##### 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, 2006
 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)
 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




---



Forward-Looking Statements
  TABLE OF CONTENTS  PART IItems 1 and 2. BUSINESS AND PROPERTIESItem 1A. RISK FACTORSItem 1B. UNRESOLVED STAFF COMMENTSItem 3. LEGAL PROCEEDINGSItem 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIItem 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESItem 6. SELECTED FINANCIAL DATAItem 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAItem 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREItem 9A. CONTROLS AND PROCEDURESItem 9B. OTHER INFORMATIONPART IIIItem 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCEItem 11. EXECUTIVE COMPENSATIONItem 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND RELATED STOCKHOLDER MATTERSItem 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSItem 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVItem 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESEX-23.1EX-23.2EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 PART I
 
 Items 1 and 2. BUSINESS AND PROPERTIES
 GENERAL
    SIGNIFICANT EVENTS
 Acquisition by Institutional Funds Managed by EnerVest Management Partners, Ltd.
    1




---



##### Table of Contents



Credit Agreement
   DESCRIPTION OF BUSINESS
 Overview
     2




---



##### Table of Contents



Oil and Gas Reserves
  December 31,2004
    
    
    2005
    
    
    2006Estimated proved reservesGas (Bcf)
    
    
    251.3
    
    
    
    246.7
    
    
    
    233.0Oil (Mbbl)
    
    
    5,579
    
    
    
    5,210
    
    
    
    5,181Bcfe
    
    
    284.8
    
    
    
    277.9
    
    
    
    264.1
    December 31,2004
    
    
    2005
    
    
    2006Gas (per Mcf)
    
    $
    6.49
    
    
    $
    9.83
    
    
    $
    5.91Oil (per barrel)
    
    
    40.12
    
    
    
    57.64
    
    
    
    57.21
   3




---



##### Table of Contents



Appalachian Basin  Conventional Properties
    Michigan Basin Properties
    Appalachian Basin  Coalbed Methane Properties
  Oil and Gas Operations and Production
 Operations .
  4




---



##### Table of Contents



Production, Sales Prices and Costs .
 Year Ended December 31,2004
    
    
    2005
    
    
    2006ProductionGas (Mmcf)
    
    
    15,267
    
    
    
    14,560
    
    
    
    14,104Oil (Mbbl)
    
    
    381
    
    
    
    358
    
    
    
    373Total production (Mmcfe)
    
    
    17,553
    
    
    
    16,710
    
    
    
    16,340Average price (1)Gas (per Mcf)
    
    $
    5.80
    
    
    $
    8.57
    
    
    $
    8.77Oil (per Bbl)
    
    
    35.47
    
    
    
    46.37
    
    
    
    62.78Per Mcfe
    
    
    5.82
    
    
    
    8.46
    
    
    
    9.00Average costs (per Mcfe)Production expense
    
    $
    1.35
    
    
    $
    1.39
    
    
    $
    1.41Production taxes
    
    
    0.16
    
    
    
    0.22
    
    
    
    0.18Depletion
    
    
    1.35
    
    
    
    2.01
    
    
    
    2.30Operating margin (per Mcfe)
    
    
    4.31
    
    
    
    6.85
    
    
    
    7.41
 
 (1)
    
    The average prices presented above include non-cash amounts related to our derivatives as a result of
purchase accounting for the Merger and the Transaction. Excluding these non-cash amounts from oil and gas sales
revenues would result in the following average prices: Year Ended December 31,2004
    
    
    2005
    
    
    2006Gas (per Mcf)
    
    $
    5.07
    
    
    $
    6.99
    
    
    $
    7.22Oil (per Bbl)
    
    
    34.42
    
    
    
    45.38
    
    
    
    62.78Per Mcfe
    
    
    5.17
    
    
    
    7.06
    
    
    
    7.67
    Exploration and Development
     5




---



##### Table of Contents



Range of Average Drillingand Completion Costs perRange of Well Depths
    
    
    Well(in feet)
    
    
    (in thousands)Ohio:Clinton
    
    
    4,700         -          5,750
    
    
    $
    300         -         340Pennsylvania:Coalbed Methane
    
    
    1,000         -          1,600
    
    
    
    190         -         305Clarendon
    
    
    1,100         -          2,100
    
    
    
    90         -         130Medina
    
    
    5,300         -          6,200
    
    
    
    300         -         370Michigan:Antrim
    
    
    1,300         -          2,100
    
    
    
    170         -         370
   Drilling Results .
 Development Wells
    
    
    Exploratory Wells2004
    
    
    2005
    
    
    2006
    
    
    2004
    
    
    2005(1)
    
    
    2006(2)Productive:Gross
    
    
    100
    
    
    
    120
    
    
    
    177
    
    
    
    
    
    
    
    2
    
    
    
    Net
    
    
    92.1
    
    
    
    117.2
    
    
    
    170.3
    
    
    
    
    
    
    
    2.0
    
    
    
    Dry:Gross
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    5
    
    
    
    1
    
    
    
    1Net
    
    
    1.0
    
    
    
    
    
    
    
    2.0
    
    
    
    3.8
    
    
    
    1.0
    
    
    
    0.5Wells in progress:Gross
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.0
    
    
    
    0.5
    
    
    
    
 
 (1)
    
    Includes one well (dry hole) that was classified as a well in progress in 2004.(2)
    
    Includes one well (dry hole) that was classified as a well in progress in 2005. 6




---



##### Table of Contents



Disposition of Assets
      Employees
  Competition
   Principal Customers
  Regulation
 Regulation of Production.
 7




---



##### Table of Contents



Federal Regulation of Sales and Transportation of Natural Gas.
   Federal Regulation of Sales and Transportation of Crude Oil.
 Environmental Regulations.
   8




---



##### Table of Contents



Producing Well Data
  9




---



##### Table of Contents



December 31, 2006Gas Wells
    
    
    Oil Wells
    
    
    TotalState
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetOhio
    
    
    1,043
    
    
    
    879
    
    
    
    680
    
    
    
    604
    
    
    
    1,723
    
    
    
    1,483Pennsylvania
    
    
    1,368
    
    
    
    1,257
    
    
    
    104
    
    
    
    104
    
    
    
    1,472
    
    
    
    1,361New York
    
    
    22
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    11Michigan
    
    
    1,189
    
    
    
    587
    
    
    
    19
    
    
    
    4
    
    
    
    1,208
    
    
    
    5913,622
    
    
    
    2,734
    
    
    
    803
    
    
    
    712
    
    
    
    4,425
    
    
    
    3,446
 Acreage Data
  December 31, 2006Developed Acreage
    
    
    Undeveloped Acreage
    
    
    Total AcreageState
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetOhio
    
    
    187,742
    
    
    
    178,175
    
    
    
    20,246
    
    
    
    18,934
    
    
    
    207,988
    
    
    
    197,109Pennsylvania
    
    
    213,824
    
    
    
    186,077
    
    
    
    113,802
    
    
    
    75,571
    
    
    
    327,626
    
    
    
    261,648New York
    
    
    14,371
    
    
    
    12,601
    
    
    
    28,207
    
    
    
    13,993
    
    
    
    42,578
    
    
    
    26,594Michigan
    
    
    62,532
    
    
    
    62,436
    
    
    
    32,311
    
    
    
    31,207
    
    
    
    94,843
    
    
    
    93,643Indiana
    
    
    40
    
    
    
    40
    
    
    
    9,672
    
    
    
    9,619
    
    
    
    9,712
    
    
    
    9,659478,509
    
    
    
    439,329
    
    
    
    204,238
    
    
    
    149,324
    
    
    
    682,747
    
    
    
    588,653
  
 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
 10




---



##### Table of Contents




    
    a sudden, unexpected event materially impacts natural gas and crude oil prices.
 Our operations require large amounts of capital that may not be recovered or raised.
  
    
    the success of our projects in the Appalachian and Michigan basins;
    
    our success in locating and producing new reserves;
    
    the level of production from existing wells; and
    
    prices of oil and natural gas.
  Oil and natural gas prices are volatile, and an extended decline in prices would hurt our
profitability and financial condition.
   If oil and natural gas prices decrease or our drilling efforts are unsuccessful, we may be
required to write down the carrying value of our oil and natural gas properties.
   11




---



##### Table of Contents



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.
 12




---



##### Table of Contents



Our exploitation and development drilling activities may not be successful.
  
