    
    
    125,000
    
    
    
    
    77,500Retained earnings
    
    
    9,063
    
    
    
    
    7,263Accumulated other comprehensive loss
    
    
    (44,664
    )
    
    
    
    (27,675
    )Total
shareholders equity
    
    
    89,399
    
    
    
    
    57,088$
    810,118
    
    
    
    $
    570,853
  F - 4




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##### Table of Contents



BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
 Successor Company
    
    
    
    Predecessor I Company
    
    
    
    Predecessor II CompanyFor the 227 Day
    
    
    For the 178 DayFor the 138 Day
    
    
    
    Period From
    
    
    Period from
    
    
    
    For the 188 DayPeriod From August
    
    
    
    January 1, 2005
    
    
    July 7, 2004 to
    
    
    
    Period from
    
    
    Year ended16, 2005 to
    
    
    
    to August 15,
    
    
    December 31,
    
    
    
    January 1, 2004
    
    
    December 31,December 31, 2005
    
    
    
    2005
    
    
    2004
    
    
    
    to July 6, 2004
    
    
    2003RevenuesOil and gas sales
    
    $
    69,954
    
    
    
    $
    71,400
    
    
    $
    56,782
    
    
    
    $
    45,307
    
    
    $
    84,610Gas gathering and marketing
    
    
    6,551
    
    
    
    
    6,439
    
    
    
    4,923
    
    
    
    
    5,057
    
    
    
    10,538Other
    
    
    166
    
    
    
    
    284
    
    
    
    696
    
    
    
    
    458
    
    
    
    26676,671
    
    
    
    
    78,123
    
    
    
    62,401
    
    
    
    
    50,822
    
    
    
    95,414ExpensesProduction expense
    
    
    10,377
    
    
    
    
    13,423
    
    
    
    11,634
    
    
    
    
    12,122
    
    
    
    20,017Production taxes
    
    
    1,771
    
    
    
    
    1,901
    
    
    
    1,467
    
    
    
    
    1,300
    
    
    
    2,449Gas gathering and marketing
    
    
    5,481
    
    
    
    
    5,629
    
    
    
    4,522
    
    
    
    
    4,579
    
    
    
    9,570Exploration expense
    
    
    1,229
    
    
    
    
    2,424
    
    
    
    2,750
    
    
    
    
    3,220
    
    
    
    6,849General and administrative expense
    
    
    1,455
    
    
    
    
    3,835
    
    
    
    2,651
    
    
    
    
    3,672
    
    
    
    4,559Franchise, property and other taxes
    
    
    65
    
    
    
    
    129
    
    
    
    52
    
    
    
    
    115
    
    
    
    202Depreciation, depletion and amortization
    
    
    14,341
    
    
    
    
    21,265
    
    
    
    17,527
    
    
    
    
    9,089
    
    
    
    18,098Impairment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    896Accretion expense
    
    
    407
    
    
    
    
    745
    
    
    
    633
    
    
    
    
    195
    
    
    
    343Derivative fair value (gain) loss
    
    
    5,054
    
    
    
    
    8,258
    
    
    
    371
    
    
    
    
    2,038
    
    
    
    (319
    )Transaction expense
    
    
    7
    
    
    
    
    7,535
    
    
    
    
    
    
    
    
    26,001
    
    
    
    40,187
    
    
    
    
    65,144
    
    
    
    41,607
    
    
    
    
    62,331
    
    
    
    62,664Operating income (loss)
    
    
    36,484
    
    
    
    
    12,979
    
    
    
    20,794
    
    
    
    
    (11,509
    )
    
    
    32,750Other expenseInterest expense
    
    
    8,526
    
    
    
    
    14,786
    
    
    
    11,877
    
    
    
    
    12,184
    
    
    
    23,580Income (loss) from
continuing operations before
income taxes
and cumulative effect of change in
accounting principle
    
    
    27,958
    
    
    
    
    (1,807
    )
    
    
    8,917
    
    
    
    
    (23,693
    )
    
    
    9,170Provision (benefit) for income taxes
    
    
    10,395
    
    
    
    
    (1,487
    )
    
    
    1,654
    
    
    
    
    (4,824
    )
    
    
    3,210Income (loss) from continuing operations before cumulative
effect of change in accounting principle
    
    
    17,563
    
    
    
    
    (320
    )
    
    
    7,263
    
    
    
    
    (18,869
    )
    
    
    5,960Income (loss) from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,868
    
    
    
    (10,681
    )Income (loss) before cumulative effect of change in
accounting principle
    
    
    17,563
    
    
    
    
    (320
    )
    
    
    7,263
    
    
    
    
    9,999
    
    
    
    (4,721
    )Cumulative effect of change in
accounting principle, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,397Net income (loss)
    
    $
    17,563
    
    
    
    $
    (320
    )
    
    $
    7,263
    
    
    
    $
    9,999
    
    
    $
    (2,324
    )
  F - 5




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##### Table of Contents



BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
(in thousands)
 Successor Company
    
    
    Predecessor I Company
    
    
    Predecessor II Company
    
    
    
    
    
    
    
    
    
    
    Accumulated Other
    
    
    TotalCommon
    
    
    Common
    
    
    Common
    
    
    Common
    
    
    Common
    
    
    Common
    
    
    Paid in
    
    
    Equity
    
    
    Comprehensive
    
    
    EquityShares
    
    
    Stock
    
    
    Shares
    
    
    Stock
    
    
    Shares
    
    
    Stock
    
    
    Capital
    
    
    (Deficit)
    
