VQ » Topics » 3. LONG-TERM DEBT

This excerpt taken from the VQ 10-Q filed May 7, 2009.

3. LONG-TERM DEBT

        As of the dates indicated, the Company's long-term debt consisted of the following (in thousands):

 
  December 31,
2008
  March 31,
2009
 

Revolving credit agreement due March 2011

  $ 135,052   $ 5,620  

Second lien term loan due September 2011

    500,000     494,485  

8.75% senior notes due December 2011

    149,590     149,624  

Financed derivative premiums due through 2011

    15,626     14,986  
           
 

Total long-term debt

    800,268     664,715  

Less: current portion of long-term debt

    (2,598 )   (4,521 )
           
 

Long-term debt, net of current portion

  $ 797,670   $ 660,194  
           

        Revolving credit facility.    The Company has a $300.0 million revolving credit facility with a syndicate of banks ("revolving credit facility"), with a maturity date of March 30, 2011. The revolving credit facility is secured by a first priority lien on substantially all of the Company's oil and natural gas properties and other assets, including the equity interests in all of the Company's subsidiaries, and is unconditionally guaranteed by each of the Company's operating subsidiaries other than Ellwood Pipeline, Inc. The collateral also secures the Company's obligations to hedging counterparties that are also lenders, or affiliates of lenders, under the revolving credit agreement. Loans designated as Base Rate Loans under the revolving credit facility bear interest at a floating rate equal to (i) the greater of a market base rate and the overnight federal funds rate plus 0.50% plus (ii) an applicable margin ranging from zero to 0.75%, based upon utilization. Loans designated as LIBO Rate Loans under the revolving credit facility bear interest at (i) LIBOR plus (ii) an applicable margin ranging from 1.50% to 2.25%, based upon utilization. A commitment fee ranging from 0.375% to 0.5% per annum is payable with respect to unused borrowing availability under the facility. The agreement governing the facility contains customary representations, warranties, events of default, indemnities and covenants, including operational covenants that restrict the Company's ability to incur indebtedness and financial covenants that require the Company to maintain specified ratios of current assets to current liabilities and debt to EBITDA. The borrowing base is subject to redetermination twice each year. In connection with the Hastings Sale, the borrowing base was re-determined in February 2009, resulting in a reduction of the borrowing base from $200.0 million to $125.0 million. The Company expects a redetermination to be completed in May 2009. As of May 5, 2009, the Company had effective available borrowing capacity of $112.6 million (net of the outstanding balance of $5.6 million, $0.9 million in outstanding letters of credit and $5.9 million attributable to Lehman Commercial Paper—see below) under the revolving credit facility.

        The borrowing base under the Company's revolving credit facility has been allocated at various percentages to a syndicate of 12 banks. Certain of the institutions included in the syndicate have received support from governmental agencies in connection with recent events in the credit markets. In addition, 4.75% of the $125.0 million borrowing base has been allocated to Lehman Commercial Paper ("LCP"), a wholly-owned subsidiary of Lehman Brothers Holding, Inc., which filed for bankruptcy protection in September 2008. LCP is no longer funding its portion of the Company's borrowing requests made under the facility. As of May 5, 2009, the Company had a balance of $5.6 million on the revolving credit facility. The Company's effective borrowing base is $119.1 million, excluding $5.9 million related to LCP.

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VENOCO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

3. LONG-TERM DEBT (Continued)

        Second lien term loan facility.    The Company entered into its $500.0 million senior secured second lien term loan facility in May 2007. Loans made under the facility are designated, at the Company's option, as either "Base Rate Loans" or "LIBO Rate Loans." Loans designated as Base Rate Loans bear interest at a floating rate equal to (i) the greater of the overnight federal funds rate plus 0.50% and a market base rate, plus (ii) 3.00%. Loans designated as LIBO Rate Loans bear interest at LIBOR plus 4.00%.

        The term loan agreement contains customary representations, warranties, events of default and indemnities and certain customary covenants, including covenants that restrict the Company's ability to incur additional indebtedness. The facility is secured by second priority liens on substantially all of the Company's oil and natural gas properties and other assets, including the equity interests in all of its subsidiaries, and is unconditionally guaranteed by each of the Company's subsidiaries other than Ellwood Pipeline, Inc. Principal on the facility is payable on May 8, 2014. However, if the senior notes (see below) are still outstanding on September 20, 2011, principal on the term loan facility will be payable on that date.

        The Company may from time to time make optional prepayments of amounts borrowed under the facility (at par subsequent to May 7, 2009) if no amounts are outstanding under the revolving credit facility. Amounts prepaid under the facility may not be reborrowed. As a result of the Hastings sale in February 2009, the Company was required to repay $5.5 million of the outstanding principal balance on the second lien term loan.

