OHA Investment (OHAI) 10-Q 2011 Q2 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 June 30, 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 August 4, 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	28
Item 3.     Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.     Controls and Procedures	35
PART II – OTHER INFORMATION	36
Item 1.     Legal Proceedings	36
Item 1A.  Risk Factors	36
Item 6.     Exhibits	36

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED BALANCE SHEETS

	June 30, 2011			December 31, 2010
	(Unaudited)
Assets
Investments in portfolio securities at fair value
Control investments - majority owned (cost: $101,989,595 and $89,502,910, respectively)	$	74,221,913		$	70,973,316
Affiliate investments (cost: $36,083,334 and $34,146,328, respectively)		13,463,505			33,064,028
Non-affiliate investments (cost: $113,556,532 and $114,852,057, respectively)		112,012,623			112,025,645
Investments in U.S. Treasury Bills at fair value (cost: $30,600,298 and $0, respectively)		30,599,663			-
Total investments		230,297,704			216,062,989
Cash and cash equivalents		50,010,276			68,456,908
Accounts receivable and other current assets		1,242,430			3,095,882
Interest receivable		1,397,457			2,236,122
Prepaid assets		1,342,941			1,736,732
Total current assets		53,993,104			75,525,644
Deferred tax assets		5,615,099			-
Total assets	$	289,905,907		$	291,588,633
Liabilities and net assets
Current liabilities
Accounts payable and accrued expenses	$	485,831		$	525,111
Management and incentive fees payable		1,591,714			1,376,032
Dividends payable		3,893,076			3,893,076
Income taxes payable		18,052			50,350
Current portion of long-term debt		30,000,000			-
Deferred tax liabilities		5,630,437			-
Total current liabilities		41,619,110			5,844,569
Deferred tax liabilities		-			18,136
Long-term debt, less current portion		40,000,000			50,000,000
Total liabilities		81,619,110			55,862,705
Commitments and contingencies  (Note 6)
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)		(8,234,138	)		(7,845,925	)
Undistributed net realized capital gain (loss)		(32,319,233	)		(32,778,782	)
Net unrealized appreciation (depreciation) of portfolio securities		(44,971,263	)		(17,460,796	)
Total net assets		208,286,797			235,725,928
Total liabilities and net assets	$	289,905,907		$	291,588,633
Net asset value per share	$	9.63		$	10.90

(See accompanying notes to consolidated financial statements)

1

 NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For The Three Months Ended						For The Six Months Ended
	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
Investment income
Interest income:
Control investments - majority owned	$	5,810,435		$	1,095,924		$	7,166,344		$	2,195,903
Affiliate investments		(320,821	)		899,981			631,044			1,732,894
Non-affiliate investments		3,038,632			3,379,706			6,517,637			6,557,247
Royalty income (loss), net of amortization:
Control investments - majority owned		201,785			459,974			680,135			754,785
Non-affiliate investments		270,906			(444,619	)		526,688			(962,675	)
Other income		58,887			640,000			92,637			946,079
Total investment income		9,059,824			6,030,966			15,614,485			11,224,233
Operating expenses
Management and incentive fees		1,591,714			1,423,830			2,925,002			2,762,399
Professional fees		236,026			221,672			435,066			486,976
Insurance expense		182,303			185,658			364,846			371,316
Interest expense and fees		457,256			304,118			766,677			617,181
Other general and administrative expenses		896,969			843,568			1,726,704			1,789,988
Total operating expenses		3,364,268			2,978,846			6,218,295			6,027,860
Net investment income before income taxes		5,695,556			3,052,120			9,396,190			5,196,373
Benefit (provision) for income taxes		(1,295,534	)		222,496			(1,998,250	)		509,570
Net investment income		4,400,022			3,274,616			7,397,940			5,705,943
Net realized capital gain (loss) on investments
Net realized capital gain (loss) on portfolio securities:
Control investments - majority owned		-			-			81,275			-
Non-affiliate investments		984,571			-			378,210			-
Benefit (provision) for taxes on capital gain (loss)		(223	)		(9,462	)		64			(18,613	)
Total net realized capital gain (loss) on investments		984,348			(9,462	)		459,549			(18,613	)
Net unrealized gain (loss) on investments
Net increase (decrease) in unrealized appreciation (depreciation) on portfolio securities
Control investments - majority owned		(12,665,451	)		(93,176	)		(9,238,088	)		(86,675	)
Affiliate investments		(10,343,205	)		(748,010	)		(21,537,528	)		(189,291	)
Non-affiliate investments		(58,606	)		1,733,136			1,281,867			4,047,125
Benefit (provision) for taxes on unrealized gain (loss)		1,289,139			(284,237	)		1,983,282			(577,386	)
Total net unrealized gain (loss) on investments		(21,778,123	)		607,713			(27,510,467	)		3,193,773
Net increase (decrease) in net assets resulting from operations	$	(16,393,753	)	$	3,872,867		$	(19,652,978	)	$	8,881,103
Net increase (decrease) in net assets resulting from operations per common share	$	(0.76	)	$	0.18		$	(0.91	)	$	0.42

(See accompanying notes to consolidated financial statements)

2

 NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS

(Unaudited)

													Net Unrealized
					Paid-in					Undistributed			Appreciation
					Capital		Undistributed			Net Realized			(Depreciation)
	Common Stock				in Excess		Net Investment			Capital			of Portfolio			Total
	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 net assets resulting from operations		-		-		-		7,397,940			459,549			(27,510,467	)		(19,652,978	)
Dividends declared		-		-		-		(7,786,153	)		-			-			(7,786,153	)
Balance at June 30, 2011		21,628,202	$	21,628	$	293,789,803	$	(8,234,138	)	$	(32,319,233	)	$	(44,971,263	)	$	208,286,797

(See accompanying notes to consolidated financial statements)

3

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For The Six Months Ended
	June 30, 2011			June 30, 2010
Cash flows from operating activities
Net increase (decrease) in net assets resulting from operations	$	(19,652,978	)	$	8,881,103
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash (used in) provided by operating activities
Payment-in-kind interest		(6,321,743	)		(2,585,664	)
Net amortization of premiums, discounts and fees		202,102			6,856,303
Net realized capital (gain) loss on portfolio securities before taxes		(459,485	)		-
Change in unrealized (appreciation) depreciation on portfolio securities before taxes		29,493,749			(3,771,159	)
Net deferred income tax provision (benefit)		(2,798	)		50,137
Effects of changes in operating assets and liabilities:
Accounts receivable and other current assets		1,853,452			(38,260	)
Interest receivable		838,665			(140,404	)
Prepaid assets		393,791			600,583
Accounts payable and accrued expenses		176,402			(376,879	)
Income taxes payable		(32,298	)		(28,708	)
Purchase of investments in portfolio securities		(51,475,085	)		(3,967,803	)
Proceeds from the redemption of investments in portfolio securities		44,926,045			6,436,615
Purchase of investments in U.S. Treasury Bills		(30,600,298	)		-
Net cash provided by (used in) operating activities		(30,660,479	)		11,915,864
Cash flows from financing activities
Borrowings under revolving credit facilities		95,000,000			124,905,200
Repayments on revolving credit facilities		(75,000,000	)		(132,405,200	)
Dividends paid		(7,786,153	)		(7,353,589	)
Net cash provided by (used in) financing activities		12,213,847			(14,853,589	)
Net decrease in cash and cash equivalents		(18,446,632	)		(2,937,725	)
Cash and cash equivalents, beginning of period		68,456,908			108,288,217
Cash and cash equivalents, end of period	$	50,010,276		$	105,350,492