    
    Income
    
    
    (Deficit)Predecessor II Company:January 1, 2003
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    10,296
    
    
    $
    1,030
    
    
    $
    107,118
    
    
    $
    (148,332
    )
    
    $
    (4,854
    )
    
    $
    (45,038
    )Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,324
    )
    
    
    
    
    
    
    (2,324
    )Other comprehensive income (loss), net of tax:Change in derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,124
    )
    
    
    (18,124
    )Reclassification adjustment for derivative
(gain) loss
reclassified into oil and gas sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,543
    
    
    
    6,543Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,905
    )Stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    12
    
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    120Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    326
    
    
    
    
    
    
    
    
    
    
    
    326Repurchase of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )
    
    
    
    
    
    
    
    
    
    
    (48
    )Tax benefit of repurchase of stock options
and stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170
    
    
    
    
    
    
    
    
    
    
    
    170Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    (2
    )
    
    
    (41
    )
    
    
    
    
    
    
    
    
    
    
    (43
    )December 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,396
    
    
    
    1,040
    
    
    
    107,633
    
    
    
    (150,656
    )
    
    
    (16,435
    )
    
    
    (58,418
    )Comprehensive (loss) income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,999
    
    
    
    
    
    
    
    9,999Other comprehensive income (loss), net of tax:Change in derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,174
    )
    
    
    (11,174
    )Reclassification adjustment for derivative
(gain) loss
reclassified into oil and gas sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,512
    
    
    
    5,512Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,337Stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    6
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    111Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,097
    
    
    
    
    
    
    
    
    
    
    
    1,097Repurchase of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (283
    )
    
    
    
    
    
    
    
    
    
    
    (283
    )Tax benefit of repurchase of stock options
and stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    116Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (1
    )
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    (29
    )Redemption of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,455
    )
    
    
    (1,045
    )
    
    
    (108,640
    )
    
    
    140,657
    
    
    
    22,097
    
    
    
    53,069July 6, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Predecessor I Company:Sale of common stock
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,500
    
    
    
    
    
    
    
    
    
    
    
    77,500Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,263
    
    
    
    
    
    
    
    7,263Other comprehensive income (loss), net of tax:Change in derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,221
    )
    
    
    (35,221
    )Reclassification adjustment for derivative
(gain) loss
reclassified into oil and gas sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,546
    
    
    
    7,546Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,412
    )December 31, 2004
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,500
    
    
    
    7,263
    
    
    
    (27,675
    )
    
    
    57,088Comprehensive 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
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80,086
    )
    
    
    (6,943
    )
    
    
    156,400
    
    
    
    69,371Equity
adjustment due to purchase accounting
    
    
    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
    )
    
    $
    89,399
  F - 6




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##### Table of Contents



BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Successor Company
    
    
    
    Predecessor I Company
    
    
    
    Predecessor II CompanyFor the 138 Day
    
    
    
    For the 227 Day
    
    
    For the 178 Day
    
    
    
    For the 188 DayPeriod From August
    
    
    
    Period From
    
    
    Period From July
    
    
    
    Period From16, 2005 to December
    
    
    
    January 1, 2005 to
    
    
    7, to December 31,
    
    
    
    January 1, to July
    
    
    Year ended31, 2005
    
    
    
    August 15, 2005
    
    
    2004
    
    
    
    6, 2004
    
    
    December 31, 2003Cash flows from operating activities:Net income (loss)
    
    $
    17,563
    
    
    
    $
    (320
    )
    
    $
    7,263
    
    
    
    $
    9,999
    
    
    $
    (2,324
    )Adjustments to reconcile net income (loss)
to net cash provided by operating activities:Depreciation, depletion and amortization
    
    
    14,341
    
    
    
    
    21,265
    
    
    
    17,527
    
    
    
    
    9,723
    
    
    
    19,357Impairment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,774Accretion expense
    
    
    407
    
    
    
    
    745
    
    
    
    633
    
    
    
    
    221
    
    
    
    365(Gain) loss on sale of businesses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,223
    )
    
    
    69Loss on disposal of property and equipment
    
    
    57
    
    
    
    
    86
    
    
    
    18
    
    
    
    
    375
    
    
    
    1,452Amortization of derivatives and other noncash hedging activities
    
    
    9,511
    
    
    
    
    12,344
    
    
    
    937
    
    
    
    
    2,037
    
    
    
    (3,456
    )Exploration expense
    
    
    1,229
    
    
    
    
    2,424
    
    
    
    2,750
    
    
    
    
    4,639
    
    
    
    16,882Deferred income taxes
    
    
    10,395
    
    
    
    
    (1,487
    )
    
    
    1,829
    
    
    
    
    10,802
    
    
    
    (2,546
    )Stock-based compensation
    
    
    
    
    
    
    
    2,586
    
    
    
    
    
    
    
    
    3,990
    
    
    
    326Cumulative effect of change in accounting principle, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,397
    )Change in operating assets and liabilities, net of
effects of acquisition and disposition of businesses:Accounts receivable and other operating assets
    
    
    (1,421
    )
    
    
    
    213
    
    
    
    (304
    )
    
    
    
    (900
    )
    
    
    (3,969
    )Inventories
    
    
    484
    
    
    
    
    (85
    )
    