        Senior notes.    In December 2004, the Company issued $150.0 million in 8.75% senior notes (the "senior notes") due December 2011. Interest on the senior notes is due each June 15 and December 15. The senior notes are senior obligations and contain covenants that, among other things, limit the Company's ability to make investments, incur additional debt, issue preferred stock, pay dividends, repurchase its stock, create liens or sell assets. The senior notes were issued as unsecured obligations, but are currently secured equally and ratably with the Company's second lien term loan facility.

        The Company was in compliance with all debt covenants at March 31, 2009.

        Financed Derivative Premiums.    The Company has entered into derivative contracts that contain provisions for the deferral of the payment or receipt of premiums until the period of production for which the derivative contract relates. Both the derivative and the net liability for the payment of premiums were recorded at their fair values at the inception of the derivative contracts.

This excerpt taken from the VQ 10-Q filed Nov 6, 2008.

3. LONG-TERM DEBT

        As of the dates indicated, the Company's long-term debt consisted of the following (in thousands):

 
  December 31,
2007
  September 30,
2008
 

Revolving credit agreement due March 2011

  $ 42,000   $ 100,000  

Second lien term loan due September 2011

    500,000     500,000  

8.75% senior notes due December 2011

    149,453     149,556  

Financed derivative premiums due through 2011

    3,892     5,727  
           
 

Total long-term debt

    695,345     755,283  

Less: current portion of long-term debt

    3,449     2,518  
           
 

Long-term debt, net of current portion

  $ 691,896   $ 752,765  
           

         Revolving credit facility.    The Company has a $300.0 million revolving credit facility with a syndicate of banks ("revolving credit facility"). In May 2008, the revolving credit facility was amended to, among other things, extend the maturity date to March 30, 2011 and increase the borrowing base from $140.0 million to $200.0 million. The revolving credit facility is secured by a first priority lien on substantially all of the Company's oil and natural gas properties and other assets, including the equity interests in all of the Company's subsidiaries, and was unconditionally guaranteed by each of the Company's operating subsidiaries other than Ellwood Pipeline, Inc. The collateral also secures the Company's obligations to hedging counterparties that are also lenders, or affiliates of lenders, under the revolving credit agreement. Loans designated as Base Rate Loans under the revolving credit facility bear interest at a floating rate equal to (i) the greater of a market base rate and the overnight federal funds rate plus 0.50% plus (ii) an applicable margin ranging from zero to 0.75%, based upon utilization. Loans designated as LIBO Rate Loans under the revolving credit facility bear interest at (i) LIBOR plus (ii) an applicable margin ranging from 1.50% to 2.25%, based upon utilization. A commitment fee ranging from 0.375% to 0.5% per annum is payable with respect to unused borrowing availability under the facility. The agreement governing the facility contains customary representations, warranties, events of default, indemnities and covenants, including operational covenants that restrict the Company's ability to incur indebtedness and financial covenants that require the Company to maintain specified ratios of current assets to current liabilities and debt to EBITDA. The borrowing base is subject to redetermination in April and November of each year. As of November 5, 2008, the Company had effective available borrowing capacity of $79.8 million (net of $1.2 million in outstanding letters of credit and $4.75 million attributable to Lehman Commercial Paper—see below) under the revolving credit facility.

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VENOCO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

3. LONG-TERM DEBT (Continued)

        The borrowing base under the Company's revolving credit facility is currently $200.0 million and has been allocated at various percentages to a syndicate of 12 banks. Certain of the institutions included in the syndicate have received support from governmental agencies in connection with recent events in the credit markets. In addition, 4.75% of the $200.0 million borrowing base has been allocated to Lehman Commercial Paper ("LCP"), a wholly-owned subsidiary of Lehman Brothers Holding, Inc., which filed for bankruptcy protection on September 15, 2008. LCP is no longer funding its portion of the Company's borrowing requests made under the facility. As of November 5, 2008, the Company owed LCP $4.75 million. The Company's effective borrowing base is $195.25 million, excluding $4.75 million related to LCP.

         Second lien term loan facility.    The Company entered into its $500.0 million senior secured second lien term loan facility in May 2007. Loans made under the facility are designated, at the Company's option, as either "Base Rate Loans" or "LIBO Rate Loans." Loans designated as Base Rate Loans bear interest at a floating rate equal to (i) the greater of the overnight federal funds rate plus 0.50% and a market base rate, plus (ii) 3.00%. Loans designated as LIBO Rate Loans bear interest at LIBOR plus 4.00%.

        The term loan agreement contains customary representations, warranties, events of default and indemnities and certain customary covenants, including covenants that restrict the Company's ability to incur additional indebtedness. The facility is secured by second priority liens on substantially all of the Company's oil and natural gas properties and other assets, including the equity interests in all of its subsidiaries, and is unconditionally guaranteed by each of the Company's subsidiaries other than Ellwood Pipeline, Inc. Principal on the facility is payable on May 8, 2014. However, if the senior notes (see below) are not refinanced in full prior to September 20, 2011, principal on the new facility will be payable on that date.

