Dune Energy (DNE)

NOTE 11 — SUBSEQUENT EVENTS

On August 1, 2008, pursuant to its 2007 Stock Incentive Plan, the Company issued a total of 3,058,500 shares of its common stock to its employees and non-employee directors. These shares vest ratably over a three year period with the initial vesting occurring August 1, 2009. The 2007 Stock Incentive Plan was approved by Dune’s stockholders and is administered by Dune’s Compensation Committee.

The following discussion will assist in the understanding of our financial position and results of operations. The information below should be read in conjunction with the consolidated financial statements, the related notes to consolidated financial statements and our 2007 Form 10-K. Our discussion contains both historical and forward-looking information. We assess the risks and uncertainties about our business, long-term strategy and financial condition before we make any forward-looking statements but we cannot guarantee that our assessment is accurate or that our goals and projections can or will be met. Statements concerning results of future exploration, exploitation, development and acquisition expenditures as well as revenue, expense and reserve levels are forward-looking statements. We make assumptions about commodity prices, drilling results, production costs, administrative expenses and interest costs that we believe are reasonable based on currently available information.

Our primary focus will continue to be the development and exploration efforts in our Gulf Coast properties. We believe that our extensive acreage position will allow us to grow organically through low risk drilling in the near term, as this property set continues to present attractive opportunities to expand our reserve base through field extensions, delineating deeper formations within existing fields and high risk/high reward exploratory drilling for 2008 and beyond. In addition, we will constantly review, rationalize and “high-grade” our properties in order to optimize our existing asset base. Consistent with this goal, on June 30, 2008, we entered into a Purchase and Sale Agreement with Pioneer Natural Resources USA, Inc. to sell certain oil and gas properties producing from the Barnett Shale in Denton and Wise Counties, Texas. Included are working and net revenue interests in oil and gas leases, wells and properties, together with rights under related operating, marketing and service contracts and agreements. It also includes personal property, surface interests, hydrocarbons, records and tangible and intangible rights. The purchase price for which we agreed to sell is $41,500,000 payable in cash and subject to certain customary adjustments at closing, which is expected to occur during the third quarter.

We expect to maintain and utilize our technical and operations teams’ knowledge of salt-dome structures and multiple stacked producing zones common in the Gulf Coast to enhance our growth prospects and reserve potential. We will employ technical advancements, including 3-D seismic data, pre-stack depth migration and directional drilling to identify and exploit new opportunities in our asset base. We also plan to employ the latest drilling, completion and fracturing technology in all of our wells to enhance recoverability and accelerate cash flows associated with these wells.

We continually review opportunities to acquire producing properties, leasehold acreage and drilling prospects that are in core operating areas. We are seeking to acquire operational control of properties that we believe have a solid proved reserves base coupled with significant exploitation and exploration potential. We intend to continue to evaluate acquisition opportunities and make acquisitions that we believe will further enhance our operations and reserves in a cost effective manner.

NOTE 9 — SUBSEQUENT EVENTS

As discussed in Note 3, the Preferred Stock was subject to a one time special adjustment of the conversion price and dividend rate. Effective May 1, 2008, the conversion price of the Company’s Preferred Stock was decreased from $3.00 to $1.75 per share and the dividend rate on the Preferred Stock was increased from 10% to 12% per annum. These changes occurred because the volume weighted average price of common stock for the 30 trading days up to and including April 30, 2008 plus 10% was less than $1.75 per share. From April 1, 2008 through May 7, 2008, holders of 5,656 shares of Preferred Stock converted their shares into 3,216,534 shares of common stock.

Subsequent to March 31, 2008, the Company borrowed an additional $8.6 million under the Revolver Commitment with Wells Fargo for a total outstanding of $24.6 million as of May 2, 2008.

The following discussion will assist in the understanding of our financial position and results of operations. The information below should be read in conjunction with the consolidated financial statements, the related notes to consolidated financial statements and our 2007 Form 10-K. Our discussion contains both historical and forward-looking information. We assess the risks and uncertainties about our business, long-term strategy and financial condition before we make any forward-looking statements but we cannot guarantee that our assessment is accurate or that our goals and projections can or will be met. Statements concerning results of future exploration, exploitation, development and acquisition expenditures as well as revenue, expense and reserve levels are forward-looking statements. We make assumptions about commodity prices, drilling results, production costs, administrative expenses and interest costs that we believe are reasonable based on currently available information.

Our primary focus will continue to be the development and exploration efforts in our Gulf Coast properties. We believe that our extensive acreage position will allow us to grow organically through low risk drilling in the near term, as this property set continues to present attractive opportunities to expand our reserve base through field extensions, delineating deeper formations within existing fields and high risk/high reward exploratory drilling for 2008 and beyond. In addition, we will constantly review, rationalize and “high-grade” our properties in order to optimize our existing asset base.

We expect to maintain and utilize our technical and operations teams’ knowledge of salt-dome structures and multiple stacked producing zones common in the Gulf Coast to enhance our growth prospects and reserve potential. We will employ technical advancements, including 3-D seismic data, pre-stack depth migration and directional drilling to identify and exploit new opportunities in our asset base. We also plan to employ the latest drilling, completion and fracturing technology in all of our wells to enhance recoverability and accelerate cash flows associated with these wells.

We continually review opportunities to acquire producing properties, leasehold acreage and drilling prospects that are in core operating areas. We are seeking to acquire operational control of properties that we believe have a solid proved reserves base coupled with significant exploitation and exploration potential. We intend to continue to evaluate acquisition opportunities and make acquisitions that we believe will further enhance our operations and reserves in a cost effective manner.