As filed with the Securities and Exchange Commission on April 17, 2017

Registration No. 333-        

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

PetroQuest Energy, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware		1311		72-1440714
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

400 E. Kaliste Saloom Road, Suite 6000
Lafayette, Louisiana 70508
(337) 232-7028

(Address, including zip code, and telephone number,
including area code, of registrants’ principal executive offices)

 

Charles T. Goodson
Chairman, President and Chief Executive Officer
PetroQuest Energy, Inc.
400 E. Kaliste Saloom Road, Suite 6000
Lafayette, Louisiana 70508
(337) 232-7028

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

 

Copies to:

Edward E. Abels, Jr. Executive Vice President, General Counsel and Secretary PetroQuest Energy, Inc. 400 E. Kaliste Saloom Road, Suite 6000 Lafayette, Louisiana 70508 Telephone: (337) 232-7028 Telecopy: (337) 232-0044		Robert G. Reedy E. James Cowen Porter Hedges LLP 1000 Main, 36 th Floor Houston, Texas 77002 Telephone: (713) 226-6674 Telecopy: (713) 226-6274

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the Registration Statement becomes effective.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

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CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered		Amount to be Registered				Proposed Maximum Offering Price Per Unit				Proposed Maximum Aggregate Offering Price				Amount of Registration Fee
10% Second Lien Senior Secured Notes due 2021			14,177,000				100	%			14,177,000			$	1,643.11	(1)
Guarantees of 10% Second Lien Senior Secured Notes due 2021 (2)			—				—				—				—
10% Second Lien Senior Secured PIK Notes due 2021 (3)			275,045,768				100	%			275,045,768				31,877.80	(1)
Guarantees of 10% Second Lien Senior Secured PIK Notes due 2021 (2)			—				—				—				—

(1)

Calculated in accordance with Rule 457(f)(2) under the Securities Act of 1933, as amended.

(2)

No separate consideration will be received for the guarantees, and no separate fee is payable pursuant to Rule 457(n) under the Securities Act of 1933, as amended.

(3)

We are registering an additional $23,178,122 of 10% Second Lien Senior Secured PIK Notes due 2021, which may be issued if the Company makes an election to pay a portion of the interest due with respect to an interest period in the form of additional 10% Second Lien Senior Secured PIK Notes due 2021.

The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

TABLE OF ADDITIONAL GUARANTOR REGISTRANTS

The following subsidiaries of PetroQuest Energy, Inc. are co-registrants under this registration statement.

Name		Jurisdiction of Incorporation or Organization				I.R.S. Employer Identification Number
PetroQuest Energy, L.L.C.			Louisiana				72-1292439
TDC Energy LLC			Louisiana				30-0297129

*

The address for each of the co-registrants is c/o PetroQuest Energy, Inc., 400 E. Kaliste Saloom Road, Suite 6000, Lafayette, Louisiana 70508, Telephone: (337) 232-7028.

The name and address, including zip code, of the agent for service for each of the co-registrants is Charles T. Goodson, Chairman, President and Chief Executive Officer of PetroQuest Energy, Inc., 400 E. Kaliste Saloom Road, Suite 6000, Lafayette, Louisiana 70508. The telephone number, including area code, of the agent for service for each of the co-registrants is (337) 232-7028.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting any offer to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

The Exchange Offer

This exchange offer is subject to customary conditions that we may waive.

All Secured Notes and Secured PIK Notes that are validly tendered and not validly withdrawn prior to the expiration of the exchange offer will be exchanged for an equal principal amount of the Secured Exchange Notes and Secured PIK Exchange Notes, respectively.

The Secured Exchange Notes will be exchanged for Secured Notes in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. The Secured PIK Exchange Notes will be exchanged for Secured PIK Notes in minimum denominations of $1 and integral multiples of $1 in excess thereof.

The exchange offer and withdrawal rights will expire at 5:00 p.m., New York City time, on     , 2017, unless extended.

We will not receive any proceeds from this exchange offer.

 

Please read “Risk Factors” on page 12 of this prospectus for a discussion of factors you should consider before participating in the exchange offer.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is   , 2017.

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ABOUT THIS PROSPECTUS			1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			2
PROSPECTUS SUMMARY			4
RISK FACTORS			12
USE OF PROCEEDS			35
RATIO OF EARNINGS TO FIXED CHARGES			36
SELECTED FINANCIAL DATA			37
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			38
BUSINESS AND PROPERTIES			51
MANAGEMENT			69
EXECUTIVE COMPENSATION			72
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS			95
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			97
THE EXCHANGE OFFER			98
DESCRIPTION OF THE EXCHANGE NOTES			105
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS			192
PLAN OF DISTRIBUTION			192
LEGAL MATTERS			194
EXPERTS			194
WHERE YOU CAN FIND MORE INFORMATION			194
GLOSSARY OF CERTAIN OIL AND NATURAL GAS TERMS			195
FINANCIAL STATEMENTS			F-1
LETTER OF TRANSMITTAL			A-1

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Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that such expectations reflected in these forward looking statements will prove to have been correct.

When used in this prospectus, the words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and elsewhere in this prospectus.

You should read these statements carefully because they discuss our expectations about our future performance, contain projections of our future operating results or our future financial condition, or state other “forward-looking” information. You should be aware that the occurrence of any of the events described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and elsewhere in this prospectus could substantially harm our business, results of operations and financial condition and that upon the occurrence of any of these events, the trading price of our common stock could decline, and you could lose all or part of your investment.

We cannot guarantee any future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update any of the forward-looking statements in this prospectus after the date of this prospectus.

We have provided definitions for some of the oil and natural gas industry terms used in this prospectus in “Glossary of Certain Oil and Natural Gas Terms” beginning on page 195 .

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PROSPECTUS SUMMARY

This summary highlights information included in this prospectus. It may not contain all of the information that is important to you. This prospectus includes information about the exchange offer and the Exchange Notes and includes information about our business and our financial and operating data. Before deciding to participate in the exchange offer, you should read this entire prospectus carefully, including the “Risk Factors” section beginning on page 12 of this prospectus. In addition, certain statements include forward-looking information that involves known and unknown risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements.”

In this prospectus, references to “we,” “our” or the “Company” refer to PetroQuest Energy, Inc. and its subsidiaries as a whole (unless the context indicates otherwise) and references to “PetroQuest” refer solely to PetroQuest Energy, Inc.

Our Company

PetroQuest Energy, Inc. is an independent oil and gas company with primary operations in Oklahoma, Texas and the Gulf Coast Basin. We seek to grow our production, proved reserves, cash flow and earnings at low finding and development costs through a balanced mix of exploration, development and acquisition activities.

Corporate Information

PetroQuest Energy, Inc. is a Delaware corporation formed in 1998 whose stock is listed on The New York Stock Exchange under the symbol “PQ.” Our principal executive offices are located at 400 E. Kaliste Saloom Road, Suite 6000, Lafayette, Louisiana 70508. Our telephone number is (337) 232-7028.

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THE EXCHANGE NOTES

The summary below describes the principal terms of the Exchange Notes. The terms and conditions described below are subject to important limitations and exceptions. The “Description of the Exchange Notes” section of this prospectus contains a more detailed description of the terms and conditions of the Exchange Notes.

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Agreement will permit the representative of the holders of any such obligations to take certain actions with respect to the Collateral, including commencing and controlling enforcement proceedings against the Collateral. The Outstanding Notes and the related guarantees are, and the Exchange Notes and the related guarantees will be, junior to the lien securing any such indebtedness secured by a first priority lien on our assets. Our first lien creditors will be entitled to receive proceeds from the realization of value of the assets securing such indebtedness to repay such indebtedness in full before the holders of the Outstanding Notes and the related guarantees and the Exchange Notes and the related guarantees will be entitled to any recovery from such assets. As a result, the Outstanding Notes and the related guarantees and the Exchange Notes and the related guarantees will be effectively subordinated to the indebtedness under our Multidraw Term Loan Agreement and any other first lien indebtedness of the Company or the guarantors to the extent of the value of the Collateral.

Substantially all of our assets and the assets of the subsidiary guarantors are subject to liens under our Multidraw Term Loan Agreement.

The lenders under our Multidraw Term Loan Agreement (or the lenders or holders of indebtedness that replaces or refinances such facility) will be paid first from the proceeds of the Collateral and the Collateral may be insufficient to repay the Exchange Notes.

Our indebtedness and other obligations under our Multidraw Term Loan Agreement (and indebtedness and other obligations that replace or refinance such facility that complies with the terms of the Intercreditor Agreement) are secured by a first-priority lien on the Collateral securing the Exchange Notes. The liens securing the Exchange Notes and the guarantees will be contractually subordinated to the liens securing obligations under our Multidraw Term Loan Agreement (and obligations that replace or refinance such facility) and other priority lien obligations, so that proceeds of the Collateral will be applied first to repay those obligations before we use any such proceeds to pay any amounts due on the Exchange Notes. Accordingly, if we default on the Exchange Notes, we cannot assure you that the trustee would receive enough money from the sale of the Collateral to repay you. In addition, we will have specified rights to issue additional Exchange Notes and other parity lien obligations (including the Outstanding Notes) that would be secured by liens on the Collateral on an equal and ratable basis with the Exchange Notes. If the proceeds of any sale of the Collateral are not sufficient to repay all amounts due on the Exchange Notes, then your claims against our remaining assets to repay any amounts still outstanding under the Exchange Notes would be unsecured.

The value of the Collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers for the Collateral. For example, the value of our proved reserves depends on the SEC pricing for the value of crude oil and natural gas, which had decreased significantly as of December 31, 2016 as compared to December 31, 2014. For example, the SEC pricing at December 31, 2016 for crude oil (WTI Cushing) and natural gas (Henry Hub) was $42.75 per Bbl and $2.49 per MMBtu, respectively, as compared to $94.99 per Bbl to a low of $4.35 per MMBtu for crude oil and natural gas, respectively, at December 31, 2014.

In addition, the Collateral securing the Exchange Notes is subject to other liens permitted under the terms of the indentures and the Intercreditor Agreement, whether arising on or after the date the Exchange Notes are issued. To the extent that third parties hold prior liens, such third parties may have rights and remedies with respect to the property subject to such liens that, if exercised, could adversely affect the value of the Collateral securing the Exchange Notes. The indentures will not require that we maintain the current level of Collateral or maintain a specific ratio of indebtedness to asset values.

With respect to some of the Collateral, the collateral agent’s security interest and ability to foreclose on the Collateral will also be limited by the need to meet certain requirements, such as obtaining third-party consents, paying court fees that may be based on the principal amount of the parity lien obligations and making additional filings. If we are unable to obtain these consents, pay such fees or make these filings, the security interests may be invalid and the applicable holders and lenders will not be entitled to the Collateral or any recovery with respect thereto. We cannot assure you that any such required consents, fee payments or filings can be obtained on a timely basis or at all. These requirements may limit the number of potential bidders for certain Collateral in any foreclosure and may delay any sale, either of which events may have an

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adverse effect on the sale price of the Collateral. Therefore, the practical value of realizing on the Collateral may, without the appropriate consents, fees and filings, be limited.

In the event of a foreclosure on the Collateral under our Multidraw Term Loan Agreement (or under indebtedness and other obligations that replace or refinance such facility) (or a distribution in respect thereof in a bankruptcy or insolvency proceeding), the proceeds from the Collateral may not be sufficient to satisfy the Exchange Notes and other parity lien obligations (including the Outstanding Notes) because such proceeds would, under the Intercreditor Agreement, first be applied to satisfy our obligations under our Multidraw Term Loan Agreement (or under indebtedness and other obligations that replace or refinance such facility) or other priority lien obligations. Only after all of our obligations under our Multidraw Term Loan Agreement (or under our obligations that replace or refinance such facility) and such other obligations have been satisfied will proceeds from the Collateral under our Multidraw Term Loan Agreement (or under our obligations that replace or refinance such facility) be applied to satisfy our obligations under the Exchange Notes and other parity lien obligations (including the Outstanding Notes). In addition, in the event of a foreclosure on the Collateral, the proceeds from such foreclosure may not be sufficient to satisfy our obligations under the Exchange Notes and other parity lien obligations (including the Outstanding Notes).

Pursuant to the terms of the indentures, we and our restricted subsidiaries may sell assets so long as such sales comply with the “Asset Sales” covenant or any other applicable provision of the indentures. Upon any such sale, all or a portion of the interest in any asset sold may no longer constitute Collateral. Although we may seek to reinvest proceeds from any asset sales, any assets in which we reinvest may not constitute Collateral or be as profitable to us as the assets sold.

The Collateral securing the Exchange Notes is subject to casualty risks and potential environmental liabilities.

We maintain insurance for our properties against loss or damage to a similar extent as other companies operating properties of a similar nature in the same or similar localities. There are, however, some losses that may be either uninsurable or not economically insurable, or insured for values less than the then current fair market value. As a result, insurance proceeds may not compensate us fully for our losses. If there is a total or partial loss of any of the pledged assets, the proceeds received by us in respect thereof may not be sufficient to satisfy all of our secured obligations, including the Exchange Notes.

Moreover, the collateral agent may need to evaluate the impact of potential liabilities before determining to foreclose on Collateral consisting of real property because owners and operators of real property may be held liable under environmental laws for the costs of investigating or remediating contamination or preventing the release or threatened release of hazardous substances at such real property. Consequently, the collateral agent may be unable to or may decline to foreclose on such Collateral or exercise remedies available in respect thereof if it does not receive indemnification to its satisfaction from the holders of the Exchange Notes.

We will in most cases have control over the Collateral, and the sale of particular assets by us could reduce the pool of assets securing the Exchange Notes and the related guarantees.

The security documents relating to the Collateral will allow us to remain in possession of, retain exclusive control over, freely operate, and collect, invest and dispose of any income from, the Collateral, with certain limited exceptions. To the extent we sell or take actions that reduce the value of the Collateral, it will reduce the pool of assets securing the Exchange Notes and the related guarantees.

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The terms of indentures and the Intercreditor Agreement permit, without the consent of the holders of the Exchange Notes, various releases of the Collateral, amendments and waivers with respect to the security documents relating to the Collateral, and changes with respect to who controls actions with respect to the Collateral, that could be adverse to the holders of the Exchange Notes.

The rights of the holders of the Exchange Notes with respect to the Collateral will be substantially limited by the terms of the indentures and the Intercreditor Agreement. Under the Intercreditor Agreement, at any time that obligations secured by a first-priority lien on the Collateral, including our Multidraw Term Loan Agreement, are outstanding, certain actions that may be taken with respect to (or in respect of) the Collateral, including the ability to cause the commencement of enforcement proceedings against the Collateral and to control the conduct of such proceedings, the release of Collateral from the liens securing the Exchange Notes, and waivers, amendments and consents in respect of the security documents relating to the Collateral will be at the discretion of the holders of the obligations secured by first-priority liens on the Collateral (in each case, subject to certain exceptions) and the holders of the Exchange Notes may be adversely affected by such actions. In addition, because the holders of the indebtedness secured by first-priority liens on the Collateral will control the disposition of the Collateral, such holders could decide not to proceed against the Collateral, regardless of whether there is a default under the documents governing such indebtedness or under the indentures. The Intercreditor Agreement contains certain provisions benefiting holders of indebtedness under our Multidraw Term Loan Agreement, including provisions limiting the ability of the trustee and the collateral agent from objecting following the filing of a bankruptcy petition to a number of important matters regarding the Collateral and financing to be provided to us. After such filing, the value of the Collateral could materially deteriorate and the holders of the Exchange Notes could be unable to raise an objection. In addition, the right of holders of obligations secured by first-priority liens to foreclose upon and sell the Collateral upon the occurrence of an event of default also would be subject to limitations under applicable bankruptcy laws if we or any of our subsidiaries become subject to a bankruptcy proceeding. The Collateral will also be subject to any and all exceptions, defects, encumbrances, liens and other imperfections as may be accepted by the lenders under our Multidraw Term Loan Agreement and any other creditors that have the benefit of first-priority liens on such Collateral from time to time, whether on or after the date the Exchange Notes and the related guarantees are issued. The existence of any such exceptions, defects, encumbrances, liens and other imperfections could adversely affect the value of the Collateral as well as the ability of the collateral agent to realize or foreclose on such Collateral.

There are circumstances other than repayment or discharge of the Exchange Notes under which the Collateral will be released automatically, without your consent or the consent of the trustee.

Under various circumstances, all or a portion of the Collateral may be released automatically, without the need for any further action by any person, including:

In addition, the guarantee of a guarantor will be released in connection with a sale of such guarantor in a transaction not prohibited by the indentures. The indentures also permit us, under certain circumstances, to designate one or more of our subsidiaries that is a guarantor of the Exchange Notes as an unrestricted subsidiary. If we designate a guarantor as an unrestricted subsidiary as permitted by the indentures, all of the

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liens on any Collateral owned by such subsidiary or any of its subsidiaries and any guarantees of the Exchange Notes by such subsidiary or any of its subsidiaries will be released under the indentures. Designation of an unrestricted subsidiary will reduce the aggregate value of the Collateral to the extent that liens on the assets of the unrestricted subsidiaries and its subsidiaries are released. In addition, the creditors of the unrestricted subsidiary and its subsidiaries will have a structurally senior claim on the assets of such non-guarantor subsidiary and its subsidiaries.

Your security interests in certain items of present and future Collateral may not be perfected.

The security interests will not be perfected with respect to certain items of Collateral that cannot be perfected by the filing of financing statements in each debtor’s jurisdiction of organization, the delivery or possession of certificated securities or certain other conventional methods to perfect security interests in the United States or are otherwise determined to be immaterial by us in certain circumstances. Substantially all of the Collateral guaranteeing the Exchange Notes will consist of various properties, and rights related thereto, owned by the Company and used in connection with the Company’s oil and gas business. Security interests in Collateral such as deposit accounts and securities accounts, which require additional actions to perfect liens on such accounts, may not be perfected or may not have priority with respect to the security interests of other creditors. Additionally, security interests will not be perfected in intellectual property which cannot be perfected by filing of a notice of security interest with the U.S. Patent and Trademark Office or the U.S. Copyright Office or which is unregistered and which registration is necessary for perfection thereof. To the extent that the security interests in any items of Collateral are unperfected, the rights of the holders of the Exchange Notes with respect to such Collateral will be equal to the rights of our general unsecured creditors in the event of any bankruptcy filed by or against us under applicable U.S. federal bankruptcy laws.

Rights of the holders of the Exchange Notes in the Collateral may be adversely affected by the failure to perfect security interests in certain Collateral acquired in the future.

The Collateral will include assets, whether now owned or acquired or arising in the future. Applicable law requires that certain property and rights acquired after the grant of a general security interest can only be perfected at the time such property and rights are acquired and identified. There can be no assurance that the trustee or the collateral agent will monitor, or that we will inform the trustee or the collateral agent of, the future acquisition of property and rights that constitute Collateral, and that the necessary action will be taken to properly perfect the security interest in such after-acquired property. The trustee and the collateral agent have no obligation to monitor the acquisition of additional property or rights that constitute Collateral or the perfection of any security interest therein. Such failure to perfect may result in the loss of the security interest in such after-acquired property or the priority of the security interest securing the Exchange Notes and the related guarantees against third parties. In addition, the security interest of the collateral agent for the Exchange Notes will be subject to practical challenges generally associated with the realization of security interests in collateral.

Rights of the holders of the Exchange Notes in the Collateral may be adversely affected by bankruptcy proceedings.

The right and ability of the collateral agent to repossess and dispose of the Collateral upon an event of default is likely to be significantly impaired (or at a minimum delayed) by federal bankruptcy law if bankruptcy proceedings are commenced by or against us or a guarantor. This could be true even if bankruptcy proceedings are commenced after the collateral agent has repossessed and disposed of the Collateral. Under the U.S. Bankruptcy Code, a secured creditor, such as the collateral agent, is prohibited from repossessing its security from a debtor in a bankruptcy case, or from disposing of security repossessed from a debtor, without prior bankruptcy court approval, which may not be given. Moreover, bankruptcy law permits the debtor to continue to retain and to use collateral, and the proceeds, products, rents or profits of the collateral, even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given “adequate protection.” The meaning of the term “adequate protection” may vary according to circumstances, but it is generally intended to protect the value of the secured creditor’s interest in the collateral and may include cash payments or the granting of additional or replacement security or claims, if, and at such time as, the court in its discretion determines, for any diminution in the value of the Collateral as

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a result of the stay of repossession or disposition or any use of the Collateral by the debtor during the pendency of the bankruptcy case. In view of the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the Exchange Notes could be delayed following commencement of a bankruptcy case, whether or when the collateral agent would repossess or dispose of the Collateral, or whether or to what extent holders of the Exchange Notes would be compensated for any delay in payment or loss of value of the Collateral through the requirements of “adequate protection,” or what the holders of the Exchange Notes would ultimately receive in the bankruptcy case on account of their claims. Furthermore, in the event the bankruptcy court determines that the value of the Collateral is not sufficient to repay all amounts due on the Exchange Notes, the holders of the Exchange Notes would have “undersecured claims” as to the difference. Federal bankruptcy laws generally do not permit the payment or accrual of interest, costs and attorneys’ fees for “undersecured claims” during the debtor’s bankruptcy case.