    
    394
    
    
    
    
    79
    
    
    
    62Accounts payable and accrued expenses
    
    
    9,813
    
    
    
    
    (8,845
    )
    
    
    4,234
    
    
    
    
    184
    
    
    
    (2,204
    )Net cash provided by (used in) operating activities
    
    
    62,379
    
    
    
    
    28,926
    
    
    
    35,281
    
    
    
    
    (4,074
    )
    
    
    27,391Cash flows from investing activities:Acquisition of businesses
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,841
    )Disposition of businesses, net of cash
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    72,464
    
    
    
    816Proceeds from property and equipment disposals
    
    
    21
    
    
    
    
    5
    
    
    
    125
    
    
    
    
    247
    
    
    
    2,997Exploration expense
    
    
    (1,229
    )
    
    
    
    (2,424
    )
    
    
    (2,750
    )
    
    
    
    (4,639
    )
    
    
    (16,882
    )Additions to property and equipment
    
    
    (11,640
    )
    
    
    
    (17,177
    )
    
    
    (12,008
    )
    
    
    
    (18,103
    )
    
    
    (29,878
    )(Increase) decrease in other assets
    
    
    (26
    )
    
    
    
    (34
    )
    
    
    (35
    )
    
    
    
    1,218
    
    
    
    (120
    )Net cash (used in) provided by investing activities
    
    
    (12,874
    )
    
    
    
    (19,630
    )
    
    
    (14,668
    )
    
    
    
    51,187
    
    
    
    (47,908
    )Cash flows from financing activities:Proceeds from senior secured notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192,500
    
    
    
    Proceeds from senior secured facility  term loan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    Proceeds from senior secured facility
    
    
    37,000
    
    
    
    
    57,000
    
    
    
    
    
    
    
    
    
    
    
    
    Sale of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,500
    
    
    
    Proceeds from subordinated promissory note
    
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    
    Repayment of senior subordinated notes
    
    
    
    
    
    
    
    
    
    
    
    (1,040
    )
    
    
    
    (223,960
    )
    
    
    Dividends
and payment to shareholders and optionholders
    
    
    (8,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    (113,674
    )
    
    
    Settlement of derivative liabilities recorded in purchase accounting
    
    
    (34,360
    )
    
    
    
    (20,440
    )
    
    
    (12,007
    )
    
    
    
    
    
    
    
    Debt issue costs
    
    
    (27
    )
    
    
    
    (2,120
    )
    
    
    
    
    
    
    
    (11,700
    )
    
    
    (250
    )Repayment of senior secured facility  term loan
    
    
    
    
    
    
    
    (89,500
    )
    
    
    (10,500
    )
    
    
    
    
    
    
    
    Repayment of senior secured facility
    
    
    (42,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from revolving line of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146,636
    
    
    
    195,859Repayment of long-term debt and other obligations
    
    
    (5
    )
    
    
    
    (84
    )
    
    
    (126
    )
    
    
    
    (194,187
    )
    
    
    (175,573
    )Equity contribution
    
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111
    
    
    
    120Repurchase of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (283
    )
    
    
    122Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    (43
    )Net cash (used in) provided by financing activities
    
    
    (47,892
    )
    
    
    
    (21,144
    )
    
    
    (23,673
    )
    
    
    
    (27,086
    )
    
    
    20,235Net (decrease) increase in cash and equivalents
    
    
    1,613
    
    
    
    
    (11,848
    )
    
    
    (3,060
    )
    
    
    
    20,027
    
    
    
    (282
    )Cash and cash equivalents at beginning of period
    
    
    6,559
    
    
    
    
    18,407
    
    
    
    21,467
    
    
    
    
    1,440
    
    
    
    1,722Cash and cash equivalents at end of period
    
    $
    8,172
    
    
    
    $
    6,559
    
    
    $
    18,407
    
    
    
    $
    21,467
    
    
    $
    1,440
  F - 7




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##### Table of Contents



BELDEN & BLAKE CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) Transaction and Merger
     (in thousands)Net working capital, including cash of $8,290
    
    $
    4,201Oil and gas properties
    
    
    652,569Goodwill
    
    
    91,443Other assets
    
    
    11,454Derivative liability
    
    
    (258,417
    )Other non-current liabilities
    
    
    (18,733
    )Net deferred income tax liabilities
    
    
    (74,748
    )Long-term debt
    
    
    (282,769
    )Cash equity contribution
    
    $
    125,000
 F - 8




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##### Table of Contents




    
    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 high grading investment opportunities and identifying new
investment opportunities.
    
    The going-concern value of the Company, including its experienced workforce.
 Goodwill and Other Intangible Assets
     F - 9




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##### Table of Contents




    
    20% of the difference between the value received for the assets upon transfer to a MLP and
the book value of the assets, if the transfer occurs within one year following the
Transaction; and
    
    10% of the difference between the value received for the assets upon transfer to a MLP and
the book value of the assets, if the transfer occurs in the second year following the
Transaction.
    Year ended December 31,2005
    
    
    2004Total revenues
    
    $
    154,794
    
    
    $
    113,223Income (loss) from continuing operations
    
    
    20,317
    
    
    
    (280
    )
  (2) Business
and Significant Accounting Policies
 Business
 F - 10




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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 - 11




