OHA Investment (OHAI) 10-Q 2011 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _______________

Commission file number: 814-00672

NGP Capital Resources Company

(Exact name of registrant as specified in its charter)

Maryland	20-1371499
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1221 McKinney Street, Suite 2975 Houston, Texas	77010
(Address of principal executive offices)	(Zip Code)

(713) 752-0062

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  þ   No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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   ¨	Accelerated filer     þ	Non-accelerated filer     ¨	Smaller reporting company   ¨
		(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨   No þ

As of May 3, 2011, there were 21,628,202 shares of the registrant’s common stock outstanding.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION	1
Item 1.     Financial Statements	1
Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.     Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.     Controls and Procedures	39
PART II – OTHER INFORMATION	40
Item 1.     Legal Proceedings	40
Item 1A.  Risk Factors	40
Item 6.     Exhibits	40

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED BALANCE SHEETS

	March 31, 2011			December 31, 2010
	(Unaudited)
Assets
Investments in portfolio securities at fair value
Control investments - majority owned
(cost: $94,378,591 and $89,502,910, respectively)	$	79,276,359		$	70,973,316
Affiliate investments
(cost: $35,771,803 and $34,146,328, respectively)		23,495,180			33,064,028
Non-affiliate investments
(cost: $95,726,987 and $114,852,057, respectively)		94,241,048			112,025,645
Investments in U.S. Treasury Bills at fair value
(cost: $30,600,288 and $0, respectively)		30,600,314			-
Total investments		227,612,901			216,062,989
Cash and cash equivalents		57,962,633			68,456,908
Accounts receivable and other current assets		1,316,303			3,095,882
Interest receivable		891,110			2,236,122
Prepaid assets		1,629,184			1,736,732
Deferred tax assets		1,529,867			-
Total current assets		63,329,097			75,525,644
Total assets	$	290,941,998		$	291,588,633
Liabilities and stockholders' equity (net assets)
Current liabilities
Accounts payable and accrued expenses	$	535,368		$	525,111
Management and incentive fees payable		1,333,288			1,376,032
Dividends payable		3,893,076			3,893,076
Income taxes payable		60,136			50,350
Current portion of long-term debt		30,000,000			-
Total current liabilities		35,821,868			5,844,569
Deferred tax liabilities		1,546,503			18,136
Long-term debt, less current portion		25,000,000			50,000,000
Total liabilities		62,368,371			55,862,705
Commitments and contingencies  (Note 6)
Stockholders’ equity (net assets)
Common stock, $.001 par value, 250,000,000 shares authorized;
21,628,202 shares issued and outstanding		21,628			21,628
Paid-in capital in excess of par		293,789,803			293,789,803
Undistributed net investment income (loss)		(8,741,083	)		(7,845,925	)
Undistributed net realized capital gain (loss)		(33,303,581	)		(32,778,782	)
Net unrealized appreciation (depreciation) of portfolio securities
and commodity derivative instruments		(23,193,140	)		(17,460,796	)
Total stockholders’ equity (net assets)		228,573,627			235,725,928
Total liabilities and stockholders' equity (net assets)	$	290,941,998		$	291,588,633
Net asset value per share	$	10.57		$	10.90

(See accompanying notes to consolidated financial statements)

1

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For The Three Months Ended
	March 31, 2011			March 31, 2010
Investment income
Interest income:
Control investments - majority owned	$	1,355,909		$	1,099,979
Affiliate investments		951,865			832,913
Non-affiliate investments		3,479,005			3,177,541
Royalty income (loss), net of amortization:
Control investments - majority owned		478,350			294,811
Non-affiliate investments		255,782			(518,056	)
Commodity derivative income, net of expired options		-			16,079
Other income		33,750			290,000
Total investment income		6,554,661			5,193,267
Operating expenses
Management and incentive fees		1,333,288			1,338,569
Professional fees		199,040			265,304
Insurance expense		182,543			185,658
Interest expense and fees		309,421			313,063
State and excise taxes		656			-
Other general and administrative expenses		829,079			946,420
Total operating expenses		2,854,027			3,049,014
Net investment income before income taxes		3,700,634			2,144,253
Benefit (provision) for income taxes		(702,716	)		287,074
Net investment income		2,997,918			2,431,327
Net realized capital gain (loss) on investments
Net realized capital gain (loss) on portfolio securities:
Control investments - majority owned		81,275			-
Non-affiliate investments		(606,361	)		-
Benefit (provision) for taxes on capital gain (loss)		287			(9,151	)
Total net realized capital gain (loss) on investments		(524,799	)		(9,151	)
Net unrealized gain (loss) on investments
Net increase (decrease) in unrealized appreciation
(depreciation) on portfolio securities and
commodity derivative instruments:
Control investments - majority owned		3,427,363			6,501
Affiliate investments		(11,194,323	)		558,719
Non-affiliate investments		1,340,473			2,313,989
Benefit (provision) for taxes on unrealized gain (loss)		694,143			(293,149	)
Total net unrealized gain (loss) on investments		(5,732,344	)		2,586,060
Net increase (decrease) in stockholders' equity
(net assets) resulting from operations	$	(3,259,225	)	$	5,008,236
Net increase (decrease) in stockholders' equity (net assets)
resulting from operations per common share	$	(0.15	)	$	0.24

(See accompanying notes to consolidated financial statements)

2

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (NET ASSETS)

(Unaudited)

													Net Unrealized
					Paid-in					Undistributed			Appreciation			Total
					Capital		Undistributed			Net Realized			(Depreciation)			Stockholders'
	Common Stock				in Excess		Net Investment			Capital			of Portfolio			Equity
	Shares		Amount		of Par		Income (Loss)			Gain (Loss)			Securities			(Net Assets)
Balance at December 31, 2010		21,628,202	$	21,628	$	293,789,803	$	(7,845,925	)	$	(32,778,782	)	$	(17,460,796	)	$	235,725,928
Net increase (decrease) in in stockholders' equity (net assets) resulting from operations		-		-		-		2,997,918			(524,799	)		(5,732,344	)		(3,259,225	)
Dividends declared		-		-		-		(3,893,076	)		-			-			(3,893,076	)
Balance at March 31, 2011		21,628,202	$	21,628	$	293,789,803	$	(8,741,083	)	$	(33,303,581	)	$	(23,193,140	)	$	228,573,627

(See accompanying notes to consolidated financial statements)

3

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For The Three Months Ended
	March 31, 2011			March 31, 2010
Cash flows from operating activities
Net increase (decrease) in stockholders' equity (net assets) resulting from operations	$	(3,259,225	)	$	5,008,236
Adjustments to reconcile net increase (decrease) in stockholders' equity (net assets)
resulting from operations to net cash (used in) provided by operating activities
Payment-in-kind interest		(1,459,899	)		(1,731,489	)
Net amortization of premiums, discounts and fees		464,832			2,968,431
Net realized capital loss on portfolio securities before taxes		525,086			-
Change in unrealized  (appreciation) depreciation on portfolio securities
and commodity derivative instruments before taxes		6,426,487			(2,879,209	)
Current portion of deferred income taxes		(1,529,867	)		(266,975	)
Non-current deferred income taxes		1,528,367			266,975
Effects of changes in operating assets and liabilities
Accounts receivable and other current assets		1,779,579			9,316
Interest receivable		1,345,012			407,567
Prepaid assets		107,548			297,444
Accounts payable and accrued expenses		(32,487	)		(68,120	)
Income taxes payable		9,786			15,226
Purchase of investments in portfolio securities and commodity
derivative instruments		(14,756,788	)		(3,294,585	)
Proceeds from the redemption of investments in portfolio securities
and commodity derivative instruments		27,850,658			2,587,715
Purchase of investments in U.S. Treasury Bills		(30,600,288	)		-
Net cash (used in) provided by operating activities		(11,601,199	)		3,320,532
Cash flows from financing activities
Borrowings under revolving credit facilities		55,000,000			64,905,200
Repayments on revolving credit facility		(50,000,000	)		(67,500,000	)
Dividends paid		(3,893,076	)		(3,676,794	)
Net cash (used in) provided by financing activities		1,106,924			(6,271,594	)
Net increase (decrease) in cash and cash equivalents		(10,494,275	)		(2,951,062	)
Cash and cash equivalents, beginning of period		68,456,908			108,288,217
Cash and cash equivalents, end of period	$	57,962,633		$	105,337,155

(See accompanying notes to consolidated financial statements)

4

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2011

(Unaudited)

Portfolio Company	Energy Industry Segment	Investment (1) (2) (4)	Principal		Cost		Fair Value (3)
TARGETED INVESTMENTS
Control Investments - Majority Owned (50% or more owned)
Alden Resources, LLC (7)	Coal Production	Senior Secured	$	16,497,033	$	15,254,073	$	15,154,073
		Multiple-Advance Term Loan - Tranche A
		(The greater of 12.00% or LIBOR +
		9.00% cash, due 1/05/2013)
		Senior Secured		25,254,049		19,519,841		19,519,841
		Multiple-Advance Term Loan - Tranche B
		(The greater of 12.00% or LIBOR +
		9.00% cash, 15.00% or LIBOR +
		12.00% PIK, due 1/05/2013) (9)
		Senior Secured		6,240,000		6,240,000		6,240,000
		Multiple-Advance Term Loan - Revolver
		(The greater of 12.00% or LIBOR +
		9.00% cash, 15.00% or LIBOR +
		12.00% PIK, due 1/05/2013)
		5.8 million Class E Units - entitled  to				5,800,000		5,800,000
		100% of distributions of Alden Resources
		until payout, 80% after payout (8)
		Royalty Interest				2,473,687		13,200,000
BSR Holdings, LLC (7) (18)	Oil & Natural Gas	100% of membership interests of				-		-
	Production and Development	BSR Holdings, LLC (8)
DeanLake Operator, LLC (7)	Oil & Natural Gas	Class A membership interests - entitled to 100%				14,050,255		3,500,000
	Production and Development	of distribution of DeanLake Operator, LLC
		until payout, 80% after payout (8)
		Overriding Royalty Interest				17,502		50,000
Gatliff Services, LLC (7)	Coal Processing	Senior Secured		13,212,445		13,212,445		13,212,445
		Multiple-Advance Term Loan
		(8.00% during construction, 12.00%
		after completion, due 9/30/2020)
		One Membership Unit - representing 100%				1,100,000		1,100,000
		ownership of Gatliff Services, LLC  (8)
Rubicon Energy Partners,	Oil & Natural Gas	4,000 LLC Units representing				-		-
LLC (7)	Production and Development	50% ownership of the assets of
		Rubicon Energy Partners, LLC (8)
TierraMar Energy, LP (7)	Oil & Natural Gas	212,637 Class A Preferred LP Units - entitled to				16,710,788		1,500,000
	Production and Development	100% of distribution of TierraMar Energy LP
		until payout, 67% after payout (8)
Subtotal Control Investments - Majority Owned (50% or more owned)					$	94,378,591	$	79,276,359

(See accompanying notes to consolidated financial statements)

5

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2011

(Unaudited)

(continued)

Portfolio Company	Energy Industry Segment	Investment (1) (2) (4)	Principal		Cost		Fair Value (3)
TARGETED INVESTMENTS  - Continued
Affiliate Investments - (5% to 25% owned)
BioEnergy Holding, LLC (7)	Alternative Fuels and	Senior Secured Notes	$	16,662,326	$	15,527,504	$	7,763,752
	Specialty Chemicals	(15.00%, due 3/06/2015) (9)
		BioEnergy Holding Units - 11.1% of outstanding				1,296,771		-
		units of BioEnergy Holdings, LLC (8)
		Myriant Technologies Warrants (8) (13)				49,238		49,238
		Myriant Technologies Units - 0.59% of the				418,755		706,132
		outstanding units of Myriant Technologies, Inc.(8)
Bionol Clearfield, LLC (7) (11) (17)	Alternative Fuels and	Senior Secured Tranche C		4,950,000		4,950,000		2,475,000
	Specialty Chemicals	2nd Lien Term Loan (8)
		(LIBOR + 7.00% cash, LIBOR + 9.00%
		default, due 9/06/2016) (19)
Resaca Exploitation Inc.	Oil & Natural Gas	Senior Unsecured Term Loan		10,282,611		10,044,281		10,044,281
	Production and Development	(9.50% cash or 12.0% PIK,
		due on 12/31/2014) (7)
		Warrants (7) (8) (21)				250,000		250,000
		Common Stock (1,345,595 shares) - representing				3,235,254		2,206,777
		6.82% of outstanding common stock of
		Resaca Exploitation Inc. (6) (8) (14)
Subtotal Affiliate Investments - (5% to 25% owned)					$	35,771,803	$	23,495,180
Non-affiliate Investments - (Less than 5% owned)
Anadarko Petroleum Corporation	Oil & Natural Gas	Multiple-Advance Net Profits Interest	$	9,433,760	$	9,478,460	$	9,778,459
2007-III Drilling Fund (7)	Production and Development	(Due 4/23/2032)
ATP Oil & Gas Corporation (7)	Oil & Natural Gas	Limited Term Royalty Interest				4,530,324		4,530,324
	Production and Development	(Dollar Denominated - 16.00% Return)
Black Pool Energy	Oil & Natural Gas	Senior Secured		17,609,600		17,509,047		17,509,047
Partners, LLC (7)	Production and Development	Multiple-Advance Term Loan
		(The greater of 15.00% or LIBOR +
		11.00% cash, due 10/24/2011)
		Overriding Royalty Interest				9,343		100,000
		Warrants (8) (15)				10,000		10,000
Chroma Exploration &	Oil & Natural Gas	10,930 Shares Series A Participating				2,221,710		100,000
Production, Inc. (7)	Production and Development	Convertible Preferred Stock (9)
		9,981 Shares Series AA Participating				2,089,870		650,000
		Convertible Preferred Stock (9)
		8.11 Shares Common Stock (8)				-		-
		Warrants (8) (10)				-		-
Crestwood Holdings, LLC (7)	Natural Gas	Senior Secured Term Loan		8,857,500		8,710,486		8,710,486
	Gathering and Processing	(The greater of 10.50% or LIBOR + 8.50%,
		due 10/01/2016)
Greenleaf Investments, LLC (7)	Oil & Natural Gas	Senior Secured		8,065,189		8,054,076		8,054,076
	Production and Development	Multiple-Advance Term Loan
		(The greater of 10.50% or LIBOR + 6.50%,
		due 4/30/2011)
		Overriding Royalty Interest				16,305		400,000