The Exchange Notes will be structurally subordinated to all obligations of our future subsidiaries that do not become guarantors of the Exchange Notes.

Any of our subsidiaries (and entities that do not constitute subsidiaries, such as joint ventures) that do not guarantee the Exchange Notes will have no obligation, contingent or otherwise, to pay amounts due under the Exchange Notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payment. The Exchange Notes will be structurally subordinated to all indebtedness and other obligations of any non-guarantor subsidiary or joint venture such that in the event of insolvency, liquidation, reorganization, dissolution or other winding up of any subsidiary or joint venture that is not a guarantor, all of that subsidiary’s or joint venture’s creditors (including trade creditors and preferred stockholders, if any) would be entitled to payment in full out of that subsidiary’s or joint venture’s assets before we would be entitled to any payment.

In addition, the Exchange Notes indentures will, subject to some limitations, permit these subsidiaries to incur certain additional indebtedness and will not contain any limitation on the amount of other liabilities, such as trade payables, that may be incurred by these subsidiaries or joint ventures.

Our subsidiaries that provide, or will provide, guarantees of the Exchange Notes will be automatically released from those guarantees upon the occurrence of certain events.

Our subsidiaries that provide, or will provide, guarantees of the Exchange Notes will be automatically released from those guarantees upon the occurrence of certain events, including the following:

If any subsidiary guarantee is released, no holder of the Exchange Notes will have a claim as a creditor against that subsidiary, and the indebtedness and other liabilities, including trade payables and preferred stock, if any, whether secured or unsecured, of that subsidiary will be effectively senior to the claims of any holders of the Exchange Notes.

Any future pledge of Collateral might be voidable in bankruptcy.

Any future pledge of Collateral in favor of the collateral agent for the Exchange Notes might be voidable by the pledgor (as debtor in possession) or by its trustee in bankruptcy if certain events or circumstances exist or occur, including, among others, if the pledgor is insolvent at the time of the pledge, the pledge permits the holders of the Exchange Notes to receive a greater recovery than if the pledge had not been given and a bankruptcy proceeding in respect of the pledgor is commenced within 90 days following the pledge, or, in certain circumstances, a longer period.

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We may not be able to repurchase the Exchange Notes upon a change of control.

If we experience certain kinds of changes of control, as defined in the indentures, we are required to offer to purchase all of the Exchange Notes then outstanding at 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase. However, in such an event, we might not be able to pay you the required repurchase price for the Exchange Notes presented to us because we might not have sufficient funds available at that time, or the terms of our then-existing senior secured credit facility, if any, or other indebtedness may prevent us from applying funds to repurchase the Exchange Notes. The source of funds for any repurchase required as a result of a change of control will be our available cash or cash generated from our oil and gas operations or other sources, including:

Sufficient funds may not be available at the time of any change of control to repurchase the Exchange Notes after first repaying any of our senior debt that may exist at the time. In addition, restrictions under our Multidraw Term Loan Agreement will not, and restrictions under any future such senior secured credit facilities likely will not, allow such repurchases and we may not be able to have these restrictions waived. Our failure to purchase the Exchange Notes as required under the indentures would result in a default under the indentures. Each of such defaults would result in a cross default under our Multidraw Term Loan Agreement. Each of those defaults could have material adverse consequences for us and the holders of the Exchange Notes. A “change of control” (as defined in the indentures) may also be an event of default under our Multidraw Term Loan Agreement that would permit the lender to accelerate the debt outstanding under that credit facility. Finally, using available cash to fund the potential consequences of a change of control may impair our ability to obtain additional financing in the future, which could negatively impact our ability to conduct our business operations.

The term “change of control” is limited to certain specified transactions and may not include other events that might adversely affect our financial condition. Our obligation to repurchase the Exchange Notes upon a change of control would not necessarily afford holders of the Exchange Notes protection in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving us.

Risks Related to Our Business, Industry and Strategy

Oil and natural gas prices are volatile and an extended decline in the prices of oil and natural gas would likely have a material adverse effect our financial condition, liquidity, ability to meet our financial obligations and results of operations.

Our future financial condition, revenues, results of operations, profitability and future growth, and the carrying value of our oil and natural gas properties depend primarily on the prices we receive for our oil and natural gas production. Our ability to maintain or increase our borrowing capacity and to obtain additional capital on attractive terms also substantially depends upon oil and natural gas prices. Historically, the markets for oil and natural gas have been volatile and oil prices have been significantly depressed since the end of 2014 as demonstrated by the SEC pricing for the value of crude oil and natural gas, which had decreased significantly as of December 31, 2016 as compared to December 31, 2014. For example, the SEC pricing at December 31, 2016 for crude oil (WTI Cushing) and natural gas (Henry Hub) was $42.75 per Bbl and $2.49 per MMBtu, respectively, as compared to $94.99 per Bbl to a low of $4.35 per MMBtu for crude oil and natural gas, respectively, at December 31, 2014. These markets will likely continue to be volatile in the future. The prices we will receive for our production, and the levels of our production, will depend on numerous factors beyond our control.

These factors include:

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We cannot predict future oil and natural gas prices and such prices may decline further. An extended decline in oil and natural gas prices has, and may continue to, adversely affect our financial condition, liquidity, ability to meet our financial obligations and results of operations. Lower prices have reduced and may further reduce the amount of oil and natural gas that we can produce economically and has required and will likely require us to record additional ceiling test write-downs and may cause our estimated proved reserves at December 31, 2017 to decline compared to our estimated proved reserves at December 31, 2016. Substantially all of our oil and natural gas sales are made in the spot market or pursuant to contracts based on spot market prices.

Our sales are not made pursuant to long-term fixed price contracts. To attempt to reduce our price risk, we periodically enter into hedging transactions with respect to a portion of our expected future production. We cannot assure you that we can enter into effective hedging transactions in the future or that such transactions will reduce the risk or minimize the effect of any decline in oil or natural gas prices. Any substantial or extended decline in the prices of or demand for oil or natural gas would have a material adverse effect on our financial condition, liquidity, ability to meet our financial obligations and results of operations.

Our outstanding indebtedness may adversely affect our cash flow and our ability to operate our business, remain in compliance with debt covenants and make payments on our debt.

The aggregate principal amount of our outstanding indebtedness, net of cash on hand, as of December 31, 2016 was $265.3 million. We currently have $20 million of additional availability under the Multidraw Term Loan Agreement, subject to compliance with the covenants contained therein. We may also incur additional indebtedness in the future. Our high level of debt could have important consequences for you, including the following:

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Our ability to meet our expenses and debt obligations will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors. We will not be able to control many of these factors, such as economic conditions and governmental regulation. We cannot be certain that our cash flow from operations will be sufficient to allow us to pay the principal and interest on our debt, including our Outstanding Notes, Exchange Notes and amounts borrowed under the Multidraw Term Loan Agreement, and meet our other obligations. If we do not have enough cash to service our debt, we may be required to refinance all or part of our existing debt, including our Outstanding Notes, Exchange Notes and the Multidraw Term Loan Agreement, sell assets, borrow more money or raise equity. We may not be able to refinance our debt, sell assets, borrow more money or raise equity on terms acceptable to us, if at all.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt obligations could harm our business, financial condition and results of operations.

Our ability to make payments on and to refinance our indebtedness, including our Outstanding Notes, Exchange Notes and amounts borrowed under the Multidraw Term Loan Agreement, and to fund planned capital expenditures will depend on our ability to generate sufficient cash flow from operations in the future. To a certain extent, this is subject to general economic, financial, competitive, legislative and regulatory conditions and other factors that are beyond our control, including the prices that we receive for our oil and natural gas production.

We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the Multidraw Term Loan Agreement in an amount sufficient to enable us to pay principal and interest on our indebtedness, including our Outstanding Notes and Exchange Notes, or to fund our other liquidity needs. If our cash flow and capital resources are insufficient to fund our debt obligations, we may be forced to reduce our planned capital expenditures, sell assets, seek additional equity or debt capital or restructure our debt. We cannot assure you that any of these remedies could, if necessary, be affected on commercially reasonable terms, or at all. In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on acceptable terms. Our cash flow and capital resources may be insufficient for payment of interest on and principal of our debt in the future, including payments on our Outstanding Notes, Exchange Notes and amounts borrowed under the Multidraw Term Loan Agreement, and any such alternative measures may be unsuccessful or may not permit us to meet scheduled debt service obligations, which could cause us to default on our obligations and could impair our liquidity.

We may not be able to obtain adequate financing when the need arises to execute our long-term operating strategy.

Our ability to execute our long-term operating strategy is highly dependent on having access to capital when the need arises. We historically have addressed our long-term liquidity needs through bank credit facilities, second lien term credit facilities, issuances of equity and debt securities, sales of assets, joint ventures and cash provided by operating activities. We will examine the following alternative sources of long-term capital as dictated by current economic conditions:

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The availability of these sources of capital when the need arises will depend upon a number of factors, some of which are beyond our control. These factors include general economic and financial market conditions, oil and natural gas prices, our credit ratings, interest rates, market perceptions of us or the oil and gas industry, our market value and our operating performance. We may be unable to execute our long-term operating strategy if we cannot obtain capital from these sources when the need arises.

Borrowings under the Multidraw Term Loan Agreement are subject to our compliance with a significant financial ratio.

Under the terms of the Multidraw Term Loan Agreement, our ability to borrow is based on our maintaining a ratio of (i) the present value, discounted at 10% per annum, of the estimated future net revenues in respect of our oil and gas properties, before any state, federal, foreign or other income taxes, attributable to proved developed reserves, using three-year strip prices in effect at the end of each calendar quarter, including swap agreements in place at the end of each quarter, to (ii) the sum of the outstanding term loans thereunder and the then outstanding commitments to provide term loans, that shall not be less than (a) 1.7 to 1.0 as measured on December 31, 2016, and March 31, 2017, and (b) 2.0 to 1.0 as measured on June 30, 2017, and the last day of each calendar quarter thereafter. We may not be able to comply with this restrictive financial ratio in the future and, as a result, our ability to borrow money under the Multidraw Term Loan Agreement could be limited, in which case we would need to find other sources of liquidity including, but not limited to, negotiated renewals of our borrowings, arranging new financing or selling a portion of our assets.

Restrictive debt covenants could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests.

The Multidraw Term Loan Agreement and the indentures governing our Outstanding Notes and Exchange Notes contain a number of significant covenants that, among other things, restrict or limit our ability to:

Also, the Multidraw Term Loan Agreement requires us to maintain compliance with specified financial ratios and satisfy certain financial condition tests. Our ability to comply with these ratios and financial condition tests may be affected by events beyond our control, and we cannot assure you that we will meet these ratios and financial condition tests.

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Further, these financial ratio restrictions and financial condition tests could limit our ability to obtain future financings, make needed capital expenditures, withstand a future downturn in our business or the economy in general or otherwise conduct necessary corporate activities. We may also be prevented from taking advantage of business opportunities that arise because of the limitations that the restrictive covenants under the Multidraw Term Loan Agreement and the indentures governing our Outstanding Notes and Exchange Notes impose on us.

A breach of any of these covenants or our inability to comply with the required financial ratios or financial condition tests could result in a default under the Multidraw Term Loan Agreement, the Outstanding Notes and the Exchange Notes. A default, if not cured or waived, could result in all indebtedness outstanding under the Multidraw Term Loan Agreement, the Outstanding Notes and the Exchange Notes to become immediately due and payable. If that should occur, we may not be able to pay all such debt or borrow sufficient funds to refinance it. Even if new financing were then available, it may not be on terms that are acceptable to us. If we were unable to repay those amounts, the lenders could accelerate the maturity of the debt or proceed against any collateral granted to them to secure such defaulted debt.

We may be able to incur substantially more debt, which could exacerbate the risks associated with our indebtedness.

The PIK Interest Option of the Secured PIK Notes will increase the aggregate amount of debt that must be repaid at maturity or otherwise. In addition, we and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although covenants under the Multidraw Term Loan Agreement and the indentures governing our Outstanding Notes and Exchange Notes will limit our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and indebtedness incurred in compliance with these restrictions could be significant.

If new debt is added to our current debt levels, the related risks that we and our subsidiaries now face could intensify. Any of these risks could result in a material adverse effect on our business, financial condition, results of operations, business prospects and ability to satisfy our obligations under our outstanding indebtedness.

A financial downturn or negative credit market conditions may have lasting effects on our liquidity, business and financial condition that we cannot predict.

Liquidity is essential to our business. Our liquidity could be substantially negatively affected by an inability to obtain capital in the long-term or short-term debt capital markets or equity capital markets or an inability to access bank or other financing. A prolonged credit crisis or turmoil in the domestic or global financial systems could materially affect our liquidity, business and financial condition. These conditions have adversely impacted financial markets previously and created substantial volatility and uncertainty, and could do so again, with the related negative impact on global economic activity and the financial markets. Negative credit market conditions could materially affect our liquidity and may inhibit our lender from fully funding our Multidraw Term Loan Agreement or cause our lender to make the terms of our Multidraw Term Loan Agreement costlier and more restrictive. A weak economic environment could also adversely affect the collectability of our trade receivables or performance by our suppliers and cause our commodity derivative arrangements to be ineffective if our counterparties are unable to perform their obligations or seek bankruptcy protection. Additionally, negative economic conditions could lead to reduced demand for oil, natural gas and NGLs or lower prices for oil, natural gas and NGLs, which could have a negative impact on our revenues.

Our hedging program may limit potential gains from increases in commodity prices or may result in losses or may be inadequate to protect us against continuing and prolonged declines in commodity prices.

We enter into hedging arrangements from time to time to reduce our exposure to fluctuations in oil and natural gas prices and to achieve more predictable cash flow. Our hedges at December 31, 2016 and as of the date of this report are in the form of swaps placed with Shell Trading Risk Management LLC. We cannot assure you that this or future counterparties will not become credit risks in the future. Hedging arrangements expose us to risks in some circumstances, including situations when the counterparty to the hedging contract defaults on the contractual obligations or there is a change in the expected differential between the underlying

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price in the hedging agreement and actual prices received. These hedging arrangements may also limit the benefit we could receive from increases in the market or spot prices for oil and natural gas.

For the year ended December 31, 2016, our total oil and gas sales included additions related to the settlement of gas hedges of $1.8 million, which in total represented 3% of our total oil and gas sales for the year. We cannot assure you that the hedging transactions we have entered into, or will enter into, will adequately protect us from fluctuations in oil and natural gas prices. In addition, as of the date of this report, we had approximately 11.0 Bcf of gas volumes hedged for 2017 and 2.7 Bcfe of gas volumes hedged for 2018. These hedges may be inadequate to protect us from continuing and prolonged declines in oil and natural gas prices. To the extent that oil and natural gas prices remain at current levels or decline further, we will not be able to hedge future production at the same pricing level as our current hedges and our results of operations and financial condition would be negatively impacted.

We may be required to post additional collateral to satisfy the collateral requirements related to the surety bonds that secure our offshore decommissioning obligations or to increase the amount of surety bonds or other security required pursuant to updated BOEM financial assurance and risk management requirements.

To cover the costs for various obligations of lessees on the OCS, including costs for such decommissioning obligations as the plugging of wells, the removal of platforms and other facilities, the decommissioning of pipelines and the clearing of the seafloor of obstructions typically performed at the end of production, the BOEM generally requires that the lessees post substantial bonds or other acceptable financial assurances that such obligations will be met. Failure to post the requisite bonds or otherwise satisfy the BOEM’s security requirements could have a material adverse effect on our ability to operate in the U.S. Gulf of Mexico.

Because we are not exempt from the BOEM’s supplemental bonding requirements, we engage surety companies to post the requisite bonds. Pursuant to the terms of our surety agreements, we may be required to post collateral at the surety companies’ discretion. Two of our surety companies requested collateral be posted to support certain of the bonds issued on our behalf. To date, we have provided cash deposits totaling $6.2 million to satisfy these requests. The surety companies may request additional collateral which could have a material adverse effect on our liquidity position. If we fail to satisfy the request for collateral, we may be in default under our agreements with the surety companies, which could cause a cross-default under the indentures governing the Outstanding Notes, Exchange Notes and our Multidraw Term Loan Agreement.

In addition, on July 14, 2016, the BOEM issued a notice to lessees (“NTL”) No. 2016-N01 effective September 12, 2016 to clarify the procedures and criteria that the BOEM will use to determine if and when additional security is required for OCS leases. This notice may result in an increase to the amount of surety bonds or other security required to be posted by us pursuant to these updated BOEM financial assurance and risk management requirements. On January 6, 2017, the BOEM announced that it was extending the implementation timeline for NTL No. 2016-N01 by an additional six months as to leases, rights-of-way and rights of use and easement for which there are co-lessees and/or predecessors in interest, except in circumstances in which BOEM determines there is a substantial risk of nonperformance of the interest holder’s decommissioning liabilities. All of our decommissioning liabilities as of the date hereof have co-lessees and/or predecessors in interest and are expected to be included in this extended implementation timeline.

We can provide no assurance that we can continue to obtain bonds or other surety in all cases given these new expenses and updated BOEM requirements or that we will have sufficient liquidity to support such supplemental bonding requirements, and if we are unable to obtain the additional required bonds, assurances or the increased amount of required collateral as requested, the BOEM may require any or all of our operations on federal leases to be suspended or canceled or otherwise impose monetary penalties, and any one or more of such actions could have a material adverse effect on our business, prospects, results of operations, financial condition, and liquidity.

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Our future success depends upon our ability to find, develop, produce and acquire additional oil and natural gas reserves that are economically recoverable.

As is generally the case in the Gulf of Mexico and Gulf Coast Basin where approximately 54% of our current production is located, many of our producing properties are characterized by a high initial production rate, followed by a steep decline in production. In order to maintain or increase our reserves, we must constantly locate and develop or acquire new oil and natural gas reserves to replace those being depleted by production. We must do this even during periods of low oil and natural gas prices when it is difficult to raise the capital necessary to finance our exploration, development and acquisition activities. Without successful exploration, development or acquisition activities, our reserves and revenues will decline rapidly. We may not be able to find and develop or acquire additional reserves at an acceptable cost or have access to necessary financing for these activities, either of which would have a material adverse effect on our financial condition.

Approximately 54% of our production is exposed to the additional risk of severe weather, including hurricanes and tropical storms, as well as flooding, coastal erosion and sea level rise.

At December 31, 2016, approximately 54% of our production and approximately 28% of our estimated proved reserves are located in the Gulf of Mexico and along the Gulf Coast Basin. Operations in this area are subject to severe weather, including hurricanes and tropical storms, as well as flooding, coastal erosion and sea level rise. Some of these adverse conditions can be severe enough to cause substantial damage to facilities and possibly interrupt production. For example, certain of our Gulf Coast Basin properties have experienced damages and production downtime as a result of storms including Hurricanes Katrina and Rita, and more recently Hurricanes Gustav and Ike. In addition, according to certain scientific studies, emissions of carbon dioxide, methane, nitrous oxide and other gases commonly known as greenhouse gases may be contributing to global warming of the earth’s atmosphere and to global climate change, which may exacerbate the severity of these adverse conditions. As a result, such conditions may pose increased climate-related risks to our assets and operations.

In accordance with customary industry practices, we maintain insurance against some, but not all, of these risks; however, losses could occur for uninsured risks or in amounts in excess of existing insurance coverage. We cannot assure you that we will be able to maintain adequate insurance in the future at rates we consider reasonable or that any particular types of coverage will be available. An event that is not fully covered by insurance could have a material adverse effect on our financial position and results of operations.

SEC rules could limit our ability to book additional proved undeveloped reserves or require us to write down our proved undeveloped reserves.

SEC rules require that, subject to limited exceptions, proved undeveloped reserves may only be booked if they relate to wells scheduled to be drilled within five years of the date of booking. This requirement may limit our potential to book additional proved undeveloped reserves as we pursue our drilling program. Moreover, we may be required to write down our proved undeveloped reserves if we do not develop those reserves within the required five-year time frame.

Our actual production, revenues and expenditures related to our reserves are likely to differ from the estimates presented in our reserve report.

Although the estimates of our oil and natural gas reserves and future net cash flows attributable to those reserves were prepared by Ryder Scott Company, L.P., our independent petroleum and geological engineers, we are ultimately responsible for the disclosure of those estimates. Reserve engineering is a complex and subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. Estimates of economically recoverable oil and natural gas reserves and of future net cash flows necessarily depend upon a number of variable factors and assumptions, including:

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Because all reserve estimates are to some degree subjective, each of the following items may differ materially from those assumed in estimating proved reserves:

Furthermore, different reserve engineers may make different estimates of reserves and cash flows based on the same available data. Historically, the difference between our actual production and the production estimated in a prior year’s reserve report has not been material. Our 2016 production, excluding the impact from successful exploration wells which are not included in the prior year reserve report, was approximately 18% lower than amounts projected in our 2015 reserve report as a result of the divestiture of the remainder of our Oklahoma assets. We cannot assure you that these differences will not be material in the future.