        The Company may from time to time make optional prepayments of amounts borrowed under the facility if no amounts are outstanding under the revolving credit facility. Optional prepayments made prior to May 7, 2009 are subject to a prepayment premium of 1%. After that date, no premium will be payable with respect to any optional prepayment. Amounts prepaid under the facility may not be reborrowed.

         Senior notes.    In December 2004, the Company issued $150.0 million in 8.75% senior notes (the "senior notes") due December 2011. Interest on the senior notes is due each June 15 and December 15. The senior notes are senior obligations and contain covenants that, among other things, limit the Company's ability to make investments, incur additional debt, issue preferred stock, pay dividends, repurchase its stock, create liens or sell assets. The senior notes were issued as unsecured obligations, but are currently secured equally and ratably with the Company's second lien term loan facility.

        The Company was in compliance with all debt covenants at September 30, 2008.

         Financed Derivative Premiums.    The Company has entered into derivative contracts that contain provisions for the deferral of the payment or receipt of premiums until the period of production for which the derivative contract relates. Both the derivative and the net liability for the payment of premiums were recorded at their fair values at the inception of the derivative contracts.

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VENOCO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

This excerpt taken from the VQ 10-Q filed Aug 7, 2008.

3. LONG-TERM DEBT

        As of the dates indicated, the Company's long-term debt consisted of the following (in thousands):

 
  December 31,
2007
  June 30,
2008
 

Revolving credit agreement due March 2011

  $ 42,000   $ 85,000  

Second lien term loan due September 2011

    500,000     500,000  

8.75% senior notes due December 2011

    149,453     149,521  

Financed derivative premiums due through 2011

    3,892     10,108  
           
 

Total long-term debt

    695,345     744,629  

Less: current portion of long-term debt

    3,449     4,425  
           
 

Long-term debt, net of current portion

  $ 691,896   $ 740,204  
           

         Revolving credit facility.    The Company has a $300.0 million revolving credit facility with a syndicate of banks ("revolving credit facility"). In May 2008, the revolving credit facility was amended to, among other things, extend the maturity date to March 30, 2011 and increase the borrowing base from $140.0 million to $200.0 million. The revolving credit facility is secured by a first priority lien on substantially all of the Company's oil and natural gas properties and other assets, including the equity interests in all of the Company's subsidiaries, and was unconditionally guaranteed by each of the Company's operating subsidiaries other than Ellwood Pipeline, Inc. The collateral also secures the

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VENOCO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

3. LONG-TERM DEBT (Continued)


Company's obligations to hedging counterparties that are or were also lenders, or affiliates of lenders, under the revolving credit agreement. Base Rate Loans under the revolving credit facility bear interest at a floating rate equal to (i) the greater of a market base rate and the overnight federal funds rate plus 0.50% plus (ii) an applicable margin ranging from zero to 0.75%, based upon utilization. LIBO Rate Loans under the revolving credit facility bear interest at (i) LIBOR plus (ii) an applicable margin ranging from 1.50% to 2.25%, based upon utilization. A commitment fee ranging from 0.375% to 0.5% per annum is payable with respect to unused borrowing availability under the facility. The agreement governing the facility contains customary representations, warranties, events of default, indemnities and covenants, including operational covenants that restrict the Company's ability to incur indebtedness and financial covenants that require the Company to maintain specified ratios of current assets to current liabilities and debt to EBITDA. As of August 6, 2008, the Company had available borrowing capacity of $119.3 million (net of $0.7 million in outstanding letters of credit) under the revolving credit facility.

         Second lien term loan facility.    The Company entered into its $500.0 million senior secured second lien term loan facility in May 2007. Loans made under the facility are designated, at the Company's option, as either "Base Rate Loans" or "LIBO Rate Loans." Base Rate Loans bear interest at a floating rate equal to (i) the greater of the overnight federal funds rate plus 0.50% and a market base rate, plus (ii) 3.00%. LIBO Rate Loans bear interest at LIBOR plus 4.00%.

        The term loan agreement contains customary representations, warranties, events of default and indemnities and certain customary covenants, including covenants that restrict the Company's ability to incur additional indebtedness. The facility is secured by second priority liens on substantially all of the Company's oil and natural gas properties and other assets, including the equity interests in all of its subsidiaries, and is unconditionally guaranteed by each of the Company's subsidiaries other than Ellwood Pipeline, Inc. Principal on the facility is payable on May 8, 2014. However, if the senior notes (see below) are not refinanced in full prior to September 20, 2011, principal on the new facility will be payable on that date.

        The Company may from time to time make optional prepayments of amounts borrowed under the facility if no amounts are outstanding under the revolving credit facility. Optional prepayments made prior to May 7, 2009 are subject to a prepayment premium of 1%. After that date, no premium will be payable with respect to any optional prepayment. Amounts prepaid under the facility may not be reborrowed.