(See accompanying notes to consolidated financial statements)

6

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2011

(Unaudited)

(continued)

Portfolio Company	Energy Industry Segment	Investment (1) (2) (4)	Principal		Cost		Fair Value (3)
TARGETED INVESTMENTS  - Continued
Non-affiliate Investments - (Less than 5% owned) - Continued
GMX Resources, Inc. (6)	Oil & Natural Gas	Senior Convertible Notes	$	4,661,000	$	3,918,451	$	4,352,209
	Production and Development	(5.00%, due 2/1/2013)
Nighthawk Transport I, LP (7)	Energy Services	LP Units (8) (20)				-		-
		Warrants (8) (20)				-		-
Pallas Contour Mining, LLC (7)	Coal Mining	Senior Secured		13,661,290		13,709,145		13,709,145
		Multiple-Advance Term Loan
		(14.00%, due 10/14/2015)
Powder River Acquisitions, LLC (7)	Oil & Natural Gas	Senior Secured		3,000,000		3,000,000		3,000,000
	Production and Development	Promissory Note
		(8.00%, due 9/30/2011)
Tammany Oil & Gas, LLC (7)	Oil & Natural Gas	Senior Secured		22,332,804		22,317,302		22,317,302
	Production and Development	Multiple-Advance Term Loan
		(The greater of 13.0% or LIBOR + 8.00%,
		due 9/30/2012)
		Overriding Royalty Interest				132,468		1,000,000
		After Pay-Out Overriding Royalty Interest (8) (16)				10,000		10,000
		Warrants (8) (12) (16)				10,000		10,000
Subtotal Non-affiliate Investments - (Less than 5% owned)					$	95,726,987	$	94,241,048
Subtotal Targeted Investments (86.55% of total investments)					$	225,877,381	$	197,012,587
GOVERNMENT SECURITIES (5)
U.S. Treasury Bills		U.S. Treasury Bills, 0.03%, due 04/28/2011		30,000,000		29,999,300		29,999,325
U.S. Treasury Bills		U.S. Treasury Bills, 0.025%, due 04/28/2011		601,000		600,988		600,989
Subtotal Government Securities (13.45% of total investments)					$	30,600,288	$	30,600,314
TOTAL INVESTMENTS					$	256,477,669	$	227,612,901

(See accompanying notes to consolidated financial statements)

7

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2011

(Unaudited)

(continued)

NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS

(1) All of our investments are collateral for obligations under our credit facility.

(2) Percentages represent interest rates in effect at the end of the period and due dates represent the contractual maturity dates.

(3) Our Board of Directors determines, in good faith, the fair value of our investments.

(4) All investments are in entities with primary operations in the United States of America.

(5) Investments are level 1 securities hierarchy.

(6) Investments are level 2 securities hierarchy.

(7) Investments are level 3 securities hierarchy.

(8) Non-income producing securities.

(9) Non-accrual status.

(10) Chroma warrants expire on April 5, 2012 and provide us the right to purchase 2,462 shares of common stock at a purchase price of $75.00 per share.

(11) BioEnergy Holdings, LLC owns 100% of Bionol Clearfield, LLC.

(12) Tammany Oil & Gas, LLC warrants expire five years after repayment of principal and interest and provide us the right to purchase approximately 20% of membership shares at the exercise price of approximately $17.61 per share.

(13) Myriant Technologies, Inc. warrants expire on August 15, 2015 and provide us the right to purchase  32,680 units, representing membership interests of Myriant Technologies, Inc., at the  purchase price of $10.00 per unit.

(14) Resaca Exploitation, Inc. stock trades on the Alternative Investment Market of the London Stock Exchange.  On April 1, 2010, it began trading in U.S Dollars.

(15) Black Pool warrants expire seven years after repayment of principal and interest and provide us the right to purchase approximately 25% of membership interest at the exercise price of $0.01 per unit.

(16) Tammany Oil & Gas, LLC retains the right to repurchase the after pay-out ORRI and 10% warrants for $1,250,000 on or before September 30, 2011.

(17) We issued a forbearance agreement to Bionol Clearfield, LLC on June 16, 2010 due to a default event.

(18) Oil and gas assets owned by BSR Holdings, LLC were sold on October 13, 2010.

(19) Bionol Clearfield, LLC (Bionol) has not paid scheduled interest payments since  March 10, 2010 due to a default event involving a Bionol customer, as per the terms of our credit agreement with Bionol.  Bionol and the customer are currently in arbitration and we do not know when or whether Bionol will be able to make its scheduled interest payments.

(20) Due to insufficient recoveries in the liquidation under Nighthawk's voluntary petition under Chapter 7 of the United States Bankruptcy Code, we recognized a realized loss of our total remaining investment in Nighthawk notes in December 2009.  We retain ownership in warrants and units in Nighthawk and have assigned no value to that interest.

(21) Resaca Exploitation, Inc. warrants expire 10 business days following termination of the credit agreement and entitle us to purchase up to 2,420,000 shares of Resaca common stock at a purchase price of $1.93 per share.

(See accompanying notes to consolidated financial statements)

8

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2010

Portfolio Company	Energy Industry Segment	Investment (1) (2) (4)	Principal		Cost		Fair Value (3)
TARGETED INVESTMENTS
Control Investments - Majority Owned (50% or more owned)
Alden Resources, LLC (17)	Coal Production	Senior Secured	$	16,497,033	$	15,106,754	$	15,006,754
		Multiple-Advance Term Loan - Tranche A
		(The greater of 12.00% or LIBOR +
		9.00% cash, due 1/05/2013) (18)
		Senior Secured		24,330,226		19,519,841		19,519,841
		Multiple-Advance Term Loan - Tranche B
		(The greater of 12.00% or LIBOR +
		9.00% cash, 15.00% or LIBOR +
		12.00% PIK, due 1/05/2013) (6)
		Senior Secured		3,000,000		3,000,000		3,000,000
		Multiple-Advance Term Loan - Revolver
		(The greater of 12.00% or LIBOR +
		9.00% cash, 15.00% or LIBOR +
		12.00% PIK, due 1/05/2013) (18)
		5.8 million Class E Units - entitled  to				5,800,000		5,800,000
		100% of distributions of Alden Resources
		until payout, 80% after payout (5)
		Royalty Interest				2,486,020		10,300,000
BSR Holdings, LLC (15) (17)	Oil & Natural Gas	100% of membership interests of				-		-
	Production and Development	BSR Holdings, LLC.
DeanLake Operator, LLC (17)	Oil & Natural Gas	Class A membership interests - entitled to 100%				14,050,255		3,500,000
	Production and Development	of distribution of DeanLake Operator, LLC
		until payout, 80% after payout (5)
		Overriding Royalty Interest				17,622		50,000
Gatliff Services, LLC (17)	Coal Processing	Senior Secured		11,696,721		11,696,721		11,696,721
		Multiple-Advance Term Loan
		(8.00% during construction, 12.00%
		after completion, due 9/30/2020)
		One Membership Unit - representing 100%				1,100,000		1,100,000
		ownership of Gatliff Services, LLC  (5)
Rubicon Energy Partners,	Oil & Natural Gas	4,000 LLC Units representing				-		-
LLC (17)	Production and Development	50% ownership of the assets of
		Rubicon Energy Partners, LLC (5)
TierraMar Energy, LP (17)	Oil & Natural Gas	212,637 Class A Preferred LP Units - entitled to				16,710,788		900,000
	Production and Development	100% of distribution of TierraMar Energy LP
		until payout, 67% after payout (5)
		Overriding Royalty Interest				14,909		100,000
Subtotal Control Investments - Majority Owned (50% or more owned)					$	89,502,910	$	70,973,316

(See accompanying notes to consolidated financial statements)

9

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2010

(continued)

Portfolio Company	Energy Industry Segment	Investment (1) (2) (4)	Principal		Cost		Fair Value (3)
TARGETED INVESTMENTS  - Continued
Affiliate Investments - (5% to 25% owned)
BioEnergy Holding, LLC (17)	Alternative Fuels and	Senior Secured Notes	$	15,485,039	$	14,302,570	$	14,302,570
	Specialty Chemicals	(15.00%, due 3/06/2015)
		BioEnergy Holding Units - 11.1% of outstanding				1,296,771		1,296,771
		units of BioEnergy Holdings, LLC (5)
		Myriant Technologies Warrants (5) (10)				49,238		49,238
		Myriant Technologies Units - 1.9% of the				418,755		418,755
		outstanding units of Myriant Technologies, LLC (5)
Bionol Clearfield, LLC (8) (14) (17)	Alternative Fuels and	Senior Secured Tranche C		4,950,000		4,950,000		4,950,000
	Specialty Chemicals	2nd Lien Term Loan
		(LIBOR + 7.00% cash, LIBOR + 9.00%
		default, due 9/06/2016) (19)
Resaca Exploitation Inc.	Oil & Natural Gas	Senior Secured		10,000,000		9,893,740		9,893,740
	Production and Development	Revolving Credit Facility
		(The greater of 8.0% or LIBOR + 5.50%,
		due 7/01/2012) (17)
		Common Stock (1,345,595 shares) - representing				3,235,254		2,152,954
		6.84% of outstanding common stock of
		Resaca Exploitation Inc. (5) (11) (16)
Subtotal Affiliate Investments - (5% to 25% owned)					$	34,146,328	$	33,064,028
Non-affiliate Investments - (Less than 5% owned)
Anadarko Petroleum Corporation	Oil & Natural Gas	Multiple-Advance Net Profits Interest	$	9,532,723	$	9,586,637	$	9,886,635
2007-III Drilling Fund (17)	Production and Development	(Due 4/23/2032)
ATP Oil & Gas Corporation (17)	Oil & Natural Gas	Limited Term Royalty Interest				6,548,318		6,548,318
	Production and Development	(Dollar Denominated - 16.00% Return)
Black Pool Energy	Oil & Natural Gas	Senior Secured		17,895,000		17,754,507		17,754,507
Partners, LLC (17)	Production and Development	Multiple-Advance Term Loan
		(The greater of 15.00% or LIBOR +
		11.00% cash, due 10/24/2011)
		Overriding Royalty Interest				9,750		100,000
		Warrants (5) (12)				10,000		10,000
Chroma Exploration &	Oil & Natural Gas	10,930 Shares Series A Participating				2,221,710		100,000
Production, Inc. (17)	Production and Development	Convertible Preferred Stock (6)
		9,981 Shares Series AA Participating				2,089,870		650,000
		Convertible Preferred Stock (6)
		8.11 Shares Common Stock (5)				-		-
		Warrants (5) (7)				-		-
Crestwood Holdings, LLC (17)	Natural Gas	Senior Secured Term Loan		9,000,000		8,836,125		8,836,125
	Gathering and Processing	(The greater of 10.50% or LIBOR + 8.50%,
		due 10/01/2016)
Greenleaf Investments, LLC (17)	Oil & Natural Gas	Senior Secured		8,587,076		8,543,239		8,543,239
	Production and Development	Multiple-Advance Term Loan
		(The greater of 10.50% or LIBOR + 6.50%,
		due 4/30/2011)
		Overriding Royalty Interest				20,785		400,000

(See accompanying notes to consolidated financial statements)

10

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2010

(continued)

Portfolio Company	Energy Industry Segment	Investment (1) (2) (4)	Principal		Cost		Fair Value (3)
TARGETED INVESTMENTS  - Continued
Non-affiliate Investments - (Less than 5% owned) - Continued
GMX Resources, Inc. (16)	Oil & Natural Gas	Senior Convertible Notes	$	7,925,000	$	6,532,576	$	6,676,813
	Production and Development	(5.00%, due 2/1/2013)
Nighthawk Transport I, LP (17)	Energy Services	LP Units (5) (20)				-		-
		Warrants (5) (20)				-		-
Pallas Contour Mining, LLC (17)	Coal Mining	Senior Secured		14,411,290		14,459,867		14,459,867
		Multiple-Advance Term Loan
		(14.00%, due 10/14/2015)
Pioneer Natural Resources Co. (16)	Oil & Natural Gas	Senior Notes, 7.2%, due 2028		10,000,000		11,489,439		10,450,100
	Production and Development
Powder River Acquisitions, LLC (17)	Oil & Natural Gas	Senior Secured		3,000,000		3,000,000		3,000,000
	Production and Development	Promissory Note
		(8.00%, due 9/30/2011)
Tammany Oil & Gas, LLC (17)	Oil & Natural Gas	Senior Secured		23,607,804		23,590,041		23,590,041
	Production and Development	Multiple-Advance Term Loan
		(The greater of 13.0% or LIBOR + 8.00%,
		due 9/30/2012)
		Overriding Royalty Interest				139,193		1,000,000
		After Pay-Out Overriding Royalty Interest (5) (13)				10,000		10,000
		Warrants (5) (9) (13)				10,000		10,000
Subtotal Non-affiliate Investments - (Less than 5% owned)					$	114,852,057	$	112,025,645
TOTAL INVESTMENTS					$	238,501,295	$	216,062,989

(See accompanying notes to consolidated financial statements)

11

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2010

(continued)

NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS

(1) All of our investments are collateral for obligations under our credit facility.