Approximately 41% of our estimated proved reserves at December 31, 2016 are undeveloped and 21% were developed, non-producing. Recovery of undeveloped reserves requires significant capital expenditures and successful drilling operations. The reserve data assumes that we will make significant capital expenditures to develop and produce our reserves. Although we have prepared estimates of our oil and natural gas reserves and the costs associated with these reserves in accordance with industry standards, we cannot assure you that the estimated costs are accurate, that the development will occur as scheduled or that the actual results will be as estimated. In addition, the recovery of certain developed non-producing reserves (primarily in the Gulf of Mexico) is generally subject to the approval of development plans and related activities by applicable state and/or federal agencies. Statutes and regulations may affect both the timing and quantity of recovery of estimated reserves. Such statutes and regulations, and their enforcement, have changed in the past and may change in the future, and may result in upward or downward revisions to current estimated proved reserves.

You should not assume that the standardized measure of discounted cash flows is the current market value of our estimated oil and natural gas reserves. In accordance with SEC requirements, the standardized measure of discounted cash flows from proved reserves at December 31, 2016 are based on twelve-month, first day of month, average prices and costs as of the date of the estimate. These prices and costs will change and may be materially higher or lower than the prices and costs as of the date of the estimate. Any changes in consumption by oil and natural gas purchasers or in governmental regulations or taxation may also affect actual future net cash flows. The actual timing of development activities, including related production and expenses, will affect the timing of future net cash flows and any differences between estimated development timing and actual could have a material effect on standardized measure. In addition, the 10% discount factor we use when calculating standardized measure of discounted cash flows for reporting requirements in compliance with accounting requirements is not necessarily the most appropriate discount factor. The effective interest rate at various times and the risks associated with our operations or the oil and natural gas industry in general will affect the accuracy of the 10% discount factor.

We may be unable to successfully identify, execute or effectively integrate future acquisitions, which may negatively affect our results of operations.

Acquisitions of oil and gas businesses and properties have been an important element of our business, and we will continue to pursue acquisitions in the future. In the last several years, we have pursued and consummated acquisitions that have provided us opportunities to grow our production and reserves. Although we regularly engage in discussions with, and submit proposals to, acquisition candidates, suitable acquisitions may not be available in the future on reasonable terms. If we do identify an appropriate acquisition candidate, we may be unable to successfully negotiate the terms of an acquisition, finance the acquisition or, if the acquisition occurs, effectively integrate the acquired business into our existing business. Negotiations of potential acquisitions and the integration of acquired business operations may require a disproportionate

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amount of management’s attention and our resources. Even if we complete additional acquisitions, continued acquisition financing may not be available or available on reasonable terms, any new businesses may not generate revenues comparable to our existing business, the anticipated cost efficiencies or synergies may not be realized and these businesses may not be integrated successfully or operated profitably. The success of any acquisition will depend on a number of factors, including the ability to estimate accurately the recoverable volumes of reserves, rates of future production and future net revenues attainable from the reserves and to assess possible environmental liabilities. Our inability to successfully identify, execute or effectively integrate future acquisitions may negatively affect our results of operations.

Even though we perform due diligence reviews (including a review of title and other records) of the major properties we seek to acquire that we believe is consistent with industry practices, these reviews are inherently incomplete. It is generally not feasible for us to perform an in-depth review of every individual property and all records involved in each acquisition. However, even an in-depth review of records and properties may not necessarily reveal existing or potential problems or permit us to become familiar enough with the properties to assess fully their deficiencies and potential. Even when problems are identified, we may assume certain environmental and other risks and liabilities in connection with the acquired businesses and properties. The discovery of any material liabilities associated with our acquisitions could harm our results of operations.

In addition, acquisitions of businesses may require additional debt or equity financing, resulting in additional leverage or dilution of ownership. Our Multidraw Term Loan Agreement and the indentures governing our Outstanding Notes and Exchange Notes contain certain covenants that limit, or which may have the effect of limiting, among other things acquisitions, capital expenditures, the sale of assets and the incurrence of additional indebtedness.

The loss of key management or technical personnel could adversely affect our ability to operate.

Our operations are dependent upon a diverse group of key senior management. In addition, we employ numerous other skilled technical personnel, including geologists, geophysicists and engineers that are essential to our operations. We cannot assure you that such individuals will remain with us for the immediate or foreseeable future. The unexpected loss of the services of one or more of any of these key management or technical personnel could have an adverse effect on our operations.

Losses and liabilities from uninsured or underinsured drilling and operating activities could have a material adverse effect on our financial condition and operations.

We maintain several types of insurance to cover our operations, including worker’s compensation, maritime employer’s liability and comprehensive general liability. Amounts over base coverages are provided by primary and excess umbrella liability policies. We also maintain operator’s extra expense coverage, which covers the control of drilling or producing wells as well as redrilling expenses and pollution coverage for wells out of control.

We may not be able to maintain adequate insurance in the future at rates we consider reasonable, or we could experience losses that are not insured or that exceed the maximum limits under our insurance policies. If a significant event that is not fully insured or indemnified occurs, it could materially and adversely affect our financial condition and results of operations.

Lower oil and natural gas prices may cause us to record ceiling test write-downs, which could negatively impact our results of operations.

We use the full cost method of accounting to account for our oil and natural gas operations. Accordingly, we capitalize the cost to acquire, explore for and develop oil and natural gas properties. Under full cost accounting rules, the net capitalized costs of oil and natural gas properties may not exceed a “full cost ceiling” which is based upon the present value of estimated future net cash flows from proved reserves, including the effect of hedges in place, discounted at 10%, plus the lower of cost or fair market value of unproved properties. If at the end of any fiscal period we determine that the net capitalized costs of oil and natural gas properties exceed the full cost ceiling, we must charge the amount of the excess to earnings in the period then ended. This is called a “ceiling test write-down.” This charge does not impact cash flow from

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operating activities, but does reduce our net income and stockholders’ equity. Once incurred, a write-down of oil and natural gas properties is not reversible at a later date.

We review the net capitalized costs of our properties quarterly, using a single price based on the twelve-month, first day of month, average price of oil and natural gas for the prior 12 months. We also assess investments in unevaluated properties periodically to determine whether impairment has occurred. The risk that we will be required to recognize further write downs of the carrying value of our oil and gas properties increases when oil and natural gas prices are low or volatile. In addition, write-downs may occur if we experience substantial downward adjustments to our estimated proved reserves or our unevaluated property values, or if estimated future development costs increase. As a result of the decline in commodity prices, we recognized ceiling test write-downs totaling $40.3 million and $266.6 million during the years ended December 31, 2016 and 2015, respectively. Utilizing current strip prices for oil and natural gas prices for the first quarter of 2017 and projecting the effect on the estimated future net cash flows from our estimated proved reserves as of March 31, 2017, we do not expect to recognize an additional ceiling test write-down in the first quarter of 2017.

Factors beyond our control affect our ability to market oil and natural gas.

The availability of markets and the volatility of product prices are beyond our control and represent a significant risk. The marketability of our production depends upon the availability and capacity of natural gas gathering systems, pipelines and processing facilities. The unavailability or lack of capacity of these systems and facilities could result in the shut-in of producing wells or the delay or discontinuance of development plans for properties. Our ability to market oil and natural gas also depends on other factors beyond our control. These factors include:

If these factors were to change dramatically, our ability to market oil and natural gas or obtain favorable prices for our oil and natural gas could be adversely affected.

The explosion and sinking of the Deepwater Horizon drilling rig in the Gulf of Mexico in April 2010 and the resulting oil spill may significantly increase our risks, costs and delays.

The explosion and sinking of the Deepwater Horizon drilling rig in the Gulf of Mexico in April 2010 and the resulting oil spill may significantly impact the risks we face. The Deepwater Horizon incident and resulting legislative, regulatory and enforcement changes, including increased tort liability, could increase our liability if any incidents occur on our offshore operations. We cannot predict the ultimate impact the Deepwater Horizon incident and resulting changes in regulation of offshore oil and natural gas operations will have on our business or operations.

In response to the spill, and during a moratorium on deepwater (below 500 feet) drilling activities implemented between May 30, 2010 and October 12, 2010, the BOEMRE issued a series of active NTLs, and adopted changes to its regulations to impose a variety of new measures intended to help prevent a similar disaster in the future.

Offshore operators, including those operating in deepwater, OCS waters and shallow waters, where we have substantial operations, must comply with strict new safety and operating requirements. For example, permit applications for drilling projects must meet new standards with respect to well design, casing and

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cementing, blowout preventers, safety certification, emergency response, and worker training. Operators in all offshore waters are also required to demonstrate the availability of adequate spill response and blowout containment resources. In addition, the BSEE imposed, for the first time, requirements that offshore operators maintain comprehensive safety and environmental programs. Such developments have the potential to increase our costs of doing business.

Federal and state legislation and regulatory initiatives relating to oil and natural gas development and hydraulic fracturing could result in increased costs and additional operating restrictions or delays.

Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into rock formations to enhance oil and natural gas production. Hydraulic fracturing using fluids other than diesel is currently exempt from regulation under the federal Safe Drinking Water Act, but opponents of hydraulic fracturing have called for further study of the technique’s environmental effects and, in some cases, further regulation of the technique under various federal and state authorities. A number of states, including Louisiana and Texas, have required operators or service companies to disclose chemical components in fluids used for hydraulic fracturing and some states have imposed bans or moratoria on new natural gas development or the use of hydraulic fracturing. Further regulation may include, among other things, additional permitting requirements, enhanced reporting obligations, and stricter standards for discharges and emissions associated with gas production, storage and transport. The future of such regulation is controversial and uncertain. Such requirements, if imposed, would be expected to increase the cost of natural gas production.

Recent seismic events have been observed in some areas (including Texas) where hydraulic fracturing has taken place. Some scientists believe the increased seismic activity may result from deep well fluid injection associated with use of hydraulic fracturing. Additional regulatory measures designed to minimize or avoid damage to geologic formations have been imposed in states, including Texas, to address such concerns.

Concerns regarding climate change have led the Congress, various states and environmental agencies to consider a number of initiatives to restrict or regulate emissions of greenhouse gases, such as carbon dioxide and methane. Stricter regulations of greenhouse gases could require us to incur costs to reduce emissions of greenhouse gases associated with our operations, or could adversely affect demand for the oil and natural gas we produce. In addition, climate change that results in physical effects such as increased frequency and severity of storms, floods and other climatic events, could disrupt our exploration and production operations and cause us to incur significant costs in preparing for and responding to those effects.

Although it is not possible at this time to predict any additional federal, state or local legislation or regulation regarding hydraulic fracturing, management of drilling fluids, stricter emission standards, well integrity requirements or climate change, federal or state restrictions imposed on oil and gas exploration and production activities in areas in which we conduct business could significantly increase our operating, capital and compliance costs as well as delay our ability to develop oil and natural gas reserves. In addition to increased regulation of our business, we may also experience an increase in litigation seeking damages as a result of heightened public concerns related to air quality, water quality, and other environmental impacts.

The adoption of derivatives legislation by Congress, and implementation of that legislation by federal agencies, could have an adverse impact on our ability to mitigate risks associated with our business.

On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Reform Act”), which, among other provisions, establishes federal oversight and regulation of the over-the-counter derivatives market and entities that participate in that market. The legislation required the Commodities Futures Trading Commission, (the “CFTC”), and the SEC to promulgate rules and regulations implementing the new legislation, which they have done since late 2010. The CFTC has introduced dozens of proposed rules coming out of the Dodd-Frank Reform Act, and has promulgated numerous final rules based on those proposals. The effect of the proposed rules and any additional regulations on our business is not yet entirely clear, but it is increasingly clear that the costs of derivatives-based hedging for commodities will likely increase for all market participants. Of particular concern, the Dodd-Frank Reform Act does not explicitly exempt end users from the requirements to post margin in connection with hedging activities. While several senators have indicated that it was not the intent of the Dodd-Frank Reform Act to require margin from end users, the exemption is not in the Dodd-Frank Reform Act. While rules proposed by

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the CFTC and federal banking regulators appear to allow for non-cash collateral and certain exemptions from margin for end users, the rules are not final and uncertainty remains. The full range of new Dodd-Frank Reform Act requirements to be enacted, to the extent applicable to us or our derivatives counterparties, may result in increased costs and cash collateral requirements for the types of derivative instruments we use to mitigate and otherwise manage our financial and commercial risks related to fluctuations in oil and natural gas prices. In addition, final rules were promulgated by the CFTC imposing federally-mandated position limits covering a wide range of derivatives positions, including non-exchange traded bilateral swaps related to commodities including oil and natural gas. These position limit rules were vacated by a Federal court in September 2012. However, in November 2013, the CFTC proposed new rules that would place limits on positions in certain core futures and equivalent swaps contracts for or linked to certain physical commodities, subject to exceptions for certain bona fide hedging transactions. As these new position limit rules are not yet final, their impact on us is uncertain at this time. If these position limits rules go into effect in the future, they are likely to increase regulatory monitoring and compliance costs for all market participants, even where a given trading entity is not in danger of breaching position limits. These and other regulatory developments stemming from the Dodd-Frank Reform Act, including stringent new reporting requirements for derivatives positions and detailed criteria that must be satisfied to continue to enter into uncleared swap transactions, could have a material impact on our derivatives trading and hedging activities in the form of increased transaction costs and compliance responsibilities. Any of the foregoing consequences could have a material adverse effect on our financial position, results of operations and cash flows.

Proposed changes to U.S. tax laws, if adopted, could have an adverse effect on our business, financial condition, results of operations and cash flows.

From time to time legislative proposals are made that would, if enacted, make significant changes to U.S. tax laws. These proposed changes have included, among others, eliminating the immediate deduction for intangible drilling and development costs, eliminating the deduction from income for domestic production activities relating to oil and natural gas exploration and development, repealing the percentage depletion allowance for oil and natural gas properties and extending the amortization period for certain geological and geophysical expenditures. Such proposed changes in the U.S. tax laws, if adopted, or other similar changes that reduce or eliminate deductions currently available with respect to oil and natural gas exploration and development, could adversely affect our business, financial condition, results of operations and cash flows.

We face strong competition from larger oil and natural gas companies that may negatively affect our ability to carry on operations.

We operate in the highly competitive areas of oil and natural gas exploration, development and production. Factors that affect our ability to compete successfully in the marketplace include:

Our competitors include major integrated oil companies, substantial independent energy companies, affiliates of major interstate and intrastate pipelines and national and local natural gas gatherers, many of which possess greater financial and other resources than we do. If we are unable to successfully compete against our competitors, our business, prospects, financial condition and results of operations may be adversely affected.

Operating hazards may adversely affect our ability to conduct business.

Our operations are subject to risks inherent in the oil and natural gas industry, such as:

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These risks could result in substantial losses to us from injury and loss of life, damage to and destruction of property and equipment, pollution and other environmental damage and suspension of operations. Our offshore operations are also subject to a variety of operating risks peculiar to the marine environment, such as hurricanes or other adverse weather conditions and more extensive governmental regulation. These regulations may, in certain circumstances, impose strict liability for pollution damage or result in the interruption or termination of operations.

Environmental compliance costs and environmental liabilities could have a material adverse effect on our financial condition and operations.

Our operations are subject to numerous federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may:

The trend toward stricter requirements and standards in environmental legislation and regulation is likely to continue. Our drilling plans may be delayed, modified or precluded as a result of new or modified environmental mandates, including those imposed to protect the American Burying Beetle and other endangered species that may be present in the vicinity of our operations. The enactment of stricter legislation or the adoption of stricter regulations could have a significant impact on our operating costs, as well as on the oil and natural gas industry in general.

Our operations could result in liability for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other environmental damages. We could also be liable for environmental damages caused by previous property owners. As a result, substantial liabilities to third parties or governmental entities may be incurred which could have a material adverse effect on our financial condition and results of operations. We maintain insurance coverage for our operations, including limited coverage for sudden and accidental environmental damages, but this insurance may not extend to the full potential liability that could be caused by sudden and accidental environmental damages nor continue to be available in the future, and if available, may not cover environmental damages that occur over time. Accordingly, we may be subject to liability or may lose the ability to continue exploration or production activities upon substantial portions of our properties if certain environmental damages occur.

We cannot control the activities on properties we do not operate and we are unable to ensure the proper operation and profitability of these non-operated properties.

We do not operate all of the properties in which we have an interest. As a result, we have limited ability to exercise influence over, and control the risks associated with, the operation of these properties. The success and timing of drilling and development activities on our partially owned properties operated by others therefore will depend upon a number of factors outside of our control, including the operator’s:

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As a result of any of the above or an operator’s failure to act in ways that are in our best interest, our allocated production revenues and results of operations could be adversely affected.

Ownership of working interests and overriding royalty interests in certain of our properties by certain of our officers and directors potentially creates conflicts of interest.

Certain of our executive officers and directors or their respective affiliates are working interest owners or overriding royalty interest owners in certain properties. In their capacity as working interest owners, they are required to pay their proportionate share of all costs and are entitled to receive their proportionate share of revenues in the normal course of business. As overriding royalty interest owners they are entitled to receive their proportionate share of revenues in the normal course of business. There is a potential conflict of interest between us and such officers and directors with respect to the drilling of additional wells or other development operations with respect to these properties.

Loss of our information and computer systems could adversely affect our business.

We are heavily dependent on our information systems and computer based programs, including our well operations information, seismic data, electronic data processing and accounting data. If any of such programs or systems were to fail or create erroneous information in our hardware or software network infrastructure, possible consequences include our loss of communication links, inability to find, produce, process and sell oil and natural gas and inability to automatically process commercial transactions or engage in similar automated or computerized business activities. Any such consequence could have a material adverse effect on our business.

A terrorist attack or armed conflict could harm our business.

Terrorist activities, anti-terrorist efforts and other armed conflicts involving the United States or other countries may adversely affect the United States and global economies and could prevent us from meeting our financial and other obligations. If any of these events occur, the resulting political instability and societal disruption could reduce overall demand for oil and natural gas, potentially putting downward pressure on demand for our production and causing a reduction in our revenues. Oil and natural gas related facilities could be direct targets of terrorist attacks, and our operations could be adversely impacted if infrastructure integral to our customers’ operations is destroyed or damaged. Costs for insurance and other security may increase as a result of these threats, and some insurance coverage may become more difficult to obtain, if available at all.

We are the subject of putative class action lawsuits that may result in substantial expenditures and divert management’s attention.

We are the subject of two putative class actions lawsuits in Oklahoma with respect to the alleged failure to pay interest with respect to untimely royalty payments and with respect to the alleged underpayment or failure to pay royalties by various means. These lawsuits seek various remedies, including damages, injunctive relief and attorney’s fees. For additional information on these lawsuits, see “Business — Legal Proceedings.”

Although we believe that the allegations in these lawsuits are without merit and intend to defend such litigation vigorously, litigation is subject to inherent uncertainties, and an adverse result in one of these lawsuits or other matters that may arise from time to time could have a material adverse effect on our business, results of operations and financial condition. Defending the lawsuits may be costly and, further, could require significant involvement of our senior management and may divert management’s attention from our business and operations.

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Risks Relating to Our Outstanding Common Stock

Our stock price could be volatile, which could cause you to lose part or all of your investment.

The stock market has from time to time experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies. In particular, the market price of our common stock, like that of the securities of many other energy companies, has been and may continue to be highly volatile. During 2016, the sales price of our stock ranged from a low of $1.32 per share (on January 11, 2016) to a high of $4.51 per share (on November 30, 2016). Factors such as announcements concerning changes in prices of oil and natural gas, the success of our acquisition, exploration and development activities, the availability of capital, and economic and other external factors, as well as period-to-period fluctuations and financial results, may have a significant effect on the market price of our common stock.

From time to time, there has been limited trading volume in our common stock. In addition, there can be no assurance that there will continue to be a trading market or that any securities research analysts will continue to provide research coverage with respect to our common stock. It is possible that such factors will adversely affect the market for our common stock.

If we cannot meet the New York Stock Exchange’s continuing listing requirements and rules, the New York Stock Exchange may delist our securities, which could negatively affect our company, the price of our securities and your ability to sell our securities.

On December 8, 2015, we received a notice from NYSE Regulation, Inc. informing us that we were not in compliance with the continued listing standards set forth in 802.01C of the Listed Company Manual of the New York Stock Exchange (the “Listed Company Manual”), because the average closing price of the our common stock fell below $1.00 per share for a period of over 30 consecutive trading days. On May 18, 2016, we effected a 1:4 reverse stock split (the “Reverse Split”) to attempt to increase the per share trading price of our common stock in order to regain compliance with the NYSE’s continued listing standards. On June 2, 2016, we received a notice from the New York Stock Exchange (“NYSE”) that the Company has regained compliance with this continued listing standard.

On December 28, 2015, we received another notice from NYSE Regulation, Inc. informing us that we were not in compliance with the continued listing standards set forth in Section 802.01B of the Listed Company Manual because our average global market capitalization fell below $50 million over a trailing consecutive 30 trading-day period and our last reported stockholders’ equity was less than $50 million. We developed and submitted a business plan to the NYSE demonstrating how, within the next eighteen months, we intended to regain compliance with the continued listing standards set forth in Section 802.01B of the Listed Company Manual. On April 13, 2017, we received notice from the NYSE that we were considered to be back in compliance with the NYSE’s continued listing standards. We will be subject to a 12 month follow-up period within which we will be reviewed to ensure we do not again fall under the NYSE’s continued listing standards, which could result in additional actions by the NYSE including, but not limited to, the initiation of NYSE trading suspension procedures.