(See accompanying notes to consolidated financial statements)

4

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 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	$	15,408,942	$	16,497,033
		Multiple-Advance Term Loan - Tranche A
		(The greater of 12.0% or LIBOR +
		9.0% cash, due 1/05/2013)
		Senior Secured		26,223,742		24,066,616		24,066,616
		Multiple-Advance Term Loan - Tranche B
		(The greater of 12.0% or LIBOR +
		9.0% cash, 15.0% or LIBOR +
		12.0% PIK, due 1/05/2013) (9)
		Senior Secured		9,429,225		9,429,225		9,429,225
		Multiple-Advance Term Loan - Revolver
		(The greater of 12.0% or LIBOR +
		9.0% cash, 15.0% or LIBOR +
		12.0% PIK, due 1/05/2013)
		5.8 million Class E Units - entitled  to				5,800,000		-
		100% of distributions of Alden Resources
		until payout, 80% after payout (8)
		Royalty Interest				2,469,862		8,150,000
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		700,000
	Production and Development	of distribution of DeanLake Operator, LLC
		until payout, 80% after payout (8)
		Overriding Royalty Interest				17,390		50,000
Gatliff Services, LLC (7)	Coal Processing	Senior Secured		14,286,517		14,286,517		14,286,517
		Multiple-Advance Term Loan
		(8.0% during construction, 12.0%
		after completion, due 9/30/2020)
		One Membership Unit - representing 100%				1,100,000		967,522
		ownership of Gatliff Services, LLC  (8)
Rubicon Energy Partners,	Oil & Natural Gas	4,000 LLC Units representing				-		-
LLC (7) (18)	Production and Development	50% ownership of the assets of
		Rubicon Energy Partners, LLC (8)
TierraMar Energy, LP (7) (18)	Oil & Natural Gas	212,637 Class A Preferred LP Units - entitled to
	Production and Development	100% of distribution of TierraMar Energy, LP
		until payout, 67% after payout (8)				15,360,788		75,000
Subtotal Control Investments - Majority Owned (50% or more owned)					$	101,989,595	$	74,221,913

(See accompanying notes to consolidated financial statements)

5

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 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) (11)	Alternative Fuels and	Senior Secured Notes	$	16,662,326	$	15,510,855	$	-
	Specialty Chemicals	(15.0%, 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		-
	Specialty Chemicals	2nd Lien Term Loan
		(LIBOR + 7.0% cash, LIBOR + 9.0%
		default, due 9/06/2016) (9)
Resaca Exploitation Inc.	Oil & Natural Gas	Senior Unsecured Term Loan		10,597,681		10,372,461		10,372,461
	Production and Development	(9.5% cash or 12.0% PIK,
		due on 12/31/2014) (7)
		Warrants (7) (8) (20)				250,000		250,000
		Common Stock (1,345,595 shares) – representing
		6.82% of outstanding common stock of
		Resaca Exploitation Inc. (6) (8) (14)				3,235,254		2,085,674
Subtotal Affiliate Investments - (5% to 25% owned)					$	36,083,334	$	13,463,505
Non-affiliate Investments - (Less than 5% owned)
Anadarko Petroleum Corporation	Oil & Natural Gas	Multiple-Advance Net Profits Interest	$	8,637,944	$	8,673,651	$	8,973,650
2007-III Drilling Fund (7)	Production and Development	(Due 4/23/2032)
ATP Oil & Gas Corporation - II (7)	Oil & Natural Gas	Limited Term Royalty Interest				2,027,766		2,500,000
	Production and Development	(Dollar Denominated - 16.0% Return)
ATP Oil & Gas Corporation - III (7)	Oil & Natural Gas	Limited Term Royalty Interest				25,000,000		25,000,000
	Production and Development	(Dollar Denominated - 12.35% annual
		interest, 13.0% IRR to pay-out)
Black Pool Energy	Oil & Natural Gas	Senior Secured		16,780,001		16,721,588		16,721,588
Partners, LLC (7)	Production and Development	Multiple-Advance Term Loan
		(The greater of 15.0% or LIBOR +
		11.0% cash, due 10/24/2011)
		Overriding Royalty Interest				8,928		100,000
		Warrants (8) (15)				10,000		-
Chroma Exploration &	Oil & Natural Gas	10,930 Shares Series A Participating				2,221,710		-
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		8,670,000		8,507,607		8,507,607
	Gathering and Processing	(The greater of 10.5% or LIBOR + 8.5%,
		due 10/01/2016)

(See accompanying notes to consolidated financial statements)

6

 NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 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	$	4,007,557	$	4,398,819
	Production and Development	(5.0%, due 2/1/2013)
Nighthawk Transport I, LP (7)	Energy Services	LP Units (8) (19)				-		-
		Warrants (8) (19)				-		-
Pallas Contour Mining, LLC (7)	Coal Mining	Senior Secured		12,911,290		12,957,276		12,957,276
		Multiple-Advance Term Loan
		(14.0%, 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	Multiple-Advance Term Loan
		(14.0%, due 10/14/2015)
Spirit Resouces, LLC (7)	Oil & Natural Gas	Senior Secured		7,700,000		7,439,019		7,439,019
	Production and Development	Multiple-Advance Term Loan
		(The greater of 12.0% or LIBOR + 8.00%,
		due 4/27/2015)
		Warrants (8) (21)				25,000		25,000
Tammany Oil & Gas, LLC (7)	Oil & Natural Gas	Senior Secured		20,732,804		20,719,664		20,719,664
	Production and Development	Multiple-Advance Term Loan
		(The greater of 13.0% or LIBOR + 8.00%,
		due 9/30/2012)
		Overriding Royalty Interest				126,896		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)					$	113,556,532	$	112,012,623
Subtotal Targeted Investments (86.71% of total investments)					$	251,629,461	$	199,698,041
GOVERNMENT SECURITIES (5)
U.S. Treasury Bills		U.S. Treasury Bills, -0.01%, due 07/28/2011	$	30,600,000	$	30,600,298	$	30,599,663
Subtotal Government Securities (13.29% of total investments)					$	30,600,298	$	30,599,663
TOTAL INVESTMENTS					$	282,229,759	$	230,297,704

(See accompanying notes to consolidated financial statements)

7

NGP CAPITAL RESOURCES COMPANY

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2011

(Unaudited)

(continued)

NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS

  (1) All of our targeted investments are collateral for obligations under our Investment Facility.  Our investments in U.S. Treasury Bills are collateral for obligations under our Treasury Facility.  See Note 3 of Notes to Consolidated Financial Statements.

