Reading between the lines of the proxy statement the company filed:
The Board believes the increase in available shares for future issuance is appropriate to fund the future operations of the Company and to address the upcoming maturity of the Company's 5% convertible notes due in February 2013 NotesThe company is supposed to be taking in $69 million from the Cotton Valley Sands sale, and this maturity is only $27 million. However, there are some restrictions (from the covenants of the secured notes) on the company's ability to use cash from asset sales.
I imagine that the company fully expects and would even like to use debt/equity exchanges on the 2013 maturity instead of redeeming in cash. Here's how that could look: they pay $10 million in cash and plan to exchange the remaining $17 million for equity. That would mean issuing 30 million new shares (based on current price), and would reduce the current shareholders to owning only 60 percent of the post exchange equity.
The worst part for the company is that there is sort of a positive feedback loop here, because the lower the share price the more shares will be needed for the exchange, the worse the dilution, which means the less the current shares are worth. It's a hard feedback cycle to arrest if you believe (as we do) that the equity doesn't have any value (even if the 2013 notes are fully equitized).