    
    unexpected drilling conditions;
    
    pressure or irregularities in formations;
    
    equipment failures or accidents;
    
    ability to hire and train personnel for drilling and completion services;
    
    adverse weather conditions;
    
    compliance with governmental requirements; and
    
    shortages or delays in the availability of drilling rig services and the delivery of equipment.
   Our acquisition activities may not be successful.
  
    
    some of the acquired businesses or properties may not produce revenues, earnings or
cash flow at anticipated levels;
    
    we may assume liabilities that were not disclosed or that exceed our estimates;
    
    we may be unable to integrate acquired businesses successfully and realize
anticipated economic, operational and other benefits in a timely manner, which could
result in substantial costs and delays or other operational, technical or financial
problems;
    
    acquisitions could disrupt our ongoing business, distract management, divert
resources and make it difficult to maintain our current business standards, controls and
procedures; and
    
    we may incur additional debt related to future acquisitions.
  We face strong competition in the oil and natural gas industry, and the resources of many of
our competitors are greater than ours.
  13




---



##### Table of Contents



Our operations are subject to the business and financial risk of oil and natural gas
exploration.
  Our business is subject to operating hazards that could result in substantial losses.
  We must comply with complex federal, state and local laws and regulations.
  We may incur substantial costs to comply with stringent environmental regulations.
  Our business depends on gathering and transportation facilities owned by others.
   All of our common stock is owned by one controlling shareholder whose interests may differ
from those of the holders of our Notes.
  14




---



##### Table of Contents



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.
  
    
    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
 15




---



##### Table of Contents



Item 3. LEGAL PROCEEDINGS
   
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 Item 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
   Dividends
  Equity Compensation Plan Information:
  16




---



##### Table of Contents



Item 6. SELECTED FINANCIAL DATA
  Predecessor II Company
    
    
    
    Predecessor I Company
    
    
    
    Successor CompanyFor the 178
    
    
    For the 227
    
    
    
    For the 138
    
    
    As of or forFor the 188
    
    
    
    Day Period
    
    
    Day Period
    
    
    
    Day Period
    
    
    the yearDay Period
    
    
    
    from July 7,
    
    
    From January
    
    
    
    from August
    
    
    endedAs of or for the years ended
    
    
    from January
    
    
    
    2004 to
    
    
    1, 2005 to
    
    
    
    16, 2005 to
    
    
    DecemberDecember 31,
    
    
    1, 2004 to
    
    
    
    December 31,
    
    
    August 15,
    
    
    
    December 31,
    
    
    31,(in thousands)
    
    2002(1)
    
    
    2003(1)
    
    
    July 6, 2004(1)
    
    
    
    2004
    
    
    2005
    
    
    
    2005
    
    
    2006Continuing Operations:Revenues
    
    $
    105,338
    
    
    $
    95,414
    
    
    $
    50,822
    
    
    
    $
    62,401
    
    
    $
    78,123
    
    
    
    $
    76,671
    
    
    $
    159,090Depreciation, depletion and amortization
    
    
    21,339
    
    
    
    18,098
    
    
    
    9,089
    
    
    
    
    17,527
    
    
    
    21,265
    
    
    
    
    14,341
    
    
    
    38,498Impairment of oil and gas properties
    
    
    
    
    
    
    896
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    546Income (loss) from continuing operations before
cumulative effect of change in accounting principle
    
    
    8,935
    
    
    
    5,960
    
    
    
    (18,869
    )
    
    
    
    7,263
    
    
    
    (320
    )
    
    
    
    17,563
    
    
    
    52,199Balance sheet data:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    As of 12/31/2004
    
    
    
    
    
    
    As of 12/31/2005Working capital (deficit) from continuing operations
    
    
    (7,914
    )
    
    
    (8,168
    )
    
    
    
    
    
    
    
    (4,907
    )
    
    
    
    
    
    
    
    (38,999
    )
    
    
    (11,635
    )Oil and gas properties and gathering systems, net
    
    
    211,776
    
    
    
    224,631
    
    
    
    
    
    
    
    
    502,765
    
    
    
    
    
    
    
    
    648,417
    
    
    
    640,697Total assets
    
    
    264,091
    
    
    
    285,930
    
    
    
    
    
    
    
    
    570,853
    
    
    
    
    
    
    
    
    810,118
    
    
    
    777,023Long-term debt, less current portion
    
    
    251,959
    
    
    
    272,637
    
    
    
    
    
    
    
    
    281,396
    
    
    
    
    
    
    
    
    277,648
    
    
    
    285,560Total
shareholders (deficit) equity
    
    
    (45,038
    )
    
    
    (58,418
    )
    
    
    
    
    
    
    
    57,088
    
    
    
    
    
    
    
    
    89,399
    
    
    
    143,703
 
 (1)
    
    See Note 4 to the Consolidated Financial Statements for information on discontinued operations. 17




---



##### Table of Contents



Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Overview
        CRITICAL ACCOUNTING POLICIES
  18




---



##### Table of Contents



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
  19




---



##### Table of Contents



Derivatives and Hedging
     20




---



##### Table of Contents



Revenue Recognition
  Asset Retirement Obligations
    Predecessor ISuccessor Company
    
    
    
    CompanyFor The 138 Day
    
    
    
    For the 227 DayPeriod From
    
    
    
    Period FromYear Ended
    
    
    August 16, 2005
    
    
    
    January 1, 2005December 31,
    
    
    to December 31,
    
    
    
    to August 15,2006
    
    
    2005
    
    
    
    2005Beginning asset retirement obligations
    
    $
    19,389
    
    
    $
    18,884
    
    
    
    $
    14,942Liabilities incurred
    
    
    523
    
    
    
    173
    
    
    
    
    142Liabilities settled
    
    
    (543
    )
    
    
    (75
    )
    
    
    
    (239
    )Accretion expense
    
    
    1,219
    
    
    
    407
    
    
    
    
    745Revisions in estimated cash flows
    
    
    146
    
    
    
    
    
    
    
    
    Ending asset retirement obligations
    
    $
    20,734
    
    
    $
    19,389
    
    
    
    $
    15,590
 21




---



##### Table of Contents



Results of Operations
  Year Ended December 31,2006
    
    
    2005
    
    
    2004RevenuesOil and gas sales
    
    $
    147,122
    
    
    
    92.5
    %
    
    $
    141,354
    
    
    
    91.3
    %
    
    $
    102,089
    
    
    
    90.2
    %Gas gathering and marketing
    
    
    11,294
    
    
    
    7.1
    
    
    
    12,990
    
    
    
    8.4
    
    
    
    9,980
    
    
    
    8.8Other
    
    
    674
    
    
    
    0.4
    
    
    
    450
    
    
    
    0.3
    
    
    
    1,154
    
    
    
    1.0159,090
    
    
    
    100.0
    
    
    
    154,794
    
    
    
    100.0
    
    
    
    113,223
    
    
    
    100.0ExpensesProduction expense
    
    
    23,108
    
    
    
    14.5
    
    
    
    23,157
    
    
    
    14.9
    
    
    
    23,756
    
    
    
    21.1Production taxes
    
    
    2,988
    
    
    
    1.9
    
    
    
    3,672
    
    
    
    2.4
    
    
    
    2,767
    
    
    
    2.4Gas gathering and marketing
    
    
    9,360
    
    
    
    5.9
    
    
    
    11,110
    
    
    
    7.2
    
    
    
    9,101
    
    
    
    8.0Exploration expense
    
    
    1,797
    
    
    
    1.1
    
    
    
    3,653
    
    
    
    2.4
    
    
    
    5,970
    
    
    
    5.3General and administrative expense
    
    
    9,995
    
    
    
    6.3
    
    
    
    6,127
    
    
    
    3.9
    
    
    
    6,490
    
    
    
    5.7Depreciation, depletion and amortization
    
    
    38,498
    
    
    
    24.2
    
    
    
    35,606
    
    
    
    23.0
    
    
    
    26,616
    
    
    
    23.5Inpairment of oil and gas properties
    
    
    546
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accretion expense
    
    
    1,226
    
    
    
    0.8
    
    
    
    1,152
    
    
    
    0.7
    
    
    
    828
    
    
    
    0.7Derivative fair value (gain) loss
    
    
    (37,356
    )
    
