6. Long-Term Debt

On June 10, 2011, we issued $600 million of our senior notes at par with an interest rate of 8.5% and maturity date of June 15, 2019 (the "8.5% Senior Notes"). Interest is payable semi-annually in arrears on June 15 and December 15 of each year beginning on December 15, 2011. The 8.5% Senior Notes are unsecured and are fully and unconditionally guaranteed by certain of our subsidiaries. The restrictive covenants and redemption provisions of the 8.5% Senior Notes are substantially similar to the terms of the 8.25% Senior Notes due 2014 (the "8.25% Senior Notes"). At September 30, 2011, the outstanding balance of our 8.5% Senior Notes was $600 million and was classified at their carrying value as long-term debt. The estimated annual effective interest rate on the 8.5% Senior Notes is 8.7% which includes amortization of debt issuance costs. At September 30, 2011, the estimated fair value of the 8.5% Senior Notes was approximately $579 million. For additional details about fair value measurements, refer to Note 7.

In June and July of 2011, we used a portion of the net proceeds from the issuance of the 8.5% Senior Notes to repurchase all of our 8.25% Senior Notes, which had a principal amount of $450 million. Costs of $22.0 million related to repurchasing the 8.25% Senior Notes, which included repurchase premiums and the unamortized debt issuance costs, are included in the statement of income within the line item classification, Loss on extinguishment of debt. At December 31, 2010, the outstanding balance of our 8.25% Senior Notes was $450 million and was classified at their carrying value as long-term debt. At December 31, 2010, the estimated fair value of the 8.25% Senior Notes was approximately $441 million. For additional details about fair value measurements, refer to Note 7.

On May 5, 2011, we entered into a Fourth Amended and Restated Credit Agreement (the "Credit Agreement") which provides a revolving bank credit facility with an initial borrowing base of $525 million. This is a secured facility that is collateralized by our oil and natural gas properties. The Credit Agreement terminates on May 5, 2015 and replaces the prior Third Amended and Restated Credit Agreement (the "Prior Credit Agreement"), which would have expired July 23, 2012. The pricing terms and restrictive covenants of the Credit Agreement are substantially similar to the terms of the Prior Credit Agreement. Availability under the Credit Agreement is subject to a semi-annual borrowing base determination set at the discretion of our lenders. The amount of the borrowing base is calculated by our lenders based on their evaluation of our proved reserves and their own internal criteria. Any determination by our lenders to change our borrowing base will result in a similar change in the availability under our revolving bank credit facility.

Pursuant to the Credit Agreement, the initial borrowing base was adjusted due to the following two items. First, the initial borrowing base was reduced by $37.5 million due to the issuance of the 8.5% Senior Notes of $600 million. Second, the borrowing base was increased by $50 million due to the consummation of the acquisition of the Fairway Properties in August 2011. After these two transactions, our borrowing base was $537.5 million as of September 30, 2011. In October 2011, the borrowing base was re-determined by our lenders and increased to $575 million.

The Credit Agreement contains covenants that restrict, among other things, the payment of cash dividends and share repurchases of up to $60 million per year, borrowings other than from the revolving bank credit facility, sales of assets, loans to others, investments, merger activity, hedging contracts, liens and certain other transactions without the prior consent of the lenders. Letters of credit may be issued up to $90 million, provided availability under the revolving bank credit facility exists. We are subject to various financial covenants calculated as of the last day of each fiscal quarter including a minimum current ratio and a maximum leverage ratio as such ratios are defined in the Credit Agreement. We were in compliance with all applicable covenants of the Credit Agreement as of September 30, 2011.

Borrowings under the revolving bank credit facility bear interest at the applicable London Interbank Offered Rate ("LIBOR") plus a margin that varies from 2.00% to 2.75% depending on the level of total borrowings under the Credit Agreement, or an alternative base rate equal to the applicable margin ranging from 1.00% to 1.75% plus the highest of the (a) Prime Rate, (b) Federal Funds Rate plus 0.50%, and (c) LIBOR plus 1.0%. The unused portion of the borrowing base is subject to a commitment fee of 0.50%. The estimated annual effective interest rate was 3.7% for the nine months ended September 30, 2011 for borrowings under the Credit Agreement and the Prior Credit Agreement and includes amortization of debt issuance costs, and excludes commitment fees and other costs.

Unamortized debt issuance costs of $0.7 million related to the Prior Credit Agreement were written off and are included in the statement of income within the line item classification, Loss on extinguishment of debt.

At September 30, 2011, we had $94 million in borrowings and $0.5 million in letters of credit outstanding under the revolving bank credit facility. At December 31, 2010, we had no borrowings and $0.4 million in letters of credit outstanding under the revolving bank credit facility provided by the Prior Credit Agreement.