         Senior notes.    In December 2004, the Company issued $150.0 million in 8.75% senior notes (the "senior notes") due December 2011. Interest on the senior notes is due each June 15 and December 15. The senior notes are senior obligations and contain covenants that, among other things, limit the Company's ability to make investments, incur additional debt, issue preferred stock, pay dividends, repurchase its stock, create liens or sell assets. The senior notes were issued as unsecured obligations, but are currently secured equally and ratably with the Company's second lien term loan facility.

        The Company was in compliance with all debt covenants at June 30, 2008.

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VENOCO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

3. LONG-TERM DEBT (Continued)

         Financed Derivative Premiums.    The Company has entered into derivative contracts that contain provisions for the deferral of the payment or receipt of premiums until the period of production for which the derivative contract relates. Both the derivative and the net liability for the payment of premiums were recorded at their fair values at the inception of the derivative contracts.

This excerpt taken from the VQ 10-Q filed May 12, 2008.

3. LONG-TERM DEBT

        As of the dates indicated, the Company's long-term debt consisted of the following (in thousands):

 
  December 31,
2007

  March 31,
2008

Revolving credit agreement due March 2011   $ 42,000   $ 92,000
New second lien term loan due September 2011     500,000     500,000
8.75% senior notes due December 2011     149,453     149,487
Financed derivative premiums due through 2010     3,892     5,565
   
 
  Total long-term debt     695,345     747,052
Less: current portion of long-term debt     3,449     2,583
   
 
  Long-term debt, net of current portion   $ 691,896   $ 744,469
   
 

        Revolving credit facility.    The Company has a $300.0 million revolving credit facility with a syndicate of banks ("revolving credit facility"). In May 2008, the revolving credit facility was amended to, among other things, extend the maturity date to March 30, 2011 and increase the borrowing base from $140.0 million to $200.0 million. The revolving credit facility is secured by a first priority lien on substantially all of the Company's oil and natural gas properties and other assets, including the equity interests in all of the Company's subsidiaries, and was unconditionally guaranteed by each of the Company's operating subsidiaries other than Ellwood Pipeline, Inc. The collateral also secures the Company's obligations to hedging counterparties that are or were also lenders, or affiliates of lenders, under the revolving credit agreement. Base Rate Loans under the revolving credit facility bear interest at a floating rate equal to (i) the greater of a market base rate and the overnight federal funds rate

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VENOCO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

3. LONG-TERM DEBT (Continued)

plus 0.50% plus (ii) an applicable margin ranging from zero to 0.75%, based upon utilization. LIBO Rate Loans under the revolving credit facility bear interest at (i) LIBOR plus (ii) an applicable margin ranging from 1.50% to 2.25%, based upon utilization. A commitment fee ranging from 0.375% to 0.5% per annum is payable with respect to unused borrowing availability under the facility. The agreement governing the facility contains customary representations, warranties, events of default, indemnities and covenants, including operational covenants that restrict the Company's ability to incur indebtedness and financial covenants that require the Company to maintain specified ratios of current assets to current liabilities and debt to EBITDA. As of May 9, 2008, the Company had available borrowing capacity of $117.3 million (net of $0.7 million in outstanding letters of credit) under the revolving credit facility.

        Second lien term loan facility.    The Company entered into its $500.0 million senior secured second lien term loan facility in May 2007. Loans made under the facility are designated, at the Company's option, as either "Base Rate Loans" or "LIBO Rate Loans." Base Rate Loans bear interest at a floating rate equal to (i) the greater of the overnight federal funds rate plus 0.50% and a market base rate, plus (ii) 3.00%. LIBO Rate Loans bear interest at LIBOR plus 4.00%.

        The term loan agreement contains customary representations, warranties, events of default and indemnities and certain customary covenants, including covenants that restrict the Company's ability to incur additional indebtedness. The facility is secured by second priority liens on substantially all of the Company's oil and natural gas properties and other assets, including the equity interests in all of its subsidiaries, and is unconditionally guaranteed by each of the Company's subsidiaries other than Ellwood Pipeline, Inc. Principal on the facility is payable on May 8, 2014. However, if the senior notes (see below) are not refinanced in full prior to September 20, 2011, principal on the new facility will be payable on that date.

        The Company may from time to time make optional prepayments of amounts borrowed under the facility if no amounts are outstanding under the revolving credit facility. Optional prepayments made prior to May 7, 2009 are subject to a prepayment premium of 1%. After that date, no premium will be payable with respect to any optional prepayment. Amounts prepaid under the facility may not be reborrowed.

        Senior notes.    In December 2004, the Company issued $150.0 million in 8.75% senior notes (the "senior notes") due December 2011. Interest on the senior notes is due each June 15 and December 15. The senior notes are senior obligations and contain covenants that, among other things, limit the Company's ability to make investments, incur additional debt, issue preferred stock, pay dividends, repurchase its stock, create liens or sell assets. The senior notes were issued as unsecured obligations, but are currently secured equally and ratably with the Company's second lien term loan facility.

        The Company was in compliance with all debt covenants at March 31, 2008.