    
    (23.5
    )
    
    
    13,312
    
    
    
    8.6
    
    
    
    2,409
    
    
    
    2.1Transaction expense
    
    
    
    
    
    
    
    
    
    
    7,542
    
    
    
    4.9
    
    
    
    26,001
    
    
    
    23.050,162
    
    
    
    31.5
    
    
    
    105,331
    
    
    
    68.0
    
    
    
    103,938
    
    
    
    91.8Operating income
    
    
    108,928
    
    
    
    68.5
    
    
    
    49,463
    
    
    
    32.0
    
    
    
    9,285
    
    
    
    8.2Other (income) expense(Gain) on early extinguishment of debt
    
    
    (436
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    22,930
    
    
    
    14.4
    
    
    
    23,312
    
    
    
    15.1
    
    
    
    24,061
    
    
    
    21.3Income (loss) from continuing operations
before income taxes
    
    
    86,434
    
    
    
    54.1
    
    
    
    26,151
    
    
    
    16.9
    
    
    
    (14,776
    )
    
    
    (13.1
    )Provision (benefit) for income taxes
    
    
    34,235
    
    
    
    21.5
    
    
    
    8,908
    
    
    
    5.8
    
    
    
    (3,170
    )
    
    
    (2.8
    )Income (loss) from continuing operations
    
    
    52,199
    
    
    
    32.6
    
    
    
    17,243
    
    
    
    11.1
    
    
    
    (11,606
    )
    
    
    (10.3
    )Income from discontinued
operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,868
    
    
    
    25.5Net income
    
    $
    52,199
    
    
    
    32.6
    %
    
    $
    17,243
    
    
    
    11.1
    %
    
    $
    17,262
    
    
    
    15.2
    %
 22




---



##### Table of Contents



Production, Sales Prices and Costs
  Year Ended December 31,2004
    
    
    2005
    
    
    2006ProductionGas (Mmcf)
    
    
    15,267
    
    
    
    14,560
    
    
    
    14,104Oil (Mbbl)
    
    
    381
    
    
    
    358
    
    
    
    373Total production (Mmcfe)
    
    
    17,553
    
    
    
    16,710
    
    
    
    16,340Average price (1)Gas (per Mcf)
    
    $
    5.80
    
    
    $
    8.57
    
    
    $
    8.77Oil (per Bbl)
    
    
    35.47
    
    
    
    46.37
    
    
    
    62.78Per Mcfe
    
    
    5.82
    
    
    
    8.46
    
    
    
    9.00Average costs (per Mcfe)Production expense
    
    $
    1.35
    
    
    $
    1.39
    
    
    $
    1.41Production taxes
    
    
    0.16
    
    
    
    0.22
    
    
    
    0.18Depletion
    
    
    1.35
    
    
    
    2.01
    
    
    
    2.30Operating margin (per Mcfe)
    
    
    4.31
    
    
    
    6.85
    
    
    
    7.41
 
 (1)
    
    The average prices presented above include non-cash amounts related to our derivatives as a result of
purchase accounting for the Merger and the Transaction. Excluding these non-cash amounts from oil and gas sales
revenues would result in the following average prices: Year Ended December 31,2004
    
    
    2005
    
    
    2006Gas (per Mcf)
    
    $
    5.07
    
    
    $
    6.99
    
    
    $
    7.22Oil (per Bbl)
    
    
    34.42
    
    
    
    45.38
    
    
    
    62.78Per Mcfe
    
    
    5.17
    
    
    
    7.06
    
    
    
    7.67
    2006 Compared to 2005
 Revenues
   23




---



##### Table of Contents



Costs and Expenses
       24




---



##### Table of Contents



2005 Compared to 2004
 Revenues
      Costs and Expenses
  25




---



##### Table of Contents



26




---



##### Table of Contents



Liquidity and Capital Resources
 Cash Flows
    Year Ended December 31,2006
    
    
    2005
    
    
    Change(in millions)Cash flows provided by operating activities
    
    $
    66.6
    
    
    $
    91.3
    
    
    $
    (24.7
    )Cash flows from investing activities
    
    
    (30.2
    )
    
    
    (32.5
    )
    
    
    2.3Cash flows from financing activities
    
    
    (38.6
    )
    
    
    (69.0
    )
    
    
    30.4Net increase or decrease in cash and cash equivalents
    
    $
    (2.2
    )
    
    $
    (10.2
    )
    
    $
    8.0
     27




---



##### Table of Contents



Capital Expenditures
  Year Ended December 31,2006
    
    
    2005
    
    
    2004(in millions)Total capital expendituresDrilling including exploratory dry hole expense
    
    $
    35
    
    
    $
    26
    
    
    $
    21Production enhancements and field improvements
    
    
    1
    
    
    
    2
    
    
    
    3Leasehold acreage
    
    
    1
    
    
    
    1
    
    
    
    1Other capital expenditures
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    37
    
    
    $
    29
    
    
    $
    25
   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
    %
  28




---



##### Table of Contents



Amended Credit Agreement
        ISDA Master Agreement
  29




---



##### Table of Contents











Derivative Instruments


The Hedges










30




---



##### Table of Contents









Natural Gas SwapsNYMEX
    
    Crude Oil SwapsPrice per
    
    Estimated
    
    NYMEXYear Ending
    
    Bbtu
    
    Mmbtu
    
    Mbbls
    
    Price per BblDecember 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


31




---



##### Table of Contents







Payments Due by PeriodContractual Obligations at
    
    
    
    
    
    Less than 1
    
    
    
    
    
    
    
    
    
    
    After 5December 31, 2006
    
    Total
    
    
    Year
    
    
    1  3 Years
    
    
    4 - 5 Years
    
    
    Years(in thousands)Long-term debt
    
    $
    279,936
    
    
    $
    7
    
    
    $
    16
    
    
    $
    95,395
    
    
    $
    184,518Capital lease obligations
    
    
    37
    
    
    
    35
    
    
    
    2
    
    
    
    
    
    
    
    Asset retirement obligations
    
    
    20,734
    
    
    
    373
    
    
    
    2,599
    
    
    
    760
    
    
    
    17,002Derivative liabilities
    
    
    187,016
    
    
    
    27,198
    
    
    
    74,338
    
    
    
    52,653
    
    
    
    32,827Interest on debt
    
    
    120,153
    
    
    
    24,126
    
    
    
    48,893
    
    
    
    38,013
    
    
    
    9,121Operating leases
    
    
    3,627
    
    
    
    3,000
    
    
    
    627
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    611,503
    
    
    $
    54,739
    
    
    $
    126,475
    
    
    $
    186,821
    
    
    $
    243,468






Amount of Commitment Expiration Per PeriodTotalCommercial Commitments at
    
    Amounts
    
    
    Less than 1December 31, 2006
    
    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




NEW ACCOUNTING STANDARDS


Accounting for Certain Hybrid Instruments


32




---



##### Table of Contents



Fair Value Measurements
 Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   .
 33




---



##### 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
  34




---



##### Table of Contents



Changes in Internal Control over Financial Reporting
  
    
    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




---



##### Table of Contents



PART III
 
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE
  Name
    
    Age
    
    PositionMark A. Houser
    
    
    45
    
    
    Chief Executive Officer and Chairman of the Board of DirectorsJames M. Vanderhider
    
    
    48
    
    
    President, Chief Financial Officer and DirectorKenneth Mariani
    
    
    45
    
    
    Senior Vice President, Chief Operating Officer and DirectorFrederick J. Stair
    
    
    47
    
    
    Vice President of AccountingBarry K. Lay
    
    
    50
    
    
    Vice President of Land and SecretaryDavid M. Elkin
    
    
    41
    
    
    Vice President of EngineeringMark L. Barnhill
    
    
    51
    
    
    Vice President of ExplorationMatthew Coeny
    
    
    36
    
    
    Director
  Mark A. Houser.
 James M. Vanderhider.
 .
 36




---



##### Table of Contents



Kenneth Mariani.
  Frederick J. Stair.
 Barry K. Lay.
  David M. Elkin.
 Mark L. Barnhill.
  Matthew Coeny.
 37




---



##### Table of Contents







Audit Committee




Code of Ethics







38



---



##### Table of Contents



Item 11. EXECUTIVE COMPENSATION
  Compensation of Directors
  Compensation Committee Interlocks and Insider Participation
  39