If our common stock ultimately were to be delisted for any reason, trading of our securities would thereafter be conducted in the over-the-counter market or on the National Association of Securities Dealers Inc.’s “electronic bulletin board.” As a consequence, our stockholders would likely find it more difficult to dispose of, or to obtain accurate quotations as to the prices of our securities. Such a delisting could negatively impact us by (i) reducing the liquidity and market price of our common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; (iii) limiting our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing us from accessing the public capital markets; and (iv) impairing our ability to provide equity incentives to our employees.

The terms of our debt agreements currently restrict and Delaware law may restrict us from making cash payments with respect to our Series B Preferred Stock.

Quarterly dividends and cash payments upon conversion or repurchase of our Series B Preferred Stock will be paid only if payment of such amounts is not prohibited by our debt agreements, such as the Multidraw

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Term Loan Agreement, and assets are legally available to pay such amounts. Quarterly dividends will only be paid if such dividends are declared by our board of directors. The board of directors is not obligated or required to declare quarterly dividends even if we have funds available for such purposes.

The terms of the Multidraw Term Loan Agreement currently restrict us from paying cash dividends on our Series B Preferred Stock. We previously suspended the cash dividend on our Series B Preferred Stock beginning with the dividend payment due on April 15, 2016. Under the terms of the Series B Preferred Stock, any unpaid dividends will accumulate. If we fail to pay six quarterly dividends on the Series B Preferred Stock, whether or not consecutive, holders of the Series B Preferred Stock, voting as a single class, will have the right to elect two additional directors to our board of directors until all accumulated and unpaid dividends on the Series B Preferred Stock are paid in full. We plan to periodically re-evaluate the dividend payment policy, subject to the terms of our Multidraw Term Loan Facility.

If in the future we are permitted to pay such cash dividends under the terms of our existing debt agreements, including the Multidraw Term Loan Agreement, and any debt agreements that we enter into in the future, we may continue to be limited in our ability to pay cash dividends on our Series B Preferred Stock and our ability to make any cash payment upon conversion or repurchase of our Series B Preferred Stock by the terms of such debt agreements. Furthermore, if we are in default under the Multidraw Term Loan Agreement or the indentures governing the Outstanding Notes and Exchange Notes, we will not be permitted to pay any cash dividends on our Series B Preferred Stock or make any cash payment upon conversion or repurchase of our Series B Preferred Stock in the absence of a waiver of such default or an amendment or refinancing of such debt agreements.

Delaware law provides that we may pay dividends on our Series B Preferred Stock only to the extent that assets are legally available to pay such dividends. Cash payments we may make upon repurchase or conversion of our Series B Preferred Stock would be generally subject to the same restrictions under Delaware law. Legally available assets is defined as the amount of surplus. Our surplus is the amount by which the fair value of total assets exceeds the sum of:

If there is no surplus, legally available assets will mean, in the case of a dividend, our net profits for the fiscal year in which the dividend payment occurs and/or the preceding fiscal year.

Issuance of shares in connection with financing transactions or under stock incentive plans will dilute current stockholders.

We have issued 1.5 million shares of Series B Preferred Stock, which are presently convertible into 1.3 million shares of our common stock. In addition, pursuant to our stock incentive plan, our management is authorized to grant stock awards to our employees, directors and consultants. You will incur dilution upon the conversion of the Series B Preferred Stock, the exercise of any outstanding stock awards or the grant of any restricted stock. In addition, if we raise additional funds by issuing additional common stock, or securities convertible into or exchangeable or exercisable for common stock, further dilution to our existing stockholders will result, and new investors could have rights superior to existing stockholders.

The number of shares of our common stock eligible for future sale could adversely affect the market price of our stock.

At December 31, 2016, we had reserved approximately 1.4 million shares of common stock for issuance under outstanding options and approximately 1.3 million shares issuable upon conversion of the Series B Preferred Stock. All of these shares of common stock are registered for sale or resale on currently effective registration statements. In addition, we issued approximately 7.8 million shares (4.6 million shares as adjusted for the Reverse Split) of common stock in connection with the 2016 debt exchanges that are eligible for future sale under Rule 144 of the Securities Act. We may issue additional restricted securities or register additional shares of common stock under the Securities Act in the future. The issuance of a significant number of shares of common stock upon the exercise of stock options, the granting of restricted stock or the conversion of the Series B Preferred Stock, or the availability for sale, or sale, of a substantial number of the shares of our

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common stock eligible for future sale under effective registration statements, under Rule 144 or otherwise, could adversely affect the market price of the common stock.

Provisions in our certificate of incorporation and bylaws could delay or prevent a change in control of our company, even if that change would be beneficial to our stockholders.

Certain provisions of our certificate of incorporation and bylaws may delay, discourage, prevent or render more difficult an attempt to obtain control of our company, whether through a tender offer, business combination, proxy contest or otherwise. These provisions include:

We do not intend to pay dividends on our common stock and our ability to pay dividends on our common stock is restricted.

We have not paid dividends on our common stock, in cash or otherwise, and intend to retain our cash flow from operations for the future operation and development of our business. We are currently restricted from paying dividends on our common stock by our Multidraw Term Loan Agreement, the indentures governing the Outstanding Notes and Exchange Notes and, in some circumstances, by the terms of our Series B Preferred Stock. Any future dividends also may be restricted by our then-existing debt agreements.

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RATIO OF EARNINGS TO FIXED CHARGES

Our consolidated ratio of earnings to fixed charges for each of the periods indicated were as follows:

		Year Ended December 31,
		2016				2015				2014				2013				2012
Ratio of earnings to fixed charges (1) (2)			—				—				1.46				1.28				—

(1)

For purposes of calculating the ratio of earnings to fixed charges, earnings represent income before income taxes from continuing operations plus fixed charges, less capitalized interest. Fixed charges include interest expense, capitalized interest, and amortization of debt issuance costs.

(2)

As a result of non-cash ceiling test write-downs, earnings were inadequate to cover fixed charges for the years ended December 31, 2016, December 31, 2015 and December 31, 2012 by approximately $91 million, $297 million and $137 million, respectively, and therefore no ratio is shown.

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SELECTED FINANCIAL DATA

The following table sets forth, as of the dates and for the periods indicated, selected financial information for the Company. The financial information for each of the five years in the period ended December 31, 2016 has been derived from the audited Consolidated Financial Statements of the Company for such periods. The information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and notes thereto. The following information is not necessarily indicative of future results of the Company. All amounts are stated in U.S. dollars unless otherwise indicated.

		Year Ended December 31,
		2016 (1)				2015 (2)				2014				2013				2012 (3)
		(in thousands except per share and per Mcfe data)
Average sales price per Mcfe		$	2.84			$	3.39			$	5.19			$	4.80			$	4.17
Revenues			66,667				115,969				225,021				182,804				141,433
Net income (loss) available to common stockholders			(96,245	)			(299,929	)			26,051				8,943				(137,218	)
Net income (loss) available to common stockholders per share:
Basic			(5.24	)			(18.45	)			1.57				0.56				(8.80	)
Diluted			(5.24	)			(18.45	)			1.57				0.56				(8.80	)
Oil and gas properties, net			89,062				165,952				683,812				581,242				333,946
Total assets			144,860				379,319				786,108				660,018				430,647
Long-term debt, including current portion			293,645				347,008				420,213				417,828				147,244
Stockholders’ equity			(251,095	)			(163,067	)			136,909				99,095				87,591

(1)

The year ended December 31, 2016 includes a pre-tax ceiling test write-down of $40.3 million.

(2)

The year ended December 31, 2015 includes a pre-tax ceiling test write-down of $266.6 million.

(3)

The year ended December 31, 2012 includes a pre-tax ceiling test write-down of $137.1 million.

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Critical Accounting Policies

Reserve Estimates

Our estimates of proved oil and gas reserves constitute those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. At the end of each year, our proved reserves are estimated by independent petroleum engineers in accordance with guidelines established by the SEC. These estimates, however, represent projections based on geologic and engineering data. Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that are difficult to measure. The accuracy of any reserve estimate is a function of the quantity and quality of available data, engineering and geological interpretation and professional judgment. Estimates of economically recoverable oil and gas reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effect of regulations by governmental agencies, and assumptions governing future oil and gas prices, future operating costs, severance taxes, development costs and workover costs. The future drilling costs associated with reserves assigned to proved undeveloped locations may ultimately increase to the extent that these reserves may be later determined to be uneconomic. Any significant variance in the assumptions could materially affect the estimated quantity and value of the reserves, which could affect the carrying value of our oil and gas properties and/or the rate of depletion of such oil and gas properties.

Disclosure requirements under Staff Accounting Bulletin No. 113 (“SAB 113”) include provisions that permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserve volumes. The rules also allow companies the option to disclose probable and possible reserves in addition to the existing requirement to disclose proved reserves. The disclosure requirements also require companies to report the independence and qualifications of third party preparers of reserves and file reports when a third party is relied upon to prepare reserves estimates. Pricing is based on a 12-month, first day of month, average price during the 12-month period prior to the ending date of the balance sheet to report oil and natural gas reserves. In addition, the 12-month average is also used to measure ceiling test impairments and to compute depreciation, depletion and amortization.

Full Cost Method of Accounting

We use the full cost method of accounting for our investments in oil and gas properties. Under this method, all acquisition, exploration and development costs, including certain related employee costs, incurred for the purpose of exploring for and developing oil and natural gas are capitalized. Acquisition costs include costs incurred to purchase, lease or otherwise acquire property. Exploration costs include the costs of drilling exploratory wells, including those in progress and geological and geophysical service costs in exploration activities. Development costs include the costs of drilling development wells and costs of completions, platforms, facilities and pipelines. Costs associated with production and general corporate activities are expensed in the period incurred. Sales of oil and gas properties, whether or not being amortized currently, are accounted for as adjustments of capitalized costs, with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas.

The costs associated with unevaluated properties are not initially included in the amortization base and primarily relate to ongoing exploration activities, unevaluated leasehold acreage and delay rentals, seismic data and capitalized interest. These costs are either transferred to the amortization base with the costs of drilling the related well or are assessed quarterly for possible impairment or reduction in value.

We compute the provision for depletion of oil and gas properties using the unit-of-production method based upon production and estimates of proved reserve quantities. Unevaluated costs and related carrying costs are excluded from the amortization base until the properties associated with these costs are evaluated. In addition to costs associated with evaluated properties, the amortization base includes estimated future

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development costs related to non-producing reserves. Our depletion expense is affected by the estimates of future development costs, unevaluated costs and proved reserves, and changes in these estimates could have an impact on our future earnings.

We capitalize certain internal costs that are directly identified with acquisition, exploration and development activities. The capitalized internal costs include salaries, employee benefits, costs of consulting services and other related expenses and do not include costs related to production, general corporate overhead or similar activities. We also capitalize a portion of the interest costs incurred on our debt. Capitalized interest is calculated using the amount of our unevaluated properties and our effective borrowing rate.

Capitalized costs of oil and gas properties, net of accumulated depreciation, depletion and amortization (“DD&A”) and related deferred taxes, are limited to the estimated future net cash flows from proved oil and gas reserves, including the effect of cash flow hedges in place, discounted at 10 percent, plus the lower of cost or fair value of unproved properties, as adjusted for related income tax effects (the full cost ceiling). If capitalized costs exceed the full cost ceiling, the excess is charged to write-down of oil and gas properties in the quarter in which the excess occurs.

Given the volatility of oil and gas prices, it is probable that our estimate of discounted future net cash flows from estimated proved oil and gas reserves will change in the near term. If oil or gas prices remain at current levels or decline further, even for only a short period of time, or if we have downward revisions to our estimated proved reserves, it is possible that further write-downs of oil and gas properties could occur in the future.

Future Abandonment Costs

Future abandonment costs include costs to dismantle and relocate or dispose of our production platforms, gathering systems, wells and related structures and restoration costs of land and seabed. We develop estimates of these costs for each of our properties based upon the type of production structure, depth of water, reservoir characteristics, depth of the reservoir, market demand for equipment, currently available procedures and consultations with construction and engineering consultants. Because these costs typically extend many years into the future, estimating these future costs is difficult and requires management to make estimates and judgments that are subject to future revisions based upon numerous factors, including changing technology, the timing of estimated costs, the impact of future inflation on current cost estimates and the political and regulatory environment.

Derivative Instruments

We seek to reduce our exposure to commodity price volatility by hedging a portion of our production through commodity derivative instruments. The estimated fair values of our commodity derivative instruments are recorded in the consolidated balance sheet. The changes in fair value of those derivative instruments that qualify for hedge accounting treatment are recorded in other comprehensive income (loss) until the hedged oil or natural gas quantities are produced. If a hedge becomes ineffective because the hedged production does not occur, or the hedge otherwise does not qualify for hedge accounting treatment, the changes in the fair value of the derivative are recorded in the income statement as derivative income (expense).

Our hedges are specifically referenced to NYMEX prices for natural gas. We evaluate the effectiveness of our hedges at the time we enter the contracts, and periodically over the life of the contracts, by analyzing the correlation between NYMEX and the posted prices we receive from our designated production. Through this analysis, we are able to determine if a high correlation exists between the prices received for the designated production and the NYMEX price at which the hedges will be settled. At December 31, 2016, our derivative instruments were designated effective cash flow hedges.

Estimating the fair value of derivative instruments requires valuation calculations incorporating estimates of future NYMEX prices, discount rates and price movements. As a result, we calculate the fair value of our commodity derivatives using an independent third-party’s valuation model that utilizes market-corroborated inputs that are observable over the term of the derivative contract. Our fair value calculations also incorporate an estimate of the counterparties’ default risk for derivative assets and an estimate of our default risk for derivative liabilities.

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Results of Operations

The following table sets forth certain information with respect to our oil and gas operations for the periods noted. These historical results are not necessarily indicative of results to be expected in future periods.

		Year Ended December 31,
		2016				2015				2014
Production:
Oil (Bbls)			502,201				528,529				802,509
Gas (Mcf)			16,616,578				25,501,851				31,027,671
Ngl (Mcfe)			3,870,947				5,487,239				7,482,310
Total Production (Mcfe)			23,500,731				34,160,264				43,325,035
Sales:
Total oil sales		$	20,613,964			$	26,532,240			$	78,176,377
Total gas sales			37,962,622				75,070,130				114,613,267
Total ngl sales			8,090,292				14,367,024				32,231,090
Total oil and gas sales		$	66,666,878			$	115,969,394			$	225,020,734
Average sales prices:
Oil (per Bbl)		$	41.05			$	50.20			$	97.41
Gas (per Mcf)			2.28				2.94				3.69
Ngl (per Mcfe)			2.09				2.62				4.31
Per Mcfe			2.84				3.39				5.19

The above sales and average sales prices include increases (reductions) to revenue related to the settlement of gas hedges of $1,811,000, $15,940,000 and ($4,237,000), oil hedges of $0, $644,000 and $897,000, and Ngl hedges of $0, $530,000 and $296,000 for the twelve months ended December 31, 2016, 2015 and 2014, respectively.

Comparison of Results of Operations for the Years Ended December 31, 2016 and 2015

Net loss available to common stockholders totaled $96,245,000 and $299,929,000 for the years ended December 31, 2016 and 2015, respectively. The primary fluctuations were as follows:

Production Total production decreased 31% during the year ended December 31, 2016 as compared to the 2015 period. The decrease in total production was due primarily to the Oklahoma Divestitures and normal production declines at our Gulf Coast and East Texas fields as a result of the reduction in capital expenditures during 2016. As a result of the successful recompletion of our Thunder Bayou well in the first quarter of 2017 as well as the commencement of our East Texas drilling program, we expect our total production in 2017 to be higher than production during 2016.

Gas production during the year ended December 31, 2016 decreased 35% from the 2015 period. The decrease in gas production was primarily the result of the Oklahoma Divestitures and normal production declines at our Gulf Coast and East Texas fields. As a result of the successful recompletion of our Thunder Bayou well during the first quarter of 2017 and our drilling program in East Texas, we expect our 2017 average daily gas production to increase as compared to 2016.

Oil production during the year ended December 31, 2016 decreased 5% as compared to the 2015 period due primarily to normal production declines at our Gulf Coast and East Texas fields and downtime due to pipeline constraints at one of our Gulf of Mexico properties. As a result of the successful recompletion of our Thunder Bayou well during the first quarter of 2017 and our drilling program in East Texas, we expect our average daily oil production to increase during 2017 as compared to 2016.

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Ngl production during the year ended December 31, 2016 decreased 29% from the 2015 period primarily due to the Oklahoma Divestitures and normal production declines at certain of our Gulf Coast and East Texas fields. As a result of the successful recompletion of our Thunder Bayou well during the first quarter of 2017 and our drilling program in East Texas, we expect our daily Ngl production for 2017 to increase compared to that of 2016.

Prices Including the effects of our hedges, average gas prices per Mcf for the year ended December 31, 2016 were $2.28 as compared to $2.94 for the 2015 period. Average oil prices per Bbl for the year ended December 31, 2016 were $41.05 as compared to $50.20 for the 2015 period and average Ngl prices per Mcfe were $2.09 for the year ended December 31, 2016, as compared to $2.62 for the 2015 period. Stated on an Mcfe basis, unit prices received during the year ended December 31, 2016 were 16% lower than the prices received during the 2015 period.

Revenue Including the effects of hedges, oil and gas sales during the twelve months ended December 31, 2016 decreased 43% to $66,667,000, as compared to oil and gas sales of $115,969,000 during the 2015 period. The decreased revenue during 2016 was primarily the result of the decreased production during 2016 as discussed above, as well as lower average realized prices.

Expenses Lease operating expenses for the year ended December 31, 2016 totaled $28,508,000, or $1.21 per Mcfe, as compared to $40,130,000, or $1.17 per Mcfe, during the 2015 period. The decrease in total lease operating expenses for the year ended December 31, 2016 is primarily a result of the Oklahoma Divestitures. Additionally, lease operating expenses decreased overall at our Gulf Coast and East Texas fields as a result of certain cost saving measures put in place during 2016. We expect lease operating expenses during 2017 to generally approximate 2016 expenses on an absolute value basis and to decrease on a per unit basis.

Production taxes for the year ended December 31, 2016 totaled $354,000, or $0.02 per Mcfe, as compared to $2,470,000, or $0.07 per Mcfe, during the 2015 period. The decrease in total production taxes was primarily due to the receipt in 2016 of $1,292,000 of production tax refunds on certain of our East Texas wells that qualified for a gas tax credit. Additionally, production taxes decreased as a result of lower commodity prices for our production during the 2016 period as compared to the 2015 period. The majority of our properties that are subject to severance taxes are assessed on the oil and gas sales value. As a result of the expected increases in production and completion of the two-year severance tax exemption on our Thunder Bayou well, we expect an increase in our total and per unit production taxes during 2017 as compared to 2016.

General and administrative expenses during the year ended December 31, 2016 totaled $26,040,000 as compared to $20,777,000 during the 2015 period. General and administrative expenses increased 25% during the year ended December 31, 2016 primarily due to the inclusion of $10,139,000 of costs related to the issuance of the Secured Notes and Secured PIK Notes. ASC Topic 470-60 “Troubled Debt Restructurings by Debtors” requires financing costs related to a troubled debt restructuring to be expensed in the period incurred. Offsetting this increase were lower employee related costs, including share-based compensation. Included in general and administrative expenses for 2016 are share-based compensation costs, net of amounts capitalized, of $1,582,000, compared to $4,388,000 during the 2015 period. We capitalized $6,623,000 of general and administrative costs during the year ended December 31, 2016 as compared to $8,210,000 during the comparable 2015 period. Excluding the non-recurring debt restructuring fees included in 2016, we expect general and administrative expenses to decrease during 2017 as compared to 2016 due to an approximate 50% reduction in staff levels during 2016.

Depreciation, depletion and amortization (“DD&A”) expense on oil and gas properties for the year ended December 31, 2016 totaled $27,962,000, or $1.19 per Mcfe, as compared to $62,138,000, or $1.82 per Mcfe, during the comparable 2015 period. The decrease in the per unit DD&A rate is primarily the result of recent ceiling test write-downs. We expect our DD&A rate for 2017 to approximate the rate during 2016.

At December 31, 2016, the prices used in computing the estimated future net cash flows from our estimated proved reserves, including the effect of hedges in place at that date, averaged $2.51 per Mcf of natural gas, $40.85 per barrel of oil and $1.82 per Mcfe of natural gas liquids, respectively. As a result of lower commodity prices and their negative impact on our estimated proved reserves and estimated future net

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cash flows, we recognized a ceiling test write-down of approximately $40,304,000 during the year ended December 31, 2016. At December 31, 2015, the prices used in computing the estimated future net cash flows from our estimated proved reserves, including the effect of hedges in place at that date, averaged $2.42 per Mcf of natural gas, $50.29 per barrel of oil and $2.21 per Mcfe of natural gas liquids, respectively. As a result of lower commodity prices and their negative impact on our estimated proved reserves and estimated future net cash flows, we recognized a ceiling test write-down of approximately $266,562,000 during the year ended December 31, 2015. See “Notes to Consolidated Financial Statements — Note 11 — Ceiling Test Write-down” for further discussion of the ceiling test write-downs. Utilizing current strip prices for oil and gas prices for the first quarter of 2017 and projecting the effect on the estimated future net cash flows from our estimated proved reserves as of March 31, 2017, we do not expect to recognize an additional ceiling test write-down during the first quarter of 2017.