        Financed Derivative Premiums.    The Company has entered into derivative contracts that contain provisions for the deferral of the payment or receipt of premiums until the period of production for which the derivative contract relates. Both the derivative and the net liability for the payment of premiums were recorded at their fair values at the inception of the derivative contracts.

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VENOCO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

This excerpt taken from the VQ 10-Q filed Nov 19, 2007.

3. LONG-TERM DEBT

        As of the dates indicated, the Company's long-term debt consisted of the following (in thousands):

 
  December 31,
2006

  September 30, 2007
Revolving credit agreement due March 2009   $ 30,579   $ 10,000
Second lien term loan due March 2011     348,882    
New second lien term loan due September 2011         500,000
8.75% senior notes due December 2011     149,317     149,419
Financed derivative premiums due through 2010     4,395     2,912
   
 
  Total long-term debt     533,173     662,331
Less: current portion of long-term debt     3,557     2,121
   
 
  Long-term debt, net of current portion   $ 529,616   $ 660,210
   
 

        Senior notes.    On December 20, 2004, the Company issued $150.0 million in 8.75% senior notes (the "senior notes") due December 2011. Interest on the senior notes is due each June 15 and December 15. The senior notes are senior obligations and contain covenants that, among other things, limit the Company's ability to make investments, incur additional debt, issue preferred stock, pay dividends, repurchase its stock, create liens or sell assets. The senior notes were issued as unsecured obligations, but became secured equally and ratably with the Company's second lien term loan facility on March 30, 2006. Upon the replacement of the Company's second lien term loan facility with a new second lien term loan facility in May 2007 (see "—Second lien term loan facility"), the senior notes became secured equally and ratably with the new facility.

        Revolving credit facility.    The Company has a $300.0 million revolving credit facility with a syndicate of banks ("revolving credit facility") with a maturity date of March 30, 2009. At September 30, 2007, the revolving credit facility had a borrowing base of $125.0 million, was secured by a first priority lien on substantially all of the Company's oil and natural gas properties and other assets, including the equity interests in all of the Company's subsidiaries, and was unconditionally guaranteed by each of the Company's subsidiaries other than Ellwood Pipeline, Inc. The collateral also secured the Company's obligations to hedging counterparties that were also lenders, or affiliates of lenders, under the revolving credit agreement. Base Rate Loans under the revolving credit facility bear interest at a floating rate equal to (i) the greater of a market base rate and the overnight federal funds rate plus 0.50% plus (ii) an applicable margin ranging from zero to 0.75%, based upon utilization. LIBO Rate Loans under the revolving credit facility bear interest at (i) LIBOR plus (ii) an applicable margin ranging from 1.50% to 2.25%, based upon utilization. A commitment fee ranging from 0.375% to 0.5% per annum is payable with respect to unused borrowing availability under the facility. The agreement governing the facility contains customary representations, warranties, events of default, indemnities and covenants, including operational covenants that restrict the Company's ability to incur indebtedness and financial covenants that require the Company to maintain specified ratios of EBITDA (as defined in the agreement) to interest expense, current assets to current liabilities, debt to EBITDA and PV-10 (as defined in the agreement) to total debt. As of September 30, 2007, the Company had available borrowing capacity of $114.3 million (net of $0.7 million in outstanding letters of credit) under the revolving credit facility.

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        Second lien term loan facility.    The Company entered into a $350.0 million senior secured second lien term loan facility in connection with the TexCal Acquisition. Principal on amounts borrowed under the facility was payable on March 30, 2011. Optional prepayments were subject to a prepayment premium. In May 2007, the Company prepaid and replaced this facility with a new $500.0 million second lien term loan facility. In connection with the settlement of the prior facility, the Company paid a prepayment premium of $3.5 million and wrote off related deferred loan costs of $8.6 million. Those amounts are reflected as loss on extinguishment of debt in the condensed consolidated statement of operations.

        Of the total amount borrowed under the new facility, $350.5 million was used to repay all amounts outstanding under the prior facility plus accrued interest, $3.5 million was used to pay a prepayment premium on those amounts and $4.6 million was used to pay transaction costs associated with the new facility. The remaining borrowings were used to reduce amounts outstanding under the revolving credit facility.

        Loans made under the new facility are designated, at the Company's option, as either "Base Rate Loans" or "LIBO Rate Loans." Base Rate Loans bear interest at a floating rate equal to (i) the greater of the overnight federal funds rate plus 0.50% and a market base rate, plus (ii) 3.00%. LIBO Rate Loans bear interest at LIBOR plus 4.00%.

        The new term loan agreement contains customary representations, warranties, events of default and indemnities and certain customary covenants, including covenants that restrict the Company's ability to incur additional indebtedness. The new facility is secured by second priority liens on substantially all of the Company's oil and natural gas properties and other assets, including the stock of all of its subsidiaries, and is unconditionally guaranteed by each of the Company's subsidiaries other than Ellwood Pipeline, Inc. Principal on the new facility is payable on May 8, 2014. However, if the senior notes are not refinanced in full prior to September 20, 2011, principal on the new facility will be payable on that date.