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##### Table of Contents



Goodwill and Other Intangible Assets
    Revenue Recognition
 F - 12




---



##### Table of Contents



Income Taxes
  Stock-Based Compensation
      F - 13




---



##### Table of Contents



Derivatives and Hedging
   Asset Retirement Obligations
    F - 14




---



##### Table of Contents



Successor
    
    
    
    
    
    
    
    
    
    
    
    
    Predecessor IICompany
    
    
    
    Predecessor I Company
    
    
    
    CompanyFor The 138 Day
    
    
    
    For the 227 Day
    
    
    For The 178 DayPeriod From
    
    
    
    Period From
    
    
    Period From July 7,
    
    
    
    For The 188 Day PeriodAugust 16, 2005 to
    
    
    
    January 1, 2005 to
    
    
    2004 to December 31,
    
    
    
    From January 1, 2004December 31, 2005
    
    
    
    August 15, 2005
    
    
    2004
    
    
    
    to July 6, 2004Beginning asset retirement obligations
    
    $
    18,884
    
    
    
    $
    14,942
    
    
    $
    14,274
    
    
    
    $
    4,595Liabilities incurred
    
    
    173
    
    
    
    
    142
    
    
    
    101
    
    
    
    
    9Liabilities settled
    
    
    (75
    )
    
    
    
    (239
    )
    
    
    (85
    )
    
    
    
    (30
    )Accretion expense
    
    
    407
    
    
    
    
    745
    
    
    
    633
    
    
    
    
    195Revisions in estimated cash flows
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    24Ending asset retirement obligations
    
    $
    19,389
    
    
    
    $
    15,590
    
    
    $
    14,942
    
    
    
    $
    4,793
 (3) New Accounting Pronouncements
   
    
    A modified prospective method in which compensation cost is
recognized beginning with the effective date based on the requirements
of SFAS 123(R) for all share-based payments granted after the adoption
date and based on the requirements of SFAS 123 for all awards granted
to employees prior to the effective date of SFAS 123(R) that remain
unvested on the adoption date; or
    
    A modified retrospective method which includes the requirements of
the modified prospective method described above, but also permits
entities to restate either all prior periods presented or prior
interim periods of the year of adoption based on the amounts
previously recognized under SFAS 123 for purposes of pro forma
disclosures.
   F - 15




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##### Table of Contents



(4) Acquisitions
  (5) Dispositions and Discontinued Operations
     F - 16




---



##### Table of Contents



Predecessor II Company188 DayPeriod fromJanuary 1,
    
    
    Year ended2004 to July 6,
    
    
    December 31,2004
    
    
    2003Revenue from discontinued operations
    
    $
    7,294
    
    
    $
    13,698(Loss) income from operations of discontinued businesses
    
    
    (43
    )
    
    
    (16,368
    )(Benefit) provision for income taxes
    
    
    (17
    )
    
    
    (5,731
    )(26
    )
    
    
    (10,637
    )Income (loss) on sale of discontinued businesses
    
    
    45,223
    
    
    
    (69
    )Income tax provision (benefit)
    
    
    16,329
    
    
    
    (25
    )28,894
    
    
    
    (44
    )Income (loss) from discontinued operations, net of tax
    
    $
    28,868
    
    
    $
    (10,681
    )
 (6) Derivatives and Hedging
   F - 17




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##### Table of Contents



Natural Gas SwapsNYMEX
    
    
    Crude Oil SwapsPrice per
    
    
    Estimated
    
    
    NYMEXQuarter Ending
    
    Bbtu
    
    
    Mmbtu
    
    
    Mbbls
    
    
    Price per BblMarch 31, 2006
    
    
    2,829
    
    
    $
    6.14
    
    
    
    63
    
    
    $
    32.71June 30, 2006
    
    
    2,829
    
    
    
    5.24
    
    
    
    62
    
    
    
    32.35September 30, 2006
    
    
    2,829
    
    
    
    5.22
    
    
    
    62
    
    
    
    32.02December 31, 2006
    
    
    2,829
    
    
    
    5.39
    
    
    
    62
    
    
    
    31.7111,316
    
    
    $
    5.50
    
    
    
    249
    
    
    $
    32.20
 Year EndingDecember 31, 2007
    
    
    10,745
    
    
    $
    4.97
    
    
    
    227
    
    
    $
    30.91December 31, 2008
    
    
    10,126
    
    
    
    4.64
    
    
    
    208
    
    
    
    29.96December 31, 2009
    
    
    9,529
    
    
    
    4.43
    
    
    
    191
    
    
    
    29.34December 31, 2010
    
    
    8,938
    
    
    
    4.28
    
    
    
    175
    
    
    
    28.86December 31, 2011
    
    
    8,231
    
    
    
    4.19
    
    
    
    157
    
    
    
    28.77December 31, 2012
    
    
    7,005
    
    
    
    4.09
    
    
    
    138
    
    
    
    28.70December 31, 2013
    
    
    6,528
    
    
    
    4.04
    
    
    
    127
    
    
    
    28.70
 
 Bbl  Barrel
    
   
    Mmbtu  Million British thermal unitsMbbls  Thousand barrels
    

    Bbtu  Billion British thermal units
  F - 18




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##### Table of Contents



(7)
    
    Details of Balance Sheets
 Successor
    
    
    
    Predecessor ICompany
    
    
    
    CompanyDecember 31,2005
    
    
    
    2004(in thousands)Accounts receivableAccounts receivable
    
    $
    5,027
    
    
    
