Quarterly report pursuant to Section 13 or 15(d)

REVOLVING CREDIT FACILITY

 v2.3.0.11
REVOLVING CREDIT FACILITY
6 Months Ended
Jun. 30, 2011
REVOLVING CREDIT FACILITY [Abstract]  
REVOLVING CREDIT FACILITY
NOTE 8     REVOLVING CREDIT FACILITY
 
In February 2009, the Company completed the closing of a revolving credit facility with CIT that provided up to a maximum principal amount of $25 million of working capital for exploration and production operations.
 
On May 26, 2010, the Company completed the assignment of its revolving credit facility to Macquarie from CIT.  In connection with the assignment the Company and Macquarie entered into an Amended and Restated Credit Agreement governing the facility (the “Credit Facility”).
 
The Credit Facility provides up to a maximum principal amount of $100 million of working capital for exploration and production operations.  The borrowing base of funds available under the Credit Facility is re-determined semi-annually based upon the net present value, discounted at 10% per annum, of the future net revenues expected to accrue from its interests in proved reserves estimated to be produced from its crude oil and natural gas properties.  Macquarie waived the requirement that the Company redetermine its borrowing base upon receipt of its December 31, 2010 reserve report because the Company did not have any outstanding borrowings under the Credit Facility.  $25 million of financing was currently available under the Credit Facility as of June 30, 2011.  The Credit Facility terminates on May 26, 2014.  The Company had no borrowings under the Credit Facility at June 30, 2011 and December 31, 2010.
 
The Company has the option to designate the reference rate of interest for each specific borrowing under the Credit Facility as amounts are advanced.  Borrowings based upon the London interbank offering rate (“LIBOR”) will bear interest at a rate equal LIBOR plus a spread ranging from 2.5% to 3.25% depending on the percentage of borrowings base that is currently advanced.  Any borrowings not designated as being based upon LIBOR will bear interest at a rate equal to the greater of (a) the current prime rate published by the Wall Street Journal, or (b) the current one month LIBOR rate plus 1.0%, plus in either case a spread ranging from 2% to 2.5%, depending on the percentage of borrowing base that is currently advanced.  The Company has the option to designate either pricing mechanism.  Payments are due under the Credit Facility in arrears, in the case of a loan based on LIBOR on the last day of the specified interest period and in the case of all other loans on the last day of each March, June, September and December.  All outstanding principal is due and payable upon termination of the Credit Facility.
 
The applicable interest rate increases under the Credit Facility and the lenders may accelerate payments under the Credit Facility, or call all obligations due under certain circumstances, upon an event of default.  The Credit Facility references various events constituting a default on the Credit Facility, including, but not limited to, failure to pay interest on any loan under the Credit Facility, any material violation of any representation or warranty under the Amended and Restated Credit Agreement, failure to observe or perform certain covenants, conditions or agreements under the Amended and Restated Credit Agreement, a change in control of the Company, default under any other material indebtedness the Company might have, bankruptcy and similar proceedings and failure to pay disbursements from lines of credit issued under the Credit Facility.  The Company was not in default on the Credit Facility as of June 30, 2011.
 
The Credit Facility requires that the Company enter into swap agreements with Macquarie for each month of the thirty-six (36) month period following the date on which each such swap agreement is executed, the notional volumes for which when aggregated with other commodity swap agreements and additional fixed-price physical off-take contracts then in effect, as of the date such swap agreement is executed, is not less than 50%, nor exceeds 90%, of the reasonably anticipated projected production from the Company's proved developed producing reserves, as defined at the time of the agreement.  The Company entered into swap agreements as required at the time, and presently there are no material hedging requirements imposed by Macquarie.
 
All of the Company's obligations under the Credit Facility and the swap agreements with Macquarie are secured by a first priority security interest in any and all assets of the Company.
 
See Note 16 below regarding an amendment and restatement of the Credit Facility that occurred subsequent to June 30, 2011.