(2) Percentages represent interest rates in effect at the end of the period and due dates represent the contractual maturity dates.

(3) Our Board of Directors determines, in good faith, the fair value of our investments.

(4) All investments are in entities with primary operations in the United States of America.

(5) Non-income producing securities.

(6) Non-accrual status.

(7) Chroma warrants expire on April 5, 2012 and provide us the right to purchase 2,462 shares of common stock at a purchase price of $75.00 per share.

(8) BioEnergy Holdings, LLC owns 100% of Bionol Clearfield, LLC.

(9) Tammany Oil & Gas, LLC warrants expire five years after repayment of principal and interest and provide us the right to purchase approximately 20% of membership shares at the exercise price of approximately $17.61 per share.

(10) Myriant Technologies, LLC warrants expire on August 15, 2015 and provide us the right to purchase  32,680 units, representing membership interests of Myriant Technologies, LLC, at the  purchase price of $10.00 per unit.

(11) Resaca stock trades on the Alternative Investment Market of the London Stock Exchange.  On April 1, 2010, it began trading in U.S Dollars.

(12) Black Pool warrants expire seven years after repayment of principal and interest and provide us the right to purchase approximately 25% of membership interest at the exercise price of $0.01 per unit.

(13) Tammany Oil & Gas, LLC retains the right to repurchase the after pay-out ORRI and 10% warrants for $750,000 on or before March 31, 2011 or for $1,250,000 on or before September 30, 2011.

(14) We issued a forbearance agreement to Bionol Clearfield, LLC on June 16, 2010 due to a default event.

(15) Oil and gas assets owned by BSR Holdings, LLC were sold on October 13, 2010.

(16) Investments are level 2 securities hierarchy.

(17) Investments are level 3 securities hierarchy.

(18) Alden Resources, LLC did not pay December 31, 2010 interest on its Tranche A Term Note or Working Capital Revolver until February 10, 2011.

(19) Bionol Clearfield, LLC (Bionol) has not paid scheduled interest payments since  March 10, 2010 due to a default event involving a Bionol customer, as per the terms of our credit agreement with Bionol.  Bionol and the customer are currently in arbitration and we expect Bionol to prevail and pay all interest due.

(20) Due to insufficient recoveries in the liquidation under Nighthawk's voluntary petition under Chapter 7 of the United States Bankruptcy Code, we recognized a realized loss of our total remaining investment in Nighthawk notes in December 2009.  We retain ownership in warrants and units in Nighthawk and have assigned no value to that interest.

(See accompanying notes to consolidated financial statements)

12

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED FINANCIAL HIGHLIGHTS

(Unaudited)

	For The Three Months Ended
	March 31, 2011			March 31, 2010
Per Share Data  (1)
Net asset value, beginning of period	$	10.90		$	11.10
Net investment income		0.14			0.11
Net realized and unrealized gain (loss) on portfolio securities
and commodity derivative instruments (3)		(0.29	)		0.13
Net increase (decrease) in stockholders' equity (net assets)
resulting from operations		(0.15	)		0.24
Dividends declared		(0.18	)		(0.17	)
Net asset value, end of period	$	10.57		$	11.17
Market value, beginning of period	$	9.20		$	8.13
Market value, end of period	$	9.64		$	8.52
Market value return  (2)		6.73	%		7.06	%
Net asset value return (2)		(1.22	)%		2.81	%
Ratios and Supplemental Data
($ and shares in thousands)
Net assets, end of period	$	228,574		$	241,507
Average net assets	$	232,150		$	240,841
Common shares outstanding at the end of the period		21,628			21,628
Net investment income/average net assets (4)		5.24	%		4.09	%
Portfolio turnover rate		12.22	%		1.07	%
Total operating expenses/average net assets (4)		4.99	%		5.13	%
Additional ratios
Total operating expenses less management and
incentive fees and interest expense/average net assets (4)		2.12	%		2.35	%
Total operating expenses less management
and incentive fees/average net assets (4)		2.66	%		2.88	%
Net increase (decrease) in net assets resulting from
operations/average net assets (4)		(5.69	)%		8.43	%

(1) Per Share Data is based on common shares outstanding at the end of the period.

(2) Return calculations assume reinvestment of dividends and are not annualized.

(3) Calculated as a balancing amount necessary to reconcile the change in net assets value per share with the other per share information presented.  This amount may not agree with the aggregate gains and losses for the period because the difference in the net asset value at the beginning and end of year may not equal the per share changes of the line items disclosed.

(4) Annualized.

(See accompanying notes to consolidated financial statements)

13

NGP CAPITAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

Note 1: Organization

These Consolidated Financial Statements present the financial position, results of operations and cash flows of NGP Capital Resources Company and its consolidated subsidiaries.  The terms “we,” “us,” “our” and “NGPC” refer to NGP Capital Resources Company and its consolidated subsidiaries.   We are a financial services company organized in July 2004 as a Maryland corporation to invest primarily in small and mid-size private energy companies. Our investment objective is to generate both current income and capital appreciation primarily through debt investments with certain equity components. We are a closed-end, non-diversified management investment company that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, or the 1940 Act. In addition, for federal income tax purposes we operate so as to be treated as a regulated investment company, which we refer to as a RIC, under the Internal Revenue Code of 1986, as amended, or the Code. We have several direct and indirect subsidiaries that are single member limited liability companies and wholly-owned limited partnerships established to hold certain portfolio investments or provide services to us in accordance with specific rules prescribed for a company operating as a RIC.  These subsidiaries are:

· NGPC Funding GP, LLC, a Texas limited liability company;

· NGPC Nevada, LLC, a Nevada limited liability company;

· NGPC Funding, LP, a Texas limited partnership;

· NGPC Asset Holdings GP, LLC, a Texas limited liability company;

· NGPC Asset Holdings, LP, a Texas limited partnership;

· NGPC Asset Holdings II, LP, a Texas limited partnership,

· NGPC Asset Holdings III, LP, a Texas limited partnership;

· NGPC Asset Holdings V, LP, a Texas limited partnership and

· NGPC Asset Holdings VI, LP, a Texas limited partnership.

We consolidate the financial results of our direct wholly-owned subsidiaries for financial reporting purposes and we do not consolidate the financial results of our portfolio companies.

Our external manager, NGP Investment Advisor, LP, or our Manager, conducts our operations pursuant to an investment advisory agreement. NGP Energy Capital Management, L.L.C., or NGP, and NGP Administration, LLC, or our Administrator, own our Manager.

Note 2: Significant Accounting Policies

The following is a summary of the significant accounting policies consistently applied in the preparation of our consolidated financial statements:

Basis of Presentation

These interim unaudited consolidated financial statements include the accounts of us and our subsidiaries.  We eliminate all significant intercompany accounts and transactions. We consolidate the financial results of our direct subsidiaries for financial reporting purposes.  In accordance with Article 6 of Regulation S-X of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, we do not consolidate the financial results of our portfolio companies, including those in which we have a controlling interest.

We prepare the interim consolidated financial statements, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. We omit certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, pursuant to such rules and regulations.  We believe we include all adjustments, which are of a normal recurring nature, so that these financial statements fairly present the financial position of our company.

14

Use of Estimates

Preparing interim consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes to the consolidated financial statements.  Although we believe our estimates and assumptions are reasonable, actual results could differ from these estimates.  Interim results are not necessarily indicative of results for a full year.  You should read these unaudited consolidated financial statements in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2010.

Cash and Cash Equivalents

Cash and cash equivalents include short-term, liquid investments with an original maturity of three months or less in accounts such as demand deposit accounts, money market accounts, certain overnight investment sweep accounts and money market fund accounts.  We carry cash and cash equivalents on our books at cost, which approximates fair value.

Prepaid Assets

Prepaid assets consist of premiums paid for directors’ and officers’ insurance and fidelity bonds with a policy term of one year and fees associated with the establishment of the policy or credit facility.

Concentration of Credit Risk

We place our cash and cash equivalents with financial institutions and, at times, cash held in checking or money market accounts may exceed the Federal Deposit Insurance Corporation insured limit.

Valuation of Investments

The 1940 Act requires the separate identification of investments according to the percentage ownership in a portfolio company’s outstanding voting securities.  The percentages and categories are as follows:

· Non-affiliate investments - we own less than 5% of a portfolio company’s outstanding voting securities

· Affiliate investments - we own 5% or more but not more than 25% of a portfolio company’s outstanding voting securities

· Control investments - we own more than 25% but less than 50% of a portfolio company’s outstanding voting securities

· Control investments – majority owned – we own 50% or more of a portfolio company’s outstanding voting securities.

Fair value is the price that would be received by a seller of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value definition focuses on exit price in the principal, or most advantageous, market and prioritizes the use of observable market inputs over unobservable entity-specific inputs. We utilize both the market approach and the income approach in determining the fair value of our investments, incorporating a variety of factors.  On a quarterly basis, the investment team of our Manager prepares valuations for all of the assets in our portfolio and presents them to our valuation committee.  The valuation committee recommends their valuations to the Board of Directors, which in good faith determines the final investment valuations.

We record investments in securities for which market quotations are readily available at such market quotations as of the valuation date.  For investments in securities for which market quotations are unavailable, or which have various degrees of trading restrictions, we prepare valuation analyses as generally described below.

Using the most recently available financial statements, forecasts and, when applicable, comparable transaction data, the investment team of our Manager prepares valuation analyses for the various securities in our investment portfolio.  These valuation analyses rely on estimates of the asset values and enterprise values of portfolio companies issuing securities.

The methodologies for determining asset valuations include estimates based on:  the liquidation or sale value of a portfolio company’s assets, the discounted value of expected future net cash flows from the assets and third party valuations of a portfolio company’s assets, such as engineering reserve reports of oil and natural gas properties.  The investment team of our Manager considers some or all of the above valuation methods to determine the estimated asset value of a portfolio company.

The methodologies for determining enterprise valuations include estimates based on:  valuations of comparable public companies, recent sales of comparable companies, the value of recent investments in the equity securities of a portfolio company and on the methodologies used for asset valuations.  The investment team of our Manager considers some or all of the above valuation methods to determine the estimated enterprise value of a portfolio company.

15

The methodologies for determining estimated current market values of comparable securities include estimates based on: recent initial offerings of comparable securities of public and private companies; recent secondary market sales of comparable securities of public and private companies; current market implied interest rates for comparable securities in general; and current market implied interest rates for non-comparable securities in general, with adjustments for such elements as size of issue, tenor and liquidity. The investment team of our Manager considers some or all of the above valuation methods to determine the estimated current market value of a comparable security.

Debt Securities: We record our investments in non-convertible debt securities at fair value, which generally approximates cost plus amortized original issue discount, or OID, to the extent that the estimated asset or enterprise value of the portfolio company exceeds the outstanding debt of the portfolio company.  We record our investments in convertible debt securities at fair value, which generally approximate the higher of: 1) cost plus amortized OID, to the extent that the estimated asset or enterprise value of the portfolio company equals or exceeds the outstanding debt of the portfolio company; and 2) our pro rata share, upon conversion, of the residual equity value of the portfolio company available after deducting all outstanding debt from its estimated enterprise value.  If the estimated asset or enterprise value is less than the sum of the value of our debt investment and all other debt securities of the portfolio company that rank equal to or senior to our debt investment, we reduce the value of the debt investment beginning with the junior-most debt investment such that the asset or enterprise value less the value of the outstanding debt that ranks equal to or senior to us is zero.  We record investments in debt securities at market value as of the valuation date to the extent that such market quotations are readily available.  We also compare each of our calculated amounts to the estimated current market values of comparable securities.

Equity Securities: We record our investments in preferred and common equity securities (including warrants or options to acquire equity securities) at fair value based on our pro rata share of the residual equity value available after deducting all outstanding debt from the estimated enterprise value.  We also compare each of our calculated amounts to the estimated current market values of comparable securities.  We may also utilize an option pricing method, or OPM, in addition to our other valuation methods, to value the various preferred stock, common stock, and warrants we have in companies with complex capital structures.  The OPM treats preferred stock, common stock and warrants as call options on the enterprise value, with exercise prices based on liquidation preference of the preferred stock.  The option-pricing method commonly uses the Black-Scholes model to price the call option.  The OPM considers the various terms of the stockholder agreements upon liquidation of the enterprise.  In addition, the OPM implicitly considers the effect of the liquidation preference as of a future liquidation date, not as of the valuation date.

Property-Based Equity Participation Rights: We record our investments in overriding royalty and net profits interests at fair value based on a multiple of cash flows generated by such investments, multiples from transactions involving the sale of comparable assets and/or the discounted value of expected future net cash flows from such investments.   We derive appropriate cash flow multiples from the review of comparable transactions involving similar assets. We derive the discounted value of future net cash flows, when appropriate, from third party valuations of a portfolio company’s assets, such as engineering reserve reports of oil and natural gas properties.