    $
    4,608Allowance for doubtful accounts
    
    
    (1,534
    )
    
    
    
    (1,680
    )Oil and gas production receivable
    
    
    21,732
    
    
    
    
    15,694Current portion of notes receivable
    
    
    
    
    
    
    
    45$
    25,225
    
    
    
    $
    18,667InventoriesOil
    
    $
    906
    
    
    
    $
    348Natural gas
    
    
    50
    
    
    
    
    86Material, pipe and supplies
    
    
    129
    
    
    
    
    84$
    1,085
    
    
    
    $
    518Property and equipment, gross
Oil and gas propertiesProducing properties
    
    $
    549,735
    
    
    
    $
    483,525Non-producing propertiesProved
    
    
    89,773
    
    
    
    
    25,788Unproved
    
    
    20,214
    
    
    
    
    4,775Other
    
    
    1,372
    
    
    
    
    816$
    661,094
    
    
    
    $
    514,904Land, buildings, machinery and equipmentLand, buildings and improvements
    
    $
    4,666
    
    
    
    $
    5,287Machinery and equipment
    
    
    2,129
    
    
    
    
    2,433$
    6,795
    
    
    
    $
    7,720Accrued expensesAccrued interest expense
    
    $
    7,836
    
    
    
    $
    8,112Accrued other expenses
    
    
    6,869
    
    
    
    
    3,785Accrued drilling and completion costs
    
    
    1,808
    
    
    
    
    1,488Accrued income taxes
    
    
    207
    
    
    
    
    592Ad valorem and other taxes
    
    
    1,546
    
    
    
    
    1,303Compensation and related benefits
    
    
    178
    
    
    
    
    1,989Undistributed production revenue
    
    
    10,052
    
    
    
    
    6,176$
    28,496
    
    
    
    $
    23,445
 F - 19




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##### Table of Contents



(8)
    
    Long-Term Debt
  Successor
    
    
    
    Predecessor ICompany
    
    
    
    CompanyDecember 31,2005
    
    
    
    2004Senior secured term facility
    
    $
    
    
    
    
    $
    89,500Senior secured notes
    
    
    192,500
    
    
    
    
    192,500Bank revolving credit facility
    
    
    52,000
    
    
    
    
    Subordinated promissory note (related party)
    
    
    25,000
    
    
    
    
    Other
    
    
    92
    
    
    
    
    97269,592
    
    
    
    
    282,097Less current portion
    
    
    7
    
    
    
    
    1,005Long-term debt
    
    
    269,585
    
    
    
    
    281,092Fair value adjustment  senior secured notes
    
    
    7,840
    
    
    
    
    
 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 - 20




---



##### Table of Contents



F - 21




---



##### Table of Contents



ISDA Master Agreement
   (9)
    
    Leases
    Operating
    
    
    CapitalAs of December 31, 2005
    
    Leases
    
    
    Leases(in thousands)2006
    
    $
    3,354
    
    
    $
    702007
    
    
    2,314
    
    
    
    362008
    
    
    507
    
    
    
    22009
    
    
    216
    
    
    
    2010
    
    
    70
    
    
    
    Total minimum rental payments
    
    $
    6,461
    
    
    
    108Less amount representing interest
    
    
    
    
    
    
    2Present value of net minimum rental payments
    
    
    
    
    
    
    106Less current portion
    
    
    
    
    
    
    77Long-term capitalized lease obligations
    
    
    
    
    
    $
    29
 (10)
    
    Stock Option Plans
 F - 22




---



##### Table of Contents



WeightedAverageNumber of
    
    
    ExerciseShares
    
    
    PriceBalance at January 1, 2003
    
    
    684,456
    
    
    $
    1.09Granted
    
    
    77,500
    
    
    
    2.14Forfeitures
    
    
    (781
    )
    
    
    0.30Exercised or put
    
    
    (144,854
    )
    
    
    0.83Balance at December 31, 2003
    
    
    616,321
    
    
    
    1.29Granted
    
    
    17,500
    
    
    
    3.97Forfeitures
    
    
    (7,500
    )
    
    
    2.14Exercised or put
    
    
    (137,478
    )
    
    
    0.84Surrendered at Merger
    
    
    (488,843
    )
    
    
    1.49Balance at December 31, 2004
    
    
    Granted
    
    
    Forfeitures
    
    
    Exercised or put
    
    
    Balance at December 31, 2005
    
    
    Options exercisable at December 31, 2005
    
    
    
  F - 23




---



##### Table of Contents



(11)
    
    Taxes
  SuccessorCompany
    
    
    
    Predecessor I CompanyFor the 138
    
    
    
    For the 227
    
    
    For the 178
    
    
    
    Predecessor II CompanyDay Period
    
    
    
    Day Period
    
    
    Day Period
    
    
    
    For the 188from August
    
    
    
    from January
    
    
    from July 7,
    
    
    
    Day Period16, 2005 to
    
    
    
    1, 2005 to
    
    
    2004 to
    
    
    
    from January
    
    
    Year endedDecember 31,
    
    
    
    August 15,
    
    
    December 31,
    
    
    
    1, 2004 to July
    
    
    December 31,2005
    
    
    
    2005
    
    
    2004
    
    
    
    6, 2004
    
    
    2003CurrentFederal
    
    $
    
    
    
    
    $
    
    
    
    $
    (29
    )
    