  (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.  In July 2011, both entities filed for protection under Chapter 7 of the U.S. Bankruptcy Code.

(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) Assets of this portfolio company have been sold.  The legal entity, in which we retain an equity interest, is in the process of dissolution.

(19) Due to insufficient recoveries in the liquidation under Nighthawk's voluntary petition under Chapter 7 of the U.S. 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.

(20) 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.

(21) Spirit Resources, LLC penny warrants expire five years after repayment of principal and interest and entitle us to acquire 33% of the Investor Units.

(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.

(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 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 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, as of December 31, 2010, we expected 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 Six Months Ended
Per Share Data  (1)	June 30, 2011			June 30, 2010
Net asset value, beginning of period	$	10.90		$	11.10
Net investment income		0.34			0.26
Net realized and unrealized gain (loss) on portfolio securities (2)		(1.25	)		0.16
Net increase (decrease) in net assets resulting from operations		(0.91	)		0.42
Dividends declared		(0.36	)		(0.34	)
Net asset value, end of period	$	9.63		$	11.18
Market value, beginning of period	$	9.20		$	8.13
Market value, end of period	$	8.20		$	7.17
Market value return  (3)		(7.41	)%		(7.96	)%
Net asset value return (3)		(8.22	)%		5.11	%
Senior Securities Data:
Total borrowings (in thousands)	$	70,000		$	50,000
Asset coverage ratio (4) (5)		414	%		583	%
Asset coverage per unit (5)	$	4,141		$	5,832
Ratios and Supplemental Data
($ and shares in thousands)
Net assets, end of period	$	208,287		$	241,703
Average net assets	$	222,006		$	240,939
Common shares outstanding end of period		21,628			21,628
Net investment income/average net assets (6)		6.72	%		4.78	%
Portfolio turnover rate		20.03	%		2.67	%
Total operating expenses/average net assets (6)		5.65	%		5.05	%
Additional ratios
Total operating expenses less management and incentive fees and interest expense/average net assets (6)		2.30	%		2.22	%
Total operating expenses less management and incentive fees/average net assets (6)		2.99	%		2.73	%
Net increase (decrease) in net assets resulting from operations/average net assets (6)		(17.85	)%		7.43	%

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

(2) Calculated as a balancing amount necessary to reconcile the change in net assets value per share with 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 the year may not equal the per share changes of the line items disclosed.

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

(4) As a business development company, we are generally required to maintain a ratio of at least 200% of total assets, less all liabilities and indebtedness not represented by senior securities, to total borrowings and guaranty commitments.

(5) Asset coverage ratio is the ratio of the carrying value of our total assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities represented indebtedness (including interest payable and guarantees).  Asset coverage per unit is the asset coverage ratio expressed in terms of dollar amounts per one thousand dollars of indebtedness.

(6) Annualized.

(See accompanying notes to consolidated financial statements)

13

NGP CAPITAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 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: Basis of Presentation

These interim unaudited consolidated financial statements include the accounts of NGPC and its 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 our financial position, results of operations and cash flows.  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.

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.

14

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:

Declaration Date	Amount		Record Date	Payment Date
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
June 14, 2011	$	0.18	June 30, 2011	July 8, 2011

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 $40.0 million under the Investment Facility as of June 30, 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.  Substantially all of our assets except our investments in U.S. Treasury Bills are collateral for the obligations 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.  As of June 30, 2011, the interest rate on our outstanding balance of $40.0 million was 7.0% (Prime plus 375 basis points).  We repaid the entire $40.0 million balance in July 2011.  As of June 30, 2011, we had a letter of credit outstanding of $3.3 million, and the amount available to us for borrowing under the Investment Facility was $24.3 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.  Our investments in U.S. Treasury Bills secure our borrowings under the Treasury Facility.  Proceeds from the Treasury Facility 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 June 30, 2011, $30.0 million was outstanding under the Treasury Facility and the interest rate was 0.69% (LIBOR plus 50 basis points). 

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.  We complied with these covenants as of June 30, 2011 and had no events of default under either facility.  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.

15

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.  Management and incentive fees payable at June 30, 2011 and December 31, 2010 consisted of the following, representing amounts payable for the quarters then ended:

	June30,2011		December31,2010
Base management fee	$	1,310,694	$	1,376,032
Investment income incentive fee		281,020		-
	$	1,591,714	$	1,376,032

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, 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.

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, royalty 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.  For the three and six months ended June 30, 2011, we accrued $281,020 of Investment Income Incentive Fees, compared to no such fees for the same periods of 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. We have not accrued or paid any Capital Gains Fees in 2011 or 2010.

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.

16

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).  Either party may terminate the agreement without penalty upon not more than 60 days written notice to the other.

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 bear all other costs and expenses of our operations and transactions. 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 recordkeeping 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 $268,367 and $238,618 to our Administrator as of June 30, 2011 and December 31, 2010, respectively, for expenses incurred on our behalf.  We include these amounts in accounts payable and accrued expenses. 

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.

17

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.

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 2011 and 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 and the statutory federal tax rate of 34% for all periods presented 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.

Note 6: Commitments and Contingencies

As of June 30, 2011, we had investments in or commitments to fund investments in nineteen portfolio companies totaling $264.7 million.  Of this total, $253.6 million was outstanding and $11.1 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 $11.1 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 one of our portfolio companies. As of June 30, 2011, the letter of credit balance was $3.3 million. 

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.

18

Note 7: Investments and Fair Value

Investments consisted of the following as of June 30, 2011 and December 31, 2010:

	June 30, 2011
			% of					% of
	Cost		total			Fair Value		total
Long term investments
Senior secured debt	$	152,997,309		54.2	%	$	133,624,545		58.0	%
Senior unsecured debt		10,372,461		3.7	%		10,372,461		4.5	%
Senior convertible notes		4,007,557		1.4	%		4,398,819		1.9	%
Limited term royalties		27,027,766		9.6	%		27,500,000		11.9	%
Net profits interests		8,673,651		3.1	%		8,973,650		3.9	%
Royalty interests		2,633,076		1.0	%		9,310,000		4.0	%
Equity securities
Membership and partnership units		38,026,569		13.5	%		2,448,654		1.1	%
Participating preferred stock		4,311,580		1.5	%		650,000		0.3	%
Common stock		3,235,254		1.1	%		2,085,674		0.9	%
Warrants		344,238		0.1	%		334,238		0.1	%
Total equity securities		45,917,641		16.2	%		5,518,566		2.4	%
Total long term investments		251,629,461		89.2	%		199,698,041		86.6	%
Short term investments
U.S. Treasury Bills		30,600,298		10.8	%		30,599,663		13.4	%
Total investments	$	282,229,759		100.0	%	$	230,297,704		100.0	%

	December 31, 2010
			% of					% of
	Cost		total			Fair Value		total
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	%
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	%
Royalty interests		2,698,279		1.1	%		11,960,000		5.5	%
Equity securities
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 equity securities		46,992,641		19.7	%		15,987,718		7.3	%
Total investments	$	238,501,295		100.0	%	$	216,062,989		100.0	%

19

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).