We estimate the fair value of the crude oil and natural gas options using a combined income and market based valuation methodology based upon forward commodity price and volatility curves.  Independent pricing services provide the curves which reflect broker market quotes.

Due to the uncertainty inherent in the valuation process, our estimates of fair value may differ significantly from the values determined from a ready market for the securities, and the differences could be material.  Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different from the valuations currently assigned.

Securities Transactions, Interest and Dividend Income Recognition

We account for all securities transactions on a trade-date basis and we accrete premiums and discounts into interest income using the effective interest method. In conjunction with the acquisition of debt securities, we may receive detachable warrants, other equity securities or property interests such as overriding royalty interests.  We record these interests separately from the debt securities at their initial fair value, with a corresponding amount recorded as a discount to the associated debt security.  We recognize income from overriding royalty interests as received and we amortize the recorded assets using the units of production method.  We defer the portion of the loan origination fees paid that represent additional yield or discount on a loan and accrete the balance into interest income over the life of the loan using the effective interest method.  Upon the prepayment of a loan or debt security, we record any unamortized loan origination fees as interest income and we record any unamortized premium or discount as a realized gain or loss on the investment.  We accrete market premiums or discounts on acquired loans or fixed income investments into interest income using the effective interest method.  We recognize dividend income on the ex-dividend date.  We accrue interest income if we expect that we will ultimately be able to collect it.  When collectability of interest or dividends is doubtful, we place the investment on non-accrual status and evaluate any existing interest or dividend receivable balances to determine if a write off is necessary.  We assess the collectability of the interest and dividends on many factors, including the portfolio company’s ability to service its loan based on current and projected cash flows as well as the current valuation of the portfolio company’s assets.

16

Payment-in-Kind Interest and Dividends

We may have investments in our portfolio that contain payment-in-kind, or PIK, provisions.  We compute PIK interest income or dividend income at the contractual rate specified in each investment agreement and add that amount to the principal balance of the investment.  For those investments with PIK interest or dividends, we calculate our income accruals on the principal balance plus any PIK amounts.  If the portfolio company’s asset valuation is not sufficient to cover the contractual interest, we will not accrue interest income or dividend income on the investment. To maintain our RIC status, we must pay out this non-cash income to stockholders in the form of dividends, even though we have not yet collected the cash. For the quarter ended March 31, 2011, PIK interest income was $1.5 million, net of a $0.9 million reserve. For the quarter ended March 31, 2010, PIK interest income was $1.7 million, net of a $0.8 million reserve.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

We calculate realized capital gains on a security as the excess of the net amount realized from the sale or other disposition of such security over the amortized cost for the security.  We calculate realized capital losses on a security as the amount by which the net amount realized from the sale or other disposition of such security is less than the amortized cost of such security.  We consider unamortized fees, prepayment premiums, and investments charged off during the year, net of recoveries.  We do not include unrealized appreciation or depreciation previously recognized.

We calculate unrealized capital depreciation on a security as the amount by which the original cost of such security exceeds the fair value of such security.  Our Board of Directors determines, in good faith, all period-end fair valuations in accordance with GAAP and the 1940 Act.  Net unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when we realize the settled capital gains or losses.

We do not account for our commodity derivative instruments, if any, as hedging instruments for financial accounting purposes. Net unrealized appreciation or depreciation reflects the change in derivative values during the reporting period including the reversal of previously recorded unrealized appreciation or depreciation when we realize the settled gains or losses.

Fee Income Recognition

Fee income primarily includes financial advisory, transaction structuring, loan administration, commitment and prepayment fees. Financial advisory fees represent amounts received for providing advice and analysis to companies and we recognize these fees as earned when such services are performed, provided collection is probable.  Transaction structuring fees represent amounts received for structuring, financing and executing transactions and are generally payable only if the transaction closes. We defer such fees and accrete these fees into interest income over the life of the loan using the effective interest method.  Commitment fees represent amounts received for committed funding and are generally payable whether or not the transaction closes.  We defer commitment fees on transactions that close within the commitment period and accrete these fees into interest income over the life of the loan using the effective interest method.  We record commitment fees on transactions that do not close in the month the commitment period expires.  Amendment fees represent amounts received for amending current investment terms or structures. We treat amendment fees as we treat commitment fees. We record amendment fees when the amendment is executed and accrete over the life of the loan using the effective interest method.  We recognize prepayment and loan administration fees when received.  For the quarter ended March 31, 2011, we accreted approximately $0.5 million of fee income, compared to $0.3 million for the quarter ended March 31, 2010.

17

Dividends

We record dividends to stockholders on the ex-dividend date.  We currently intend that our distributions each year will be sufficient to maintain our status as a RIC for federal income tax purposes and to eliminate federal excise tax liability.  We currently intend to make distributions to stockholders on a quarterly basis of substantially all of our net taxable income.  We also intend to make distributions of net realized capital gains, if any, at least annually.  However, we may in the future decide to retain such capital gains for investment and designate such retained dividends as a deemed distribution.  Each quarter, our Manager estimates our annual taxable earnings.  The Board of Directors considers this estimate and determines the distribution amount, if any.  We generally declare our dividends each quarter and pay them shortly thereafter.

The following table summarizes our recent distribution history:

Distribution History
Declaration Date	Amount		Record Date	Payment Date
March 10, 2009	$	0.20	March 31, 2009	April 10, 2009
June 11, 2009	$	0.12	June 30, 2009	July 10, 2009
September 10, 2009	$	0.15	September 30, 2009	October 9, 2009
December 3, 2009	$	0.17	December 31, 2009	January 7, 2010
March 10, 2010	$	0.17	March 31, 2010	April 9, 2010
June 15, 2010	$	0.17	June 30, 2010	July 9, 2010
September 14, 2010	$	0.17	September 30, 2010	October 8, 2010
December 14, 2010	$	0.18	December 31, 2010	January 7, 2011
March 9, 2011	$	0.18	March 31, 2011	April 8, 2011

We have established an “opt out” dividend reinvestment plan for our common stockholders.  As a result, if we declare a dividend, our plan agent automatically reinvests a stockholder’s cash dividend in additional shares of our common stock unless the stockholder, or his or her broker, specifically “opts out” of the dividend reinvestment plan and elects to receive cash dividends. It is customary practice for many brokers to “opt out” of dividend reinvestment plans on behalf of their clients unless specifically instructed otherwise.  As of April 8, 2011, the date of the most recent dividend payment, holders of 2,237,186 shares, or approximately 10.3% of the 21,628,202 outstanding common shares, participated in our dividend reinvestment plan.

The plan agent of our dividend reinvestment plan purchases shares in the open market for credit to the accounts of plan participants unless the average of the closing sales prices for the shares for the five days immediately preceding the payment date exceeds 110% of the most recently reported net asset value per share.

The table below summarizes recent participation in our dividend reinvestment plan:

Dividend Reinvestment Plan Participation

			Percentage of							Common Stock Dividends
	Participating		Outstanding			Total				Purchased in		Purchased
Dividend	Shares		Shares			Distribution		Cash Dividends		Open Market (1)		Price
March 2009		2,179,204		10.1	%	$	4,325,640	$	3,889,799	$	435,841	$	6.4340
June 2009		1,889,207		8.7	%	$	2,595,384	$	2,368,679	$	226,705	$	5.7848
September 2009		2,306,518		10.7	%	$	3,244,230	$	2,898,252	$	345,978	$	7.6243
December 2009		2,372,306		11.0	%	$	3,676,794	$	3,273,502	$	403,292	$	8.8884
March 2010		2,343,298		10.8	%	$	3,676,794	$	3,278,433	$	398,361	$	7.7955
June 2010		2,262,290		10.5	%	$	3,676,794	$	3,292,205	$	384,589	$	7.7944
September 2010		2,256,691		10.4	%	$	3,676,794	$	3,293,157	$	383,637	$	9.7349
December 2010		2,768,595		12.8	%	$	3,893,076	$	3,394,729	$	498,347	$	9.4803
March 2011		2,237,186		10.3	%	$	3,893,076	$	3,490,383	$	402,693	$	9.5432

(1)  Our transfer agent purchases or issues shares in the following month.

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Income Taxes

We currently qualify as a RIC for federal income tax purposes, which generally allows us to avoid paying corporate income taxes on income or gains that we distribute to our stockholders. We have distributed and intend to distribute sufficient dividends to eliminate taxable income. We may also be subject to federal excise tax if we do not distribute at least 98% of our investment company taxable income in any calendar year and 98.2% of our capital gains in any calendar year.  The Regulated Investment Company Modernization Act of 2010 increased a RIC’s required capital gain distribution to avoid excise tax from 98% to 98.2% beginning in 2011.  We currently intend that our distributions each year will be sufficient to maintain our status as a RIC for federal income tax purposes and to eliminate excise tax liability.

Certain of our wholly-owned subsidiaries have elected to be taxed as a corporation for federal income tax purposes. Each of these subsidiaries may hold one or more portfolio investments listed on our Consolidated Schedule of Investments. These taxable subsidiaries allow us to hold portfolio companies organized as limited liability corporations or other forms of pass-through entities and still satisfy the RIC tax requirement that at least 90% of our gross revenue for income tax purposes must consist of investment income. The IRS taxes the income of the limited liability corporations or other pass-through entities owned by our taxable subsidiaries and this tax is to the subsidiary only and does not flow through to the RIC. We do not consolidate the taxable subsidiaries for income tax purposes. We do consolidate the results of our taxable subsidiaries for financial reporting purposes and therefore our Consolidated Statement of Operations reflects income tax expense of those subsidiaries. We allocate a deferred tax asset valuation allowance to gross deferred tax assets among net investment income, realized capital gain (loss) on investments and unrealized gain (loss) on investments.  We record the changes in the allocation of the valuation allowance due to changes in the gross deferred tax assets in these categories on our Consolidated Statement of Operations. These changes may impact the provision (benefit) for taxes in a category in periods without other taxable activities.

Note 3: Credit Facilities and Borrowings

Under the terms of our Amended and Restated Revolving Credit Agreement, or the Investment Facility, the lenders have agreed to extend revolving credit to us in an amount not to exceed $67.5 million.  We may increase the credit available to an amount not to exceed $175.0 million by obtaining additional commitments from existing lenders or new lenders. The total amount committed was $67.5 million and the amount outstanding was $25.0 million under the Investment Facility as of March 31, 2011.  By comparison, the total amount committed as of December 31, 2010 was $67.5 million and $50.0 million was outstanding under the Investment Facility.  The Investment Facility matures on August 31, 2012, and bears interest, at our option, at either (i) LIBOR plus 425 to 575 basis points, or (ii) the base rate plus 325 to 475 basis points, both based on our amounts outstanding.  We intend to use the proceeds from the Investment Facility to supplement our equity capital to make portfolio investments.  As of March 31, 2011, the interest rate on our outstanding balance of $25.0 million was 7.0% (Prime plus 375 basis points) and the average interest rate at March 31, 2011 was 7.0%.  We repaid the entire $25.0 million balance in April 2011.  In February 2010, we had a letter of credit in the amount of $2.7 million issued under the Investment Facility with respect to our investment in Alden Resources, LLC, or Alden. As of March 31, 2011, the letter of credit balance was $2.7 million but was not drawn.  As of March 31, 2011, the amount available to us under the Investment Facility was $39.8 million.

On March 31, 2011, we entered into a Treasury Secured Revolving Credit Agreement, or the Treasury Facility, among us, the lenders from time to time party thereto and SunTrust Bank, as administrative agent for the lenders.  Under the Treasury Facility, the lenders have agreed to extend revolving credit loans to us in an amount not to exceed $30.0 million.  We will use the proceeds from the Treasury Facility to facilitate the growth of our investment portfolio and provide flexibility in the sizing of our portfolio investments.  The Treasury Facility has a 364-day term and bears interest, at our option, at either (i) LIBOR plus 50 basis points or (ii) the base rate.  We have the right at any time to prepay the loans, in whole or in part, without premium or penalty.  As of March 31, 2011, $30.0 million was outstanding under the Treasury Facility and the interest rate was 3.25% (base rate).  At March 31, 2011, the average interest rate on our borrowings under the Treasury Facility was 3.25%.

Substantially all of our assets are collateral for the obligations under the Investment Facility.  Our investments in U.S. Treasury Bills are collateral for the obligations under the Treasury Facility.  In addition, our existing and future subsidiaries, other than special purpose subsidiaries and certain other subsidiaries are guarantors of the Investment Facility.  The Investment Facility and Treasury Facility contain affirmative and reporting covenants and certain financial ratio and restrictive covenants that apply to our subsidiaries and us.  The most restrictive covenants are:

· maintaining a ratio of net asset value to consolidated total indebtedness (excluding net hedging liabilities) of not less than 2.25:1.0,

· maintaining a ratio of net asset value to consolidated total indebtedness (including net hedging liabilities) of not less than 2.0:1.0,

· maintaining a ratio of EBITDA (excluding revenue from cash collateral) to interest expense (excluding interest on loans under the Treasury Facility) of not less than 3.0:1.0, and

· maintaining a ratio of collateral to the aggregate principal amount of loans under the Treasury Facility of not less than 1.02:1.0.

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We were in compliance with these covenants as of March 31, 2011 and had not had any acts of default under the Investment Facility or the Treasury Facility.