Interest expense, net of amounts capitalized on unevaluated properties, totaled $30,019,000 during the year ended December 31, 2016, as compared to $33,766,000 during 2015. During the year ended December 31, 2016, our capitalized interest totaled $935,000 as compared to $4,671,000 during the 2015 period. The decrease in interest expense was a result of the February 2016 debt exchange, including a $1,479,000 non-cash reduction related to the amortization of the excess carrying value of the 2017 Notes tendered in the February 2016 debt exchange and the Secured Notes tendered in the September 2016 debt exchange (see “Notes to Consolidated Financial Statements — Note 9 — Long-Term Debt” for additional information). In addition, during the February 2016 debt exchange, we redeemed $53,627,000 of 2017 Notes with cash on hand. Partially offsetting this decrease in interest expense was the decrease in capitalized interest as a result of lower unevaluated oil and gas properties. While we expect interest expense for 2017 to approximate 2016, cash interest costs during 2017 are expected to be significantly lower than those in 2016 due to the payment-in-kind feature of the Secured PIK Notes.

Income tax expense during the year ended December 31, 2016 totaled $543,000, as compared to $2,626,000 during the 2015 period. We typically provide for income taxes at a statutory rate of 35% adjusted for permanent differences expected to be realized, primarily statutory depletion, non-deductible stock compensation expenses and state income taxes.

As a result of the ceiling test write-downs recognized, we have incurred a three-year cumulative loss. Because of the impact the cumulative loss has on the determination of the recoverability of deferred tax assets through future earnings, we assessed the realizability of our deferred tax assets based on the future reversals of existing deferred tax liabilities. Accordingly, we established a valuation allowance for a portion of our deferred tax asset. The valuation allowance was $177,405,000 as of December 31, 2016.

Comparison of Results of Operations for the Years Ended December 31, 2015 and 2014

Net income (loss) available to common stockholders totaled ($299,929,000) and $26,051,000 for the years ended December 31, 2015 and 2014, respectively. The primary fluctuations were as follows:

Production Total production decreased 21% during the year ended December 31, 2015 as compared to the 2014 period. The decrease in total production was due primarily to the 2015 Oklahoma divestiture and normal production declines at our Gulf Coast fields. Partially offsetting these decreases were increases relating to the successful drilling program in our Carthage field as well as our Thunder Bayou discovery.

Gas production during the year ended December 31, 2015 decreased 18% from the 2014 period. The decrease in gas production was due to the 2015 Oklahoma divestiture and normal production declines at our Gulf Coast fields, partially offset by the successful drilling program in our Carthage field and the completion of our Thunder Bayou discovery.

Oil production during the year ended December 31, 2015 decreased 34% as compared to the 2014 period due primarily to normal production declines at our Gulf Coast fields, downtime at certain of our Gulf of Mexico properties and the divestiture of our Fort Trinidad field in July 2015 and our Eagleford field in September 2014.

Ngl production during the year ended December 31, 2015 decreased 27% from the 2014 period due to the 2015 Oklahoma divestiture and normal production declines at our Gulf Coast fields, partially offset by the successful drilling program in our Carthage field and the completion of our Thunder Bayou discovery.

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Prices Including the effects of our hedges, average gas prices per Mcf for the year ended December 31, 2015 were $2.94 as compared to $3.69 for the 2014 period. Average oil prices per Bbl for the year ended December 31, 2015 were $50.20 as compared to $97.41 for the 2014 period and average Ngl prices per Mcfe were $2.62 for the year ended December 31, 2015, as compared to $4.31 for the 2014 period. Stated on an Mcfe basis, unit prices received during the year ended December 31, 2015 were 35% lower than the prices received during the 2014 period.

Revenue Including the effects of hedges, oil and gas sales during the twelve months ended December 31, 2015 decreased 48% to $115,969,000, as compared to oil and gas sales of $225,021,000 during the 2014 period. The decreased revenue during 2015 was primarily due to decreased production during 2015 as a result of the 2015 Oklahoma divestiture, as well as lower average realized prices.

Expenses Lease operating expenses for the year ended December 31, 2015 totaled $40,130,000, or $1.17 per Mcfe, as compared to $48,597,000, or $1.12 per Mcfe, during the 2014 period. The increase in per unit lease operating expenses for the year ended December 31, 2015 is primarily a result of the 2015 Oklahoma divestiture, which included properties with a lower relative per unit cost, as well as normal production declines and downtime at certain of our Gulf Coast fields.

Production taxes for the year ended December 31, 2015 totaled $2,470,000, or $0.07 per Mcfe, as compared to $5,927,000, or $0.14 per Mcfe, during the 2014 period. The decrease in total production taxes was primarily due to lower commodity prices for our production during the 2015 period as compared to the 2014 period. The majority of our properties that are subject to severance taxes are assessed on the oil and gas sales value.

General and administrative expenses during the year ended December 31, 2015 totaled $20,777,000 as compared to $22,870,000 during the 2014 period. General and administrative expenses decreased 9% during the year ended December 31, 2015 primarily due to lower employee related costs including share-based compensation during the 2015 period which was only partially offset by lower capitalized costs. Included in general and administrative expenses for 2015 are share-based compensation costs, net of amounts capitalized, of $4,388,000, compared to $6,808,000 during the 2014 period. We capitalized $8,210,000 of general and administrative costs during the year ended December 31, 2015 as compared to $12,122,000 during the comparable 2014 period.

Depreciation, depletion and amortization (“DD&A”) expense on oil and gas properties for the year ended December 31, 2015 totaled $62,138,000, or $1.82 per Mcfe, as compared to $86,406,000, or $1.99 per Mcfe, during the comparable 2014 period. The decrease in the per unit DD&A rate is primarily the result of ceiling test write-downs in the 2015 period.

At December 31, 2015, the prices used in computing the estimated future net cash flows from our estimated proved reserves, including the effect of hedges in place at that date, averaged $2.42 per Mcf of natural gas, $50.29 per barrel of oil and $2.21 per Mcfe of natural gas liquids, respectively. As a result of lower commodity prices and their negative impact on our estimated proved reserves and estimated future net cash flows, we recognized a ceiling test write-down of approximately $266,562,000 during the year.

Interest expense, net of amounts capitalized on unevaluated properties, totaled $33,766,000 during the year ended December 31, 2015, as compared to $29,281,000 during 2014. During the year ended December 31, 2015, our capitalized interest totaled $4,671,000 as compared to $9,999,000 during the 2014 period. The increase in interest expense was a result of lower capitalized interest on our reduced unevaluated property balance which declined as a result of the 2015 Oklahoma divestiture.

Income tax expense (benefit) during the year ended December 31, 2015 totaled $2,626,000, as compared to ($2,941,000) during the 2014 period. We typically provide for income taxes at a statutory rate of 35% adjusted for permanent differences expected to be realized, primarily statutory depletion, non-deductible stock compensation expenses and state income taxes.

As a result of the ceiling test write-downs recognized, we have incurred a three-year cumulative loss. Because of the impact the cumulative loss has on the determination of the recoverability of deferred tax assets through future earnings, we assessed the realizability of our deferred tax assets based on the future reversals

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of existing deferred tax liabilities. Accordingly, we established a valuation allowance for a portion of our deferred tax asset. The valuation allowance was $143,508,000 as of December 31, 2015.

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be reinvested in higher rate of return projects. We are currently exploring divestment opportunities for certain of our legacy Gulf of Mexico assets. We cannot assure you that we will be able to sell any of our assets in the future.

In June 2015, we sold a majority of our interests in the Woodford and Mississippian Lime fields for cash proceeds of $274.1 million. Net proceeds from the sale were used to repay all borrowings outstanding under our bank credit facility and increase our cash on hand. In 2016, we sold our remaining assets in Oklahoma for approximately $18.5 million.

Source of Capital: Debt

On August 19, 2010, we issued $150 million in principal amount of our 10% Senior Notes due 2017. On July 3, 2013, we issued an additional $200 million in principal amount of our 10% Senior Notes due 2017 (collectively, the “2017 Notes”). On March 31, 2017, we redeemed the remaining $22.7 million of 2017 Notes at a redemption price of 100% of the principal amount thereof, plus accrued interest to the redemption date.

On February 17, 2016, we closed a private exchange offer (the “February Exchange”) and consent solicitation (the “February Consent Solicitation”) to certain eligible holders of our outstanding 2017 Notes. In satisfaction of the tender of $214.4 million in aggregate principal amount of the 2017 Notes, representing approximately 61% of the then outstanding aggregate principal amount of 2017 Notes, we (i) paid approximately $53.6 million of cash, (ii) issued $144.7 million aggregate principal amount of our new 10% Second Lien Senior Secured Notes due 2021 (the “Secured Notes”) and (iii) issued approximately 4.3 million shares (1.1 million shares, as adjusted for the 1:4 reverse stock split we effected on May 18, 2016) of our common stock. Following the completion of the February Exchange, $135.6 million in aggregate principal amount of the 2017 Notes remained outstanding. The February Consent Solicitation eliminated or waived substantially all of the restrictive covenants contained in the indenture governing the 2017 Notes.

On September 27, 2016, we closed private exchange offers (the “September Exchange”) and a consent solicitation (the “September Consent Solicitation”) to certain eligible holders of our outstanding 2017 Notes and Secured Notes. In satisfaction of the consideration of $113.0 million in aggregate principal amount of the 2017 Notes, representing approximately 83% of the then outstanding aggregate principal amount of 2017 Notes, and $130.5 million in aggregate principal amount of the then outstanding Secured Notes, representing approximately 90% of the then outstanding aggregate principal amount of Secured Notes, we issued (i) $243.5 million in aggregate principal amount of our new 10% Second Lien Senior Secured PIK Notes due 2021 (the “Secured PIK Notes”) and (ii) approximately 3.5 million shares of our common stock. We also paid, in cash, accrued and unpaid interest on the 2017 Notes and Secured Notes accepted in the September Exchange from the last applicable interest payment date to, but not including, September 27, 2016. Following the consummation of the September Exchange, there was $22.7 million in aggregate principal amount of the 2017 Notes outstanding and $14.2 million in aggregate principal amount of the Secured Notes outstanding. The September Consent Solicitation amended certain provisions of the indenture governing the Secured Notes and amended the registration rights agreement with respect to the Secured Notes.

Unless we exercise our payable in kind (“PIK”) interest option, the Secured PIK Notes bear interest at a rate of 10% per annum on the principal amount and interest is payable semi-annually in arrears on February 15 and August 15 of each year, starting on February 15, 2017. We may, at our option, for one or more of the first three interest payment dates of the Secured PIK Notes, pay interest at (i) the annual rate of 1% in cash plus (ii) the annual rate of 9% PIK (the “PIK Interest”) payable by increasing the principal amount outstanding of the Secured PIK Notes or by issuing additional Secured PIK Notes in certificated form. We exercised this PIK option in connection with the interest payment on February 15, 2017. As of the date hereof, we are in compliance with all of the covenants under the Secured PIK Notes.

The Secured Notes bear interest at a rate of 10% per annum on the principal amount and interest is payable semi-annually in arrears on February 15 and August 15 of each year. As of the date hereof, we are in compliance with all of the covenants under the Secured Notes.

The February Exchange and September Exchange were accounted for as troubled debt restructurings pursuant to Accounting Standards Codification (“ASC”) Topic 470-60 “Troubled Debt Restructurings by

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Debtors.” We determined that the future undiscounted cash flows from the Secured PIK Notes issued in the September Exchange through the maturity date exceeded the adjusted carrying amount of the 2017 Notes and the Secured Notes tendered in the September Exchange. Accordingly, no gain or loss on extinguishment of debt was recognized in connection with the September Exchange. The net shortfall of the remaining carrying value of the 2017 Notes and Secured Notes tendered as compared to the principal amount of the Secured PIK Notes issued in the September Exchange of $0.6 million is reflected as part of the carrying value of the Secured PIK Notes. Such shortfall is being amortized under the effective interest method over the term of the Secured PIK Notes.

We previously determined that the future undiscounted cash flows from the Secured Notes issued in the February Exchange through the maturity date exceeded the adjusted carrying amount of the 2017 Notes tendered in the February Exchange. Accordingly, no gain on extinguishment of debt was recognized in connection with the February Exchange. The excess of the remaining carrying value of the 2017 Notes tendered over the principal amount of the Secured Notes issued in the February Exchange of $13.9 million was reflected as part of the carrying value of the Secured Notes. The amount of the excess carrying value attributable to the Secured Notes tendered in the September Exchange is now reflected as part of the carrying value of the Secured PIK Notes. The excess carrying value attributable to the remaining Secured Notes is being amortized under the effective interest method over the term of the Secured Notes. At December 31, 2016, $1.2 million of the excess remained as part of the carrying value of the Secured Notes and we recognized $1.5 million of amortization expense as a reduction to interest expense during the year ended December 31, 2016.

The indentures governing the Secured PIK Notes and the Secured Notes contain affirmative and negative covenants that, among other things, limit our ability and the ability of the subsidiary guarantors of the Secured PIK Notes and the Secured Notes to incur indebtedness; purchase or redeem stock; make certain investments; create liens that secure debt; enter into transactions with affiliates; sell assets; refinance certain indebtedness; merge with or into other companies or transfer substantially all of our assets; and, in certain circumstances, to pay dividends or make other distributions on stock. The Secured PIK Notes and the Secured Notes are fully and unconditionally guaranteed on a senior basis by certain of our wholly-owned subsidiaries.

The Secured PIK Notes and the Secured Notes are secured equally and ratably by second-priority liens on substantially all of our and the subsidiary guarantors’ oil and gas properties and substantially all of our other assets to the extent such properties and assets secure the Multidraw Term Loan Agreement (as defined below), except for certain excluded assets. Pursuant to the terms of an intercreditor agreement, the security interest in those properties and assets that secure the Secured PIK Notes and the Secured Notes and the guarantees are contractually subordinated to liens that secure the Multidraw Term Loan Agreement and certain other permitted indebtedness. Consequently, the Secured PIK Notes and the Secured Notes and the guarantees will be effectively subordinated to the Multidraw Term Loan Agreement and such other indebtedness to the extent of the value of such assets.

On October 17, 2016, we entered into the Multidraw Term Loan Agreement (the “Multidraw Term Loan Agreement”) with Franklin Custodian Funds — Franklin Income Fund (“Franklin”), as a lender, and Wells Fargo Bank, National Association, as administrative agent, replacing the credit agreement with JPMorgan Chase Bank, N.A. The Multidraw Term Loan Agreement provides a multi-advance term loan facility, with borrowing availability for three years, in a principal amount of up to $50.0 million. The loans drawn under the Multidraw Term Loan Agreement (collectively, the “Term Loans”) may be used to repay existing debt, including the 2017 Notes, to pay transaction fees and expenses, to provide working capital for exploration and production operations and for general corporate purposes. The Term Loans mature on October 17, 2020. During March 2017, we redeemed the remaining 2017 Notes with proceeds from the Multidraw Term Loan Agreement. As of the date hereof, we have $30.0 million of borrowings outstanding under the Term Loans.

Our obligations under the Multidraw Term Loan Agreement and the Term Loans are secured by a first priority lien on substantially all of our assets and certain of our subsidiaries, including a lien on all equipment and at least 90% of the aggregate total value of our oil and gas properties and our subsidiaries, a pledge of the equity interests of PetroQuest Energy, L.L.C. (the “Borrower”) and certain of our other subsidiaries, and

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corporate guarantees of our and certain of our other subsidiaries of the indebtedness of the Borrower. Term Loans under the Multidraw Term Loan Agreement bear interest at the rate of 10% per annum.

We and our subsidiaries are subject to a restrictive financial covenant under the Multidraw Term Loan Agreement, consisting of maintaining a ratio of (i) the present value, discounted at 10% per annum, of the estimated future net revenues in respect of our and our subsidiaries’ oil and gas properties, before any state, federal, foreign or other income taxes, attributable to proved developed reserves, using three-year strip prices in effect at the end of each calendar quarter, including swap agreements in place at the end of each quarter, to (ii) the sum of the outstanding Term Loans and the then outstanding commitments to provide Term Loans, that shall not be less than (a) 1.7 to 1.0 as measured on December 31, 2016 and March 31, 2017, and (b) 2.0 to 1.0 as measured on June 30, 2017, and the last day of each calendar quarter thereafter (the “Coverage Ratio”).

Sales of our and our subsidiaries’ oil and gas properties outside the ordinary course of business are limited under the terms of the Multidraw Term Loan Agreement. In addition, the Multidraw Term Loan Agreement prohibits us from declaring and paying dividends on our Series B Preferred Stock.

The Multidraw Term Loan Agreement also includes customary restrictions with respect to debt, liens, dividends, distributions and redemptions, investments, loans and advances, nature of business, international operations and foreign subsidiaries, leases, sale or discount of receivables, mergers or consolidations, sales of properties, transactions with affiliates, negative pledge agreements, gas imbalances and swap agreements. As of the date hereof, no default or event of default exists under the Multidraw Term Loan Agreement and we were in compliance with all covenants contained in the Multidraw Term Loan Agreement including the Coverage Ratio.

The 2017 Notes are reflected net of $0.1 million and $3.0 million of related unamortized financing costs at December 31, 2016 and 2015, respectively. The Secured Notes are reflected net of $0.1 million of related unamortized financing costs as of December 31, 2016 and the Term Loans are reflected net of $2.8 million of related unamortized financing costs as of December 31, 2016.

The following table reconciles the face value of the 2017 Notes, Secured Notes, Secured PIK Notes and Term Loans to the carrying value included in our Consolidated Balance Sheet as of December 31, 2016 and 2015 (in thousands):

		December 31, 2016																December 31, 2015
		2017 Notes				Secured Notes				Secured PIK Notes				Term Loans				2017 Notes				Secured Notes				Secured PIK Notes				Term Loans
Face Value		$	22,650			$	14,177			$	243,468			$	10,000			$	350,000			$	—			$	—			$	—
Unamortized Deferred Financing Costs			(82	)			(108	)			—				(2,751	)			(2,992	)			—				—				—
Excess (shortfall) Carrying Value			—				1,159				(590	)			—				—				—				—				—
Accrued PIK Interest			—				—				5,722				—				—				—				—				—
Carrying Value		$	22,568			$	15,228			$	248,600			$	7,249			$	347,008			$	—			$	—			$	—

Use of Capital: Exploration and Development

Our 2017 capital budget, which includes capitalized interest and general and administrative costs, is expected to range between $40 million and $48 million, which from the midpoint of such range, represents a 176% increase from our 2016 capital expenditures. Because we operate the majority of our drilling activities, we expect to be able to control the timing of a substantial portion of our capital investments. We plan to fund our capital expenditures with cash flow from operations and cash on hand. To the extent additional capital is required, we may utilize our Multidraw Term Loan Agreement, sales of equity or debt securities, evaluate the sale of additional assets or we may reduce our capital expenditures to manage our liquidity position.

Use of Capital: Acquisitions

We do not budget acquisitions; however, we are continuously evaluating opportunities to expand our existing asset base or establish positions in new core areas.

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We expect to finance our future acquisition activities, if consummated, through cash on hand. We may also utilize sales of equity or debt securities, borrowings under our Multidraw Term Loan Agreement, sales of properties or assets or joint venture arrangements with industry partners, if necessary. We cannot assure you that such additional financings will be available on acceptable terms, if at all.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2016 (in thousands):

		Total				2017				2018				2019				2020				2021				After 2021
10% senior notes due 2017 (1)		$	24,915			$	24,915			$	—			$	—			$	—			$	—			$	—
10% senior secured notes due 2021 (1)			20,558				1,418				1,418				1,418				1,418				14,886				—
10% senior secured PIK Notes due 2021 (1)			392,806				21,997				26,919				27,511				27,511				288,868				—
Multidraw Term Loan (1)			13,922				1,000				1,000				1,000				10,922				—				—
Operating leases (2)			3,815				1,208				470				447				445				434				811
Asset retirement obligations (3)			36,558				4,160				3,535				1,778				20,840				3,751				2,494
Other commitments (4)			12,218				2,318				2,475				2,475				2,475				2,475				—
Total		$	504,792			$	57,016			$	35,817			$	34,629			$	63,611			$	310,414			$	3,305

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As of December 31, 2016, we had entered into the following gas hedge contracts:

Production Period

Instrument Type

Daily Volumes

Weighted Average Price

Natural Gas:

January 2017 – December 2017

Swap

10,000 Mmbtu

$

3.26

January 2017 – March 2018

Swap

10,000 Mmbtu

$

3.01

April 2017 – March 2018

Swap

10,000 Mmbtu

$

3.40

During March 2017, we entered into the following additional hedge contract accounted for as a cash flow hedge:

Production Period

Instrument Type

Daily Volumes

Weighted Average Price

Natural Gas:

October 2017 – March 2018

Swap

10,000 Mmbtu

$

3.22

After executing the above transactions, the Company has approximately 11.0 Bcf of gas volumes, at an average price of $3.21 per Mcf hedged for 2017 and approximately 2.7 Bcf of gas volumes, at an average price of $3.21 per Mcf hedged for 2018.