20

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 June 30, 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 June 30, 2011 or December 31, 2010.

	Fair Value Measurements as of June 30, 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	$	64,279,391	$	-	$	-	$	64,279,391
Royalty interests		8,200,000		-		-		8,200,000
Equity securities		1,742,522		-		-		1,742,522
Total control investments		74,221,913		-		-		74,221,913
Affiliate investments
Senior unsecured debt		10,372,461		-		-		10,372,461
Equity securities		3,091,044		-		2,085,674		1,005,370
Total affiliate investments		13,463,505		-		2,085,674		11,377,831
Non-affiliate investments
Senior secured debt		69,345,154		-		-		69,345,154
Senior convertible notes		4,398,819		-		4,398,819		-
Limited term royalties		27,500,000		-		-		27,500,000
Net profits interests		8,973,650		-		-		8,973,650
Royalty interests		1,110,000		-		-		1,110,000
Equity securities		685,000		-		-		685,000
Total non-affiliate investments		112,012,623		-		4,398,819		107,613,804
Total long term assets		199,698,041		-		6,484,493		193,213,548
Short term investments
U.S. Treasury Bills		30,599,663		30,599,663		-		-
Total assets at fair value	$	230,297,704	$	30,599,663	$	6,484,493	$	193,213,548

21

	Fair Value Measurements as of December 31, 2010
			Quoted		Prices with
			Prices		Observable
			in Active		Market		Unobservable
			Markets		Inputs		Inputs
Assets at Fair Value	Total		(Level 1)		(Level 2)		(Level 3)
Control investments
Senior secured debt	$	49,223,316	$	-	$	-	$	49,223,316
Royalty interests		10,450,000		-		-		10,450,000
Equity securities		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 securities		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		-
Limited term royalties		6,548,318		-		-		6,548,318
Net profits interests		9,886,635		-		-		9,886,635
Royalty interests		1,510,000		-		-		1,510,000
Equity securities		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

22

The following tables present a roll-forward of the changes in the fair value during the three and six-month periods ended June 30, 2011 and 2010 for all investments for which we determine fair value using unobservable (Level 3) factors.  During the six-month periods ended June 30, 2011 and 2010, 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 the six-month period ended June 30, 2011.  During the three and six-month periods ended June 30, 2010, we transferred the senior corporate notes of Pioneer Natural Resources Company from Level 3 to Level 2 due to a change in the observability of significant inputs.

Rollforward of Assets at Fair Value Using Unobservable Inputs (Level 3) for the Three Months Ended June 30, 2011

	Control			Affiliate			Non-affiliate			Total
	Investments			Investments			Investments			Investments
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
Limited term royalties		-			-			4,530,324			4,530,324
Net profits interests		-			-			9,778,459			9,778,459
Royalty interests		13,250,000			-			1,510,000			14,760,000
Equity securities		11,900,000			1,005,370			770,000			13,675,370
Total fair value March 31, 2011		79,276,359			21,288,403			89,888,839			190,453,601
Net amortization of premiums, discounts and fees
Senior secured debt		154,869			(16,649	)		47,386			185,606
Senior unsecured debt		-			13,110			-			13,110
Net profits interests		-			-			(8,993	)		(8,993	)
Royalty interests		(3,937	)		-			(6,862	)		(10,799	)
Total net amortization of premiums, discounts and fees		150,932			(3,539	)		31,531			178,924
Net realized gains (losses)
Royalty interests		-			-			984,571			984,571
Total realized gains (losses)		-			-			984,571			984,571
Net unrealized gains (losses)
Senior secured debt		1,188,091			(10,222,103	)		-			(9,034,012	)
Limited term royalties		-			-			472,234			472,234
Royalty interests		(5,046,063	)		-			(377,709	)		(5,423,772	)
Equity securities		(8,807,478	)		-			(110,000	)		(8,917,478	)
Total net unrealized gains (losses)		(12,665,450	)		(10,222,103	)		(15,475	)		(22,903,028	)
Purchases
Senior secured debt		4,263,297			-			7,430,000			11,693,297
Limited term royalties		-			-			25,000,000			25,000,000
Equity securities		-			-			25,000			25,000
Total purchases		4,263,297			-			32,455,000			36,718,297
Payment-in-kind
Senior secured debt		4,546,775			-			-			4,546,775
Senior unsecured debt		-			315,070			-			315,070
Total payment-in-kind		4,546,775			315,070			-			4,861,845
Sales and repayments
Senior secured debt		-			-			(11,432,288	)		(11,432,288	)
Limited term royalties		-			-			(2,502,558	)		(2,502,558	)
Net profits interests		-			-			(795,816	)		(795,816	)
Royalty interests		-			-			(1,000,000	)		(1,000,000	)
Equity securities		(1,350,000	)		-			-			(1,350,000	)
Total sales and repayments		(1,350,000	)		-			(15,730,662	)		(17,080,662	)
Fair value June 30, 2011
Senior secured debt		64,279,391			-			69,345,154			133,624,545
Senior unsecured debt		-			10,372,461			-			10,372,461
Limited term royalties		-			-			27,500,000			27,500,000
Net profits interests		-			-			8,973,650			8,973,650
Royalty interests		8,200,000			-			1,110,000			9,310,000
Equity securities		1,742,522			1,005,370			685,000			3,432,892
Total fair value June 30, 2011	$	74,221,913		$	11,377,831		$	107,613,804		$	193,213,548

23

Rollforward of Assets at Fair Value Using Unobservable Inputs (Level 3) for the Six Months Ended June 30, 2011