        The Company may from time to time make optional prepayments of amounts borrowed under the new facility if no amounts are outstanding under the revolving credit facility. Optional prepayments made prior to May 8, 2008 are subject to a prepayment premium of 2%. The premium will be reduced to 1% for prepayments made between May 9, 2008 and May 8, 2009, after which no premium will be payable with respect to any optional prepayment. Amounts prepaid under the new facility may not be reborrowed.

        The Company was in compliance with all debt covenants at September 30, 2007.

        Financed Derivative Premiums.    The Company entered into derivative contracts in 2006 and 2007 for options that contain provisions for the deferral of the payment or receipt of premiums until the period of production for which the derivative contract relates. Both the derivative and the net liability for the payment of premiums were recorded at their fair values at the inception of the derivative contracts.

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        Mortgage.    On December 9, 2004, 6267 Carpinteria Avenue, LLC ("6267 Carpinteria"), which was then a wholly-owned subsidiary of the Company, purchased an office building in Carpinteria, California for $14.2 million. The purchase was financed in part by a secured 5.79% $10 million promissory note due January 1, 2015. On March 22, 2006, the Company paid a dividend consisting of 100% of the membership interests in 6267 Carpinteria to its sole stockholder, a trust controlled by the Company's CEO. The obligation for the 5.79% mortgage on the office building owned by 6267 Carpinteria was transferred to the sole stockholder in connection with the dividend.

This excerpt taken from the VQ 10-K filed Apr 2, 2007.

4.     LONG-TERM DEBT

        As of the dates indicated, the Company's long-term debt consisted of the following (in thousands):

 
  December 31,
 
 
  2005
  2006
 
 
  (Successor)

  (Successor)

 
Revolving credit agreement due March 2009   $ 20,000   $ 30,579  
Second lien term loan due March 2011         348,882  
8.75% senior notes due December 2011     149,180     149,317  
Financed derivative premiums due 2008         4,395  
5.79% mortgage on office building due January 2015     9,889      
   
 
 
Total long-term debt     179,069     533,173  
Less: current portion of long-term debt     (126 )   (3,557 )
   
 
 
Long-term debt, net of current portion   $ 178,943   $ 529,616  
   
 
 

        Senior notes.    On December 20, 2004, the Company issued $150.0 million in 8.75% senior notes (the "senior notes") due December 2011. Interest on the senior notes is due each June 15 and December 15 beginning June 15, 2005. The senior notes are senior obligations and contain covenants that, among other things, limit the Company's ability to make investments, incur additional debt, issue preferred stock, create liens or sell assets. The senior notes were issued as unsecured obligations, but became secured equally and ratably with the second lien term loan on March 30, 2006.

        Proceeds from the sale of the senior notes were used to repay $98.7 million the Company had borrowed against its $102 million Senior Secured Facility (the "Senior Facility") obtained in November 2004. Initial proceeds of $100.7 million from borrowings under the Senior Facility in 2004 were used to purchase all of the Company's mandatorily redeemable convertible preferred stock plus accrued dividends at a cost of $72 million and to repay outstanding borrowings of $27.3 million under the Company's former $150.0 million senior secured revolving/term credit facility entered into in November 2000. In December 2004, the amended and restated Senior Facility became a revolving credit agreement with no associated term loan facility ("revolving credit agreement"). At December 31, 2005, the revolving credit agreement had a borrowing base of $80 million, was secured by a first priority lien on substantially all of the Company's oil and natural gas properties and other assets, including the stock of all of the Company's subsidiaries, and was unconditionally guaranteed by each of the Company's subsidiaries other than Ellwood Pipeline, Inc. and 6267 Carpinteria Avenue, LLC. The collateral also secured the Company's obligations to hedging counterparties that were also lenders, or affiliates of lenders, under the revolving credit agreement. As of December 31, 2006, the Company had available borrowing capacity of $198.7 million (net of $0.7 million in outstanding letters of credit). The

F-19



revolving credit agreement, which was due to mature on November 4, 2007, was amended and restated in connection with the TexCal Acquisition.

        TexCal Acquisition Financing.    The Company financed the TexCal Acquisition through loans advanced under a second amendment and restatement of the revolving credit agreement and a new senior secured second lien term loan facility. On March 30, 2006, the Company borrowed $350 million pursuant to the second lien term loan facility. On March 31, 2006, the Company borrowed approximately $119.5 million under the amended revolving credit agreement to finance the remainder of the TexCal purchase price and related financing costs of approximately $14.4 million. The term loan facility was amended and restated as of April 28, 2006 and the revolving credit agreement was further amended on May 2, 2006, October 25, 2006 and November 29, 2006. The following summarizes certain terms of the credit facilities as amended as of December 31, 2006.