---



##### Table of Contents



Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT
AND RELATED
STOCKHOLDER  MATTERS
  Percentage ofFive Percent Shareholders
    
    Number of Shares
    
    SharesCapital C Energy Operations, LP (1)1001 Fanin Street, Suite 800
Houston, Texas 77002
    
    
    1,534
    
    
    
    100.0
    %
 
 (1)
    
    Subsidiaries of EnerVest Management Partners, Ltd., are the general partners of
the limited partnership that owns Capital C Energy Operations, L.P. EnerVest, therefore, also may
be deemed to be a beneficial owner of the 1,534 shares (100%) of our Common Stock. The address of
EnerVest Management Partners, Ltd., is 1001 Fannin Street, Suite 800, Houston, Texas 77002.
EnerVest is a Texas limited partnership. Messrs. John B. Walker, Jon Rex Jones and A.V. Jones by
virtue of their direct and indirect ownership of the limited liability company that acts as
EnerVests general partner, may be deemed to beneficially own the Common Stock beneficially owned
by EnerVest. Messrs. Walker, John Rex Jones and A.V. Jones disclaim beneficial ownership of such
Common Stock. The addresses for Messrs. Walker, Jon Rex Jones and A.V. Jones are the same as for
EnerVest. Equity Compensation Plan Information:
  40




---



##### Table of Contents



Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
        41




---



##### Table of Contents



Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  December 31,2006
    
    
    2005Audit fees
    
    $
    390,000
    
    
    $
    824,338Audit-related fees
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    35,800All other fees
    
    
    1,500
    
    
    
    1,590$
    391,500
    
    
    $
    861,728
  Audit Committee Pre-Approval Policies and Procedures
  
 PART IV
 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
      42




---



##### Table of Contents



No.
    
    Description2.1
    
    Agreement and Plan of Merger, dated as of June 15, 2004, by and among Capital C Energy
Operations, LP, Capital C Ohio, Inc. and Belden & Blake Corporation, incorporated by reference
to Exhibit 2.1 to Belden & Blake Corporations Form 8-K dated July 7, 2004 (as amended).3.1
    
    Amended and Restated Articles of Incorporation of Belden & Blake Corporation (fka Belden &
Blake Energy Corporation), incorporated by reference to Exhibit 3.1 to Belden & Blake
Corporations Form 8-K dated November 29, 2004.3.2
    
    Amended and Restated Code of Regulations of Belden & Blake Corporation, incorporated by
reference to Exhibit 3.2 to the Companys Registration Statement on Form S-4 (Registration No.
333-119194).4.1
    
    Indenture, dated as of July 7, 2004, by and among Belden & Blake Corporation, The Canton Oil
& Gas Company, Ward Lake Drilling, Inc. and BNY Midwest Trust Company, incorporated by
reference to Exhibit 4.2 to Belden & Blake Corporations Form 8-K dated July 7, 2004 (as
amended).10.1
    
    ISDA Master Agreement, dated as of June 30, 2004, between Capital C Ohio, Inc. and J. Aron &
Company, incorporated by reference to Exhibit 10.1 to Belden & Blake Corporations Form 8-K
dated July 7, 2004 (as amended).10.2
    
    First Amended and Restated Credit and Guaranty Agreement, dated as of August 16, 2005, by and
among Belden & Blake Corporation, as borrower, certain subsidiaries of Belden & Blake
Corporation, as guarantors, various lenders signatory thereto, and BNP Paribas., as sole lead
arranger, sole bookrunner, syndication agent and administrative agent (incorporated by
reference to Exhibit 10.1 to Belden & Blake Corporations Form 8-K dated August 22, 2005.10.3
    
    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).
 43




---



##### 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, 2005.10.20
    
    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).
 44




---



##### Table of Contents



No.
    
    Description10.24
    
    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, incorporated by reference to Exhibit 10.25 to the Belden &
Blake Corporations annual report on Form 10-K for the year ended December 31, 2005.10.26
    
    Operating Agreement dated October 1, 2005, by and between Belden & Blake Corporation and
EnerVest Operating L.L.C. incorporated by reference to Exhibit 10.26 to the Belden & Blake
Corporations annual report on Form 10-K for the year ended December 31, 2005.14.1
    
    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 Firm.23.2*
    
    Consent of Independent Registered Public Accounting Firm.31.1*
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2*
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1*
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2*
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith     45




---



##### Table of Contents



SIGNATURES
   March 28, 2007

Date
    
    
    
    By:
    
    /s/ Mark A. Houser
Mark A. Houser, Chief Executive Officer,

Chairman of the Board of Directors and Director
  /s/ Mark A. Houser
    
    Chief Executive Officer
    
    March 28, 2007Mark A. Houser
    
    Chairman of the Board
of Directors and Director

(Principal Executive Officer)
    
    Date/s/ James M. Vanderhider
    
    President, Chief Financial Officer and Director
    
    March 28, 2007James M. Vanderhider
    
    (Principal Financial and
Accounting Officer)
    
    Date/s/ Kenneth Mariani
    
    Senior Vice President,
    
    March 28, 2007Kenneth Mariani
    
    Chief Operating Officer and Director
    
    Date/s/ Matthew Coeny
    
    Director
    
    March 28, 2007Matthew Coeny
    
    
    
    Date
 46




---



##### Table of Contents



BELDEN & BLAKE CORPORATION
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS AND SCHEDULES
 Item 15(a) (1) and (2)
 PageCONSOLIDATED FINANCIAL STATEMENTSReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2006 (Successor Company)
and December 31, 2005 (Successor Company)
    
    
    F-4Consolidated Statements of Operations:Year ended December 31, 2006 (Successor Company)138 day period from August 16, 2005 to December 31, 2005 (Successor Company)227 day period from January 1, 2005 to August 15, 2005 (Predecessor I Company)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)
    
    
    F-5Consolidated Statements of Shareholders Equity (Deficit):Year ended December 31, 2006 (Successor Company)138 day period from August 16, 2005 to December 31, 2005 (Successor Company)227 day period from January 1, 2005 to August 15, 2005 (Predecessor I Company)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)
    
    
    F-6Consolidated Statements of Cash Flows:Year Ended December 31, 2006 (Successor Company)138 day period from August 16, 2005 to December 31, 2005 (Successor Company)227 day period from January 1, 2005 to August 15, 2005 (Predecessor I Company)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)
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
  F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
 F-2




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
 F-3




---



##### Table of Contents



BELDEN & BLAKE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 Successor CompanyDecember 31,2006
    
    
    2005ASSETSCurrent assetsCash and cash equivalents
    
    $
    5,927
    
    
    $
    8,172Accounts receivable, net
    
    
    19,855
    
    
    
    25,225Inventories
    
    
    885
    
    
    
    1,085Deferred income taxes
    
    
    12,607
    
    
    
    25,752Other current assets
    
    
    510
    
    
    
    349Fair value of derivatives
    
    
    378
    
    
    
    174Total current assets
    
    
    40,162
    
    
    
    60,757Property and equipment, at costOil and gas properties (successful efforts method)
    
    
    692,576
    
    
    
    661,094Gas gathering systems
    
    
    1,305
    
    
    
    1,593Land, buildings, machinery and equipment
    
    
    3,031
    
    
    
    6,795696,912
    
    
    
    669,482Less accumulated depreciation, depletion and amortization
    
    
    52,564
    
    
    
    14,456Property and equipment, net
    
    
    644,348
    
    
    
    655,026Goodwill
    
    
    90,076
    
    
    
    91,443Fair value of derivatives
    
    
    193
    
    
    
    285Other assets
    
    
    2,244
    
    
    
    2,607$
    777,023
    
    
    $
    810,118LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    2,259
    
    
    $
    5,314Accrued expenses
    
    
    21,554
    
    
    
    28,496Current portion of long-term liabilities
    
    
    408
    
    
    
    776Fair value of derivatives
    
    
    27,576
    
    
    
    65,170Total current liabilities
    
    
    51,797
    
    
    
    99,756Long-term liabilitiesBank and other long-term debt
    
    
    95,454
    
    
    
    52,085Senior secured notes
    
    
    165,106
    
    
    
    200,340Subordinated promissory note  related party
    
    
    25,000
    
    
    
    25,000Asset retirement obligations and other long-term liabilities
    
    
    20,627
    
    
    