	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
Limited term royalties		-			-			6,548,318			6,548,318
Net profits interests		-			-			9,886,635			9,886,635
Royalty interests		10,450,000			-			1,510,000			11,960,000
Equity securities		11,300,000			1,764,764			770,000			13,834,764
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		302,188			137,258			137,386			576,832
Senior unsecured debt		-			24,780			-			24,780
Net profits interests		-			-			(18,206	)		(18,206	)
Royalty interests		(16,575	)		-			(18,475	)		(35,050	)
Total net amortization of premiums, discounts and fees		285,613			162,038			100,705			548,356
Net realized gains (losses)
Royalty interests		81,275			-			984,571			1,065,846
Total realized gains (losses)		81,275			-			984,571			1,065,846
Net unrealized gains (losses)
Senior secured debt		1,188,091			(20,460,855	)		-			(19,272,764	)
Limited term royalties		-			-			472,234			472,234
Royalty interests		(2,218,700	)		-			(366,096	)		(2,584,796	)
Equity securities		(8,207,478	)		(1,009,394	)		(110,000	)		(9,326,872	)
Total net unrealized gains (losses)		(9,238,087	)		(21,470,249	)		(3,862	)		(30,712,198	)
Purchases
Senior secured debt		9,019,021			-			7,431,064			16,450,085
Senior unsecured debt		-			9,750,000			-			9,750,000
Limited term royalties		-			-			25,000,000			25,000,000
Equity securities		-			250,000			25,000			275,000
Total purchases		9,019,021			10,000,000			32,456,064			51,475,085
Payment-in-kind
Senior secured debt		4,546,775			1,177,287			-			5,724,062
Senior unsecured debt		-			597,681			-			597,681
Total payment-in-kind		4,546,775			1,774,968			-			6,321,743
Sales and repayments
Senior secured debt		-			(10,000,000	)		(14,407,075	)		(24,407,075	)
Limited term royalties		-			-			(4,520,552	)		(4,520,552	)
Net profits interests		-			-			(894,779	)		(894,779	)
Royalty interests		(96,000	)		-			(1,000,000	)		(1,096,000	)
Equity securities		(1,350,000	)		-			-			(1,350,000	)
Total sales and repayments		(1,446,000	)		(10,000,000	)		(20,822,406	)		(32,268,406	)
Fair value June 30, 2011
Senior secured debt		64,279,391			-			69,345,154			133,624,545
Senior unsecured debt		-			10,372,461			-			10,372,461
Limited term royalties		-			-			27,500,000			27,500,000
Net profits interests		-			-			8,973,650			8,973,650
Royalty interests		8,200,000			-			1,110,000			9,310,000
Equity securities		1,742,522			1,005,370			685,000			3,432,892
Total fair value June 30, 2011	$	74,221,913		$	11,377,831		$	107,613,804		$	193,213,548

24

Rollforward of Assets at Fair Value Using Unobservable Inputs (Level 3) for the Three Months Ended June 30, 2010

	Control			Affiliate			Non-affiliate			Total
	Investments			Investments			Investments			Investments
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
Limited term royalties		-			-			17,680,200			17,680,200
Net profits interests		-			-			10,606,693			10,606,693
Royalty interests		5,830,000			-			1,500,000			7,330,000
Equity securities		18,600,000			6,445,083			760,000			25,805,083
Total fair value March 31, 2010		75,435,448			34,346,136			92,672,696			202,454,280
Transfers in (out) of Level 3
Senior corporate notes		-			-			(9,062,200	)		(9,062,200	)
Total transfers in (out) of Level 3		-			-			(9,062,200	)		(9,062,200	)
Net amortization of premiums, discounts and fees
Senior secured debt		132,336			58,891			65,859			257,086
Senior corporate notes		-			-			12,323			12,323
Limited term royalties		-			-			(4,101,527	)		(4,101,527	)
Net profits interests		-			-			(7,722	)		(7,722	)
Royalty interests		(6,825	)		-			(16,503	)		(23,328	)
Total net amortization of premiums, discounts and fees		125,511			58,891			(4,047,570	)		(3,863,168	)
Net unrealized gains (losses)
Senior corporate notes		-			-			(366,523	)		(366,523	)
Limited term royalties		-			-			1,564,794			1,564,794
Royalty interests		6,825			-			16,503			23,328
Equity securities		(100,000	)		(748,010	)		-			(848,010	)
Total net unrealized gains (losses)		(93,175	)		(748,010	)		1,214,774			373,589
Purchases
Senior secured debt		573,217			-			-			573,217
Equity securities		3,600,000			-			-			3,600,000
Total purchases		4,173,217			-			-			4,173,217
Payment-in-kind
Senior secured debt		854,175			-			-			854,175
Total payment-in-kind		854,175			-			-			854,175
Sales and repayments
Senior secured debt		(3,500,000	)		(12,500	)		(940,706	)		(4,453,206	)
Limited term royalties		-			-			(2,595,010	)		(2,595,010	)
Net profits interests		-			-			(300,684	)		(300,684	)
Total sales and repayments		(3,500,000	)		(12,500	)		(3,836,400	)		(7,348,900	)
Fair value June 30, 2010
Senior secured debt		49,065,176			27,947,444			51,834,556			128,847,176
Limited term royalties		-			-			12,548,457			12,548,457
Net profits interests		-			-			10,298,287			10,298,287
Royalty interests		5,830,000			-			1,500,000			7,330,000
Equity securities		22,100,000			5,697,073			760,000			28,557,073
Total fair value June 30, 2010	$	76,995,176		$	33,644,517		$	76,941,300		$	187,580,993

25

Rollforward of Assets at Fair Value Using Unobservable Inputs (Level 3) for the Six Months Ended June 30, 2010

										Commodity
	Control			Affiliate			Non-affiliate			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
Limited term royalties		-			-			20,577,744			-			20,577,744
Net profits interests		-			-			11,012,799			-			11,012,799
Royalty interests		5,830,000			-			1,500,000			-			7,330,000
Equity securities		18,600,000			5,886,364			510,000			-			24,996,364
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
Transfers in (out) of Level 3
Senior corporate notes		-			-			(9,062,200	)		-			(9,062,200	)
Total transfers in (out) of Level 3		-			-			(9,062,200	)		-			(9,062,200	)
Net amortization of premiums, discounts and fees
Senior secured debt		258,222			114,924			176,532			-			549,678
Limited term royalties		-			-			(7,316,940	)		-			(7,316,940	)
Net profits interests		-			-			(15,132	)		-			(15,132	)
Royalty interests		(13,325	)		-			(35,878	)		-			(49,203	)
Total net amortization of premiums, discounts and fees		244,897			114,924			(7,191,418	)		-			(6,831,597	)
Net unrealized gains (losses)
Limited term royalties		-			-			3,311,783			-			3,311,783
Net profits interests		-			-			(49,999	)		-			(49,999	)
Royalty interests		13,325			-			35,878			-			49,203
Equity securities		(100,000	)		(189,291	)		250,000			-			(39,291	)
Commodity derivative instruments		-			-			-			(18,900	)		(18,900	)
Total net unrealized gains (losses)		(86,675	)		(189,291	)		3,547,662			(18,900	)		3,252,796
Purchases
Senior secured debt		2,619,389			1,247,220			-			-			3,866,609
Net profits interests		-			-			1,194			-			1,194
Equity securities		3,600,000			-			-			-			3,600,000
Total purchases		6,219,389			1,247,220			1,194			-			7,467,803
Payment-in-kind
Senior secured debt		1,667,945			917,719			-			-			2,585,664
Total payment-in-kind		1,667,945			917,719			-			-			2,585,664
Sales and repayments
Senior secured debt		(3,500,000	)		(25,000	)		(1,706,811	)		-			(5,231,811	)
Limited term royalties		-			-			(4,024,130	)		-			(4,024,130	)
Net profits interests		-			-			(650,575	)		-			(650,575	)
Commodity derivative instruments		-			-			-			(30,100	)		(30,100	)
Total sales and repayments		(3,500,000	)		(25,000	)		(6,381,516	)		(30,100	)		(9,936,616	)
Fair value June 30, 2010
Senior secured debt		49,065,176			27,947,444			51,834,556			-			128,847,176
Limited term royalties		-			-			12,548,457			-			12,548,457
Net profits interests		-			-			10,298,287			-			10,298,287
Royalty interests		5,830,000			-			1,500,000			-			7,330,000
Equity securities		22,100,000			5,697,073			760,000			-			28,557,073
Total fair value June 30, 2010	$	76,995,176		$	33,644,517		$	76,941,300		$	-		$	187,580,993

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 Note 8:  Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS,” or ASU 2011-04.  This guidance requires additional disclosure regarding fair value measurement and sensitivity, and improves consistency between generally accepted accounting principles in the U.S. (“U.S. GAAP”) and international financial reporting standards (“IFRS”).  This guidance must be applied prospectively and becomes effective for interim and annual periods beginning after December 15, 2011.  We will adopt this guidance in our Form 10-Q for the period ended March 31, 2012, and we have not yet determined the impact, if any, on our consolidated financial statements.