        The amended revolving credit facility has an aggregate maximum loan amount of $300 million and a borrowing base of $230 million. Principal on the second lien term loan facility is payable on March 30, 2011, and principal on the revolving credit facility is payable on March 30, 2009. Pursuant to mandatory prepayment provisions set forth in the credit facilities, substantially all of the proceeds of asset sales and certain additional borrowings, and up to 50% of the proceeds of equity issuances, must be used to reduce amounts outstanding under the revolving credit facilty or offered as prepayments to lenders under the second lien term loan facility. The Company may from time to time make optional prepayments on outstanding loans, subject to the satisfaction of certain conditions. Under the second lien term loan facility, optional prepayments made prior to March 30, 2008 are subject to a prepayment premium. Amounts prepaid under the second lien term loan facility may not be reborrowed. The revolving credit facility is secured by a first priority lien on substantially all of the Company's assets and is guaranteed by each of its subsidiaries other than Ellwood Pipeline, Inc. The second lien term loan facility is secured by second priority liens on the same collateral as the revolving credit agreement. A collateral trust agreement has been entered into in order to provide, for the benefit of the holders of the senior notes, liens on the Company's property that are equal and ratable with the liens securing the second lien term loan facility.

        Loans made under the revolving credit agreement and the second lien term loan facility are designated, at the Company's option, as either "Base Rate Loans" or "LIBO Rate Loans." Base Rate Loans under the revolving credit agreement bear interest at a floating rate equal to (i) the greater of Bank of Montreal's announced base rate and the overnight federal funds rate plus 0.50% plus (ii) a margin ranging from 0.75% to 1.50%, based upon utilization. LIBO Rate Loans under the revolving credit agreement bear interest at (i) LIBOR plus (ii) a margin ranging from 2.25% to 3.00%, based upon utilization. A commitment fee ranging from 0.375% to 0.5% per annum is payable with respect to unused borrowing availability under the facility.

        Base Rate Loans under the second lien term loan facility bear interest at a floating rate equal to (i) the greater of the administrative agent's announced base rate and the overnight federal funds rate plus 0.50% plus (ii) 3.50%. LIBO Rate Loans under the second lien term loan facility bear interest at LIBOR plus 4.50%.

        The revolving credit agreement and the second lien term loan facility contain customary representations, warranties, events of default, indemnities and covenants, including financial covenants that require the Company to maintain specified ratios of EBITDA to interest expense, current assets to current liabilities, debt to EBITDA and PV-10 to total debt, and limitations on dividends. As of December 31, 2006, the revolving credit agreement also imposes certain restrictions on acquisitions of oil and natural gas assets and capital expenditures. An October 2006 amendment to the revolving credit agreement also required the Company to enter into derivative contracts covering 75% of its anticipated production from proved developed producing reserves in 2010 at specified prices. The Company was in compliance with all debt covenants at December 31, 2006.

F-20



        Subsequent to December 31, 2006, the Company entered into an additional amendment to its revolving credit facility. The amendment, entered into on March 1, 2007, eliminated certain restrictions on acquisitions of oil and natural gas assets and capital expenditures.

        Financed Derivative Premiums.    The Company entered into derivative contracts for options that contain provisions for the deferral of the payment or receipt of premiums until the period of production for which the derivative contract relates. Both the derivative and the net liability for the payment of premiums were recorded at their fair values at the inception of the derivative contracts. The premiums for the derivative contract options contain an implicit interest rate factor of 16.9% for the difference in the derivative's fair value at inception and the liability for payment of premiums. The financed derivative premiums payable of $4.4 million at December 31, 2006 is net of an unamortized discount of $0.6 million.

        Mortgage.    On December 9, 2004, 6267 Carpinteria Avenue, LLC ("6267 Carpinteria"), a wholly-owned subsidiary of the Company, purchased an office building in Carpinteria, California for $14.2 million. The purchase was financed in part by a secured 5.79% $10 million promissory note due January 1, 2015. On March 22, 2006, the Company paid a dividend consisting of 100% of the membership interests in 6267 Carpinteria to its sole stockholder, a trust controlled by the Company's CEO. The obligation for the 5.79% mortgage on the office building owned by 6267 Carpinteria was transferred to the sole stockholder in connection with the dividend.

        Scheduled annual maturities of long-term debt were as follows at December 31, 2006:

Year Ending December 31 (in thousands):

   
2007   $ 3,557
2008     838
2009     30,579
2010    
2011     498,199
2012 and after    
   
    $ 533,173
   
This excerpt taken from the VQ 10-Q filed Nov 14, 2006.