    18,919Fair value of derivatives
    
    
    160,011
    
    
    
    240,129Deferred income taxes
    
    
    115,325
    
    
    
    84,490Total long-term liabilities
    
    
    581,523
    
    
    
    620,963Shareholders equityCommon
stock: without par value; 3,000 shares authorized; 1,534 shares issued
    
    
    
    
    
    
    Additional paid in capital
    
    
    125,000
    
    
    
    125,000Retained earnings
    
    
    41,262
    
    
    
    9,063Accumulated other comprehensive loss
    
    
    (22,559
    )
    
    
    (44,664
    )Total shareholders equity
    
    
    143,703
    
    
    
    89,399$
    777,023
    
    
    $
    810,118
  F-4




---



##### Table of Contents



BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
 Predecessor I CompanySuccessor Company
    
    
    
    For the 227 Day
    
    
    For the 178 DayFor the 138 Day
    
    
    
    Period From
    
    
    Period from July
    
    
    
    Predecessor II CompanyPeriod From August
    
    
    
    January 1, 2005
    
    
    7, 2004 to
    
    
    
    For the 188 Day PeriodFor the Year Ended
    
    
    16, 2005 to
    
    
    
    to August 15,
    
    
    December 31,
    
    
    
    from January 1, 2004 toDecember 31, 2006
    
    
    December 31, 2005
    
    
    
    2005
    
    
    2004
    
    
    
    July 6, 2004RevenuesOil and gas sales
    
    $
    147,122
    
    
    $
    69,954
    
    
    
    $
    71,400
    
    
    $
    56,782
    
    
    
    $
    45,307Gas gathering and marketing
    
    
    11,294
    
    
    
    6,551
    
    
    
    
    6,439
    
    
    
    4,923
    
    
    
    
    5,057Other
    
    
    674
    
    
    
    166
    
    
    
    
    284
    
    
    
    696
    
    
    
    
    458159,090
    
    
    
    76,671
    
    
    
    
    78,123
    
    
    
    62,401
    
    
    
    
    50,822ExpensesProduction expense
    
    
    23,108
    
    
    
    9,734
    
    
    
    
    13,423
    
    
    
    11,634
    
    
    
    
    12,122Production taxes
    
    
    2,988
    
    
    
    1,771
    
    
    
    
    1,901
    
    
    
    1,467
    
    
    
    
    1,300Gas gathering and marketing
    
    
    9,360
    
    
    
    5,481
    
    
    
    
    5,629
    
    
    
    4,522
    
    
    
    
    4,579Exploration expense
    
    
    1,797
    
    
    
    1,229
    
    
    
    
    2,424
    
    
    
    2,750
    
    
    
    
    3,220General and administrative expense
    
    
    9,995
    
    
    
    2,163
    
    
    
    
    3,964
    
    
    
    2,703
    
    
    
    
    3,787Depreciation, depletion and amortization
    
    
    38,498
    
    
    
    14,341
    
    
    
    
    21,265
    
    
    
    17,527
    
    
    
    
    9,089Impairment of oil and gas properties
    
    
    546
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accretion expense
    
    
    1,226
    
    
    
    407
    
    
    
    
    745
    
    
    
    633
    
    
    
    
    195Derivative fair value (gain) loss
    
    
    (37,356
    )
    
    
    5,054
    
    
    
    
    8,258
    
    
    
    371
    
    
    
    
    2,038Transaction expense
    
    
    
    
    
    
    7
    
    
    
    
    7,535
    
    
    
    
    
    
    
    
    26,00150,162
    
    
    
    40,187
    
    
    
    
    65,144
    
    
    
    41,607
    
    
    
    
    62,331Operating income (loss)
    
    
    108,928
    
    
    
    36,484
    
    
    
    
    12,979
    
    
    
    20,794
    
    
    
    
    (11,509
    )Other (income) expense(Gain) on early extinguishment of debt
    
    
    (436
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    22,930
    
    
    
    8,526
    
    
    
    
    14,786
    
    
    
    11,877
    
    
    
    
    12,184Income (loss) from continuing operations before income taxes
    
    
    86,434
    
    
    
    27,958
    
    
    
    
    (1,807
    )
    
    
    8,917
    
    
    
    
    (23,693
    )Provision (benefit) for income taxes
    
    
    34,235
    
    
    
    10,395
    
    
    
    
    (1,487
    )
    
    
    1,654
    
    
    
    
    (4,824
    )Income (loss) from continuing operations
    
    
    52,199
    
    
    
    17,563
    
    
    
    
    (320
    )
    
    
    7,263
    
    
    
    
    (18,869
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,868Net income (loss)
    
    $
    52,199
    
    
    $
    17,563
    
    
    
    $
    (320
    )
    
    $
    7,263
    
    
    
    $
    9,999
  F-5




---



##### Table of Contents



BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
(in thousands)
 Successor Company
    
    
    Predecessor I Company
    
    
    Predecessor II Company
    
    
    
    
    
    
    
    
    
    
    AccumulatedOther
    
    
    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, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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 income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80,086
    )
    
    
    (6,943
    )
    
    
    156,400
    
    
    
    69,371Equity adjustment due to purchase accounting
    
    
    2
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,000
    
    
    
    
    
    
    
    
    
    
    
    116,000Equity contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    9,000August 16, 2005
    
    
    2

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000
    
    
    
    
    
    
    
    
    
    
    
    125,000Successor Company:Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,563
    
    
    
    
    
    
    
    17,563Other comprehensive income (loss), net of tax:Change in derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,654
    )
    
    
    (55,654
    )Reclassification adjustment for derivative (gain) loss
reclassified into oil and gas sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,990
    
    
    
    10,990Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,101
    )Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,500
    )
    
    
    
    
    
    
    (8,500
    )December 31, 2005
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000
    
    
    
    9,063
    
    
    
    (44,664
    )
    
    
    89,399Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,199
    
    
    
    
    
    
    
    52,199Other comprehensive income (loss), net of tax:Change in derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,933
    
    
    
    19,933Reclassification adjustment for derivative (gain) loss
reclassified into oil and gas sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,172
    
    
    
    2,172Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,304Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,000
    )
    
    
    
    
    
    
    (20,000
    )December 31, 2006
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    125,000
    
    
    $
    41,262
    
    
    $
    (22,559
    )
    
    $
    143,703
  F-6




---



##### Table of Contents



BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Successor Company
    
    
    
    Predecessor I Company
    
    
    
    Predecessor IIFor the 138 Day
    
    
    
    For the 227 Day
    
    
    For the 178 Day
    
    
    
    CompanyPeriod From
    
    
    
    Period From
    
    
    Period From
    
    
    
    For the 188 DayFor the Year
    
    
    August 16, 2005 to
    
    
    
    January 1, 2005
    
    
    July 7, to
    
    
    
    Period FromEnded December
    
    
    December 31,
    
    
    
    to August 15,
    
    
    December 31,
    
    
    
    January 1, to31, 2006
    
    
    2005
    
    
    
    2005
    
    
    2004
    
    
    
    July 6, 2004Cash flows from operating activities:Net income (loss)
    
    $
    52,199
    
    
    $
    17,563
    
    
    
    $
    (320
    )
    
    $
    7,263
    
    
    
    $
    9,999Adjustments to reconcile net income (loss)
to net cash provided by operating activities:Depreciation, depletion and amortization
    
    
    38,498
    
    
    
    14,341
    
    
    
    
    21,265
    
    
    
    17,527
    
    
    
    
    9,723Impairment of oil and gas properties
    
    
    546
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accretion expense
    
    
    1,226
    
    
    
    407
    
    
    
    
    745
    
    
    
    633
    
    
    
    
    221(Gain) on sale of businesses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,223
    )(Gain) loss on debt extinguishment and disposal of property and equipment
    
    
    (472
    )
    
    
    57
    
    
    
    
    86
    
    
    
    18
    
    
    
    
    375Amortization of derivatives and other noncash derivative activities
    
    
    (56,057
    )
    
    
    9,511
    
    
    
    
    12,344
    
    
    
    937
    
    
    
    
    2,037Exploration expense
    
    
    738
    
    
    
    1,229
    
    
    
    
    2,424
    
    
    
    2,750
    
    
    
    
    4,639Deferred income taxes
    
    
    33,710
    
    
    
    10,395
    
    
    
    
    (1,487
    )
    