    
    $
    (379
    )
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    
    (146
    )
    
    
    
    (791
    )
    
    
    
    
    
    
    
    
    
    
    
    (175
    )
    
    
    
    (1,170
    )
    
    
    DeferredFederal
    
    
    9,470
    
    
    
    
    (302
    )
    
    
    3,914
    
    
    
    
    (4,173
    )
    
    
    3,111State
    
    
    925
    
    
    
    
    (1,185
    )
    
    
    (2,085
    )
    
    
    
    519
    
    
    
    9910,395
    
    
    
    
    (1,487
    )
    
    
    1,829
    
    
    
    
    (3,654
    )
    
    
    3,210Total
    
    $
    10,395
    
    
    
    $
    (1,487
    )
    
    $
    1,654
    
    
    
    $
    (4,824
    )
    
    $
    3,210
  SuccessorCompany
    
    
    
    Predecessor I CompanyFor the 138
    
    
    
    For the 227
    
    
    For the 178
    
    
    
    Predecessor II CompanyDay Period
    
    
    
    Day Period
    
    
    Day Period
    
    
    
    For the 188from August
    
    
    
    from January
    
    
    from July 7,
    
    
    
    Day Period16, 2005 to
    
    
    
    1, 2005 to
    
    
    2004 to
    
    
    
    from January
    
    
    Year endedDecember 31,
    
    
    
    August 15,
    
    
    December 31,
    
    
    
    1, 2004 to July
    
    
    December 31,2005
    
    
    
    2005
    
    
    2004
    
    
    
    6, 2004
    
    
    2003Statutory federal income tax rate
    
    
    35.0
    %
    
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    
    35.0
    %
    
    
    35.0
    %Increases (reductions) in taxes resulting from:State income taxes, net of federal tax benefit
    
    
    2.2
    
    
    
    
    42.6
    
    
    
    (16.3
    )
    
    
    
    0.7
    
    
    
    0.7Transaction related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15.4
    )Permanent differences
    
    
    
    
    
    
    
    2.0
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    Other, net
    
    
    
    
    
    
    
    2.7
    
    
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Effective income tax rate for the period
    
    
    37.2
    %
    
    
    
    82.3
    %
    
    
    18.6
    %
    
    
    
    20.3
    %
    
    
    35.0
    %
  F - 24




---



##### Table of Contents



December 31,
    
    
    December 31,2005
    
    
    2004Deferred income tax liabilities:Property and equipment, net
    
    $
    207,238
    
    
    $
    157,539Other, net
    
    
    188
    
    
    
    2,128Total deferred income tax liabilities
    
    
    207,426
    
    
    
    159,667Deferred income tax assets:Accrued expenses
    
    
    882
    
    
    
    776Asset retirement obligations
    
    
    7,066
    
    
    
    5,607Fair value of derivatives
    
    
    113,599
    
    
    
    31,023Net operating loss carryforwards
    
    
    35,317
    
    
    
    23,865Senior Secured Notes
    
    
    2,913
    
    
    
    Tax credit carryforwards
    
    
    1,250
    
    
    
    1,412Other, net
    
    
    503
    
    
    
    550Valuation allowance
    
    
    (12,842
    )
    
    
    (1,391
    )Total deferred income tax assets
    
    
    148,688
    
    
    
    61,842Net deferred income tax liability
    
    $
    58,738
    
    
    $
    97,825Long-term liability
    
    $
    84,490
    
    
    $
    108,994Current asset
    
    
    (25,752
    )
    
    
    (11,169
    )Net deferred income tax liability
    
    $
    58,738
    
    
    $
    97,825
  (12)
    
    Profit Sharing and Retirement Plans
  F - 25




---



##### Table of Contents



(13)
    
    Commitments and Contingencies
    F - 26




---



##### Table of Contents



(14) Supplemental Disclosure of Cash Flow Information
 SuccessorCompany
    
    
    Predecessor I Company
    
    
    Predecessor II Company138 Day
    
    
    227 DayPeriod from
    
    
    Period from
    
    178 Day
    
    
    188 DayAugust 16,
    
    
    January 1,
    
    Period from
    
    
    Period from2005 to
    
    
    2005 to
    
    July 7, 2004
    
    
    January 1,
    
    Year endedDecember
    
    
    August 15,
    
    to December
    
    
    2004 to July
    
    December31, 2005
    
    
    2005
    

31, 2004
    
    

6, 2004
    

31, 2003(in thousands)Cash paid during the period for:Interest
    
    $
    2,433
    
    
    
    $
    21,885
    
    
    $
    4,508
    
    
    
    $
    12,686
    
    
    $
    25,427Income taxes, net of refunds
    
    
    (163
    )
    
    
    
    500
    
    
    
    (25
    )
    
    
    
    
    
    
    
    172Non-cash investing and financing activities:Acquisition of assets in exchange for long-term liabilities
    
    
    
    
    
    
    
    
    
    
    
    137
    
    
    
    
    
    
    
    
    136Cumulative effect of change in accounting principle, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,397
 (15) Fair Value of Financial Instruments
   (16)
    
    Related Party Transactions
         F - 27




---



##### Table of Contents



(17)
    
    Industry Segment Financial Information
  Major customers
  F - 28




---



##### Table of Contents



(18)
    
    Supplementary Information on Oil and Gas Activities (Unaudited)
  SuccessorCompany
    