4.     LONG-TERM DEBT

        Long term debt consisted of the following as of the dates indicated (in thousands):

 
  December 31,
2005

  September 30,
2006

Revolving credit facility due March 2009   $ 20,000   $ 179,529
Second lien term loan due March 2011         350,000
8.75% senior notes due December 2011     149,180     149,282
5.79% mortgage on office building due January 2015     9,889    
   
 
  Total long-term debt     179,069     678,811
Less: current portion of long-term debt     (126 )  
   
 
Long-term debt, net of current portion   $ 178,943   $ 678,811
   
 

        The Company financed the TexCal Acquisition through loans advanced under a second amendment and restatement of its existing revolving credit facility and a new senior secured second lien term loan facility. On March 30, 2006, the Company borrowed $350 million pursuant to the second lien term loan facility. The Company entered into the second amendment and restatement of its existing revolving credit facility on March 30, 2006. On March 31, 2006, the Company borrowed approximately $119.5 million under the amended revolving credit facility to finance the remainder of the TexCal purchase price and related financing costs of approximately $14.4 million. The term loan facility was amended and restated as of April 28, 2006 and the revolving credit facility was further amended on May 2, 2006. The following summarizes certain terms of the credit facilities as amended as of September 30, 2006.

        The amended revolving credit facility has an aggregate maximum loan amount of $300 million and an initial borrowing base of $200 million. Principal on the second lien term loan facility is payable on March 30, 2011, and principal on the revolving credit facility is payable on March 30, 2009. Pursuant to mandatory prepayment provisions set forth in the credit facilities, substantially all of the proceeds of asset sales and additional borrowings (except for certain unsecured borrowings and additional borrowings under the revolving credit facility), and up to 50% of the proceeds of equity issuances, must be used to reduce amounts outstanding under one or both facilities. The Company may from time to time make optional prepayments on outstanding loans. Under the second lien term loan facility, optional prepayments made prior to March 30, 2008 are subject to a prepayment premium. The revolving credit facility is secured by a first priority lien on substantially all of the Company's assets and

10



is guaranteed by each of its subsidiaries other than Ellwood Pipeline, Inc. The second lien term loan facility is secured by second priority liens on the same collateral as the revolving credit facility. A collateral trust agreement has been entered into in order to provide, for the benefit of the holders of the Company's senior notes, liens on the Company's property that are equal and ratable with the liens securing the second lien term loan facility. At such time as all liens securing outstanding indebtedness under the revolving credit facility and the second lien term loan facility constitute "Permitted Liens" (as defined in the indenture governing the senior notes), the collateral trust agreement will be terminated and the senior notes will no longer be secured obligations, but will be effectively junior in right of payment to the indebtedness under the revolving credit facility and the second lien term loan facility to the extent of the value of the collateral securing those facilities.

        Loans made under the revolving credit agreement and the second lien term loan facility are designated, at the Company's option, as either "Base Rate Loans" or "LIBO Rate Loans." Base Rate Loans under the revolving credit facility bear interest at a floating rate equal to (i) the greater of Bank of Montreal's announced base rate and the overnight federal funds rate plus 0.50% plus (ii) a margin ranging from zero to 0.75%, based upon utilization. LIBO Rate Loans under the revolving credit facility bear interest at (i) LIBOR plus (ii) a margin ranging from 1.50% to 2.25%, based upon utilization. A commitment fee ranging from 0.375% to 0.5% per annum is payable with respect to unused borrowing availability under the facility.

        Base Rate Loans under the second lien term loan facility bear interest at a floating rate equal to (i) the greater of the administrative agent's announced base rate and the overnight federal funds rate plus 0.50% plus (ii) a margin ranging from 3.00% to 3.50%. LIBO Rate Loans under the second lien term loan facility bear interest at (i) LIBOR plus (ii) a margin ranging from 4.00% to 4.50%. In each case, the applicable margin depends on the Company's consolidated leverage ratio and whether the Company has completed a public equity offering that results in net proceeds to the Company of at least $200.0 million.

        The revolving credit agreement and the second lien term loan facility contain customary representations, warranties, events of default, indemnities and covenants, including financial covenants that require the Company to maintain specified ratios of EBITDA to interest expense, current assets to current liabilities, debt to EBITDA and PV-10 to total debt.

        On March 22, 2006, the Company paid a dividend consisting of 100% of the membership interests in 6267 Carpinteria, LLC ("6267 Carpinteria") to its then-sole stockholder, a trust controlled by the Company's CEO. The obligation for the 5.79% mortgage on the office building owned by 6267 Carpinteria was transferred to the sole stockholder in connection with the dividend.

        Subsequent to September 30, 2006, the Company entered into an additional amendment to its revolving credit facility. The amendment, entered into on October 25, 2006, provided for, among other things, an increase in the borrowing base from $200.0 million to $230.0 million and an increase in the interest rate applicable to amounts borrowed under the facility of 0.5%. The interest rate will decline by 0.5% following the completion of a public offering of equity securities if the Company's net proceeds from the offering are at least $200.0 million. The facility as amended imposes certain restrictions on acquisitions of oil and natural gas assets, capital expenditures and cash dividends prior to completion of such an offering, and required the Company to enter into derivative contracts

11



covering 75% of its anticipated production from proved developed producing reserves in 2010 at specified prices.

        See Note 5 for a description of the interest rate derivative contracts.

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