From time to time, we may receive customary commercial and investment banking services from our lenders.  In addition to our Investment Facility, we may also fund a portion of our investments with issuances of equity or senior debt securities.  We may also securitize a portion of our investments in mezzanine or senior secured loans or other assets.  We expect to use these funds primarily for investments in portfolio companies, cash distributions to holders of our common stock and payment of fees and other operating expenses.

Note 4: Investment Management

Investment Advisory Agreement

We have entered into an investment advisory agreement with our Manager under which our Manager administers our day-to-day operations and provides investment advisory services to us.  Our Manager is subject to the overall supervision of our Board of Directors.  For providing these services, we pay our Manager a fee, consisting of two components — a base management fee and an incentive fee.

Base Management Fee:   According to the investment advisory agreement, we calculate the base management fee as 0.45% of the average of our total assets as of the end of the two previous quarters.  We record and pay this base management fee quarterly in arrears.  Our Manager has agreed to waive permanently, subsequent to September 30, 2007, that portion of the management fee attributable to U.S. Treasury securities acquired with borrowings under our credit facilities to the extent the amount of such securities exceeds $100 million.  We purchase such securities in connection with our RIC requirements.

The entire amount of the $1,333,288 management and incentive fees payable to our Manager as of March 31, 2011 consists of the base management fee for the quarter ended March 31, 2011.  By comparison, the entire amount of the $1,376,032 management and incentive fees payable to our Manager as of December 31, 2010 consisted of the base management fee for the quarter ended December 31, 2010.

Incentive Fee:   The incentive fee under the investment advisory agreement consists of two parts.

We calculate the first part of the incentive fee, the Investment Income Incentive Fee, as 20% of the excess, if any, of our net investment income for the quarter that exceeds a quarterly hurdle rate equal to 2% (8% annualized) of our net assets.  We calculate and pay this Investment Income Incentive Fee quarterly in arrears.

For the purpose of this fee calculation, net investment income means interest income, dividend income, and any other income (including any other fees, such as commitment, origination, syndication, structuring, diligence, managerial assistance, monitoring, and consulting fees or other fees that we receive from portfolio companies) accrued during the fiscal quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the administration agreement, any interest expense and dividends paid on issued and outstanding preferred stock, if any, but excluding the incentive fee).   Accordingly, we may pay an incentive fee based partly on accrued interest, the collection of which is uncertain or deferred.  Net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that we have not yet received in cash.  Net investment income does not include any realized capital gains, realized capital losses, or unrealized capital appreciation or depreciation.

We did not pay any Investment Income Incentive Fees for the first quarters of 2011 and 2010.

We calculate the second part of the incentive fee, the Capital Gains Fee, as (1) 20% of (a) our net realized capital gains (realized capital gains less realized capital losses) on a cumulative basis from the closing date of our initial public offering to the end of such fiscal year, less (b) any unrealized capital depreciation at the end of such fiscal year, less (2) the aggregate amount of all Capital Gains Fees paid to our Manager in prior fiscal years.  We determine and pay the Capital Gains Fee in arrears as of the end of each fiscal year (or upon termination of the investment advisory agreement, as of the termination date).  For accounting purposes only, in order to reflect the theoretical capital gains incentive fee that would be payable for a given period as if all unrealized capital gains were realized, we will accrue a capital gains incentive fee as described above (in accordance with the terms of the Investment Advisory Agreement), plus 20% of unrealized capital gains on investments held at the end of such period. It should be noted that the portion of the accruals for the capital gains incentive fees attributable to unrealized capital gains will not necessarily be payable under the Investment Advisory Agreement, and may never be paid based on the computation of capital gains incentive fees in subsequent periods. Amounts paid under the Investment AdvisoryAgreement will be consistent with the formula reflected in the investment advisory agreement.

We did not pay any Capital Gains Fees for the first quarters of 2011 and 2010.

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Our Board of Directors originally approved the investment advisory agreement on November 9, 2004.  The investment advisory agreement provides that unless terminated earlier as described below, the agreement shall remain in effect from year-to-year after November 9, 2006.  The Board of Directors or the affirmative vote of the holders of a majority of our outstanding voting securities must approve the continuation of the agreement at least annually.  Additionally, in either case, the approval must be by a majority of our directors who are not interested persons.  On November 3, 2010, our Board of Directors, including all of the independent directors, approved an extension of the investment advisory agreement through November 9, 2011.

The agreement may be terminated at any time, without the payment of any penalty, by a vote of our Board of Directors or the holders of a majority of our shares on 60 days written notice to our Manager, and would automatically terminate in the event of its “assignment” (as defined in the 1940 Act).  The agreement may be terminated by either party without penalty upon not more than 60 days written notice to the other.

The investment advisory agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its duties and obligations, our Manager and its officers, manager, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of our Manager’s services under the investment advisory agreement or otherwise as our Manager.

Pursuant to the investment advisory agreement, our Manager pays the compensation and routine overhead expenses of the investment professionals of our management team and their respective staffs, when and to the extent engaged in providing management and investment advisory services to us.  We will bear all other costs and expenses of our operations and transactions.

Our Manager, NGP Investment Advisor, LP, was formed in 2004 and maintains an office at 1221 McKinney Street, Suite 2975, Houston, Texas 77010.  Our Manager’s sole activity is to perform management and investment advisory services for us.  Our Manager is a registered investment adviser under the Investment Advisers Act of 1940.

Administration Agreement

We have entered into an administration agreement with our Administrator, under which our Administrator furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities.  Under the administration agreement, our Administrator also performs, or oversees the performance by third parties of, our required administrative services.  These administrative services include being responsible for the financial records that we are required to maintain, preparing reports to our stockholders and preparing reports filed with the SEC.  In addition, our Administrator assists in determining and publishing our net asset value.  Our Administrator oversees the preparation and filing of our tax returns, the printing and dissemination of reports to our stockholders and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others.  To the extent permitted under the 1940 Act, our Administrator may also provide on our behalf, significant managerial assistance to our portfolio companies.  We base payments under the agreement upon the allocable portion of our Administrator’s costs and expenses incurred in connection with administering our business.  Our Administrator bills us for charges under the administration agreement monthly in arrears.  Either party may terminate the agreement without penalty upon 60 days’ written notice to the other party and will automatically terminate in the event of its “assignment” (as defined in the 1940 Act).

We owed $240,900 to our Administrator as of March 31, 2011 for expenses incurred on our behalf for the month of March 2011.  We include this amount in accounts payable and accrued expenses.  By comparison, we owed $238,618 to our Administrator as of December 31, 2010 for expenses incurred on our behalf for the month of December 2010.

Our Board of Directors originally approved the administration agreement on November 9, 2004.  The administration agreement provides that unless terminated earlier, the agreement will continue in effect until November 9, 2006, and from year-to-year thereafter provided that (i) our Board of Directors and (ii) a majority of our directors who are not parties to the administration agreement or “interested persons” of any such party approve such continuance at least annually.  On November 3, 2010, our Board of Directors, including all of the independent directors, approved the continuation of the administration agreement through November 9, 2011.

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Note 5: Federal Income Taxes

We intend to qualify for tax purposes as a RIC under Subchapter M of Chapter 1 of the Code, as amended.  As a RIC, the IRS generally will not tax the portion of our investment company taxable income and net capital gain (i.e., realized net long term capital gains in excess of realized net short term capital losses) distributed to stockholders.  To qualify as a RIC, we are required, among other things, to distribute to our stockholders at least 90% of investment company taxable income, as defined by the Code, and to meet certain asset diversification requirements.

For the five years ended December 31, 2010, we met all RIC requirements. We distributed substantially all of our investment company taxable income for these years.  Thus, we did not incur any federal income tax liability for any of these periods.

When a “C” corporation qualifies to be taxed as a RIC, it is subject to corporate-level tax on appreciation inherent in its assets on the date it becomes a RIC (i.e., built-in gain) that it recognizes within the first 10 years of its RIC status. A RIC generally may use loss carryforwards arising in taxable years while it was a “C” corporation to reduce its net recognized built-in gain, although a RIC is not otherwise allowed to utilize such loss carryforwards. Because we intend to qualify as a RIC under Subchapter M of the Code for 2011and later years, it is uncertain whether we will fully utilize the tax benefit of our loss carryforward.  Thus, a valuation allowance fully offsets the RIC loss carryforwards.

Certain of our wholly-owned subsidiaries have elected to be taxed as a corporation for federal income tax purposes. The following of our consolidated subsidiaries are taxable entities: NGPC Asset Holdings, LP, NGPC Asset Holdings II, LP, NGPC Asset Holdings III, LP, NGPC Asset Holdings V, LP and NGPC Asset Holdings VI, LP, collectively NGPCAH.

The difference between the effective income tax rate of (0.25%) and the statutory federal tax rate of 34% for the three months ended March 31, 2011 is primarily attributable to RIC investment company taxable income that generally will not be subject to federal income tax and valuation allowances on deferred tax assets.

By comparison, the difference between the effective income tax rate of 0.30% and the statutory federal tax rate of 34% for the three months ended March 31, 2010 was primarily attributable to RIC investment company taxable income that generally will not be subject to federal income tax and valuation allowances on deferred tax assets.

Note 6: Commitments and Contingencies

As of March 31, 2011, we had investments in or commitments to fund investments in nineteen portfolio companies totaling $239.2 million.  Of this total, $231.4 million was outstanding and $7.8 million remained committed and available to fund. Generally, these commitments have fixed expiration dates, currently through the year 2032, and we do not expect to fund the entire $7.8 million of commitments before they expire.  We do not report the unused portions of these commitments on our Consolidated Balance Sheets.  In February 2010, we arranged for a letter of credit issued under the Investment Facility with respect to our investment in Alden. As of March 31, 2011, the letter of credit balance was $2.7 million but was not drawn.  In addition, we have continuing obligations under the investment advisory agreement with our Manager and under the administration agreement with our Administrator.  The agreements provide that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its duties and obligations, our Manager, our Administrator and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with them will be entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of our Manager’s or Administrator’s services under the agreements or otherwise as our investment adviser or administrator. The agreements also provide that our Manager, our Administrator and their affiliates will not be liable to us or any stockholder for any error of judgment, mistake of law, any loss or damage with respect to any of our investments or any action taken or omitted to be taken by our Manager or our Administrator in connection with the performance of any of their duties or obligations under the agreements or otherwise as investment adviser or administrator to us, except to the extent specified in Section 36(b) of the 1940 Act concerning loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services. In the normal course of business, we enter into a variety of undertakings containing a variety of representations that may expose us to some risk of loss.  We do not expect significant losses, if any, from such undertakings.

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Note 7: Reclassifications

GAAP requires adjustments to certain components of net assets to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on total net assets or net asset value per share. Permanent differences between financial and tax reporting for the current year are generally not quantifiable until the end of the year. The table below summarizes the reclassifications from undistributed net investment income (loss), undistributed net realized capital gain (loss), and paid-in capital in excess of par for the year ended December 31, 2010. These reclassifications are primarily due to operating losses, return of capital distributions, reclassification of the distribution of dividends paid, non-deductible meal expenses, non-deductible excise taxes and income and expenses from wholly-owned subsidiaries.

Year	Undistributed Net Investment Income (Loss)		Undistributed Net Realized Capital Gain (Loss)		Paid-in Capital in Excess of Par
2010	$	779,934	$	604,326	$	(1,384,260	)

Note 8: Investments and Fair Value

Investments consisted of the following as of March 31, 2011 and December 31, 2010:

	March 31, 2011
			% of					% of
	Cost		total			Fair Value		total
Investments
Long term investments
Senior secured debt	$	148,003,919		57.7	%	$	137,665,167		60.5	%
Senior unsecured debt		10,044,281		3.9	%		10,044,281		4.4	%
Senior convertible notes		3,918,451		1.5	%		4,352,209		1.9	%
Royalty interests		2,659,305		1.0	%		14,760,000		6.5	%
Limited term royalties		4,530,324		1.8	%		4,530,324		2.0	%
Net profits interests		9,478,460		3.7	%		9,778,459		4.3	%
Membership and partnership units		39,376,569		15.4	%		12,606,132		5.6	%
Participating preferred stock		4,311,580		1.7	%		750,000		0.3	%
Common stock		3,235,254		1.3	%		2,206,777		1.0	%
Warrants		319,238		0.1	%		319,238		0.1	%
Total long term investments		225,877,381		88.1	%		197,012,587		86.6	%
Short term investments
U.S. Treasury Bills		30,600,288		11.9	%		30,600,314		13.4	%
Total investments	$	256,477,669		100.0	%	$	227,612,901		100.0	%

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	December 31, 2010
			% of					% of
	Cost		total			Fair Value		total
Investments
Senior secured debt	$	154,653,405		64.9	%	$	154,553,405		71.6	%
Senior convertible notes		6,532,576		2.7	%		6,676,813		3.1	%
Senior corporate notes		11,489,439		4.8	%		10,450,100		4.9	%
Royalty interests		2,698,279		1.1	%		11,960,000		5.5	%
Limited term royalties		6,548,318		2.8	%		6,548,318		3.0	%
Net profits interests		9,586,637		4.0	%		9,886,635		4.6	%
Membership and partnership units		39,376,569		16.5	%		13,015,526		6.0	%
Participating preferred stock		4,311,580		1.8	%		750,000		0.3	%
Common stock		3,235,254		1.4	%		2,152,954		1.0	%
Warrants		69,238		0.0	%		69,238		0.0	%
Total investments	$	238,501,295		100.0	%	$	216,062,989		100.0	%

The following three broad categories comprise the hierarchy that prioritizes the inputs to valuation techniques used to measure fair value:

• Level 1  — Quoted unadjusted prices for identical instruments in active markets to which we have access at the date of measurement.