    
    Predecessor I Company
    
    
    Predecessor II Company138 Day
    
    
    227 DayPeriod from
    
    
    Period from
    
    178 Day
    
    
    188 DayAugust 15,
    
    
    January 1,
    
    Period from
    
    
    Period from2005 to
    
    
    2005 to
    
    July 7, 2004 to
    
    
    January 1,December 31,
    
    
    August 15,
    
    December 31,
    
    
    2004 to July 6,
    
    December 31,2005
    
    
    2005
    
    2004
    
    
    2004
    
    2003(in thousands)Acquisition costs:Proved properties
    
    $
    33
    
    
    
    $
    16
    
    
    $
    106
    
    
    
    $
    
    
    
    $
    3,923Unproved properties
    
    
    118
    
    
    
    
    317
    
    
    
    229
    
    
    
    
    286
    
    
    
    1,430Developmental costs
    
    
    7,893
    
    
    
    
    18,558
    
    
    
    11,357
    
    
    
    
    9,688
    
    
    
    16,440Exploratory costs
    
    
    1,229
    
    
    
    
    2,424
    
    
    
    2,750
    
    
    
    
    2,717
    
    
    
    6,849Estimated asset retirement obligations incurred
    
    
    174
    
    
    
    
    142
    
    
    
    101
    
    
    
    
    9
    
    
    
    268
 Estimated Proved Oil and Gas Reserves (Unaudited)
  
 F - 29




---



##### Table of Contents



Successor Company
    
    
    
    Predecessor I Company
    
    
    
    Predecessor II Company
    
    
    TotalOil
    
    
    Gas
    
    
    
    Oil
    
    
    Gas
    
    
    
    Oil
    
    
    Gas
    
    
    Oil
    
    
    Gas(Mbbl)(1)
    
    
    (Mmcf)(2)
    
    
    
    (Mbbl)(1)
    
    
    (Mmcf)(2)
    
    
    
    (Mbbl)(1)
    
    
    (Mmcf)(2)
    
    
    (Mbbl)(1)
    
    
    (Mmcf)(2)
    
    
    Mmcfe(3)December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,574
    
    
    
    335,518
    
    
    
    6,574
    
    
    
    335,518
    
    
    
    374,962Extensions and discoveries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,437
    
    
    
    
    
    
    
    1,437
    
    
    
    1,437Purchase of reserves in place
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,988
    
    
    
    
    
    
    
    8,988
    
    
    
    8,988Sale of
reserves in place
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (41
    )
    
    
    (1
    )
    
    
    (41
    )
    
    
    (47
    )Revisions of previous estimates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    (12,976
    )
    
    
    16
    
    
    
    (12,976
    )
    
    
    (12,880
    )Production
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (413
    )
    
    
    (14,837
    )
    
    
    (413
    )
    
    
    (14,837
    )
    
    
    (17,315
    )December 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,176
    
    
    
    318,089
    
    
    
    6,176
    
    
    
    318,089
    
    
    
    355,145Extensions and discoveries
    
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    1,005
    
    
    
    
    
    
    
    
    1,245
    
    
    
    51
    
    
    
    2,250
    
    
    
    2,556Purchase of reserves in place
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,319
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,319
    
    
    
    1,319Capital C merger
    
    
    
    
    
    
    
    
    
    
    
    6,117
    
    
    
    320,637
    
    
    
    
    (6,117
    )
    
    
    (320,637
    )Revisions of previous estimates
    
    
    
    
    
    
    
    
    
    
    
    (397
    )
    
    
    (64,065
    )
    
    
    
    130
    
    
    
    9,000
    
    
    
    (267
    )
    
    
    (55,065
    )
    
    
    (56,667
    )Production
    
    
    
    
    
    
    
    
    
    
    
    (192
    )
    
    
    (7,570
    )
    
    
    
    (189
    )
    
    
    (7,697
    )
    
    
    (381
    )
    
    
    (15,267
    )
    
    
    (17,553
    )December 31, 2004
    
    
      
    
    
    
    
    
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,211
    
    
    
    246,680
    
    
    
    277,938Proved developed reservesDecember 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,809
    
    
    
    207,842
    
    
    
    3,809
    
    
    
    207,842
    
    
    
    230,696December 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    3,448
    
    
    
    200,231
    
    
    
    
    
    
    
    
    
    
    
    
    3,448
    
    
    
    200,231
    
    
    
    220,919December 31, 2005
    
    
    3,822
    
    
    
    203,443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,822
    
    
    
    203,443
    
    
    
    226,375
 
 (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)
  -
    
    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 - 30




---



##### Table of Contents



PredecessorSuccessor
    
    
    
    I Company
    
    
    
    PredecessorCompany

    
    
    
    December 31,
    
    
    
    II Company2005
    
    
    
    2004
    
    
    
    2003(in thousands)Estimated future cash inflows (outflows)Revenues from the sale of oil and gas
    
    $
    2,726,170
    
    
    
    $
    1,854,119
    
    
    
    $
    2,152,092Production costs
    
    
    (639,366
    )
    
    
    
    (534,781
    )
    
    
    
    (470,604
    )Development costs
    
    
    (128,933
    )
    
    
    
    (126,750
    )
    
    
    
    (168,301
    )Future net cash flows before income taxes
    
    
    1,957,871
    
    
    
    
    1,192,588
    
    
    