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Business Strategy

Preserve Our Liquidity and Strengthen Our Balance Sheet.   Our 2017 capital expenditures, which include capitalized interest and overhead but exclude acquisitions, are expected to range between $40 million and $48 million, a 176% increase at the midpoint of that range from our spending in 2016, and are expected to be funded through cash flow from operations and cash on hand. Because we operate approximately 75% of our total estimated proved reserves and manage the drilling and completion activities on an additional 16% of such reserves, we expect to be able to control the timing of a substantial portion of our capital investments. We also may continue to opportunistically dispose of certain assets or enter into joint venture arrangements to provide additional liquidity and plan to maintain our commodity hedging program, as in prior years. As a result of the debt exchanges mentioned above and the suspension of the quarterly dividend payments on our outstanding Series B Preferred Stock, we expect to see cash savings on interest and dividends of approximately $25 million during 2017.

Pursue Balanced Growth and Portfolio Mix.   We plan to pursue a risk-balanced approach to the growth and stability of our reserves, production, cash flows and earnings. Our goal is to weight our capital allocation to lower risk development activities to balance the capital allocated to higher risk and higher impact exploration activities. We plan to allocate our capital investments in a manner that continues to geographically and operationally diversify our asset base. Through our portfolio diversification efforts, at December 31, 2016, approximately 72% of our estimated proved reserves were located in longer life and lower risk basins in East Texas and 28% were located in the shorter life, but higher flow rate reservoirs in the Gulf Coast Basin. In terms of production diversification, during 2016, 46% of our production was derived from longer life basins. Our 2016 production was comprised of 71% natural gas, 13% oil and 16% natural gas liquids.

Focus Capital Toward More Predictable Onshore Assets.   We plan to focus the majority of our capital spending developing our lower-risk Cotton Valley acreage in East Texas. Since beginning horizontal drilling in the Carthage Field in 2011, we have a 100% drilling success rate on 20 gross wells drilled. Approximately 77% of our 2017 capital expenditures are allocated to operations in East Texas where we believe the less complex geology, combined with the large inventory of offsetting vertical and horizontal well data, offers greater predictability in increasing production and proved reserves. Additionally, our East Texas acreage position provides a significant inventory of future drilling locations, which we expect to develop over a long-term drilling campaign. We plan to apply the latest drilling and completion techniques to consistently improve the economic development of this resource potential.

Concentrate in Core Operating Areas and Build Scale.   We plan to continue focusing on our operations in East Texas and the Gulf Coast Basin. Operating in concentrated areas helps to better control our overhead by enabling us to manage a greater amount of acreage with fewer employees and minimize incremental costs of increased drilling and production. We have substantial geological and reservoir data, operating experience and partner relationships in these regions. We believe that these factors, combined with the existing infrastructure and favorable geologic conditions with multiple known oil and gas producing reservoirs in these regions, will provide us with attractive investment opportunities.

Manage Our Risk Exposure.   We plan to continue several strategies designed to mitigate our operating risks. We have adjusted the working interest we are willing to hold based on the risk level and cost exposure of each project. For example, we typically reduce our working interests in higher risk exploration projects while retaining greater working interests in lower risk development projects. Our partners often agree to pay a disproportionate share of drilling costs relative to their interests, allowing us to allocate our capital spending to maximize our return and reduce the inherent risk in exploration and development activities. We also strive to retain operating control of the majority of our properties to control costs and timing of expenditures and we expect to continue to actively hedge a portion of our future planned production to mitigate the impact of commodity price fluctuations and achieve more predictable cash flows. We may also enter into joint venture arrangements designed to develop our properties while limiting our capital requirements and preserving our liquidity.

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2016 Financial and Operational Summary

During 2016, we invested $15.9 million in exploratory, development and acquisition activities. We drilled 5 gross development wells realizing an overall success rate of 100%. These activities were financed through cash on hand and our cash flow from operations. During 2016, our production decreased 31% to 23.5 Bcfe as a result of the Oklahoma Divestitures and normal production declines at our East Texas and Gulf Coast fields. Our estimated proved reserves at December 31, 2016 decreased 35% from 2015 as discussed in greater detail below.

Oil and Gas Reserves

Our estimated proved reserves at December 31, 2016 decreased 35% from 2015 totaling 1.4 MMBbls of oil, 26.6 Bcfe of natural gas liquids (Ngls) and 81 Bcf of natural gas. At December 31, 2016, our standardized measure of our discounted cash flows, which includes the estimated impact of future income taxes, totaled $67.3 million. We had a pre-tax present value, discounted at 10%, of the estimated future net revenues based on 12-month, first day of month, average prices during 2016 (“PV-10”) of $67.3 million. The decrease in our estimated proved reserves during 2016 was primarily the result of the divestiture of our remaining Oklahoma assets, which represented 20 Bcfe of our estimated proved reserves as of December 31, 2015 as well as the 75% reduction in capital spending during 2016, as compared to 2015. See the reconciliation of standardized measure of discounted cash flows to PV-10 below. Our standardized measure of discounted cash flows and PV-10 utilized prices (adjusted for field differentials) for the years ended December 31, 2016 and 2015 as follows:

		12/31/2016				12/31/2015
Oil per Bbl		$	40.85			$	50.29
Natural gas per Mcf		$	2.40			$	2.41
Ngl per Mcfe		$	1.82			$	2.24

Ryder Scott Company, L.P., a nationally recognized independent petroleum engineering firm, prepared the estimates of our proved reserves and future net cash flows (and present value thereof) attributable to such proved reserves at December 31, 2016. Our internal reservoir engineering staff is managed by an individual with 35 years of industry experience as a reservoir and production engineer, including fourteen years as a reservoir engineering manager with PetroQuest. This individual is responsible for overseeing the estimates prepared by Ryder Scott.

Our internal controls that are used in our reserve estimation process are designed to provide reasonable assurance that our reserve estimates are computed and reported in accordance with SEC rules and regulations and generally accepted accounting principles (“GAAP”). These internal controls are regularly tested in connection with our annual assessment of internal controls over financial reporting and include:

Each quarter, our Reservoir Engineering Manager presents the status of the changes to our reserve estimates to our executive team, including our Chief Executive Officer. These reserve estimates are then presented to our Board of Directors in connection with quarterly meetings. In addition, our reserve booking policies and procedures are reviewed annually by one of the members of our Board of Directors, acting on behalf of our Audit Committee.

With respect to proved undeveloped reserves (“PUD reserves”), we maintain a five year development plan that is updated and approved annually by our PUD Review Committee (as described below) with input from our executive team and asset managers and reviewed quarterly by our executive team and asset managers. Our development plan includes only PUDs that we are reasonably certain will be drilled within five years of booking based upon qualitative and quantitative factors including estimated risk-based returns, current pricing forecasts, recent drilling results, availability of services, equipment and personnel, seasonal weather patterns and changes in

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drilling and completion techniques and technology. Our PUD reserves are based upon our substantial basin-specific technical and operating experience relative to the location of the reserves. Over the last five years, we have realized a 100% drilling success rate on 20 gross wells drilled in East Texas where 100% of our PUD reserves are currently booked. Furthermore, because all of our longer life, onshore PUD reserves are direct offsetting locations to producing wells, we have comprehensive data available, which enables us to forecast economic results, including drilling and operating costs, with reasonable certainty.

During 2014, we established a committee that annually reviews our PUD reserves. Our PUD Review Committee (the “Committee”) is comprised of our Executive Vice President of Operations, Chief Financial Officer and Reservoir Engineering Manager and meets annually in connection with each year-end reserve report. The Committee is responsible for reviewing all PUD locations, not only in terms of technical and financial merits as reviewed by our independent petroleum engineering firm, but also to apply a robust evaluation of the timing and reasonable certainty of the development plan in light of all known circumstances including our budget, the outlook for commodity prices and the location of ongoing drilling programs. The Committee’s evaluation of reasonable certainty of the development plan includes a thorough assessment of near term drilling plans to develop PUDs, a review of adherence to previously adopted development plans and a review of historical PUD conversion rates.

The following table sets forth certain information about our estimated proved reserves as of December 31, 2016:

		Oil (MBbls)				NGL (Mmcfe)				Natural Gas (Mmcf)				Total Mmcfe*
Proved Developed			1,212				13,073				47,349				67,694
Proved Undeveloped			185				13,502				33,175				47,787
Total Proved			1,397				26,575				80,524				115,481

As of December 31, 2016, our PUD reserves totaled 47.8 Bcfe, a 36% decrease from our PUD reserves at December 31, 2015. During 2016, we spent $2.1 million converting 5.4 Bcfe of PUD reserves at December 31, 2015 to proved developed reserves at December 31, 2016.

The following table presents an analysis of the change in our PUD reserves from December 31, 2015 to December 31, 2016:

		MMcfe
PUD Reserve balance at December 31, 2015			74,389
Conversions to proved developed			(5,392	)
Divestitures			(6,524	)
Revisions of previous estimates			(14,686	)
PUD Reserve balance at December 31, 2016			47,787

All of our PUD reserves at December 31, 2016 were associated with the future development of our East Texas properties. The revisions of previous estimates reflected in the table above include the reclassification of approximately 10.7 Bcfe of PUDs to probable reserves due to our expectation that those locations would not be developed within five years from initial booking. We expect all of our PUD reserves at December 31, 2016 to be developed over the next five years. However, our PUD reserve inventory does not encompass all drilling activities over the next five years. For example, during 2016 we converted 1.5 Bcfe of reserves that were classified as probable reserves at December 31, 2015 to proved developed producing at December 31, 2016 and therefore were not included in the above table. We expect to continue to allocate capital to projects that do not have proved reserves ascribed to them. At December 31, 2016, we had no PUD reserves booked for longer than five years. Estimated future costs related to the development of PUD reserves are expected to total $13.5 million in 2017, $4.3 million in 2018, $14.6 million in 2019 and $8.8 million in 2020. During 2017, we expect to convert approximately 18.1 Bcfe of PUDs at December 31, 2016 to proved developed reserves.

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The estimated cash flows from our proved reserves at December 31, 2016 were as follows:

		Proved Developed (M$)				Proved Undeveloped (M$)				Total Proved (M$)
Estimated pre-tax future net cash flows (1)		$	66,920			$	31,111			$	98,031
Discounted pre-tax future net cash flows (PV-10) (1)		$	57,709			$	9,560			$	67,269
Total standardized measure of discounted future net cash flows										$	67,269

The following table reconciles undiscounted and discounted future net cash flows to standardized measure of discounted cash flows as of December 31, 2016:

		Total Proved (M$)
Estimated pre-tax future net cash flows		$	98,031
10% annual discount			30,762
Discounted pre-tax future net cash flows			67,269
Future income taxes discounted at 10%			—
Standardized Measure of discounted future net cash flows		$	67,269

We have not filed any reports with other federal agencies that contain an estimate of total proved net oil and gas reserves.

Core Areas

The following table sets forth estimated proved reserves and annual production from each of our core areas (in Bcfe) for the years ended December 31, 2016 and 2015.

		2016								2015
		Reserves				Production				Reserves				Production
Gulf Coast Basin			32.9				12.8				43.9				13.8
East Texas			82.6				9.0				114.1				11.1
Oklahoma Woodford (1)			—				1.7				20.0				9.2
Other			—				—				—				0.1
			115.5				23.5				178.0				34.2

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East Texas

During 2016, we invested $3.9 million in our East Texas properties where we drilled one gross well, achieving a 100% success rate. Net production from our East Texas assets averaged 24.7 MMcfe per day during 2016, a 19% decrease from 2015 average daily production, and our estimated proved reserves decreased 28% from 2015 due to the reduced capital spending in this core area during 2016 as well as the reclassification of certain PUD reserves to probable reserves. We have allocated approximately 77% of our 2017 capital budget to drilling and performing various re-completions at our Carthage Field.

Gulf Coast Basin

During 2016, we invested $6.1 million in this core area. Production from this area decreased 8% from 2015 totaling 34.9 MMcfe per day in 2016 due to normal production declines in the Gulf Coast area offset by a full year of production from our Thunder Bayou discovery. Our estimated proved reserves in this area decreased 25% from 2015 primarily as a result of the 12.8 Bcfe of production in 2016. We have allocated approximately 23% of our 2017 capital budget to performing various re-completions and plugging and abandonment projects in the Gulf Coast Basin.

Oklahoma — Woodford

During 2016, we invested $0.3 million and completed four gross wells, achieving a 100% success rate. Average daily production from our Oklahoma properties during 2016 totaled 5 MMcfe per day, an 82% decrease from 2015 average daily production primarily as a result of the Oklahoma Divestitures. During 2016, we sold 21.9 Bcfe of proved reserves in connection with our exit from this core area.

Markets and Customers

We sell our oil and natural gas production under fixed or floating market contracts. Customers purchase all of our oil and natural gas production at current market prices. The terms of the arrangements generally require customers to pay us within 30 days after the production month ends. As a result, if the customers were to default on their payment obligations to us, near-term earnings and cash flows would be adversely affected. However, due to the availability of other markets and pipeline connections, we do not believe that the loss of these customers or any other single customer would adversely affect our ability to market production. Our ability to market oil and natural gas from our wells depends upon numerous factors beyond our control, including:

We cannot assure you that we will be able to market all of the oil or natural gas we produce or that favorable prices can be obtained for the oil and natural gas we produce.

A portion of the natural gas production that we operate in East Texas is committed to a minimum volumetric delivery contract with a third party pipeline company. Under the terms of the agreement, we are required to deliver 11.0 Bcfe of natural gas during the eighteen-month period from July 1, 2017 through December 31, 2018 and each of the twelve-month periods ended December 31, 2019, 2020 and 2021, respectively. Based upon our projected drilling plans, current estimated proved developed reserves and production, we expect that this commitment will be met.

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In view of the many uncertainties affecting the supply and demand for oil, natural gas and refined petroleum products, we are unable to predict future oil and natural gas prices and demand or the overall effect such prices and demand will have on the Company. During 2016, one customer accounted for 23%, one accounted for 17%, one accounted for 14% and one accounted for 10% of our oil and natural gas revenue. During 2015, one customer accounted for 21%, one accounted for 18%, one accounted for 17% and one accounted for 10% of our oil and natural gas revenue. During 2014, one customer accounted for 30%, one accounted for 24% and one accounted for 14% of our oil and natural gas revenue. These percentages do not consider the effects of commodity hedges. We do not believe that the loss of any of our oil or natural gas purchasers would have a material adverse effect on our operations due to the availability of other purchasers.

Production, Pricing and Production Cost Data

The following table sets forth our production, pricing and production cost data during the periods indicated. Our remaining core areas, Gulf Coast Basin and East Texas, both represented approximately 15% or more of our total estimated proved reserves at December 31, 2016.

		Year Ended December 31,
		2016				2015				2014
Production:
Oil (Bbls):
Gulf Coast Basin			463,903				473,846				687,855
East Texas			38,154				50,739				62,013
Other (3)			144				3,944				52,641
Total Oil (Bbls)			502,201				528,529				802,509
Gas (Mcf):
Gulf Coast Basin			8,596,488				9,421,031				10,825,424
East Texas			6,350,712				7,838,144				6,636,174
Other (3)			1,669,378				8,242,676				13,566,073
Total Gas (Mcf)			16,616,578				25,501,851				31,027,671
NGL (Mcfe):
Gulf Coast Basin			1,395,614				1,548,228				1,325,288
East Texas			2,471,936				2,946,185				2,672,885
Other (3)			3,397				992,826				3,484,137
Total NGL (Mcfe)			3,870,947				5,487,239				7,482,310
Total Production (Mcfe):
Gulf Coast Basin			12,775,520				13,812,335				16,277,842
East Texas			9,051,572				11,088,763				9,681,137
Other (3)			1,673,639				9,259,166				17,366,056
Total Production (Mcfe)			23,500,731				34,160,264				43,325,035
Average sales prices (1) :
Oil (per Bbl):
Gulf Coast Basin		$	41.27			$	48.94			$	96.71
East Texas			38.35				48.28				92.21
Other (3)			37.85				50.88				95.74
Total Oil (per Bbl)			41.05				48.89				96.30
Gas (per Mcf)
Gulf Coast Basin			2.27				2.55				4.38
East Texas			2.31				2.63				4.08
Other (3)			1.17				1.75				3.27
Total Gas (per Mcf)			2.18				2.32				3.83

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		Year Ended December 31,
		2016				2015				2014
NGL (per Mcfe)
Gulf Coast Basin			3.12				3.03				6.00
East Texas			1.50				1.94				4.17
Other (3)			5.22				3.49				3.68
Total NGL (per Mcfe)			2.09				2.53				4.27
Total Per Mcfe:
Gulf Coast Basin			3.37				3.76				7.49
East Texas			2.19				2.60				4.54
Other (3)			1.18				1.96				3.59
Total Per Mcfe			2.76				2.89				5.26
Average Production Cost per Mcfe (2) :
Gulf Coast Basin			1.50				1.86				1.59
East Texas			0.88				0.90				1.21
Other (3)			0.80				0.48				0.63
Total Average Production Cost per Mcfe			1.21				1.17				1.12

Oil and Gas Producing Wells

The following table details the productive wells in which we owned an interest as of December 31, 2016:

		Gross				Net
Productive Wells:
Oil:
Gulf Coast Basin			17				9.43
East Texas			—				—
			17				9.43
Gas:
Gulf Coast Basin			12				6.82
East Texas			71				44.53
			83				51.35
Total			100				60.78

Of the 100 gross productive wells at December 31, 2016, one had a dual completion.

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Oil and Gas Drilling Activity

The following table sets forth the wells drilled and completed by us during the periods indicated. All wells were drilled in the continental United States.

		2016								2015								2014
		Gross				Net				Gross				Net				Gross				Net
Exploration:
Productive:
Gulf Coast Basin			—				—				—				—				2				1.19
East Texas			—				—				4				3.31				4				3.10
Other (1)			—				—				22				5.05				19				7.14
			—				—				26				8.36				25				11.43
Non-productive:
Gulf Coast Basin			—				—				3				1.22				2				1.12
East Texas			—				—				—				—				—				—
Other (1)			—				—				—				—				2				2.00
			—				—				3				1.22				4				3.12
Total			—				—				29				9.58				29				14.55
Development:
Productive:
Gulf Coast Basin			—				—				—				—				—				—
East Texas			1				0.81				—				—				2				1.55
Other (1)			4				0.02				27				4.30				26				6.05
			5				0.83				27				4.30				28				7.60
Non-productive:
Gulf Coast Basin			—				—				—				—				—				—
East Texas			—				—				—				—				—				—
Other (1)			—				—				—				—				1				0.50
			—				—				—				—				1				0.50
Total			5				0.83				27				4.30				29				8.10

At December 31, 2016, we had 2 gross (1.26 net) wells in progress.

Leasehold Acreage

The following table shows our approximate developed and undeveloped (gross and net) leasehold acreage as of December 31, 2016:

		Leasehold Acreage
		Developed								Undeveloped
		Gross				Net				Gross				Net
Kansas			—				—				160				80
Louisiana			4,378				1,550				731				78
Texas			39,803				20,860				9,844				5,896
Federal Waters			31,532				23,198				6,420				6,420
Total			75,713				45,608				17,155				12,474

Leases covering 5% of our net undeveloped acreage are scheduled to expire in 2017, 9% in 2018, 5% in 2019 and 82% thereafter. At December 31, 2016, we do not have any PUD reserves attributed to acreage that has an expiration date preceding the scheduled date for initial development. Of the acreage subject to leases scheduled to expire during 2017, 84% relates to undeveloped acreage in the Carthage area in East Texas where we plan to drill eight to ten wells during 2017.

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Title to Properties

Title to properties is subject to contractual arrangements customary in the oil and gas industry, liens for taxes not yet due and, in some instances, other encumbrances. We believe that such burdens do not materially detract from the value of properties or from the respective interests therein or materially interfere with their use in the operation of the business.

As is customary in the industry, other than a preliminary review of local records, little investigation of record title is made at the time of acquisitions of undeveloped properties. Investigations, which generally include a title opinion of outside counsel, are made prior to the consummation of an acquisition of producing properties and before commencement of drilling operations on undeveloped properties. Our properties are typically subject, in one degree or another, to one or more of the following:

To the extent that such burdens and obligations affect our rights to production revenues, they have been taken into account in calculating our net revenue interests and in estimating the size and value of our reserves. We believe that the burdens and obligations affecting our properties are conventional in the industry for properties of the kind that we own.

Federal Regulations

Sales and Transportation of Natural Gas.   Historically, the transportation and sales for resale of natural gas in interstate commerce have been regulated pursuant to the Natural Gas Act of 1938 (“NGA”), the Natural Gas Policy Act of 1978 and the Federal Energy Regulatory Commission (“FERC”) regulations. Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act deregulated the price for all “first sales” of natural gas. Thus, all of our sales of gas may be made at market prices, subject to applicable contract provisions. Sales of natural gas are affected by the availability, terms and cost of pipeline transportation. Since 1985, the FERC has implemented regulations intended to make natural gas transportation more accessible to gas buyers and sellers on an open-access, non-discriminatory basis. We cannot predict what further action the FERC will take on these matters. Some of the FERC’s more recent proposals may, however, adversely affect the availability and reliability of interruptible transportation service on interstate pipelines. We do not believe that we will be affected by any action taken materially differently than other natural gas producers, gatherers and marketers with which we compete.