• Level 2  — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers.

• Level 3  — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect our own assumptions that market participants would use to price the asset or liability based on the best available information.

As required by the 1940 Act, we classify our investments by level of control.  Control investments include both majority-owned control investments (50% or more owned) and non-majority owned control investments (more than 25% but less than 50% owned).  Non-control investments include both affiliate investments (5% to 25% owned) and non-affiliate investments (less than 5% owned).

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The following tables set forth by level within the fair value hierarchy our financial assets that we accounted for at fair value on a recurring basis as of March 31, 2011 and December 31, 2010. Fair value accounting classifies financial assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.   We did not have any liabilities measured at fair value on a recurring basis at March 31, 2011 or December 31, 2010.

	Fair Value Measurements as of March 31, 2011
					Prices with
			Quoted Prices		Observable
			in Active		Market		Unobservable
			Markets		Inputs		Inputs
Assets at Fair Value	Total		(Level 1)		(Level 2)		(Level 3)
Long term investments
Control investments
Senior secured debt	$	54,126,359	$	-	$	-	$	54,126,359
Royalty interests		13,250,000		-		-		13,250,000
Membership and partnership units		11,900,000		-		-		11,900,000
Total control investments		79,276,359		-		-		79,276,359
Affiliate investments
Senior secured debt		10,238,752		-		-		10,238,752
Senior unsecured debt		10,044,281		-		-		10,044,281
Equity
Common stock		2,206,777		-		2,206,777		-
Membership and partnership units		706,132		-		-		706,132
Warrants		299,238		-		-		299,238
Sub-total equity		3,212,147		-		2,206,777		1,005,370
Total affiliate investments		23,495,180		-		2,206,777		21,288,403
Non-affiliate investments
Senior secured debt		73,300,056		-		-		73,300,056
Senior convertible notes		4,352,209		-		4,352,209		-
Royalty interests		1,510,000		-		-		1,510,000
Limited term royalties		4,530,324		-		-		4,530,324
Net profits interests		9,778,459		-		-		9,778,459
Equity
Participating preferred stock		750,000		-		-		750,000
Warrants		20,000		-		-		20,000
Sub-total equity		770,000		-		-		770,000
Total non-affiliate investments		94,241,048		-		4,352,209		89,888,839
Total long term assets		197,012,587		-		6,558,986		190,453,601
Short term investments U.S. Treasury Bills		30,600,314		30,600,314		-		-
Total assets at fair value	$	227,612,901	$	30,600,314	$	6,558,986	$	190,453,601

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	Fair Value Measurements as of December 31, 2010
					Prices with
			Quoted Prices		Observable
			in Active		Market		Unobservable
			Markets		Inputs		Inputs
Assets at Fair Value	Total		(Level 1)		(Level 2)		(Level 3)
Long term investments
Control investments
Senior secured debt	$	49,223,316	$	-	$	-	$	49,223,316
Royalty interests		10,450,000		-		-		10,450,000
Membership and partnership units		11,300,000		-		-		11,300,000
Total control investments		70,973,316		-		-		70,973,316
Affiliate investments
Senior secured debt		29,146,310		-		-		29,146,310
Equity
Common stock		2,152,954		-		2,152,954		-
Membership and partnership units		1,715,526		-		-		1,715,526
Warrants		49,238		-		-		49,238
Sub-total equity		3,917,718		-		2,152,954		1,764,764
Total affiliate investments		33,064,028		-		2,152,954		30,911,074
Non-affiliate investments
Senior secured debt		76,183,779		-		-		76,183,779
Senior convertible notes		6,676,813		-		6,676,813		-
Senior corporate notes		10,450,100		-		10,450,100		-
Royalty interests		1,510,000		-		-		1,510,000
Limited term royalties		6,548,318		-		-		6,548,318
Net profits interests		9,886,635		-		-		9,886,635
Equity
Participating preferred stock		750,000		-		-		750,000
Warrants		20,000		-		-		20,000
Sub-total equity		770,000		-		-		770,000
Total non-affiliate investments		112,025,645		-		17,126,913		94,898,732
Total assets at fair value	$	216,062,989	$	-	$	19,279,867	$	196,783,122

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The following table presents a roll-forward of the changes in the fair value during the three-month period ended March 31, 2011 for all investments for which we determine fair value using unobservable (Level 3) factors.  During the three-month period ended March 31, 2011, none of the investments in portfolio companies changed between the categories of Control Investments – Majority Owned, Affiliate Investments and Non-Affiliate Investments. There were no transfers between Levels 3, 2 or 1 during three-month period ended March 31, 2011.

Rollforward of First Quarter 2011 Assets at Fair Value Using Unobservable Inputs (Level 3)

	Control			Affiliate			Non-affiliate			Total
	Investments			Investments			Investments			Investments
Fair value December 31, 2010
Senior secured debt	$	49,223,316		$	29,146,310		$	76,183,779		$	154,553,405
Royalty interests		10,450,000			-			1,510,000			11,960,000
Net profits interests		-			-			9,886,635			9,886,635
Membership and partnership units		11,300,000			1,715,526			-			13,015,526
Warrants		-			49,238			20,000			69,238
Limited term royalties		-			-			6,548,318			6,548,318
Participating preferred stock		-			-			750,000			750,000
Total fair value December 31, 2010		70,973,316			30,911,074			94,898,732			196,783,122
Net amortization of premiums, discounts and fees
Senior secured debt		147,319			153,907			90,000			391,226
Senior unsecured debt		-			11,670			-			11,670
Royalty interests		(12,638	)		-			(11,613	)		(24,251	)
Net profits interests		-			-			(9,213	)		(9,213	)
Total net amortization of premiums, discounts and fees		134,681			165,577			69,174			369,432
Net realized gains (losses)
Royalty interests		81,275			-			-			81,275
Total realized gains (losses)		81,275			-			-			81,275
Net unrealized gains (losses)
Senior secured debt		-			(10,238,752	)		-			(10,238,752	)
Royalty interests		2,827,363			-			11,613			2,838,976
Membership and partnership units		600,000			(1,009,394	)		-			(409,394	)
Total net unrealized gains (losses)		3,427,363			(11,248,146	)		11,613			(7,809,170	)
Purchases
Senior secured debt		4,755,724			-			1,064			4,756,788
Senior unsecured debt		-			9,750,000			-			9,750,000
Warrants		-			250,000			-			250,000
Total purchases		4,755,724			10,000,000			1,064			14,756,788
Payment-in-kind
Senior secured debt		-			1,177,287			-			1,177,287
Senior unsecured debt		-			282,611			-			282,611
Total payment-in-kind		-			1,459,898			-			1,459,898
Sales and repayments
Senior secured debt		-			(10,000,000	)		(2,974,787	)		(12,974,787	)
Royalty interests		(96,000	)		-			-			(96,000	)
Net profits interests		-			-			(98,963	)		(98,963	)
Limited term royalties		-			-			(2,017,994	)		(2,017,994	)
Total sales and repayments		(96,000	)		(10,000,000	)		(5,091,744	)		(15,187,744	)
Fair value March 31, 2011
Senior secured debt		54,126,359			10,238,752			73,300,056			137,665,167
Senior unsecured debt		-			10,044,281			-			10,044,281
Royalty interests		13,250,000			-			1,510,000			14,760,000
Net profits interests		-			-			9,778,459			9,778,459
Membership and partnership units		11,900,000			706,132			-			12,606,132
Warrants		-			299,238			20,000			319,238
Limited term royalties		-			-			4,530,324			4,530,324
Participating preferred stock		-			-			750,000			750,000
Total fair value March 31, 2011	$	79,276,359		$	21,288,403		$	89,888,839		$	190,453,601

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Rollforward of First Quarter 2010 Assets at Fair Value Using Unobservable Inputs (Level 3)

	Control			Affiliate			Non-affiliate			Commodity Derivative			Total
	Investments			Investments			Investments			Instruments			Investments
Fair value December 31, 2009
Senior secured debt	$	48,019,620		$	25,692,581		$	53,364,835		$	-		$	127,077,036
Senior corporate notes		-			-			9,062,200			-			9,062,200
Royalty interests		5,830,000			-			1,500,000			-			7,330,000
Net profits interests		-			-			11,012,799			-			11,012,799
Common stock		-			4,086,834			-			-			4,086,834
Membership and partnership units		18,600,000			1,715,526			-			-			20,315,526
Warrants		-			84,004			10,000			-			94,004
Limited term royalties		-			-			20,577,744			-			20,577,744
Participating preferred stock		-			-			500,000			-			500,000
Commodity derivative instruments		-			-			-			49,000			49,000
Total fair value December 31, 2009		72,449,620			31,578,945			96,027,578			49,000			200,105,143
Net amortization of premiums, discounts and fees
Senior secured debt		125,886			56,033			110,673			-			292,592
Senior corporate notes		-			-			(12,323	)		-			(12,323	)
Royalty interests		(6,501	)		-			(19,375	)		-			(25,876	)
Net profits interests		-			-			(7,409	)		-			(7,409	)
Limited term royalties		-			-			(3,215,415	)		-			(3,215,415	)
Total net amortization of premiums, discounts and fees		119,385			56,033			(3,143,849	)		-			(2,968,431	)
Net unrealized gains (losses)
Senior corporate notes		-			-			366,523			-			366,523
Royalty interests		6,501			-			19,375			-			25,876
Net profits interests		-			-			(50,000	)		-			(50,000	)
Common stock		-			558,719			-			-			558,719
Limited term royalties		-			-			1,746,991			-			1,746,991
Participating preferred stock		-			-			250,000			-			250,000
Commodity derivative instruments		-			-			-			(18,900	)		(18,900	)
Total net unrealized gains (losses)		6,501			558,719			2,332,889			(18,900	)		2,879,209
Purchases
Senior secured debt		2,046,172			1,247,220			-			-			3,293,392
Net profits interests		-			-			1,193			-			1,193
Total purchases		2,046,172			1,247,220			1,193			-			3,294,585
Payment-in-kind
Senior secured debt		813,770			917,719			-			-			1,731,489
Total payment-in-kind		813,770			917,719			-			-			1,731,489
Sales and repayments
Senior secured debt		-			(12,500	)		(766,105	)		-			(778,605	)
Net profits interests		-			-			(349,890	)		-			(349,890	)
Limited term royalties		-			-			(1,429,120	)		-			(1,429,120	)
Total sales and repayments		-			(12,500	)		(2,545,115	)		-			(2,557,615	)
Settlements
Commodity derivative instruments		-			-			-			(30,100	)		(30,100	)
Total settlements		-			-			-			(30,100	)		(30,100	)
Fair value March 31, 2010
Senior secured debt		51,005,448			27,901,053			52,709,403			-			131,615,904
Senior corporate notes		-			-			9,416,400			-			9,416,400
Royalty interests		5,830,000			-			1,500,000			-			7,330,000
Net profits interests		-			-			10,606,693			-			10,606,693
Common stock		-			4,645,553			-			-			4,645,553
Membership and partnershup units		18,600,000			1,715,526			-			-			20,315,526
Warrants		-			84,004			10,000			-			94,004
Limited term royalties		-			-			17,680,200			-			17,680,200
Participating preferred stock		-			-			750,000			-			750,000
Total fair value March 31, 2010	$	75,435,448		$	34,346,136		$	92,672,696		$	-		$	202,454,280

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Note 9: Commodity Derivative Instruments

We may periodically enter into commodity derivative instruments to manage our exposure to commodity price fluctuations. We use all of our derivatives for risk management purposes and we do not hold any amounts for speculative or trading purposes. These contracts generally consist of options contracts on underlying commodities.  Investments in derivative instruments represent future commitments or options to purchase or sell other financial instruments or commodities at specific prices on specified future dates, which expose us to market risk if the market value of the contract is higher or lower than the contract price at the maturity date. Additionally, these derivative instruments expose us to credit risk arising from the potential inability of counterparties to perform under the terms of the contracts.

We acquired a limited term royalty interest from ATP Oil & Gas Corporation, or ATP, and received royalty payments from this investment based on crude oil and natural gas production and prices. As a result, fluctuations in crude oil and natural gas prices exposed our investment to price risks. As of September 4, 2008, we had entered into option contracts to manage the price risk associated with these royalty payments. We decided not to designate these instruments as hedging instruments for financial accounting purposes. We recognized the change in the instruments’ fair value currently on the Consolidated Statements of Operations as net increase (decrease) in unrealized appreciation (depreciation) on portfolio securities, corporate notes and commodity derivative instruments.  The realized gains (losses) on commodity derivatives consist of revenues received on favorable expired options less the cost of all expired positions, and we recognized these gains in investment income.

All of our commodity derivative instruments were expired as of January 31, 2010.

The components of gains (losses) on commodity derivative instruments are as follows:

	For the Three Months Ended March 31,
	2011		2010
Unrealized losses on commodity derivatives	$	-	$	(18,900	)
Realized gains on commodity derivatives		-		16,079
Net losses on commodity derivative instruments	$	-	$	(2,821	)

Note 10: Recent Accounting Pronouncements

During the quarter ended March 31, 2011, there were no new accounting pronouncements or updates to recently issued accounting pronouncements disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010 that affect our results of operations, financial condition, liquidity or disclosures.

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Note 11: Subsequent Events

On April 6, 2011, we repaid the entire $25.0 million balance on our Investment Facility.