    
    1,513,187Future income taxes
    
    
    (651,594
    )
    
    
    
    (397,606
    )
    
    
    
    (505,243
    )Future net cash flows
    
    
    1,306,277
    
    
    
    
    794,982
    
    
    
    
    1,007,94410% timing discount
    
    
    (760,513
    )
    
    
    
    (449,270
    )
    
    
    
    (608,767
    )Standardized measure of discounted
future net cash flows
    
    $
    545,764
    
    
    
    $
    345,712
    
    
    
    $
    399,177
   SuccessorCompany
    
    
    
    Predecessor I Company
    
    
    
    Predecessor II Company138 Day Period
    
    
    
    227 Day Period
    
    
    178 Day
    
    
    
    188 DayFrom August 16,
    
    
    
    From January
    
    
    Period from
    
    
    
    Period from2005 to
    
    
    
    1, 2005 to
    
    
    July 7, 2004 to
    
    
    
    January 1,
    
    
    Year endedDecember 31,
    
    
    
    August 15,
    
    
    December 31,
    
    
    
    2004 to July 6,
    
    
    December2005
    
    
    
    2005
    
    
    2004
    
    
    
    2004
    
    
    31, 2003Beginning of year
    
    $
    575,512
    
    
    
    $
    345,712
    
    
    $
    372,686
    
    
    
    $
    399,177
    
    
    $
    332,819Sale of oil and gas, net of production costs
    
    
    (60,103
    )
    
    
    
    (56,391
    )
    
    
    (33,710
    )
    
    
    
    (34,019
    )
    
    
    (63,672
    )Extensions and discoveries, less related estimated
future development and production costs
    
    
    6,422
    
    
    
    
    11,608
    
    
    
    2,671
    
    
    
    
    1,311
    
    
    
    1,867Previously estimated development costs incurred
during the period
    
    
    8,503
    
    
    
    
    16,667
    
    
    
    9,634
    
    
    
    
    6,237
    
    
    
    25,095Purchase of reserves in place less
estimated future production costs
    
    
    3,014
    
    
    
    
    1,504
    
    
    
    1,927
    
    
    
    
    
    
    
    
    10,193Sale of reserves in place less
estimated future production costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (60
    )Changes in estimated future development costs
    
    
    (13,903
    )
    
    
    
    (13,356
    )
    
    
    38,637
    
    
    
    
    (9,666
    )
    
    
    (26,714
    )Revisions of previous quantity estimates
    
    
    (6,964
    )
    
    
    
    13,150
    
    
    
    (131,431
    )
    
    
    
    17,391
    
    
    
    (23,353
    )Net changes in prices and production costs
    
    
    (28,924
    )
    
    
    
    367,871
    
    
    
    (5,961
    )
    
    
    
    (11,867
    )
    
    
    127,759Change in income taxes
    
    
    20,419
    
    
    
    
    (142,102
    )
    
    
    32,981
    
    
    
    
    (21,141
    )
    
    
    (29,072
    )Accretion of 10% timing discount
    
    
    33,060
    
    
    
    
    31,857
    
    
    
    28,483
    
    
    
    
    28,751
    
    
    
    47,959Changes in production rates (timing) and other
    
    
    8,728
    
    
    
    
    (1,008
    )
    
    
    29,795
    
    
    
    
    (3,488
    )
    
    
    (3,644
    )End of period
    
    $
    545,764
    
    
    
    $
    575,512
    
    
    $
    345,712
    
    
    
    $
    372,686
    
    
    $
    399,177
 F - 31




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##### Table of Contents



(19)
    
    Quarterly Results of Operations (Unaudited)
  Predecessor I Company
    
    
    Successor CompanyFor the 46For the 46
    
    
    Day PeriodDay Period
    
    
    FromFrom July 1,
    
    
    August 16,2005 to
    
    
    2005 toAugust 15,
    
    
    SeptemberFirst
    
    Second
    
    2005
    
    
    30, 2005
    
    Fourth2005Operating revenues
    
    $
    30,364
    
    
    $
    30,576
    
    
    $
    16,900
    
    
    
    $
    22,581
    
    
    $
    53,924Gross profit
    
    
    12,793
    
    
    
    12,426
    
    
    
    7,850
    
    
    
    
    12,384
    
    
    
    30,857Net (loss) income
    
    
    (636
    )
    
    
    5,975
    
    
    
    (5,658
    )
    
    
    
    660
    
    
    
    16,903
 Predecessor I CompanyPredecessor II Company
    
    For the 86For the 97
    
    Day PeriodDay Period
    
    from July 7,from April
    
    2004 to1, 2004 to
    
    SeptemberFirst
    
    
    July 6, 2004
    
    30, 2004
    
    Fourth2004Operating revenues
    
    $
    24,945
    
    
    
    $
    25,419
    
    
    $
    27,794
    
    
    $
    33,911Gross profit
    
    
    10,682
    
    
    
    
    10,977
    
    
    
    9,606
    
    
    
    14,147Income (loss) from continuing operations
    
    
    2,366
    
    
    
    
    (21,235
    )
    
    
    380
    
    
    
    6,883(Loss) income from discontinued operations, net of tax
    
    
    (314
    )
    
    
    
    29,182
    
    
    
    
    
    
    
    Net income
    
    
    2,052
    
    
    
    
    7,947
    
    
    
    380
    
    
    
    6,883
 F - 32