The Outer Continental Shelf Lands Act (the “OCSLA”), which was administered by the Bureau of Ocean Energy Management, Regulation and Enforcement (the “BOEMRE”) and, after October 1, 2011, its successors, the Bureau of Ocean Energy Management (the “BOEM”) the Bureau of Safety and Environmental Enforcement (the “BSEE”), and the FERC, requires that all pipelines operating on or across the shelf provide open-access, non-discriminatory service. There are currently no regulations implemented by the FERC under its OCSLA authority on gatherers and other entities outside the reach of its NGA jurisdiction. Therefore, we do not believe that any FERC, BOEM or BSEE action taken under OCSLA will affect us in a way that materially differs from the way it affects other natural gas producers, gatherers and marketers with which we compete.

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Our natural gas sales are generally made at the prevailing market price at the time of sale. Therefore, even though we sell significant volumes to major purchasers, we believe that other purchasers would be willing to buy our natural gas at comparable market prices.

Natural gas continues to supply a significant portion of North America’s energy needs and we believe the importance of natural gas in meeting this energy need will continue. The impact of the sudden drop in crude oil prices has not yet had a significant impact on gas prices, but a continued drop in crude oil prices could eventually impact gas markets. At this time, we are not in a position to predict the scope of any loss of market due to lower crude oil prices.

On August 8, 2005, the Energy Policy Act of 2005 (the “2005 EPA”) was signed into law. This comprehensive act contains many provisions that intended to encourage oil and gas exploration and development in the U.S. The 2005 EPA directs the FERC, BOEM and other federal agencies to issue regulations that will further the goals set out in the 2005 EPA. The 2005 EPA amends the NGA to make it unlawful for “any entity”, including otherwise non-jurisdictional producers such as us, to use any deceptive or manipulative device or contrivance in connection with the purchase or sale of natural gas or the purchase or sale of transportation services subject to regulation by the FERC, in contravention of rules prescribed by the FERC. On January 20, 2006, the FERC issued rules implementing this provision. The rules make it unlawful in connection with the purchase or sale of natural gas subject to the jurisdiction of the FERC, or the purchase or sale of transportation services subject to the jurisdiction of the FERC, for any entity, directly or indirectly, to use or employ any device, scheme or artifice to defraud; to make any untrue statement of material fact or omit to make any such statement necessary to make the statements made not misleading; or to engage in any act or practice that operates as a fraud or deceit upon any person. The new anti-manipulation rule does not apply to activities that relate only to intrastate or other non-jurisdictional sales or gathering, but does apply to activities of otherwise non-jurisdictional entities to the extent the activities are conducted “in connection with” gas sales, purchases or transportation subject to FERC jurisdiction. It therefore reflects a significant expansion of the FERC’s enforcement authority. To date, we do not believe we have been, nor do we anticipate we will be affected any differently than other producers of natural gas.

In 2007, the FERC issued a final rule on annual natural gas transaction reporting requirements, as amended by subsequent orders on rehearing (“Order 704”). Under Order 704, wholesale buyers and sellers of more than 2.2 million MMBtu of physical natural gas in the previous calendar year, including interstate and intrastate natural gas pipelines, natural gas gatherers, natural gas processors and natural gas marketers are now required to report, on May 1 of each year, beginning in 2009, aggregate volumes of natural gas purchased or sold at wholesale in the prior calendar year to the extent such transactions utilize, contribute to, or may contribute to the formation of price indices. It is the responsibility of the reporting entity to determine which individual transactions should be reported based on the guidance of Order 704. The monitoring and reporting required by these rules have increased our administrative costs. To date, we do not believe we have been, nor do we anticipate that we will be affected any differently than other producers of natural gas.

Sales and Transportation of Crude Oil.   The spot markets for oil, gas and natural gas liquids (“NGLs”) are subject to volatility and supply and demand factors fluctuations. Our sales of crude oil, condensate and natural gas liquids are not currently regulated, and are subject to applicable contract provisions made at market prices and typically under short term agreements with third parties. Additionally, we may periodically enter into financial hedging arrangements or fixed-price contracts associated with a portion of our oil, gas or natural gas liquids production. In a number of instances, however, the ability to transport and sell such products is dependent on pipelines whose rates, terms and conditions of service are subject to the FERC’s jurisdiction under the Interstate Commerce Act. In other instances, the ability to transport and sell such products is dependent on pipelines whose rates, terms and conditions of service are subject to regulation by state regulatory bodies under state statutes.

The regulation of pipelines that transport crude oil, condensate and natural gas liquids is generally more light-handed than the FERC’s regulation of gas pipelines under the NGA. Regulated pipelines that transport crude oil, condensate, and natural gas liquids are subject to common carrier obligations that generally ensure non-discriminatory access. With respect to interstate pipeline transportation subject to regulation of the FERC under the Interstate Commerce Act, rates generally must be cost-based, although market-based rates or

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negotiated settlement rates are permitted in certain circumstances. Pursuant to FERC Order No. 561, pipeline rates are subject to an indexing methodology. Under this indexing methodology, pipeline rates are subject to changes in the Producer Price Index for Finished Goods, minus one percent. A pipeline can seek to increase its rates above index levels provided that the pipeline can establish that there is a substantial divergence between the actual costs experienced by the pipeline and the rate resulting from application of the index. A pipeline can seek to charge market based rates if it establishes that it lacks significant market power. In addition, a pipeline can establish rates pursuant to settlement if agreed upon by all current shippers. A pipeline can seek to establish initial rates for new services through a cost-of-service proceeding, a market-based rate proceeding, or through an agreement between the pipeline and at least one shipper not affiliated with the pipeline.

Federal Leases.   We maintain operations located on federal oil and natural gas leases, which are administered by the BOEM or the BSEE, pursuant to the OCSLA. The BOEM and the BSEE regulate offshore operations, including engineering and construction specifications for production facilities, safety procedures, plugging and abandonment of wells on the Gulf of Mexico shelf, and removal of facilities.

The BOEM handles offshore leasing, resource evaluation, review and administration of oil and gas exploration and development plans, renewable energy development, National Environmental Policy Act analysis and environmental studies, and the BSEE is responsible for the safety and enforcement functions of offshore oil and gas operations, including the development and enforcement of safety and environmental regulations, permitting of offshore exploration, development and production activities, inspections, offshore regulatory programs, oil spill response and newly formed training and environmental compliance programs. Our federal oil and natural gas leases are awarded based on competitive bidding and contain relatively standardized terms. These leases require compliance with detailed regulations and orders that are subject to interpretation and change by the BOEM or BSEE. We are currently subject to regulations governing the plugging and abandonment of wells located offshore and the installation and removal of all production facilities, structures and pipelines, and the BOEM or the BSEE may in the future amend these regulations. Please read “Risk Factors” for more information on new regulations.

To cover the various obligations of lessees on the Outer Continental Shelf (the “OCS”), the BOEM generally requires that lessees have substantial net worth or post bonds or other acceptable assurances that such obligations will be satisfied. While we have been exempt from such supplemental bonding requirements in the past, beginning in 2014 we were required to post supplemental bonding or alternate form of collateral for certain of our offshore properties. We have been able to satisfy the collateral requirements using a combination of our existing cash on hand and the issuance of supplemental bonds. Under some circumstances, the BOEM may require any of our operations on federal leases to be suspended or terminated. Any such suspension or termination could materially adversely affect our financial condition and results of operations. As a result of certain bankruptcies of Gulf of Mexico operations, BSEE and BOEM are currently reassessing decommissioning liability and supplemental bonding requirements for all operations on the Gulf of Mexico OCS with respect to decommissioning wells and platforms in the Gulf of Mexico and are updating all decommissioning costs in the Gulf of Mexico. The Department of the Interior through the BOEM and BSEE has made enforcement of decommissioning liabilities one of its top priorities. Recent Department of Interior guidance has indicated that well abandonment and decommissioning requirements are not necessarily tied to lease termination. Based on the ongoing review of such decommissioning and abandonment costs, the Company’s potential liability for such costs has become more expensive and as a result supplemental bonding costs may continue to increase, which along with any future directives or changes to BOEM’s current supplemental bonding requirements, could materially and adversely affect our financial condition, cash flows, and results of operations. Because we are not exempt from the BOEM’s supplemental bonding requirements, we engage a number of surety companies to post the requisite bonds. Pursuant to the terms of our agreements with these surety companies, we are required to post collateral at the outset of the agreement or subsequently on demand, the amount of which typically may be increased at the surety companies’ discretion. Two of our surety companies requested that we post collateral to support certain of the bonds that are issued on our behalf and to date, we have provided cash deposits totaling $6.2 million to satisfy these requests. We cannot assure you that we will be able to satisfy future demands for collateral for the requisite bonds or comply with new

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supplemental bonding requirements. If we fail to do so, we may be in default under the Multidraw Term Loan Agreement and potentially the indentures governing the Outstanding Notes.

In addition, on July 14, 2016, the BOEM issued a notice to lessees (“NTL”) No. 2016-N01 effective September 12, 2016 to clarify the procedures and criteria that the BOEM will use to determine if and when additional security is required for OCS leases. This notice may result in an increase to the amount of surety bonds or other security required to be posted by us pursuant to these updated BOEM financial assurance and risk management requirements. On January 6, 2017, the BOEM announced that it was extending the implementation timeline for NTL No. 2016-N01 by an additional six months as to leases, rights-of-way and rights of use and easement for which there are co-lessees and/or predecessors in interest, except in circumstances in which the BOEM determines there is a substantial risk of nonperformance of the interest holder’s decommissioning liabilities. All of our decommissioning liabilities as of the date hereof have co-lessees and/or predecessors in interest and are expected to be included in this extended implementation timeline. We can provide no assurance that we can continue to obtain bonds or other surety in all cases given these new expenses and updated BOEM requirements or that we will have sufficient liquidity to support such supplemental bonding requirements. If we are unable to obtain the additional required bonds, assurances or the increased amount of required collateral as requested, the BOEM may require any of our operations on federal leases to be suspended, canceled or otherwise impose monetary penalties, and one or more of such actions could have a material adverse effect on our business, prospects, results of operations, financial condition, and liquidity.

Hurricanes in the Gulf of Mexico can have a significant impact on oil and gas operations on the OCS. The effects from past hurricanes have included structural damage to pipelines, wells, fixed production facilities, semi-submersibles and jack-up drilling rigs. The BOEM and the BSEE will continue to be concerned about the loss of these facilities and rigs as well as the potential for catastrophic damage to key infrastructure and the resultant pollution from future storms. In an effort to reduce the potential for future damage, the BOEMRE historically issued guidance aimed at improving platform survivability by taking into account environmental and oceanic conditions in the design of platforms and related structures. It is possible that similar, if not more stringent, requirements will be issued by the BOEM or the BSEE for future hurricane seasons. New requirements, if any, could increase our operating costs due to future storms.

The Office of Natural Resources Revenue (the “ONRR”) in the U.S. Department of the Interior administers the collection of royalties under the terms of the OCSLA and the oil and natural gas leases issued thereunder. The amount of royalties due is based upon the terms of the oil and natural gas leases as well as the regulations promulgated by the ONRR.

Federal, State or American Indian Leases.   In the event we conduct operations on federal, state or American Indian oil and gas leases, such operations must comply with numerous regulatory restrictions, including various nondiscrimination statutes, and certain of such operations must be conducted pursuant to certain on-site security regulations and other appropriate permits issued by the Bureau of Land Management (“BLM”) or the BOEM or other appropriate federal or state agencies.

The Mineral Leasing Act of 1920 (“Mineral Act”) prohibits direct or indirect ownership of any interest in federal onshore oil and gas leases by a foreign citizen of a country that denies “similar or like privileges” to citizens of the United States. Such restrictions on citizens of a “non-reciprocal” country include ownership of holding or controlling stock in a corporation that holds a federal onshore oil and gas lease. If this restriction is violated, the corporation’s lease can be cancelled in a proceeding instituted by the United States Attorney General. Although the regulations of the BLM (which administers the Mineral Act) provide for agency designations of non-reciprocal countries, there are presently no such designations in effect. We own interests in numerous federal onshore oil and gas leases. It is possible that holders of our equity interests may be citizens of foreign countries, which at some time in the future might be determined to be non-reciprocal under the Mineral Act.

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State Regulations

Most states regulate the production and sale of oil and natural gas, including:

The rate of production may be regulated and the maximum daily production allowable from both oil and gas wells may be established on a market demand or conservation basis or both.

We may enter into agreements relating to the construction or operation of a pipeline system for the transportation of natural gas. To the extent that such gas is produced, transported and consumed wholly within one state, such operations may, in certain instances, be subject to the jurisdiction of such state’s administrative authority charged with the responsibility of regulating intrastate pipelines. In such event, the rates that we could charge for gas, the transportation of gas, and the construction and operation of such pipeline would be subject to the rules and regulations governing such matters, if any, of such administrative authority.

Legislative Proposals

In the past, Congress has been very active in the area of natural gas regulation. New legislative proposals in Congress and the various state legislatures, if enacted, could significantly affect the petroleum industry. At the present time it is impossible to predict what proposals, if any, might actually be enacted by Congress or the various state legislatures and what effect, if any, such proposals might have on our operations.

Environmental Regulations

General.   Our activities are subject to existing federal, state and local laws and regulations governing environmental quality and pollution control. Although no assurances can be made, we believe that, absent the occurrence of an extraordinary event, compliance with existing federal, state and local laws, regulations and rules regulating the release of materials into the environment or otherwise relating to the protection of human health, safety and the environment will not have a material effect upon our capital expenditures, earnings or competitive position with respect to our existing assets and operations. We cannot predict what effect additional regulation or legislation, enforcement policies, and claims for damages to property, employees, other persons and the environment resulting from our operations could have on our activities.

Our activities with respect to exploration and production of oil and natural gas, including the drilling of wells and the operation and construction of pipelines and other facilities for extracting, transporting or storing natural gas and other petroleum products, are subject to stringent environmental regulation by state and federal authorities, including the United States Environmental Protection Agency (the “USEPA”). Such regulation can increase the cost of planning, designing, installing and operating such facilities. Although we believe that compliance with environmental regulations will not have a material adverse effect on us, risks of substantial costs and liabilities are inherent in oil and gas production operations, and there can be no assurance that significant costs and liabilities will not be incurred. Moreover it is possible that other developments, such as spills or other unanticipated releases, stricter environmental laws and regulations, and claims for damages to property or persons resulting from oil and gas production, would result in substantial costs and liabilities to us.

Solid and Hazardous Waste.   We own or lease numerous properties that have been used for production of oil and gas for many years. Although we have utilized operating and disposal practices standard in the industry at the time, hydrocarbons or solid wastes may have been disposed or released on or under these properties. In addition, many of these properties have been operated by third parties that controlled the treatment of hydrocarbons or solid wastes and the manner in which such substances may have been disposed or released. State and federal laws applicable to oil and gas wastes and properties have gradually become stricter over time. Under these laws, we could be required to remove or remediate previously disposed wastes

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(including wastes disposed or released by prior owners or operators) or property contamination (including groundwater contamination by prior owners or operators) or to perform remedial plugging operations to prevent future contamination.

Wastes, including hazardous wastes, are subject to regulation under the federal Resource Conservation and Recovery Act (“RCRA”) and state statutes. Much of the waste we generate in our operations at exploration and production sites, including hazardous waste, is exempt from regulation under RCRA, but generally remains subject to state storage, treatment and disposal requirements. We also generate wastes not subject to the RCRA exemption. The USEPA has limited the disposal options for certain hazardous wastes. It is possible that certain wastes generated by our oil and gas operations which are currently exempt from regulation under RCRA as “hazardous wastes” may in the future be designated as “hazardous wastes” under RCRA or other applicable statutes, and therefore be subject to more rigorous and costly disposal requirements.

Naturally Occurring Radioactive Materials (“NORM”) are radioactive materials which precipitate on production equipment or area soils during oil and natural gas extraction or processing. NORM wastes are regulated under the RCRA framework, although such wastes may qualify for the oil and gas hazardous waste exclusion. Primary responsibility for NORM regulation has been a state function. Standards have been developed for worker protection; treatment, storage and disposal of NORM waste; management of waste piles, containers and tanks; and limitations upon the release of NORM-contaminated land for unrestricted use. We believe that our operations are in material compliance with all applicable NORM standards.

Superfund.   The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as the “Superfund” law, imposes liability, without regard to fault or the legality of the original conduct, on certain persons with respect to the release or threatened release of a “hazardous substance” into the environment. These persons include the owner and operator of a site and persons that disposed or arranged for the disposal of hazardous substances at a site. CERCLA also authorizes the USEPA and, in some cases, third parties to take actions in response to threats to the public health or the environment and to seek to recover from the responsible persons the costs of such action. State statutes impose similar liability.

Under CERCLA, the term “hazardous substance” does not include “petroleum, including crude oil or any fraction thereof,” unless specifically listed or designated and the term does not include natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel. While this “petroleum exclusion” lessens the significance of CERCLA to our operations, we may generate waste that may fall within CERCLA’s definition of a “hazardous substance” in the course of our ordinary operations. We also currently own or lease properties that for many years have been used for the exploration and production of oil and natural gas. Although we and, to our knowledge, our predecessors have used operating and disposal practices that were standard in the industry at the time, “hazardous substances” may have been disposed or released on, under or from the properties owned or leased by us or on, under or from other locations where these wastes have been taken for disposal. At this time, we do not believe that we have any liability associated with any Superfund site, and we have not been notified of any claim, liability or damages under CERCLA.

Endangered Species Act.   Federal and state legislation including, in particular, the federal Endangered Species Act of 1973 (“ESA”), impose requirements to protect imperiled species from extinction by conserving and protecting threatened and endangered species and the habitat upon which they depend. With specified exceptions, the ESA prohibits the “taking,” including killing, harassing or harming, of any listed threatened or endangered species, as well as any degradation or destruction of its habitat. In addition, the ESA mandates that federal agencies carry out programs for conservation of listed species. Many state laws similarly protect threatened and endangered species and their habitat. We operate in areas in which listed species may be present. As a result, we may be required to adopt protective measures, obtain incidental take permits, and otherwise adjust our drilling plans to comply with ESA requirements.

Oil Pollution Act.   The Oil Pollution Act of 1990 (the “OPA”) and regulations thereunder impose a variety of requirements on “responsible parties” related to the prevention of oil spills and liability for damages resulting from such spills in United States waters. A “responsible party” includes the owner or operator of a facility or vessel, or the lessee or permittee of the area in which an offshore facility is located. The OPA assigns liability to each responsible party for oil removal costs and a variety of public and private

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damages. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill was caused by gross negligence or willful misconduct or resulted from violation of federal safety, construction or operating regulations. If the party fails to report a spill or to cooperate fully in the cleanup, liability limits likewise do not apply. Few defenses exist to the liability imposed by the OPA.

The OPA establishes a liability limit for onshore facilities of $633.8 million and for offshore facilities of all removal costs plus $133.65 million, and lesser limits for some vessels depending upon their size. The regulations promulgated under OPA impose proof of financial responsibility requirements that can be satisfied through insurance, guarantee, indemnity, surety bond, letter of credit, qualification as a self-insurer, or a combination thereof. The amount of financial responsibility required depends upon a variety of factors including the type of facility or vessel, its size, storage capacity, oil throughput, proximity to sensitive areas, type of oil handled, history of discharges and other factors. We carry insurance coverage to meet these obligations, which we believe is customary for comparable companies in our industry. A failure to comply with OPA’s requirements or inadequate cooperation during a spill response action may subject a responsible party to civil or criminal enforcement actions.

As a result of the explosion and sinking of the Deepwater Horizon drilling rig in the Gulf of Mexico in 2010, Congress considered but did not enact legislation that would eliminate the current cap on liability for damages and increase minimum levels of financial responsibility under OPA. If enacted, such legislation could increase our obligations and potential liability, but adoption of such legislation is uncertain. We are not aware of the occurrence of any action or event that would subject us to liability under OPA, and we believe that compliance with OPA’s financial responsibility and other operating requirements will not have a material adverse effect on us.

Discharges.   The Clean Water Act (“CWA”) regulates the discharge of pollutants to waters of the United States, including wetlands, and requires a permit for the discharge of pollutants, including petroleum, to such waters. The CWA also requires a permit for the discharge of dredged or fill material into wetlands. A revised regulatory definition of “Waters of the United States” that would expand requirements for CWA permitting, has been promulgated, but these regulations have been stayed pending the outcome of judicial challenges. Certain facilities that store or otherwise handle oil are required to prepare and implement Spill Prevention, Control and Countermeasure Plans and Facility Response Plans relating to the possible discharge of oil to surface waters. We are required to prepare and comply with such plans and to obtain and comply with discharge permits. We believe we are in substantial compliance with these requirements and that any noncompliance would not have a material adverse effect on us. The CWA also prohibits spills of oil and hazardous substances to waters of the United States in excess of levels set by regulations and imposes liability in the event of a spill. State laws further provide civil and criminal penalties and liabilities for spills to both surface and groundwaters and require permits that set limits on discharges to such waters.

