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resources permit. In addition, such companies
may be able to expend greater resources on the existing and changing
technologies that the Company believes are and will be increasingly
important to the current and future success of oil and natural
gas companies. The Company's ability to explore for oil and natural
gas prospects and to acquire additional properties in the future
will be dependent upon its ability to conduct its operations,
to evaluate and select suitable properties and to consummate transactions
in this highly competitive environment. The Company believes that
its exploration, drilling and production capabilities and the
experience of its management generally enable it to compete effectively.
Many of the Company's competitors, however, have financial resources
and exploration and development budgets that are substantially
greater than those of the Company, which may adversely affect
the Company's ability to compete with these companies.
The oil and gas industry
is characterized by rapid and significant technological advancements
and introductions of new products and services utilizing new technologies.
As others use or develop new technologies, the Company may be
placed at a competitive disadvantage, and competitive pressures
may force the Company to implement such new technologies at substantial
cost. In addition, other oil and gas companies may have greater
financial, technical and personnel resources that allow them to
enjoy technological advantages and may in the future allow them
to implement new technologies before the Company. There can be
no assurance that the Company will be able to respond to such
competitive pressures and implement such technologies on a timely
basis or at an acceptable cost. One or more of the technologies
currently utilized by the Company or implemented in the future
may become obsolete. In such case, the Company's business, financial
condition and results of operations could be materially adversely
affected. If the Company is unable to utilize the most advanced
commercially available technology, the Company's business, financial
condition and results of operations could be materially and adversely
affected.
Regulation
The availability of a
ready market for oil and gas production depends upon numerous
factors beyond the Company's control. These factors include regulation
of oil and natural gas production, federal and state regulations
governing environmental quality and pollution control, state limits
on allowable rates of production by well or proration unit, and
the effects of regulation on the amount of oil and natural gas
available for sale, the availability of adequate pipeline and
other regulated transportation and processing facilities and the
marketing of competitive fuels. For example, a productive natural
gas well may be "shut-in" because of an oversupply of natural
gas or lack of an available natural gas pipeline in the areas
in which the Company may conduct operations. State and federal
regulations generally are intended to prevent waste of oil and
natural gas, protect rights to produce oil and natural gas between
owners in a common reservoir, control the amount of oil and natural
gas produced by assigning allowable rates of production and control
contamination of the environment. Pipelines are subject to the
jurisdiction of various federal, state and local agencies. The
Company is also subject to changing and extensive tax laws, the
effects of which cannot be predicted. The following discussion
summarizes the regulation of the United States oil and gas industry.
The Company believes that it is in substantial compliance with
the various statutes, rules, regulations and governmental orders
to which the Company's operations may be subject, although there
can be no assurance that this is or will remain the case. Moreover,
such statutes, rules, regulations and government orders may be
changed or reinterpreted from time to time in response to economic
or political conditions, and there can be no assurance that such
changes or reinterpretations will not materially adversely affect
the Company's results of operations and financial condition. The
following discussion is not intended to constitute a complete
discussion of the various statutes, rules, regulations and governmental
orders to which the Company's operations may be subject.
Regulation of Oil and
Natural Gas Exploration and Production. The Company's operations
are subject to various types of regulation at the federal, state
and local levels. Such regulation includes requiring permits for
the drilling of wells, maintaining bonding requirements in order
to drill or operate wells and regulating the location of wells,
the method of drilling and casing wells, the surface use and restoration
of properties upon which wells are drilled, the plugging and abandoning
of wells and the disposal of fluids used in connection with operations.
The Company's operations are also subject to various conservation
laws and regulations. These include the regulation of the size
of drilling and spacing units or proration units and the density
of wells that may be drilled in and the unitization or pooling
of oil and gas properties. In this regard, some states allow the
forced pooling or integration of tracts to facilitate exploration
while other states rely primarily or exclusively on voluntary
pooling of lands and leases. In areas where pooling is voluntary,
it may be more difficult to form units, and therefore more difficult
to develop a project if the operator owns less than 100 percent
of the leasehold. In addition, state conservation laws establish
maximum rates of production from oil and natural gas wells, generally
prohibit the venting or flaring of natural gas and impose certain
requirements regarding the ratability of production. The effect
of these regulations may limit the amount of oil and natural gas
the Company can produce from its wells and may limit the number
of wells or the locations at which the Company can drill. The
regulatory burden on the oil and gas industry increases the Company's
costs of doing business and, consequently, affects its profitability.
Inasmuch as such laws and regulations are frequently expanded,
amended and reinterpreted, the Company is unable to predict the
future cost or impact of complying with such regulations.
Regulation of Sales
and Transportation of Natural Gas. Federal legislation and
regulatory controls have historically affected the price of natural
gas produced by the Company and the manner in which such production
is transported and marketed. Under the Natural Gas Act of 1938,
the Federal Energy Regulatory Commission (the "FERC") regulates
the interstate transportation and the sale in interstate commerce
for resale of natural gas. The FERC's jurisdiction over interstate
natural gas sales and transportation was
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