    
    1,829
    
    
    
    
    10,802Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    2,586
    
    
    
    
    
    
    
    
    3,990Other non-cash expense
    
    
    1,059
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in operating assets and liabilities, net of
effects of acquisition and disposition of businesses:Accounts receivable and other operating assets
    
    
    5,210
    
    
    
    (1,421
    )
    
    
    
    213
    
    
    
    (304
    )
    
    
    
    (900
    )Inventories
    
    
    100
    
    
    
    484
    
    
    
    
    (85
    )
    
    
    394
    
    
    
    
    79Accounts payable and accrued expenses
    
    
    (10,201
    )
    
    
    9,813
    
    
    
    
    (8,845
    )
    
    
    4,234
    
    
    
    
    184Net cash provided by (used in) operating activities
    
    
    66,556
    
    
    
    62,379
    
    
    
    
    28,926
    
    
    
    35,281
    
    
    
    
    (4,074
    )Cash flows from investing activities:Disposition of businesses, net of cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,464Proceeds from property and equipment disposals
    
    
    7,419
    
    
    
    21
    
    
    
    
    5
    
    
    
    125
    
    
    
    
    247Exploration expense
    
    
    (738
    )
    
    
    (1,229
    )
    
    
    
    (2,424
    )
    
    
    (2,750
    )
    
    
    
    (4,639
    )Additions to property and equipment
    
    
    (36,839
    )
    
    
    (11,640
    )
    
    
    
    (17,177
    )
    
    
    (12,008
    )
    
    
    
    (18,103
    )(Increase) decrease in other assets
    
    
    (18
    )
    
    
    (26
    )
    
    
    
    (34
    )
    
    
    (35
    )
    
    
    
    1,218Net cash (used in) provided by investing activities
    
    
    (30,176
    )
    
    
    (12,874
    )
    
    
    
    (19,630
    )
    
    
    (14,668
    )
    
    
    
    51,187Cash flows from financing activities:Proceeds from senior secured notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192,500Repayment of senior secured notes
    
    
    (33,933
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from senior secured facility  term loan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000Proceeds from senior secured facility
    
    
    
    
    
    
    37,000
    
    
    
    
    57,000
    
    
    
    
    
    
    
    
    Sale of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,500Proceeds from subordinated promissory note
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    
    Repayment of senior subordinated notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,040
    )
    
    
    
    (223,960
    )Payment to shareholders and optionholders or dividends
    
    
    (20,000
    )
    
    
    (8,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    (113,674
    )Settlement of derivative liabilities recorded in purchase accounting
    
    
    (28,042
    )
    
    
    (34,360
    )
    
    
    
    (20,440
    )
    
    
    (12,007
    )
    
    
    
    Debt issue costs
    
    
    
    
    
    
    (27
    )
    
    
    
    (2,120
    )
    
    
    
    
    
    
    
    (11,700
    )Repayment of senior secured facility  term loan
    
    
    
    
    
    
    
    
    
    
    
    (89,500
    )
    
    
    (10,500
    )
    
    
    
    Repayment of senior secured facility
    
    
    
    
    
    
    (42,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from revolving line of credit
    
    
    55,376
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146,636Repayment of revolving line of credit
    
    
    (12,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repayment of long-term debt and other obligations
    
    
    (26
    )
    
    
    (5
    )
    
    
    
    (84
    )
    
    
    (126
    )
    
    
    
    (194,187
    )Equity contribution
    
    
    
    
    
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    
    Proceeds from stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111Repurchase of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (283
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )Net cash used in financing activities
    
    
    (38,625
    )
    
    
    (47,892
    )
    
    
    
    (21,144
    )
    
    
    (23,673
    )
    
    
    
    (27,086
    )Net (decrease) increase in cash and equivalents
    
    
    (2,245
    )
    
    
    1,613
    
    
    
    
    (11,848
    )
    
    
    (3,060
    )
    
    
    
    20,027Cash and cash equivalents at beginning of period
    
    
    8,172
    
    
    
    6,559
    
    
    
    
    18,407
    
    
    
    21,467
    
    
    
    
    1,440Cash and cash equivalents at end of period
    
    $
    5,927
    
    
    $
    8,172
    
    
    
    $
    6,559
    
    
    $
    18,407
    
    
    
    $
    21,467
  F-7




---



##### 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
    )Net cash equity contribution
    
    $
    125,000
 F-8




---



##### 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 highgrading investment opportunities and identifying new
investment opportunities.
    
    The going-concern value of the Company, including its experienced workforce.
    
    A deferred tax liability was recorded to recognize the difference between the historical
tax basis of the assets and the acquisition costs recorded for book purposes. Goodwill was
recorded to recognize this tax basis differential.
 Goodwill and Other Intangible Assets
     F-9




---



##### Table of Contents



(2) Business and Significant Accounting Policies
 Business
  Principles of Consolidation and Financial Presentation
  Use of Estimates in the Financial Statements
  F-10




---



##### Table of Contents



Cash Equivalents
  Concentrations of Credit Risk
  Inventories
  Property and Equipment
      F-11




---



##### Table of Contents



Goodwill and Other Intangible Assets
    Revenue Recognition
  Income Taxes
  Stock-Based Compensation
  F-12




---



##### Table of Contents



Derivatives and Hedging
   F-13




---



##### Table of Contents



Asset Retirement Obligations
    Predecessor ISuccessor Company
    
    
    
    CompanyFor The 138 Day
    
    
    
    For the 227 DayPeriod From
    
    
    
    Period FromYear Ended
    
    
    August 16, 2005
    
    
    
    January 1, 2005December 31,
    
    
    to December 31,
    
    
    
    to August 15,2006
    
    
    2005
    
    
    
    2005Beginning asset retirement obligations
    
    $
    19,389
    
    
    $
    18,884
    
    
    
    $
    14,942Liabilities incurred
    
    
    523
    
    
    
    173
    
    
    
    
    142Liabilities settled
    
    
    (543
    )
    
    
    (75
    )
    
    
    
    (239
    )Accretion expense
    
    
    1,219
    
    
    
    407
    
    
    
    
    745Revisions in estimated cash flows
    
    
    146
    
    
    
    
    
    
    
    
    Ending asset retirement obligations
    
    $
    20,734
    
    
    $
    19,389
    
    
    
    $
    15,590
 (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-14




---



##### Table of Contents



Accounting for Certain Hybrid Instruments
  Fair Value Measurements
 Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
 F-15




---



##### Table of Contents



Statements
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 (4) Dispositions and Discontinued Operations
       F-16




---



##### Table of Contents



Predecessor II Company188 Day Period fromJanuary 1, 2004 to July6, 2004Revenue from discontinued operations
    
    $
    7,294(Loss) income from operations of discontinued businesses
    
    
    (43
    )(Benefit) provision for income taxes
    
    
    (17
    )(26
    )Income on sale of discontinued businesses
    
    
    45,223Income tax provision
    
    
    16,32928,894Income from discontinued operations, net of tax
    
    $
    28,868
 (5) Derivatives and Hedging
   F-17




---



##### Table of Contents



Natural Gas Swaps
    
    Crude Oil SwapsNYMEX
    
    
    
    
    
    NYMEXPrice per
    
    Estimated
    
    Price perYear Ending
    
    Bbtu
    
    Mmbtu
    
    Mbbls
    
    BblDecember 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




---



##### Table of Contents



(6) Details of Balance Sheets
 December 31,2006
    
    
    
    2005(in thousands)Accounts receivableAccounts receivable
    
    $
    3,820
    
    
    
    $
    5,027Allowance for doubtful accounts
    
    
    (1,271
    )
    
    
    
    (1,534
    )Oil and gas production receivable
    
    
    17,306
    
    
    
    
    21,732$
    19,855
    
    
    
    $
    25,225InventoriesOil
    
    $
    796
    
    
    
    $
    906Natural gas
    
    
    
    
    
    
    
    50Material, pipe and supplies
    
    
    89
    
    
    
    
    129$
    885
    
    
    
    $
    1,085Property and equipment, gross
Oil and gas propertiesProducing properties
    
    $
    597,631
    
    
    
    $
    549,735Non-producing propertiesProved
    
    
    75,483
    
    
    
    
    89,773Unproved
    
    
    18,719
    
    
    
    
    20,214Other
    
    
    743
    
    
    