Note 9:  Subsequent Events – Portfolio Activity

On July 28, 2011, we sold all of our interests in Alden Resources, LLC, or Alden, and Gatliff Services, LLC, or Gatliff, for $73.2 million in cash, subject to working capital adjustment, and a contingent future payment of up to $6.8 million.  This transaction resulted in the recognition of $4.5 million of previously unrecognized PIK interest income on Tranche B of Alden’s Term Loan, and in revisions to values attributable to term loans, overriding royalty interests and equity interests in these portfolio companies.  The combined investments in Alden and Gatliff generated an all in, cash-on-cash return in excess of 16% per annum; however, the revisions to values resulted in net increases in unrealized depreciation of $9.8 million in the second quarter and $6.9 million in the first six months of 2011.

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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.  Certain factors 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,” “intends,” “plans,” “expects,” “projects,” “estimates,” “will,” “should,” “may” and similar expressions to identify forward-looking statements.  We base our forward-looking statements on assumptions that we believe to be reasonable, but that may not prove to be accurate.  You should not place undue reliance on such forward-looking statements, which speak only as of the date they are made.  We undertake no obligation to update any forward-looking statements made herein, unless required by law.

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 business development company, or BDC, under the Investment Company Act of 1940 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 regulated investment company, or RIC, under the Internal Revenue Code of 1986, as amended.  Pursuant to these elections, we generally do 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 or royalty interests on a stand-alone basis.

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We generate revenue in the form of interest income on the debt securities, limited-term royalty interests and net profits interests that we own, dividend income on any common or preferred stock that we own, royalty income on any royalty interests 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 paid-in-kind, or PIK, 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.

Investment Activity

For the six months ended June 30, 2011, portfolio investments increased by a net amount of $8.7 million.  We funded $44.0 million to existing portfolio companies and $7.7 million to a new portfolio company.  We recorded repayments of $44.4 million from existing investments, including one repayment in full.  Following these transactions, we had nineteen portfolio companies in our investment portfolio.  The fair values of these investments totaled $199.7 million as of June 30, 2011.  Our portfolio, at fair value, was comprised of the following types by percentage:

· 66.9% in senior secured debt,

· 5.2% in senior unsecured debt,

· 2.2% in senior convertible notes,

· 13.8% in limited-term royalty interests,

· 4.5% in net profits interests,

· 4.6% in net royalty interests, and

· 2.8% in equity securities.

In June 2011, we acquired a limited-term overriding royalty interest in certain oil and gas producing properties operated by ATP Oil & Gas Corporation, or ATP, for $25.0 million.  ATP is a Houston, Texas-based oil and gas operator with whom we have made similar investments in the past.

In April 2011, we entered into a $13.5 million Senior Secured Credit Facility with Spirit Resources, LLC, or Spirit, a private oil and gas company based in Fort Worth, Texas.  Initial availability under the Spirit facility is $12.3 million, of which we have funded $7.7 million as of June 30, 2011.  The Spirit facility is secured with first liens on substantially all of Spirit’s assets and pays interest at an annual rate of 12.0%.  Spirit used proceeds from the Spirit facility to acquire and develop oil and gas properties in Texas and Oklahoma.  As partial consideration for providing the Spirit facility, we received warrants to acquire an equity interest in Spirit.

In April 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.

In March 2011, we sold 41.2% of our investment in GMX Resources Inc., or GMX, Senior Convertible Notes for $3.3 million, and we sold our entire position in Pioneer Natural Resources Co., or PXD, for $10.5 million, including accrued interest.  Also in March 2011, TierraMar Energy LP, or TierraMar, sold substantially all of its assets for cash consideration of $1.0 million.  TierraMar is in the process of dissolution, pending finalization of its final tax return and other wind-up matters.

In January 2011, we closed a $10.0 million participation in a $20.0 million Term Loan issued by Resaca Exploitation, Inc., or Resaca.  The Resaca Term Loan earns cash interest of 9.5% (12% if paid-in-kind), is unsecured and entitles us to purchase up to 2.42 million additional shares of Resaca common stock at a price of $1.93 per share.  Resaca used the proceeds of this Term Loan and a new revolving credit facility to repay amounts outstanding under its existing revolving credit facility and to provide capital for additional development of its oil and gas properties.

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Results of Operations

Portfolio Activity

In June 2011, we entered into definitive agreements to sell all of our interests in Alden Resources, LLC, or Alden, and Gatliff Services, LLC, or Gatliff, for $73.2 million in cash, subject to a working capital adjustment, and a contingent future payment of up to $6.8 million.  This transaction resulted in the recognition of $4.5 million of previously unrecognized PIK interest income on Tranche B of Alden’s Term Loan, and in revisions to values attributable to term loans, overriding royalty interests and equity interests in these portfolio companies.  The combined investments in Alden and Gatliff resulted in an all in, cash-on-cash, return in excess of 16% per annum; however, the revisions to values resulted in net increases in unrealized depreciation of $9.8 million recorded in the second quarter and $6.9 million recorded in the first six months of 2011.  This transaction closed on July 28, 2011.

We reduced the carrying value of our investments in BioEnergy Holding LLC, or BioEnergy, and its affiliate, Bionol Clearfield LLC, or Bionol, to zero during the three months ended June 30, 2011.  The ethanol and bio-fuels markets in which these portfolio companies participate continued to deteriorate during the second quarter.  On July 20, 2011, BioEnergy and Bionol filed a voluntary petition for protection under Chapter 7 of the U.S. Bankruptcy Code with the intention of selling Bionol’s ethanol plant.  Bionol is involved in an arbitration case in connection with a contractual dispute with the former primary purchaser of its ethanol; however, we believe it is unlikely that the ultimate outcome of the arbitration, bankruptcy proceedings, and cash flows from these businesses will provide any significant realization on our investment.  This reduction in carrying value resulted in an unrealized loss of $10.2 million during the second quarter of 2011, and a reduction in previously accrued interest income of $0.6 million.