On April 28, 2011, we closed a $13.5 million Senior Secured Credit Facility, or the Facility, with Spirit Resources, LLC, or Spirit, a private oil and gas company based in Fort Worth, Texas. We acted as agent and sole lender for the Facility. Initial availability under the Facility is $12.3 million with approximately $5.2 million funded at closing. The Facility is secured by first liens on substantially all of Spirit’s assets and pays interest at a rate of 12.0% per annum. As partial consideration for providing the Facility, we received warrants to purchase equity interests in Spirit. Spirit used proceeds from the Facility to acquire and develop oil and gas properties in Texas and Oklahoma.

On April 29, 2011, Greenleaf Investments, LLC, or Greenleaf, repaid its entire $8.1 million Senior Secured Multiple Advance Term Loan.  Concurrently, we sold our overriding royalty interest in Greenleaf for $1.0 million, resulting in a realized capital gain of approximately $1.0 million, which we will record in the quarter ending June 30, 2011, when we also will reverse approximately $0.4 million of previously recorded unrealized appreciation.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following analysis of our financial condition and results of operations in conjunction with management’s discussion and analysis contained in our 2010 Annual Report on Form 10-K, as well as our consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q that relate to estimates or expectations of our future performance or financial condition may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are subject to various risks and uncertainties, which could cause actual results and conditions to differ materially from those projected, including, but not limited to,

· uncertainties associated with the timing of transaction closings;

· changes in the prospects of our portfolio companies;

· changes in interest rates;

· changes in regional, national or international economic conditions and their impact on the industries in which we invest;

· continued disruption of credit and capital markets;

· the future operating results of our portfolio companies and their ability to achieve their objectives;

· changes in the conditions of the industries in which we invest;

· the adequacy of our cash resources and working capital;

· the timing of cash flows, if any, from the operations of our portfolio companies;

· the ability of our Manager to locate suitable investments for us and to monitor and administer the investments; and

· other factors enumerated in our filings with the Securities and Exchange Commission, or SEC.

We may use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may” and similar expressions to identify forward-looking statements.  We base such statements on currently available operating, financial and competitive information and they are subject to various risks and uncertainties that could cause actual results to differ materially from our historical experience and present expectations.  You should not place undue reliance on such forward-looking statements; as such statements speak only as of the date on which we make such statements.  You should read the additional information regarding these and other risks and uncertainties contained in our periodic filings with the SEC.

Overview

We are a financial services company created to invest primarily in debt securities of small and mid-size private energy companies.  We have elected to be regulated as a BDC under the 1940 Act and, as such, we are required to comply with certain regulatory requirements.  For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” which include securities of private U.S. companies, U.S. companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less.  In addition, for federal income tax purposes we operate so as to be treated as a RIC under the Code.  Pursuant to these elections, we generally will not have to pay corporate-level taxes on any income and capital gains we distribute to our stockholders.  We have several direct and indirect subsidiaries that are single member limited liability companies and wholly-owned limited partnerships established to hold certain portfolio investments or provide services to us in accordance with specific rules prescribed for a company operating as a RIC.  We consolidate the financial results of our subsidiaries for financial reporting purposes. We do not consolidate the financial results of our portfolio companies.

Our investment objective is to generate both current income and capital appreciation primarily through debt investments with certain equity components.  A key focus area for our targeted investments in the energy industry is domestic upstream businesses that produce, develop, acquire and explore for oil and natural gas.  We also evaluate investment opportunities in such businesses as coal, power, electricity, energy services and alternative energy.  Our investments generally range in size from $10 million to $50 million; however, we may invest more or less depending on market conditions and our Manager’s view of a particular investment opportunity. Our targeted investments primarily consist of debt instruments, including senior and subordinated loans combined in one facility, sometimes with an equity component, and subordinated loans, sometimes with equity components.  We may also invest in preferred stock and other equity securities on a stand-alone basis.

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We generate revenue in the form of interest income on the debt securities that we own, dividend income on any common or preferred stock that we own and capital gains or losses on any debt or equity securities that we acquire in portfolio companies and subsequently sell. Our investments, if in the form of debt securities, typically have a term of three to seven years and bear interest at a fixed or floating rate. To the extent achievable, we seek to collateralize our investments by obtaining security interests in our portfolio companies' assets.  We also may acquire minority or majority equity interests in our portfolio companies, which may pay cash or in-kind dividends on a recurring or otherwise negotiated basis.  In addition, we may generate revenue in other forms including commitment, origination, structuring, administration or due diligence fees; fees for providing managerial assistance; and possibly consultation fees.  We recognize any such fees generated in connection with our investments as earned.

Our level of investment activity can and does vary substantially from period to period depending on many factors.  Some of these factors are:  the amount of debt and equity capital available to energy companies, the level of acquisition and divestiture activity for such companies, the level and volatility of energy commodity prices, the general economic environment and the competitive environment for the types of investments we make, and our own ability to raise capital to fund our investments, both through issuance of debt and equity securities.  While we currently have capital available to invest, we do not have unlimited capital.  We remain committed to our underwriting and investment disciplines in selectively investing in appropriate risk-reward opportunities within the energy sector.

Critical Accounting Policies

We base the discussion and analysis of our financial condition and results of operations on our financial statements, which we have prepared in accordance with GAAP.  The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.  Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially.  In addition to the discussion below, we describe our significant accounting policies further in “Note 2: Significant Accounting Polices” of our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Valuation of Investments

The 1940 Act requires the separate identification of investments according to the percentage ownership in a portfolio company’s outstanding voting securities.  The percentages and categories are as follows:

· Non-affiliate investments - we own less than 5% of a portfolio company’s outstanding voting securities

· Affiliate investments - we own 5% or more but not more than 25% of a portfolio company’s outstanding voting securities

· Control investments - we own more than 25% but less than 50% of a portfolio company’s outstanding voting securities

· Control investments – majority owned - we own 50% or more of a portfolio company’s outstanding voting securities.

Fair value is the price a seller would receive for an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value definition focuses on exit price in the principal, or most advantageous, market and prioritizes the use of observable market inputs over unobservable entity-specific inputs. On a quarterly basis, the investment team of our Manager prepares valuations for all of the assets in our portfolio and presents them to our valuation committee.  The valuation committee recommends their valuations to the Board of Directors, which in good faith determines and ratifies the final investment valuations.

We record investments in securities for which market quotations are readily available at such market quotations as of the valuation date.  For investments in securities for which market quotations are unavailable, or which have various degrees of trading restrictions, the investment team of our Manager prepares valuation analyses, using both the market approach and the income approach.  See “Note 2: Significant Accounting Polices” for additional discussion.

Using the most recently available financial statements, forecasts and, when applicable, comparable transaction data, the investment team of our Manager prepares valuation analyses for the various securities in our investment portfolio.  These valuation analyses rely on estimates of the asset values and enterprise values of portfolio companies issuing securities.

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 The following three broad categories comprise the hierarchy that prioritizes the inputs to valuation techniques used to measure fair value:

· Level 1 — Quoted unadjusted prices for identical instruments in active markets to which we have access at the date of measurement.

· Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.  Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers.

· Level 3 — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable.  Unobservable inputs are those inputs that reflect our own assumptions that market participants would use to price the asset or liability based on the best available information.

Fair value accounting classifies financial assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. We estimate the fair value of the crude oil and natural gas options using a combined income and market based valuation methodology based upon forward commodity price and volatility curves. Independent pricing services provide the curves which reflect broker market quotes.

Investment Activity

On January 7, 2011, we closed a $10 million participation in a $20 million Term Loan, or the Resaca Term Loan, issued by Resaca Exploitation, Inc., or Resaca.  The Resaca Term Loan earns cash interest of 9.5% (12% for PIK interest), is unsecured and entitles us to purchase up to 2.42 million additional shares of Resaca common stock. Resaca used the proceeds from the Resaca Term Loan and a new revolving credit facility to repay its existing revolving credit facility and to provide capital for additional development of its properties.

In February 2011, we increased the commitment under the Senior Secured Revolving Credit Facility, or the Revolver, with Alden from $3.0 million to $8.0 million with initial availability of $6.9 million. The terms of the Revolver are unchanged. As consideration for increasing the Revolver commitment, we earned an incremental 1.0% royalty interest on all of Alden’s revenue and a $250,000 amendment fee.

On March 14, 2011, GMX Resources Inc., or GMX, completed its tender offer for $50.0 million of its then outstanding 2013 notes at face value.  We elected to participate in this tender offer and sold 41.2% of our holdings to GMX for net proceeds of $3.3 million.  Excluding the interest received on the investment, our approximate return on the successfully tendered 2013 notes was a 57.0% internal rate of return and a 1.24x return on investment.

On March 17, 2011, TierraMar Energy LP, or TierraMar, sold substantially all its assets to a third party for cash consideration of $1.0 million.  The transaction closed on March 31, 2011.  We estimate that TierraMar will receive approximately $150,000 for additional net revenues due through the April 1, 2011 effective date.  Combined with cash on hand in TierraMar, we expect our full realization to be approximately $1.5 million.

On March 28, 2011, we sold our entire position in Pioneer Natural Resources Co., or PXD, at a price of 103.50 for total proceeds of $10,502,000 including accrued interest and a net loss of $1.1 million.

For the quarter ended March 31, 2011, portfolio investments decreased by a net amount of $13.6 million.  We funded $14.8 million to existing portfolio companies and received repayments of $28.4 million from existing investments.

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Following these transactions, we had nineteen portfolio companies in our investment portfolio.  The fair values of these investments totaled $197.0 million as of March 31, 2011 and were invested as follows:

· 69.9% in senior secured debt,

· 5.1% in senior unsecured debt,

· 2.2% in senior convertible notes,

· 7.5% in royalty interests,

· 0.4% in participating preferred stock,

· 1.1% in common stock,

· 6.4% in membership and partnership units,

· 5.0% in net profits interests,

· 2.3% in limited term royalty interests, and

· 0.1% in warrants.

Results of Operations

Investment Income

Investment income for the quarter ended March 31, 2011 was $6.6 million, comprised of $5.8 million in interest from targeted investments in fifteen of our portfolio companies and $0.8 million from net royalty income and other income.  This compares to investment income for the quarter ended March 31, 2010 of $5.2 million, with $5.1 million attributable to interest from targeted investments in eleven portfolio companies and $0.1 million net income attributable to net royalty income and other income.  The $1.4 million increase in investment income for the first quarter of 2011 compared to the first quarter of 2010 is from higher net royalty income and other income of $0.7 million and higher interest income on targeted investments of $0.7 million.

Our total targeted portfolio balance decreased on a cost basis by approximately $27.3 million from $253.2 million at March 31, 2010 to $225.9 million at March 31, 2011.  The balance of non-accruing and non-income producing investments on a cost basis was approximately $87.2 million at March 31, 2011, compared to $102.4 million at March 31, 2010.  The balance of non-accruing and non-income producing investments on a fair value basis decreased from approximately $50.9 million at March 31, 2010 to approximately $45.7 million at March 31, 2011.  The decrease in non-accruing and non-income producing investments was largely due to the sale of our interests in Formidable, LLC in October 2010, partially offset by the addition of our investments in BioEnergy Holdings, LLC, or BioEnergy, and Bionol Clearfield, LLC, or Bionol, to non-accrual status as of March 31, 2011.  Although LIBOR rates remained low during the first quarter of 2011, they had a minimal effect on our targeted investment income because of LIBOR floors established for new portfolio companies and certain other existing portfolio companies during 2011 and 2010.  Additionally, the continued downward pressure on U.S. Treasury Bill interest rates during 2011 and 2010 reduced interest from cash and cash equivalents.

At March 31, 2011, the weighted average yield on targeted portfolio investments, exclusive of capital gains, was 9.20%.   Four investments totaling $44.3 million on a cost basis (Alden Tranche B, $19.5 million; BioEnergy, $15.5 million; Bionol, $5.0 million and Chroma Exploration & Production, Inc., $4.3 million) are currently on non-accrual status, down from $62.6 million at March 31, 2010.  Investments totaling $42.9 million on a cost basis are non-income producing and include equity investments in TierraMar preferred units, DeanLake Operator, LLC preferred units, Resaca common stock, Alden class E units, Gatliff Services, LLC units and warrants and units associated with our investment in BioEnergy.

The weighted average yield of all investments at March 31, 2011, including interest earned on U.S. Treasury Bills, was 8.11%.  By comparison, including our investment in corporate notes, at March 31, 2010, the weighted average yield on targeted portfolio investments, exclusive of capital gains, was 7.16%.

We compute yields on investments using interest rates as of the balance sheet date and include amortization of loan discount points, original issue discount and market premium or discount, royalty interest income, net profits income and other similar investment income, weighted by their respective costs when averaged. These yields do not include income from any investments on non-accrual status.  Such weighted average yields are not necessarily indicative of expected total returns on a portfolio.

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Operating Expenses

For the quarter ended March 31, 2011, operating expenses were $2.9 million compared to $3.0 million for the quarter ended March 31, 2010.  Investment advisory and management fees were $1.3 million for both periods. Insurance expenses, administrative services fees, professional fees, director’s fees and other general and administrative expenses of $1.3 million for the quarter ended March 31, 2011 were $0.1 million lower than the same period of 2010 primarily due to decreased professional fees.  Credit facility interest expense and fees were $0.3 million for both periods as borrowing levels and interest rates were consistent.