    
    1,372$
    692,576
    
    
    
    $
    661,094Land, buildings, machinery and equipmentLand, buildings and improvements
    
    $
    1,091
    
    
    
    $
    4,666Machinery and equipment
    
    
    1,940
    
    
    
    
    2,129$
    3,031
    
    
    
    $
    6,795Accrued expensesAccrued interest expense
    
    $
    6,631
    
    
    
    $
    7,836Accrued other expenses
    
    
    6,256
    
    
    
    
    6,869Accrued drilling and completion costs
    
    
    1,784
    
    
    
    
    1,808Accrued income taxes
    
    
    525
    
    
    
    
    207Ad valorem and other taxes
    
    
    911
    
    
    
    
    1,546Compensation and related benefits
    
    
    
    
    
    
    
    178Undistributed production revenue
    
    
    5,447
    
    
    
    
    10,052$
    21,554
    
    
    
    $
    28,496
 F-19




---



##### Table of Contents



(7) Long-Term Debt
  December 31,2006
    
    
    
    2005Senior secured notes
    
    $
    159,475
    
    
    
    $
    192,500Bank revolving credit facility
    
    
    95,376
    
    
    
    
    52,000Subordinated promissory note (related party)
    
    
    25,000
    
    
    
    
    25,000Other
    
    
    85
    
    
    
    
    92279,936
    
    
    
    
    269,592Less current portion
    
    
    7
    
    
    
    
    7Long-term debt
    
    
    279,929
    
    
    
    
    269,585Fair value adjustment  senior secured notes
    
    
    5,631
    
    
    
    
    7,840$
    285,560
    
    
    
    $
    277,425
 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
   (8) Leases
    OperatingAs of December 31, 2006
    
    Leases
    
    
    Capital Leases(in thousands)2007
    
    $
    3,000
    
    
    $
    352008
    
    
    627
    
    
    
    22009
    
    
    
    
    
    
    2010
    
    
    
    
    
    
    2011
    
    
    
    
    
    
    2012 and thereafter
    
    
    
    
    
    
    Total minimum rental payments
    
    $
    3,627
    
    
    
    37Less amount representing interest
    
    
    
    
    
    
    1Present value of net minimum rental payments
    
    
    
    
    
    
    36Less current portion
    
    
    
    
    
    
    35Long-term capitalized lease obligations
    
    
    
    
    
    $
    1
 (9) Stock Option Plans
  F-22




---



##### Table of Contents



WeightedAverageNumber of
    
    
    ExerciseShares
    
    
    PriceBalance at January 1, 2004
    
    
    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
    
    
    Granted
    
    
    Forfeitures
    
    
    Exercised or put
    
    
    Balance at December 31, 2006
    
    
    Options exercisable at December 31, 2006
    
    
    
  F-23




---



##### Table of Contents



(10) Taxes
  Predecessor IISuccessor Company
    
    
    
    Predecessor I Company
    
    
    
    CompanyFor the 138
    
    
    
    For the 227
    
    
    For the 178Day Period
    
    
    
    Day Period
    
    
    Day Period
    
    
    
    For the 188from August
    
    
    
    from January
    
    
    from July 7,
    
    
    
    Day PeriodFor the year
    
    
    16, 2005 to
    
    
    
    1, 2005 to
    
    
    2004 to
    
    
    
    from Januaryended December
    
    
    December 31,
    
    
    
    August 15,
    
    
    December 31,
    
    
    
    1, 2004 to July31, 2006
    
    
    2005
    
    
    
    2005
    
    
    2004
    
    
    
    6, 2004CurrentFederal
    
    $
    525
    
    
    $
    
    
    
    
    $
    
    
    
    $
    (29
    )
    
    
    $
    (379
    )State
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (146
    )
    
    
    
    (791
    )525
    
    
    
    
    
    
    
    
    
    
    
    
    (175
    )
    
    
    
    (1,170
    )DeferredFederal
    
    
    29,771
    
    
    
    9,470
    
    
    
    
    (302
    )
    
    
    3,914
    
    
    
    
    (4,173
    )State
    
    
    3,938
    
    
    
    925
    
    
    
    
    (1,185
    )
    
    
    (2,085
    )
    
    
    
    51933,709
    
    
    
    10,395
    
    
    
    
    (1,487
    )
    
    
    1,829
    
    
    
    
    (3,654
    )Total
    
    $
    34,234
    
    
    $
    10,395
    
    
    
    $
    (1,487
    )
    
    $
    1,654
    
    
    
    $
    (4,824
    )The effective tax rate for income from continuing operations before cumulative effect of
change in accounting principle differs from the U.S. federal statutory tax rate as follows:Predecessor IISuccessor Company
    
    
    
    Predecessor I Company
    
    
    
    CopanyFor the 138
    
    
    
    For the 227
    
    
    For the 178Day Period
    
    
    
    Day Period
    
    
    Day Period
    
    
    
    For the 188From August
    
    
    
    from January
    
    
    from July 7,
    
    
    
    Day PeriodFor the year
    
    
    16, 2005 to
    
    
    
    1, 2005 to
    
    
    2004 to
    
    
    
    from Januaryended December
    
    
    December 31,
    
    
    
    August 15,
    
    
    December 31,
    
    
    
    1, 2004 to July31, 2006
    
    
    2005
    
    
    
    2005
    
    
    2004
    
    
    
    6, 2004Statutory 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
    
    
    4.6
    
    
    
    2.2
    
    
    
    
    42.6
    
    
    
    (16.3
    )
    
    
    
    0.7Transaction related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15.4
    )Permanent differences
    
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    (0.1
    )
    
    
    
    Other, net
    
    
    
    
    
    
    
    
    
    
    
    2.7
    
    
    
    
    
    
    
    
    Effective income tax rate for the period
    
    
    39.6
    %
    
    
    37.2
    %
    
    
    
    82.3
    %
    
    
    18.6
    %
    
    
    
    20.3
    %
  F-24




---



##### Table of Contents



December 31,
    
    
    December 31,2006
    
    
    2005Deferred income tax liabilities:Property and equipment, net
    
    $
    214,292
    
    
    $
    207,238Other, net
    
    
    198
    
    
    
    188Total deferred income tax liabilities
    
    
    214,490
    
    
    
    207,426Deferred income tax assets:Accrued expenses
    
    
    882
    
    
    
    882Asset retirement obligations
    
    
    7,551
    
    
    
    7,066Fair value of derivatives
    
    
    83,522
    
    
    
    113,599Net operating loss carryforwards
    
    
    26,101
    
    
    
    35,317Senior Secured Notes
    
    
    2,913
    
    
    
    2,913Tax credit carryforwards
    
    
    1,775
    
    
    
    1,250Other, net
    
    
    503
    
    
    
    503Valuation allowance
    
    
    (11,476
    )
    
    
    (12,842
    )Total deferred income tax assets
    
    
    111,771
    
    
    
    148,688Net deferred income tax liability
    
    $
    102,719
    
    
    $
    58,738Long-term liability
    
    $
    115,326
    
    
    $
    84,490Current asset
    
    
    (12,607
    )
    
    
    (25,752
    )Net deferred income tax liability
    
    $
    102,719
    
    
    $
    58,738
  (11) Profit Sharing and Retirement Plans
  F-25




---



##### Table of Contents



(12) Commitments and Contingencies
   F-26




---



##### Table of Contents



(13) Supplemental Disclosure of Cash Flow Information
 PredecessorSuccessor Company
    
    
    Predecessor I Company
    
    
    II Company138 Day
    
    
    227 DayPeriod From
    
    
    Period From
    
    178 Day
    
    
    188 DayFor the year
    
    August 16,
    
    
    January 1,
    
    Period from
    
    
    Period fromended
    
    2005 to
    
    
    2005 to
    
    July 7, 2004
    
    
    January 1,December 31,
    
    December
    
    
    August 15,
    
    to December
    
    
    2004 to July(in thousands)
    
    2006
    
    31, 2005
    
    
    2005
    
    31, 2004
    
    
    6, 2004Cash paid during the period for:Interest
    
    $
    25,317
    
    
    $
    2,433
    
    
    
    $
    21,885
    
    
    $
    4,508
    
    
    
    $
    12,686Income taxes, net of refunds
    
    
    
    
    
    
    (163
    )
    
    
    
    500
    
    
    