Investment Income

Investment income for the quarter ended June 30, 2011 was $9.1 million, increasing $3.0 million, or 50%, compared to the corresponding quarter in 2010, and was comprised of $8.5 million in interest income from targeted investments and $0.5 million from net royalty income and other income.  The $3.0 million increase in investment income for the second quarter of 2011 compared to the second quarter of 2010 is primarily attributable to the recognition of $4.5 million of previously reserved PIK interest on Tranche B of Alden’s Term Loan, partially offset by the reserve of $0.6 million of previously recorded interest from BioEnergy and Bionol and fee income of $0.6 million in the second quarter of 2010 related to a specific transaction.

For the six months ended June 30, 2011, investment income increased by $4.4 million, or 39%, to $15.6 million compared to the same period in 2010.  For the six months ended June 30, 2011, we recorded $14.3 million of interest from targeted investments and $1.3 million attributable to royalties and other income, compared to $10.5 million of interest and $0.7 million of royalties and other income for the six months ended June 30, 2010.

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Our total targeted investment portfolio balance increased on a cost basis by $4.6 million from $247.0 million at June 30, 2010 to $251.6 million at June 30, 2011.  Of that amount, the balance of non-accruing and non-income producing investments on a cost basis decreased from $106.0 million at June 30, 2010 to $90.5 million at June 30, 2011, primarily as a result of the sale of our interests in Formidable, LLC in October 2010, partially offset by the addition of our investments in BioEnergy and Bionol to non-accrual status in the first quarter of 2011.  The balance of non-accruing and non-income producing investments on a fair value basis decreased from $53.7 million at June 30, 2010 to $29.6 million at June 30, 2011.  Our non-accruing and non-income producing investments are summarized as follows (in thousands):

	June 30, 2011				June 30, 2010
($ in thousands)	Cost		Fair Value		Cost		Fair Value
Non-accruing investments
Alden Resources, LLC Tranche B	$	24,067	$	24,067	$	19,520	$	19,520
BioEnergy Holdings, LLC (non-accrual at March 1, 2011)		15,511		-		-		-
Bionol Clearfield, LLC (non-accrual at March 1, 2011)		4,950		-		-		-
Chroma Exploration & Production, Inc.		4,311		650		4,311		750
Formidable, LLC (sold in October 2010)		-		-		38,781		5,600
Total non-accruing investments		48,839		24,717		62,612		25,870
Non-income producing investments
TierraMar Energy, LP preferred units		15,361		75		17,711		6,000
Deanlake Operator, LLC preferred units		14,050		700		14,000		10,000
Resaca Exploitation, Inc. common stock and warrants		3,485		2,336		3,235		3,897
Alden Resources, LLC Class E Units		5,800		-		5,800		5,800
BSR Holdings, LLC (sold in October 2010)		-		-		300		300
BioEnergy Holdings, LLC units and warrants		1,297		-		1,332		1,332
Black Pool Energy Partners, LLC warrants		10		-		10		10
Gatliff Services, LLC units		1,100		968		-		-
Formidable, LLC warrants and units (sold in October 2010)		-		-		510		-
Myriant Technologies, LLC warrants and units		468		755		468		468
Spirit Resources, LLC warrants		25		25		-		-
Tammany Oil & Gas, LLC warrants and after pay-out overriding royalty interest		20		20		-		-
Non-income producing investments		41,616		4,879		43,366		27,807
Total non-accruing and non-income producing investments	$	90,455	$	29,596	$	105,978	$	53,677

Although LIBOR rates remained low during the first two quarters 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 June 30, 2011, the weighted average yield on targeted portfolio investments, exclusive of capital gains, was 9.1%, compared to 7.2% at June 30, 2010.  The weighted average yield of all investments, including interest earned on U.S. Treasury Bills, was 8.1% at June 30, 2011, compared to 7.2% at June 30, 2010.  This improvement in yield is primarily attributable to the reduction in non-accruing investments from a cost of $62.6 million at June 30, 2010 to $48.8 million at June 30, 2011, and a generally more favorable mix of investments in our portfolio.  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 June 30, 2011, operating expenses were $3.4 million, increasing $0.4 million, or 13%, compared to the quarter ended June 30, 2010.  Investment advisory and management fees were $1.6 million for the quarter ended June 30, 2011 compared to $1.4 million for the quarter ended June 30, 2010, increasing as a result of investment income incentive fees earned in the second quarter of 2011.  Professional fees, insurance expense and other general and administrative expenses were relatively unchanged at $1.3 million for both periods.  Interest expense and fees on our credit facilities were $0.5 million for the quarter ended June 30, 2011 compared to $0.3 million for the quarter ended June 30, 2010, as a result of increased average borrowing levels.

For the six months ended June 30, 2011, operating expenses were $6.2 million, increasing $0.2 million, or 3%, compared to $6.0 million for the six months ended June 30, 2010.  Investment advisory and management fees were $0.1 million higher in 2011 at $2.9 million, compared to $2.8 million for the first six months of 2010, primarily as a result of investment income incentive fees earned in the second quarter of 2011, slightly offset by lower base management fees.  Professional fees, insurance expense and other general and administrative expenses decreased slightly to $2.5 million for the year-to-date period ended June 30, 2011, compared to $2.6 million for the corresponding period in 2010.  Interest expense and fees on our credit facilities increased to $0.8 million for the six months ended June 30, 2011 compared to $0.6 million for the six months ended June 30, 2010, due to increased average borrowing levels.

Operating expenses for the three and six-month periods 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 June 30, 2011, net investment income before income taxes was $5.7 million compared to $3.1 million for the quarter ended June 30, 2010.  The 84% increase was primarily attributable to the $3.0 million increase in investment income.

For the six months ended June 30, 2011, net investment income before income taxes was $9.4 million compared to $5.2 million for the six months ended June 30, 2010.  The 81% increase was primarily attributable to the $4.4 million increase in investment income.

Net Realized Gains

For the quarter ended June 30, 2011, we recognized net realized capital gains of $1.0 million resulting from the sale of our royalty interest associated with our investment in Greenleaf Investments, LLC, or Greenleaf.  We did not have any net realized capital gains or losses for the quarter ended June 30, 2010.

For the six months ended June 30, 2011, we recognized net realized capital gains of $0.5 million resulting from the $1.0 million gain on the sale of our Greenleaf royalty interest, a $0.5 million gain on the sale of GMX Senior Convertible Notes and a $0.1 million gain on the sale of our overriding royalty interest in TierraMar, offset by a $1.1 million loss on the sale of our senior notes of PXD.  We did not have any net realized capital gains or losses for the six months ended June 30, 2010.

Unrealized Appreciation or Depreciation on Investments

For the quarter ended June 30, 2011, the increase in net unrealized depreciation on portfolio investments was $21.8 million, primarily as a result of the write down of our investments in BioEnergy and Bionol totaling $10.2 million and the net unrealized depreciation of our investments in Alden and Gatliff of $9.8 million.

For the quarter ended June 30, 2010, the increase in net unrealized appreciation after income taxes was $0.6 million, comprised of a $0.9 million increase in targeted portfolio fair value, less a tax provision of $0.3 million resulting from routine quarterly valuation allowance reallocation.  The increase in targeted portfolio fair value was primarily a result of the reversal of prior period unrealized depreciation associated with our investment in ATP’s volume denominated limited term royalty, or ATP VDR, of $1.6 million, offset by the $0.8 million write down of our investment in Resaca common stock.