Hydraulic Fracturing.   Our exploration and production activities may involve the use of hydraulic fracturing techniques to stimulate wells and maximize natural gas production. Citing concerns over the potential for hydraulic fracturing to impact drinking water, human health and the environment, and in response to a Congressional directive, the USEPA commissioned a study to identify potential risks associated with hydraulic fracturing and to improve scientific understanding to guide USEPA’s regulatory oversight, guidance and, where appropriate, rulemaking related to hydraulic fracturing. A final report for this study was released in December 2016 and provided information regarding potential vulnerability of drinking water resources to hydraulic fracturing, but did not reach conclusions regarding the frequency or severity of impacts due to data gaps and uncertainties. Some states now regulate utilization of hydraulic fracturing and others are in the process of developing, or are considering development of, such rules to address the potential for drinking water impacts, induced seismicity, and other concerns. In several localities and in New York, use of hydraulic fracturing has been banned, although local fracking bans are prohibited in Texas and Louisiana. These states currently address hydraulic fracturing concerns by requiring disclosures of the content of fluids used in the process. Our drilling activities could be subjected to new or enhanced federal, state and/or local requirements governing hydraulic fracturing.

Air Emissions.   Our operations are subject to local, state and federal regulations for the control of emissions from sources of air pollution. Administrative enforcement actions for failure to comply strictly with

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air regulations or permits may be resolved by payment of monetary fines and correction of any identified deficiencies. Alternatively, regulatory agencies could impose civil or criminal liability for non-compliance. An agency could require us to forego construction or operation of certain air emission sources. We believe that we are in substantial compliance with air pollution control requirements.

According to certain scientific studies, emissions of carbon dioxide, methane, nitrous oxide and other gases commonly known as greenhouse gases (“GHG”) may be contributing to global warming of the earth’s atmosphere and to global climate change. In response to the scientific studies, legislative and regulatory initiatives have been underway to limit GHG emissions. The U.S. Supreme Court determined that GHG emissions fall within the federal Clean Air Act (“CAA”) definition of an “air pollutant”, and in response the USEPA promulgated an endangerment finding paving the way for regulation of GHG emissions under the CAA. The USEPA has also promulgated rules requiring large sources to report their GHG emissions. Sources subject to these reporting requirements include on- and offshore petroleum and natural gas production and onshore natural gas processing and distribution facilities that emit 25,000 metric tons or more of carbon dioxide equivalent per year in aggregate emissions from all site sources. We are not subject to GHG reporting requirements. In addition, the USEPA promulgated rules that significantly increase the GHG emission threshold that would identify major stationary sources of GHG subject to CAA permitting programs. As currently written and based on current Company operations, we are not subject to federal GHG permitting requirements. Regulation of GHG emissions is developing and highly controversial, and further regulatory, legislative and judicial developments are likely to occur. Such developments may affect how these GHG initiatives will impact the Company. Due to the uncertainties surrounding the regulation of and other risks associated with GHG emissions, the Company cannot predict the financial impact of related developments on the Company.

The USEPA has promulgated rules to limit air emissions from many hydraulically fractured natural gas wells. These regulations require use of equipment to capture gases that come from the well during the drilling process, mandate tighter standards for emissions associated with gas production, storage and transport, and seek to limit flaring. Such regulations have been highly controversial, have been challenged, and their future is uncertain. While such requirements would be expected to increase the cost of natural gas production, we do not anticipate that we will be affected any differently than other producers of natural gas.

Coastal Coordination.   There are various federal and state programs that regulate the conservation and development of coastal resources. The federal Coastal Zone Management Act (“CZMA”) was passed to preserve and, where possible, restore the natural resources of the Nation’s coastal zone. The CZMA provides for federal grants for state management programs that regulate land use, water use and coastal development.

The Louisiana Coastal Zone Management Program (“LCZMP”) was established to protect, develop and, where feasible, restore and enhance coastal resources of the state. Under the LCZMP, coastal use permits are required for certain activities, even if the activity only partially infringes on the coastal zone. Among other things, projects involving use of state lands and water bottoms, dredge or fill activities that intersect with more than one body of water, mineral activities, including the exploration and production of oil and gas, and pipelines for the gathering, transportation or transmission of oil, gas and other minerals require such permits. General permits, which entail a reduced administrative burden, are available for a number of routine oil and gas activities. The LCZMP and its requirement to obtain coastal use permits may result in additional permitting requirements and associated project schedule constraints.

The Texas Coastal Coordination Act (“CCA”) provides for coordination among local and state authorities to protect coastal resources through regulating land use, water, and coastal development and establishes the Texas Coastal Management Program that applies in the nineteen counties that border the Gulf of Mexico and its tidal bays. The CCA provides for the review of state and federal agency rules and agency actions for consistency with the goals and policies of the Coastal Management Plan. This review may affect agency permitting and may add a further regulatory layer to some of our projects.

OSHA.   We are subject to the requirements of the federal Occupational Safety and Health Act (“OSHA”) and comparable state statutes. The OSHA hazard communication standard, the USEPA community right-to-know regulations under Title III of the federal Superfund Amendments and Reauthorization Act, and similar state statutes require us to organize and/or disclose information about hazardous materials used or

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produced in our operations. Certain of this information must be provided to employees, state and local governmental authorities and local citizens.

Management believes that we are in substantial compliance with current applicable environmental laws and regulations described above and that continued compliance with existing requirements will not have a material adverse impact on us.

Corporate Offices

Our headquarters are located in Lafayette, Louisiana, in approximately 46,600 square feet of leased space, with an exploration office in The Woodlands, Texas in approximately 13,100 square feet of leased space. We also maintain owned or leased field offices in the areas of the major fields in which we operate properties or have a significant interest. Replacement of any of our leased offices would not result in material expenditures by us as alternative locations to our leased space are anticipated to be readily available.

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MANAGEMENT

Executive Officers

The Board of Directors currently consists of six members. Each director is to hold office until the next annual meeting of stockholders or until his successor is elected and qualified. Our executive officers serve at the pleasure of our Board of Directors and are subject to annual appointment by the Board at its first meeting following the annual meeting of stockholders. All of our directors and executive officers are listed in the following table, and certain information concerning those directors and officers follows the table:

Name		Age		Position
Charles T. Goodson		61		Chairman of the Board, Chief Executive Officer, President and Director
William W. Rucks, IV (1) (2) (3)		59		Director
E. Wayne Nordberg (1) (2) (3)		78		Director
W. J. Gordon, III (1) (2) (3)		68		Director
Charles F. Mitchell, II, M.D. (1) (2) (3)		68		Director
J. Gerard Jolly (1) (2) (3)		65		Director
J. Bond Clement		45		Executive Vice President, Chief Financial Officer and Treasurer
Arthur M. Mixon, III		58		Executive Vice President — Operations and Production
Edward E. Abels, Jr.		59		Executive Vice President — General Counsel and Secretary

(1)

Member, Audit Committee of our Board of Directors.

(2)

Member, Compensation Committee of our Board of Directors.

(3)

Member, Nominating and Corporate Governance Committee of our Board of Directors.

Charles T. Goodson has served as our Chairman of the Board since May 2000, and has served as our Chief Executive Officer since September 1998. He has also served as our President since July 2004, and previously served in that position from September 1998 to May 2000. From 1995 to 1998, Mr. Goodson was President of American Explorer, L.L.C., a private oil and gas exploration and production company we subsequently acquired. Since 1985, he has served as President and 50% owner of American Explorer, Inc., an oil and gas operating company which formerly operated properties for us. From 1980 to 1985, he worked for Callon Petroleum Company, first as a landman, then District Land Manager and then Regional Land Manager. He began his career in 1978 as a landman for Mobil Oil Corporation. In addition, Mr. Goodson currently serves on the boards of directors of Iberia Bank (Lafayette Advisory Board Member), the Federal Reserve Bank of Atlanta — New Orleans Branch (Energy Advisory Council Member) and the Louisiana Oil & Gas Association.

William W. Rucks, IV is the President of Rucks Investments and has been a private investor since September 1997. He is a co-founder of Flores & Rucks, Inc., an oil and gas concern formerly traded on the NYSE. While at Flores & Rucks Inc., Mr. Rucks served as President and Vice Chairman from July 1995 until September 1996, and as President and CEO from its inception in 1992 until 1995. He served on the Board of Directors of Ocean Energy, Inc., the successor of Flores & Rucks, Inc., from 1995 until 1997. From 1985 until 1992, Mr. Rucks served as President of FloRuxco, Inc., an oil and gas exploration company. He also served as a director of OMNI Energy Services, Inc., a publicly traded oil and gas company from 1997 through 2001, and served as Chairman of the Board for most of 2001. Mr. Rucks earned a Bachelor of Science degree from Louisiana State University, graduating in 1979.

E. Wayne Nordberg is currently Chairman of Hollow Brook Wealth Management LLC, an SEC registered investment advisor managing or advising investment assets of $1 billion. From January 2003 to November 2007, he served as a senior director of Ingalls & Snyder LLC, a NYSE member and registered investment advisor. From 1998 to June 2002, Mr. Nordberg served as Vice Chairman of the Board of KBW Asset Management, Inc. KBW was an affiliate of Keefe, Bruyette, & Woods, Inc., a registered investment advisor offering investment management services to institutions and high net worth individuals. From 1988 to 1998, he served in various capacities for Lord, Abbett & Co., a mutual fund company, including partner and director of their family of funds. Mr. Nordberg is a director of Annaly Capital Management, Inc.

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and Reaves Utility Income Fund as well as a member of the Financial Analysts Federation and The New York Society of Security Analysts. He is a Trustee of the Atlantic Salmon Federation, and the National Wildlife Federation Endowment Fund. Mr. Nordberg received a Bachelor of Arts in Economics from Lafayette College, Easton, Pennsylvania, where he is a Trustee Emeritus.

W. J. Gordon, III served in various capacities with Conoco Inc. and ConocoPhillips for 32 years until his retirement in 2002, including President of Dubai Petroleum Company (Conoco’s Middle East subsidiary), President of Conoco Norway, Inc. and Regional Production Manager for Conoco’s Gulf of Mexico and Gulf Coast Region. While in Norway, Mr. Gordon was Chairman of the American Chamber of Commerce in Norway for three years. From 2003 to 2016, Mr. Gordon served as the Chief Strategy Officer for the Franciscan Missionaries of Our Lady Health System. He serves on the Advisory Board of IberiaBank Corporation and is a past Trustee, Vice Chairman and member of the Executive Committee of the University of Louisiana at Lafayette (“ULL”) Foundation. He also serves on the Executive Advisory Council of the Moody College of Business of ULL. He was recently elected to the Board of Directors of AMI Kids of Acadiana. He was elected and served three non-consecutive three-year terms on the Board of the Greater Lafayette Chamber of Commerce and was a founding board member of the Community Foundation of Acadiana. Mr. Gordon received his Bachelor of Science in Physics (Cum Laude) and Military Science Degree from Southern University in Baton Rouge, Louisiana in 1970. He now actively manages his personal investments.

Charles F. Mitchell, II, M.D. is a practicing surgeon and a founding partner of ENT Medical Center in Baton Rouge. For more than 30 years, the for-profit ENT Medical Center has been one of Louisiana’s top private ear, nose and throat centers. He along with nine other MD investors developed and managed the first multi-specialty Ambulatory Surgical Center in Louisiana. Dr. Mitchell has been an active private investor in and working interest owner of oil companies and drilling programs in some of the largest basins in the U.S., including the Gulf of Mexico, East Texas, Oklahoma and South Louisiana. As a result of his direct investment experience in the oil and gas industry, he was selected to serve on the board of directors of three NYSE-listed oil and gas companies from 1995 to 2005: Flores & Rucks, Inc., Ocean Energy, Inc. and Devon Energy Corporation. Dr. Mitchell serves on the Board of the Mendez Foundation in Tampa, Florida. The Foundation works with K through 12 children to educate them on the prevention of drug abuse and violence.

J. Gerard Jolly was a long-time partner in the nationally recognized accounting firm of KPMG until his retirement in 2012. Since 2012, Mr. Jolly has provided tax and consulting services specializing in strategic and succession planning, governance, estate planning and philanthropy. In his 38 year career with KPMG, Mr. Jolly served in a variety of roles including the firm’s National Managing Partner of its mid-market business and was a member of the firm’s Board of Directors. As a member of the KPMG board, Mr. Jolly served as Chairman of the Audit, Finance and Operations Committee as well as the Nominating Committee. He is a licensed CPA and holds a Bachelor of Science in Accounting from Louisiana State University. He is a member of the E.J. Ourso College of Business Hall of Distinction at Louisiana State University, the immediate past President of the Dean’s Advisory Council for the E.J. Ourso College of Business and the immediate past Chairman of the Pennington Biomedical Research Foundation.

J. Bond Clement has served as our Executive Vice President, Chief Financial Officer and Treasurer since October 2009. He has also served as our Senior Vice President and Chief Accounting Officer from March 2008 to October 2009, as our Controller from October 2004 until March 2008, as a Vice President from May 2006 to August 2007 and as our Vice President of Finance from August 2007 to March 2008. Prior to joining us in October 2004, Mr. Clement served in a variety of investor relations, corporate finance and accounting related management positions at Stone Energy Corporation from 1997 to 2004, including most recently as Controller, and worked for Freeport-McMoRan Inc. from 1996 to 1997. From 1993 to 1996, Mr. Clement worked at Arthur Andersen LLP primarily auditing clients focused in the energy industry. Mr. Clement earned a Bachelor of Science Degree in Accounting, Cum Laude, from Louisiana State University in 1993 and was a Certified Public Accountant.

Arthur M. Mixon, III has served as our Executive Vice President — Operations and Production since October 2009. He also served as our Executive Vice President — Exploration and Production from May 2006 to October 2009 and as our Senior Vice President-Operations from January 2001 to May 2006. From 1981

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to 2001, Mr. Mixon accumulated 20 years of experience with BP Amoco PLC, a public petroleum and petrochemical company, in a variety of engineering, supervisory and management positions in the United States, Trinidad and Tobago, and Venezuela. Mr. Mixon is a Registered Professional Engineer and a member of the Society of Petroleum Engineers, American Association of Drilling Engineers, American Petroleum Institute and the Louisiana Oil and Gas Association. Additionally, he is a member of the National Ocean Industries Association and the Oilfield Christian Fellowship. Mr. Mixon received a Bachelor of Science Degree in Petroleum Engineering from Louisiana State University in 1980.

Edward E. Abels, Jr. has served as our Executive Vice President — General Counsel and Secretary since February 2014. Mr. Abels served as the General Counsel for Texas Crude Energy, LLC from July 2011 until joining us. Prior to his tenure at Texas Crude Energy, he was a shareholder of the law firm of Greenberg Traurig, LLP from December 2007 to July 2011. Prior to Greenberg Traurig, Mr. Abels served in various in-house counsel positions with several energy companies and in private practice with two large law firms. Mr. Abels received a Bachelor of Science degree in Petroleum Engineering and a Juris Doctor degree from Louisiana State University in 1981 and 1993, respectively.

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Administration .  Our executive compensation program is administered by the Compensation Committee of our Board of Directors in accordance with the committee’s charter and other corporate governance requirements of the SEC and the NYSE.

The committee has directly engaged and will engage, from time to time, compensation consultants familiar with the oil and gas industry to advise the committee regarding certain compensation issues. The assignments of the consultants are determined by the committee, although management may provide input for these assignments. The principal responsibility of compensation consultants is to advise the committee on compensation recommendations for the NEOs, as well as on general matters relating to executive compensation strategy and programs. During 2016, the committee engaged Korn Ferry Hay Group and Longnecker to assist the committee in its review of the company’s compensation practices based on a proxy analysis of its peer group for the company’s executive officers and directors. In addition to executive compensation analysis, Longnecker was engaged to review retention bonuses for key employees, which were not implemented.

The committee determines the total compensation of the CEO and the nature and amount of each element of CEO compensation. The CEO plays a key role in determining executive compensation for the other NEOs. Generally, the CEO attends the meeting of the committee regarding executive compensation and is available to discuss his recommendations with the committee, including his evaluation of the performance of the other NEOs in arriving at his recommendations, which are based on his direct evaluation of such executives, after receiving input from the peers of such executives and others, if necessary. These recommendations are considered by the committee, along with other relevant data, in determining the base salary, annual cash incentives, long-term equity or equity-based incentives, and benefits and perquisites for such executives.

To determine the total compensation of the CEO and the other NEOs, the committee conducts an annual review of executive officer compensation practices and market pay levels, approves the design and evaluates the risk associated with the company’s executive compensation program, approves the total annual awards under the company’s short-term and long-term incentive programs, reviews and approves offer letters, employment agreements and severance arrangements between the company and any of the senior executives and recommends succession plans to the Board. The committee carefully considers current market practices, internal equity issues and historical company practices, along with long-term market trends and discounts short-term market fluctuations in setting executive compensation levels.

2016 Advisory Vote on Executive Compensation .  We provide our stockholders with the opportunity to cast an annual advisory vote on executive compensation (the “Say-On-Pay Proposal”). We obtained 94% support for our Say-On-Pay Proposal at our annual meeting of stockholders held in May 2016. We feel that this high level of support was received due to the committee continually reviewing our executive compensation program and policies and, after contacting certain of our significant stockholders to discuss our compensation programs and understanding their concerns, making significant changes in our executive compensation program and policies in 2014.

2016 Executive Compensation Highlights

In 2016, although changes were not made to our executive compensation program, the compensation committee reviewed each aspect of our executive compensation program in light of commodity prices, anticipated capital expenditures and available cash. In an effort to align executive compensation with stockholders’ interests, the following is a summary of our implementation of executive compensation in fiscal year 2016:

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Executive Compensation Program .  Based on and consistent with the philosophy and objectives stated above, our current executive compensation program and our historical programs and practices consist of the following elements:

Compensation Element		Purpose		Link to Performance		Fixed/Performance Based		Short/Long Term
Base Salary		Provides an appropriate level of fixed compensation to attract and retain leaders with extensive experience in the oil and gas industry		Based on market pay levels, individual performance and responsibilities		Fixed within a range that approximates or targets the salaries of executive officers that is within the upper quartile of our peers		Short-Term
Annual Cash Incentive Awards		Encourages annual results that create stockholder value		Based on annual achievement of predetermined company objectives — organic growth, financials, balance sheet management, production and reserves, M&A, business relationships and discretionary		Performance based		Short-Term
Stock Options		Aligns compensation with the company’s business strategy and the long-term creation of stockholder value		Based on increases in stock price over the grant date FMV. As an additional performance element for 2016, options were premium priced over FMV.		Performance based		Long Term
Performance Units		Aligns compensation with the company’s business strategy and the long-term creation of stockholder value		Based on company’s ranking among peers based on relative total stockholder return (TSR)		Performance based		Long-Term
Restricted Stock Units		Aligns compensation with the company’s business strategy and the long-term creation of stockholder value		Based on increases in stock price over time		Fixed within a range, subject to the committee’s overall determination as to the appropriate level of award		Long-Term

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Compensation Element		Purpose		Link to Performance		Fixed/Performance Based		Short/Long Term
Phantom Stock Units		Aligns compensation with the company’s business strategy and the long-term creation of stockholder value		Based on increases in stock price over time		Fixed within a range, subject to the committee’s overall determination as to the appropriate level of award		Long-Term

Benchmarking Using Peer Companies .  To determine the competitiveness of our compensation and benefit programs, the committee, in consultation with its independent compensation consultant, establishes a “peer group” for comparative purposes. The committee, in monitoring the peer industry practices, may make modifications to the peer group from time to time due to consolidations within and for new companies entering the oil and gas exploration and production industry, or for other reasons, including but not limited to, revenue size, industry, operations; and closest competitors for talent.

The committee has and will continue to monitor the appropriateness of the peer group and the relative measures drawn from the benchmarking process with the primary objective of utilizing a peer group that provides the most appropriate comparison to the company as part of the committee’s competitiveness evaluation. In 2016, the peer group included the following companies:

Company Name

Sales/Rev (1)

Market Cap (1)

Similar Number of Employees

Primarily natural gas producer

Operates in same areas

Competes for same employees

Abraxas Petroleum Corp.

42.87M

379.07M

Yes

Yes

Yes

Yes

Approach Resources Inc.

89.29M

130.82M

Yes

Yes

No

Yes

Callon Petroleum Company

155.19M

2.77B

Yes

No

No

Yes

Clayton Williams Energy Inc.

157.6M

2.44B

No

No

No

Yes

Comstock Resources, Inc.

169.03M

151.51M

Yes

Yes

Yes

Yes

Contango Oil & Gas Company

78.01M

192.52M

Yes

Yes

Yes

Yes

Gastar Exploration Inc.

59.68M

247.64M

No

Yes

No

Yes

Jones Energy, Inc.

118.06M

262.24M

Yes

Yes

No

Yes

Primeenergy Corp.

58.82M

121.8M

No

Yes

Yes

Yes

Resolute Energy Corp.

130.31M

964.1M

No

Yes

No

Yes

Rex Energy Corp.

151.61M

54.67M

No

Yes

No

Yes

Sanchez Energy Corp.

415.12M

866.37M

Yes

Yes

Yes

Stone Energy Corporation

366.4M

37.61M

No

Yes

Yes

Yes

W&T Offshore, Inc.

386.98M

377.31M

No

Yes

Yes

Yes

Median

130.31M

254.94M

—

—

—

—

PetroQuest

72.56M

86.17M

—

—

—

—