Operating expenses for the three-month period include our allocable portion of the total organizational and operating expenses incurred by us, our Manager and our Administrator, as determined by our Board of Directors and representatives of our Manager and our Administrator.  According to the terms of the investment advisory agreement, we calculate the base management fee quarterly as 0.45% of the average of our total assets as of the end of the two previous quarters.  Other general and administrative expenses include our allocated share of employee, facilities, stockholder services and marketing costs.

Net Investment Income before Income Taxes

For the quarter ended March 31, 2011, net investment income before income taxes was $3.7 million compared to $2.1 million for the quarter ended March 31, 2010.  The 73% increase was primarily due to a $1.0 million net increase in royalty income due to higher royalties and lower depletion expenses. Interest income increased by $0.7 million, offset by a $0.3 million decrease in fee income.

Net Realized Gains

For the quarter ended March 31, 2011, we recognized net realized capital losses of $0.5 million resulting from a $1.1 million loss on the sale of our senior notes of PXD, partially offset by a $0.5 million gain on the sale of GMX Senior Convertible Notes. We also recorded $0.1 million gain on the sale of our overriding royalty interest in TierraMar.  We did not have any net realized capital gains or losses for the quarter ended March 31, 2010.

Unrealized Appreciation or Depreciation on Investments

For the quarter ended March 31, 2011, the increase in net unrealized depreciation after income tax benefit of $0.7 million was $5.7 million due to decreases in targeted portfolio fair values because of changes in the estimated current market values of underlying assets.

For the quarter ended March 31, 2010, the decrease in net unrealized depreciation after income tax provision of $0.3 million was $2.6 million, comprised of a $2.9 million increase in targeted portfolio fair value less a tax provision of $0.3 million resulting from routine quarterly valuation allowance reallocation.

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While, in general, current capital and commodity markets are more stable than during the prior eighteen months, conditions are such that it remains difficult to predict capital gains or losses or fluctuations in our portfolio values.

Net Increase or Decrease in Stockholders’ Equity from Operations

For the quarter ended March 31, 2011, we had a net decrease in stockholders’ equity (net assets) resulting from operations of $3.3 million, or $0.15 per share, compared to a net increase of $5.0 million, or $0.24 per share for the quarter ended March 31, 2010.  The $8.3 million or $0.39 per share net decrease was attributable to the $0.6 million increase in net investment income after income taxes offset by the $8.9 million increase in realized and unrealized depreciation on our investments during the first quarter of 2011, compared to the first quarter of 2010.

Financial Condition, Liquidity and Capital Resources

During the quarter ended March 31, 2011, we generated cash from operations, including interest earned on our portfolio securities and from cash and cash equivalents.  At March 31, 2011, we had cash and cash equivalents of $58.0 million.  The amount outstanding on our Investment Facility at March 31, 2011 was $25.0 million and an additional $39.8 million was available. We repaid the $25.0 million Investment Facility balance in April 2011.  As of March 31, 2011, our Treasury Facility was fully drawn at $30.0 million.

Our net cash used in operating activities for the three months ended March 31, 2011 was $11.6 million, $14.9 million less than the $3.3 million net cash provided by operating activities for the three months ended March 31, 2010.  This decrease was primarily due to higher purchases of investments in portfolio securities and U.S. Treasury Bills offset by higher redemptions of investments in portfolio securities.  Purchases of portfolio securities were $14.8 million during the first quarter of 2011, an increase of $11.5 million compared to the $3.3 million in purchases for the first quarter of 2010.  The higher purchases in 2011 included Resaca, $10.0 million; Alden, $3.2 million; and Gatliff Services, LLC, $1.5 million.  Additionally, we purchased $30.6 million of U.S. Treasury Bills, associated with our new Treasury Facility agreement with SunTrust.  By comparison, purchases for this period in 2010 included Alden, $2.0 million and BioEnergy, $1.2 million.  The higher purchases in 2011 were offset by a $25.8 million increase in redemptions of investments in portfolio securities, to $28.4 million in 2011 from $2.6 million in 2010.  Primarily, the higher redemptions in 2011 included Resaca, $10.0 million; PXD, $10.0 million; GMX, $3.3 million; ATP, $2.0 million; and Tammany Oil & Gas, LLC, $1.3 million. By comparison, redemptions in 2010 included ATP, $1.4 million; Greenleaf Investments, LLC, $0.5 million; APC Drilling Fund, $0.3 million; and Tammany Oil & Gas, LLC, $0.3 million.

As of March 31, 2011, we had investments in or commitments to fund loan facilities to nineteen portfolio companies totaling $239.2 million, of which $231.4 million was drawn.  We expect to fund our investments in 2011 from available cash, income earned on our portfolio and temporary investments, repayments or realizations of existing investments and from borrowings under our credit facilities.  In the future, we may also fund a portion of our investments with issuances of equity or senior debt securities.  We may also securitize a portion of our investments in mezzanine or senior secured loans or other assets.  We expect our primary use of funds to be investments in portfolio companies, cash distributions to holders of our common stock and payment of fees and other operating expenses.

  Commodity Derivative Instruments

We may periodically use commodity derivative instruments to manage our exposure to commodity price fluctuations.  We do not designate these instruments as hedging instruments for financial accounting purposes, and, as a result, we recognize the change in the instruments’ fair value currently on the Consolidated Statements of Operations as net increase (decrease) in unrealized appreciation (depreciation) on portfolio securities, corporate notes and commodity derivative instruments.

In June 2008, we acquired a limited term volume-denominated royalty interest from ATP, and the royalty payments associated with this investment were subject to fluctuations in natural gas and oil prices.  To manage this risk, we purchased oil and natural gas put options on approximately 93% of our royalty interest.   See “Note 9: Commodity Derivative Instruments” in the accompanying notes to the consolidated financial statements for further description of our put options.  We also acquired a limited term dollar-denominated royalty interest from ATP in October 2009.  The royalty payments associated with this investment are not subject to price risk and there are no commodity derivative instruments associated with ATP.

All of our commodity derivative instruments expired as of January 31, 2010 and we received payment for the final volumes associated with the limited term royalty interest in September 2010.

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Contractual Obligations and Off-Balance Sheet Arrangements

Below is a summary of our contractual payment obligations at March 31, 2011:

			Less than						More than
Contractual Obligations	Total		1 Year		1-3 Years		3-5 Years		5 Years
March 31, 2011:
Revolving credit facilities (1)	$	55,000,000	$	30,000,000	$	25,000,000	$	-	$	-
Total	$	55,000,000	$	30,000,000	$	25,000,000	$	-	$	-

(1)  Excludes accrued interest amounts.  We repaid the $25.0 million balance on our Investment Facility in April 2011.

We have certain unused commitments to extend credit to our portfolio companies. Generally, these commitments have fixed expiration dates, through the year 2032, and we do not expect to fund the entire amounts before they expire, therefore these commitment amounts do not necessarily represent future cash requirements.

In February 2010, we arranged for a letter of credit issued under the Investment Facility with respect to our investment in Alden. As of March 31, 2011, the letter of credit balance was $2.7 million but was not drawn. There have been no draws on the letter of credit and we consider the risk of any future draws to be remote.

We do not report the unused portions of these commitments on our Consolidated Balance Sheets. The following table shows our unused credit commitments and letter of credit as of March 31, 2011 and December 31, 2010:

	March 31, 2011		December 31, 2010
Unused credit commitments	$	7,776,429	$	8,682,153
Letter of credit		2,676,200		2,676,200

Dividends

We have elected to operate our business to be taxed as a RIC for federal income tax purposes.  As a RIC, we generally may not pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our stockholders as dividends.  To maintain our RIC status, we must meet specific source-of-income and asset diversification requirements and distribute annually an amount equal to at least 90% of our “investment company taxable income” (which generally consists of ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, reduced by deductible expenses) and net tax-exempt interest.  In order to avoid certain excise taxes imposed on RICs, we must distribute during each calendar year an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar year, (2) 98.2% of our capital gain net income (i.e., realized capital gains in excess of realized capital losses) for the one-year period ended on October 31 of that calendar year, and (3) 100% of any ordinary income or capital gain net income not distributed in prior years. The Regulated Investment Company Modernization Act of 2010 increased a RIC’s required capital gain distribution to avoid excise tax from 98% to 98.2% beginning in 2011.  We currently intend to make sufficient distributions to satisfy the annual distribution requirement and to avoid the excise taxes.

We may not achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings when applicable to us as a BDC under the 1940 Act and due to provisions in our credit facility. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of our status as a RIC. We cannot assure stockholders that they will receive any distributions or distributions at any specific level.

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Portfolio Credit Quality

Virtually all of our portfolio investments are in negotiated, and often illiquid, securities of energy companies. We maintain a system to evaluate the credit quality of these investments. While incorporating quantitative analysis, this system is a qualitative assessment. This system is intended to reflect the overall, long-term performance of a portfolio company’s business, the collateral coverage of an investment, and other relevant factors.  Of the twenty-six rated investments in nineteen portfolio companies, compared to the quarter ended December 31, 2010, none improved in rating, four declined in rating, twenty-one retained the same rating and one investment was added during the first quarter of 2011.  As of March 31, 2011, we carried twelve investments totaling approximately $142.2 million, or approximately 63% of the $225.9 million in total investments, on a cost basis, on our watch list due to deterioration in asset coverage, slower than expected development of the assets supporting the investments, or the downturn in general economic and energy market conditions.  As of December 31, 2010, we carried fourteen investments totaling approximately $139.1 million, or approximately 58.3% of the $238.5 million in targeted investments and corporate notes, on a cost basis, on our watch list.  Overall, the increase of $3.1 million of investments on the watch list is due to an increase in the balances of investments that remain on the watch list, and we deleted two written off investments from the watch list.

For the first quarter of 2011, the combined increase in unrealized depreciation of our portfolio securities was $6.4 million.  This increase in unrealized depreciation was largely due to decreases in the estimated market values of underlying assets, consisting primarily of the decreases in the fair value of our investments in BioEnergy and Bionol of $11.3 million.  This decrease was partially offset by increases in the fair value of our investments in Alden royalty interest of $2.9 million, TierraMar of $0.5 million and the reversal of prior period unrealized depreciation on senior corporate notes, due to realizations, of $1.3 million.

Recently Issued Accounting Pronouncements

See “Note 10: Recent Accounting Pronouncements” in the accompanying notes to consolidated financial statements for details of recently issued accounting pronouncements and their expected impact on our financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes from the information provided in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2010.

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Item 4. Controls and Procedures.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act), designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.

In connection with the preparation of this Quarterly Report on Form 10-Q, as of the end of the fiscal period covered by this Quarterly Report on Form 10-Q (March 31, 2011), we performed an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(b) and 15d-15(b) promulgated under the Exchange Act.

Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q conducted by our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective in providing reasonable assurance (i) that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and (ii) that such information is accumulated and communicated to management in a manner that allows timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting during the quarter ended March 31, 2011 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

There have been no material changes to the legal proceedings disclosed under Part I, Item 3, “Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Item 6. Exhibits.

See “Index to Exhibits” following the signature page for a description of the exhibits furnished as part of this Quarterly Report on Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NGP CAPITAL RESOURCES COMPANY
Date:  May 6, 2011		By:	/s/ Stephen K. Gardner
			Stephen K. Gardner
			President and Chief Executive Officer
Date:  May 6, 2011		By:	/s/ Stephen K. Gardner
			Stephen K. Gardner
			Chief Financial Officer, Treasurer and Secretary

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Index to Exhibits

Exhibits No.	Exhibit
3.1	Articles of Incorporation (filed as Exhibit (a)(1) to our Registration Statement on Form N-2 filed on August 16, 2004 (Registration No. 333-118279) and incorporated herein by reference)
3.2	Articles of Amendment and Restatement (filed as Exhibit 3.2 our Annual Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference)
3.3	Bylaws (filed as Exhibit (b) to our Registration Statement on Form N-2 filed on August 16, 2004 (Registration No. 333-118279) and incorporated herein by reference)
4.1	Form of Stock Certificate (filed as Exhibit (d) to our Pre-Effective Amendment No. 2 to Registration Statement on Form N-2 filed on October 7, 2004 (Registration No. 333-118279) and incorporated herein by reference)
4.2	Dividend Reinvestment Plan (filed as Exhibit (e) to our Registration Statement on Form N-2 filed on August 16, 2004 (Registration No. 333-118279) and incorporated herein by reference)
10.1	Amendment No. 3 to Custody Agreement dated as of February 28, 2011, between the Company and Wells Fargo Bank, N.A. (filed as Exhibit (j)(4) to our Amendment No. 1 to Registration Statement on Form N-2 filed on April 28, 2011 (Registration No. 333-160923) and incorporated herein by reference)
10.2	Treasury Secured Revolving Credit Agreement effective as of March 31, 2011, between the Company, the lenders from time to time party thereto and SunTrust Bank (filed as Exhibit 10.1 to our Current Report on Form 8-K filed on April 6, 2011 and incorporated herein by reference)
10.3	Consent and Fifth Amendment to Amended and Restated Revolving Credit Agreement effective as of March 31, 2011, between the Company, the lenders from time to time party thereto and SunTrust Bank (filed as Exhibit 10.2 to our Current Report on Form 8-K filed on April 6, 2011 and incorporated herein by reference)
31.1*	Certification required by Rule 13a-14(a)/15d-14(a) by the Chief Executive Officer
31.2*	Certification required by Rule 13a-14(a)/15d-14(a) by the Chief Financial Officer
32.1*	Section 1350 Certification by the Chief Executive Officer
32.2*	Section 1350 Certification by the Chief Financial Officer

*Filed herewith.

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