For the six months ended June 30, 2011, the increase in net unrealized depreciation on portfolio investments was $27.5 million, primarily due to decreases in fair value of our investments of $21.5 million for BioEnergy and Bionol and $7.0 million on Alden and Gatliff. For the six months ended June 30, 2010, the increase in net unrealized depreciation was $3.2 million, primarily resulting from the reversal of prior period unrealized depreciation associated with our investment in ATP VDR of $3.7 million.

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While, in general, current capital and commodity markets are more stable than during the prior twenty-four 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 Net Assets Resulting from Operations

For the quarter ended June 30, 2011, we had a net decrease in net assets resulting from operations of $16.4 million, or $0.76 per share, compared to a net increase of $3.9 million, or $0.18 per share for the quarter ended June 30, 2010.  The $20.3 million, or $0.94 per share, net decrease was primarily attributable to the $22.4 million increase in unrealized depreciation on our investments during the second quarter of 2011, compared to the second quarter of 2010.

For the six months ended June 30, 2011, we had a net decrease in net assets resulting from operations of $19.7 million, or $0.91 per share, compared to a net increase of $8.9 million, or $0.42 per share, for the corresponding period in 2010.  The $28.6 million, or $1.33 per share, net decrease was primarily attributable to the $30.7 million increase in unrealized depreciation on our investments during the six months ended June 30, 2011, compared to the same period of 2010, partially offset by increased investment income and realized gains on investments.

Financial Condition, Liquidity and Capital Resources

During the six months ended June 30, 2011, we generated cash from operations of $6.5 million excluding net purchases of investments, we received cash repayments and realizations of $44.9 million, and we reinvested $82.1 million in new investments.  At June 30, 2011, we had cash and cash equivalents of $50.0 million.  The amount outstanding on our Investment Facility at June 30, 2011 was $40.0 million and an additional $24.3 million was available for borrowing.  We repaid the $40.0 million balance outstanding on our Investment Facility in July 2011.  As of June 30, 2011, our Treasury Facility was fully drawn at $30.0 million.

Our net cash used in operating activities for the six months ended June 30, 2011 was $30.7 million, $42.6 million less than the $11.9 million net cash provided by operating activities for the six months ended June 30, 2010.  This decrease was primarily due to higher net purchases of investments in portfolio securities and U.S. Treasury Bills.  Purchases of portfolio securities were $51.5 million during the first two quarters of 2011, an increase of $47.5 million compared to the $4.0 million in purchases for the first two quarters of 2010.  The higher purchases in 2011 included Resaca, $10.0 million; Alden, $6.4 million; Gatliff, $2.6 million; ATP, $25.0 million and Spirit, $7.7 million.  Additionally, we purchased $30.6 million of U.S. Treasury Bills associated with our new Treasury Facility.  By comparison, purchases for this six-month period in 2010 included Alden, $2.6 million and BioEnergy, $1.2 million.  Proceeds from the redemption of investments increased $38.5 million in the six months ended June 30, 2011 to $44.9 million, compared to $6.4 million in the first six months of 2010.  The higher redemptions in 2011 included Resaca, $10.0 million; PXD, $10.0 million; GMX, $3.3 million; Greenleaf, $8.6 million; ATP, $4.5 million; Tammany Oil & Gas, LLC, or Tammany, $2.9 million; TierraMar, $1.4 million; Black Pool Energy Partners, $1.1 million and Pallas Contour Mining, $1.5 million.  By comparison, redemptions in 2010 included ATP, $4.0 million; Greenleaf, $1.3 million; APC Drilling Fund, $0.7 million and Tammany, $0.4 million.

During the six months ended June 30, 2011, we paid cash dividends totaling $7.8 million, or $0.36 per share, to our common shareholders compared to $7.4 million, or $0.34 per share, for the corresponding period of 2010.  We currently intend to continue to distribute, in the form of dividends, a minimum of 90% of our investment company taxable income on a quarterly basis to our stockholders.

As of June 30, 2011, we had investments in or commitments to fund loan facilities to nineteen portfolio companies totaling $264.7 million, of which $253.6 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 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.  We also acquired limited term dollar-denominated royalty interests from ATP in October 2009 and June 2011.  The royalty payments associated with these investments are not subject to price risk and there are no commodity derivative instruments associated with our current ATP investments.  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 June 30, 2011:

			Less than						More than
Contractual Obligations	Total		1 Year		1-3 Years		3-5 Years		5 Years
June 30, 2011:
Revolving credit facilities (1)	$	70,000,000	$	30,000,000	$	40,000,000	$	-	$	-
Total	$	70,000,000	$	30,000,000	$	40,000,000	$	-	$	-

(1)  Excludes accrued interest amounts.  We repaid the $40.0 million balance on our Investment Facility in July 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 June 30, 2011, the letter of credit balance was $3.3 million.  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 June 30, 2011 and December 31, 2010:

	June 30, 2011		December 31, 2010
Unused credit commitments	$	11,113,132	$	8,682,153
Letter of credit		3,250,000		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-related businesses. 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-five rated investments in nineteen portfolio companies, eight improved in rating, four declined in rating, eleven retained the same rating and we added two investments during the six months of 2011.  As of June 30, 2011, on a fair value basis, approximately 67% of our portfolio investments were in the form of senior secured debt securities.  At June 30, 2011, we had four investments on non-accrual status with an aggregate cost and fair value of $48.8 million and $24.7 million, respectively, including an Alden debt security that was repaid in July 2011 for $24.1 million.  Our portfolio investments at fair value were approximately 82% of the related cost basis as of June 30, 2011.

For the six months ended June 30, 2011, the combined net increase in unrealized depreciation before taxes of our portfolio securities was $29.5 million.  This increase in unrealized depreciation was largely due to decreases in the estimated fair values of underlying assets, consisting primarily of the decreases in the fair value of our investments in BioEnergy and Bionol of $21.5 million, Alden and Gatliff of $7.0 million and DeanLake of $2.8 million.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS,” or ASU 2011-04.  This guidance requires additional disclosure regarding fair value measurement and sensitivity, and improves consistency between generally accepted accounting principles in the U.S. (“U.S. GAAP”) and international financial reporting standards (“IFRS”).  This guidance must be applied prospectively and becomes effective for interim and annual periods beginning after December 15, 2011.  We will adopt this guidance in our Form 10-Q for the period ended March 31, 2012, and we have not yet determined the impact, if any, on our consolidated 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.

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) of the Securities Exchange Act of 1934, as amended, or the Exchange Act), designed to ensure that information required to be disclosed in our reports that we file 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, 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) of the Exchange Act.  Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of June 30, 2011, 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 June 30, 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:  August 9, 2011		By:	/s/ Stephen K. Gardner
			Stephen K. Gardner
			President and Chief Executive Officer
Date:  August 9, 2011		By:	/s/ L. Scott Biar
			L. Scott Biar
			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)
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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