    (25
    )
    
    
    
    Non-cash investing and financing activities:Acquisition of assets in exchange for long-term liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137
    
    
    
    
    
 (14) Fair Value of Financial Instruments
   F-27




---



##### Table of Contents



(15) Supplementary Information on Oil and Gas Activities (Unaudited)
  Predecessor IISuccessor Company
    
    
    Predecessor I Company
    
    
    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,
    
    December 31,
    
    
    August 15,
    
    December 31,
    
    
    2004 to July(in thousands)
    
    2006
    
    2005
    
    
    2005
    
    2004
    
    
    6, 2004Acquisition costs:Proved properties
    
    $
    16
    
    
    $
    33
    
    
    
    $
    16
    
    
    $
    106
    
    
    
    $
    Unproved properties
    
    
    511
    
    
    
    118
    
    
    
    
    317
    
    
    
    229
    
    
    
    
    286Developmental costs
    
    
    36,052
    
    
    
    8,067
    
    
    
    
    18,700
    
    
    
    11,458
    
    
    
    
    9,697Exploratory costs
    
    
    2,343
    
    
    
    1,229
    
    
    
    
    2,424
    
    
    
    2,750
    
    
    
    
    2,717
 Estimated Proved Oil and Gas Reserves (Unaudited)
  F-28




---



##### 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, 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,210
    
    
    
    246,680
    
    
    
    277,938Extensions and discoveries
    
    
    156
    
    
    
    12,892
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156
    
    
    
    12,892
    
    
    
    13,830Purchase of reserves in place
    
    
    41
    
    
    
    881
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    881
    
    
    
    1,130Sale of reserves in place
    
    
    
    
    
    
    (1,342
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,342
    )
    
    
    (1,342
    )Revisions of previous estimates
    
    
    146
    
    
    
    (11,996
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146
    
    
    
    (11,996
    )
    
    
    (11,123
    )Production
    
    
    (372
    )
    
    
    (14,104
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (372
    )
    
    
    (14,104
    )
    
    
    (16,337
    )December 31, 2006
    
    
    5,181
    
    
    
    233,011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,181
    
    
    
    233,011
    
    
    
    264,096Proved developed reservesDecember 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    3,448
    
    
    
    200,231
    
    
    
    
    
    
    
    
    
    
    
    
    3,448
    
    
    
    200,231
    
    
    
    220,919December 31, 2005
    
    
    3,822
    
    
    
    203,443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,822
    
    
    
    203,443
    
    
    
    226,375December 31, 2006
    
    
    3,832
    
    
    
    188,374
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,832
    
    
    
    188,374
    
    
    
    211,368
 
 (1) Thousand barrels
 (2) Million cubic feet
 (3) Million cubic feet equivalent, barrels are converted to Mcfe based on one barrel of oil to six Mcf of natural gas equivalent.
 Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
(Unaudited)
  F-29




---



##### Table of Contents



-
    
    Future revenues were based on year-end oil and gas prices. Future price changes were included only to the extent provided by existing contractual agreements.-
    
    Production and development costs were computed using year-end costs assuming no change in present economic conditions.-
    
    Future net cash flows were discounted at an annual rate of 10%.-
    
    Future income taxes were computed using the approximate statutory tax rate and giving effect to available net operating losses, tax credits and statutory depletion.
  Predecessor ISuccessor Company
    
    
    
    CompanyDecember 31,2006
    
    
    
    2005
    
    
    
    2004(in thousands)Estimated future cash inflows (outflows)Revenues from the sale of oil and gas
    
    $
    1,672,532
    
    
    
    $
    2,726,170
    
    
    
    $
    1,854,119Production costs
    
    
    (526,928
    )
    
    
    
    (639,366
    )
    
    
    
    (534,781
    )Development costs
    
    
    (134,553
    )
    
    
    
    (128,933
    )
    
    
    
    (126,750
    )Future income taxes
    
    
    (316,413
    )
    
    
    
    (651,594
    )
    
    
    
    (397,606
    )Future net cash flows
    
    
    694,638
    
    
    
    
    1,306,277
    
    
    
    
    794,98210% timing discount
    
    
    (395,157
    )
    
    
    
    (760,513
    )
    
    
    
    (449,270
    )Standardized measure of discounted
future net cash flows
    
    $
    299,481
    
    
    
    $
    545,764
    
    
    
    $
    345,712
  F-30




---



##### Table of Contents

\

Predecessor IISuccessor Company
    
    
    
    Predecessor I Company
    
    
    
    Company138 Day Period
    
    
    
    227 Day Period
    
    
    178 Day
    
    
    
    188 DayFrom August 16,
    
    
    
    From January
    
    
    Period from
    
    
    
    Period fromYear ended
    
    
    2005 to
    
    
    
    1, 2005 to
    
    
    July 7, 2004
    
    
    
    January 1,December 31,
    
    
    December 31,
    
    
    
    August 15,
    
    
    to December
    
    
    
    2004 to July2006
    
    
    2005
    
    
    
    2005
    
    
    31, 2004
    
    
    
    6, 2004Beginning of year
    
    $
    545,764
    
    
    $
    575,512
    
    
    
    $
    345,712
    
    
    $
    372,686
    
    
    
    $
    399,177Sale of oil and gas, net of production costs
    
    
    (102,710
    )
    
    
    (60,103
    )
    
    
    
    (56,391
    )
    
    
    (33,710
    )
    
    
    
    (34,019
    )Extensions and discoveries, less related estimated
future development and production costs
    
    
    25,806
    
    
    
    6,422
    
    
    
    
    11,608
    
    
    
    2,671
    
    
    
    
    1,311Previously estimated development costs incurred
during the period
    
    
    29,477
    
    
    
    8,503
    
    
    
    
    16,667
    
    
    
    9,634
    
    
    
    
    6,237Purchase of reserves in place less
estimated future production costs
    
    
    170
    
    
    
    3,014
    
    
    
    
    1,504
    
    
    
    1,927
    
    
    
    
    Sale of reserves in place less
estimated future production costs
    
    
    (4,122
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Changes in estimated future development costs
    
    
    (33,665
    )
    
    
    (13,903
    )
    
    
    
    (13,356
    )
    
    
    38,637
    
    
    
    
    (9,666
    )Revisions of previous quantity estimates
    
    
    (20,621
    )
    
    
    (6,964
    )
    
    
    
    13,150
    
    
    
    (131,431
    )
    
    
    
    17,391Net changes in prices and production costs
    
    
    (354,397
    )
    
    
    (28,924
    )
    
    
    
    367,871
    
    
    
    (5,961
    )
    
    
    
    (11,867
    )Change in income taxes
    
    
    148,217
    
    
    
    20,419
    
    
    
    
    (142,102
    )
    
    
    32,981
    
    
    
    
    (21,141
    )Accretion of 10% timing discount
    
    
    83,145
    
    
    
    33,060
    
    
    
    
    31,857
    
    
    
    28,483
    
    
    
    
    28,751Changes in production rates (timing) and other
    
    
    (17,583
    )
    
    
    8,728
    
    
    
    
    (1,008
    )
    
    
    29,795
    
    
    
    
    (3,488
    )End of period
    
    $
    299,481
    
    
    $
    545,764
    
    
    
    $
    575,512
    
    
    $
    345,712
    
    
    
    $
    372,686
 (16) Industry Segment Financial Information
  Major customers
  F-31




---



##### Table of Contents



(17) Quarterly Results of Operations (Unaudited)
  Successor CompanyFirst
    
    Second
    
    Third
    
    Fourth2006Operating revenues
    
    $
    44,688
    
    
    $
    38,466
    
    
    $
    34,050
    
    
    $
    41,212Gross profit
    
    
    25,314
    
    
    
    21,604
    
    
    
    14,806
    
    
    
    20,941Net income (loss)
    
    
    5,388
    
    
    
    4,744
    
    
    
    34,195
    
    
    
    7,872
 Predecessor I Company
    
    
    Successor CompanyFor the 46
    
    
    For the 46Day Period
    
    
    Day PeriodFrom July 1,
    
    
    From August2005 to
    
    
    16, 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 income (loss)
    
    
    (636
    )
    
    
    5,975
    
    
    
    (5,658
    )
    
    
    
    660
    
    
    
    16,903
 (18) Related Party Transactions
   F-32




---



##### Table of Contents



F-33