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The natural gas and oil industry is characterized
by rapid and significant technological advancements and introductions
of new products and services using new technologies. If one or more
of the technologies we use now or in the future were to become obsolete
or if we are unable to use the most advanced commercially available
technology, our business, financial condition and results of operations
could be materially adversely affected.
REGULATION
Natural gas and oil operations are subject
to various federal, state and local environmental regulations that
may change from time to time, including regulations governing natural
gas and oil production, federal and state regulations governing
environmental quality and pollution control and state limits on
allowable rates of production by well or proration unit. These regulations
may affect the amount of natural gas and oil 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 we may conduct operations. State
and federal regulations generally are intended to prevent waste
of natural gas and oil, protect rights to produce natural gas and
oil between owners in a common reservoir, control the amount of
natural gas and oil 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.
We are 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. We believe
we are in substantial compliance with the various statutes, rules,
regulations and governmental orders to which our operations may
be subject, although we cannot assure you that this is or will remain
the case. Moreover, those statutes, rules, regulations and government
orders may be changed or reinterpreted from time to time in response
to economic or political conditions, and any such changes or reinterpretations
could materially adversely affect our 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 our operations may
be subject.
Regulation of Natural Gas and Oil Exploration
and Production
Our operations are subject to various
types of regulation at the federal, state and local levels that:
- require permits for the drilling
of wells;
- mandate that we maintain bonding requirements
in order to drill or operate wells; and
- regulate 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.
Our operations are also subject to various
conservation laws and regulations. These regulations govern the
size of drilling and spacing units or proration units, the density
of wells that may be drilled in natural gas and oil properties and
the unitization or pooling of natural gas and oil 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% of the leasehold. In addition, state conservation
laws establish maximum rates of production from natural gas and
oil wells, generally prohibit the venting or flaring of natural
gas and impose specified requirements regarding the ratability of
production. The effect of these regulations may limit the amount
of natural gas and oil we can produce from our wells and may limit
the number of wells or the locations at which we can drill. The
regulatory burden on the natural gas and oil industry increases
our costs of doing business and, consequently, affects our profitability.
Because these laws and regulations are frequently expanded, amended
and reinterpreted, we are 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 we produce and
the manner in which our production is transported and marketed.
Under the Natural Gas Act of 1938 ("NGA"), the Federal Energy Regulatory
Commission ("FERC") regulates the interstate transportation and
the sale in interstate commerce for resale of natural gas. Effective
January 1, 1993, the Natural Gas Wellhead Decontrol Act (the "Decontrol
Act") deregulated natural gas prices for all "first sales" of natural
gas, including all of our sales of our own production. As a result,
all of our domestically produced natural gas may now be sold at
market prices, subject to the terms of any private contracts that
may be in effect. The FERC's jurisdiction over interstate
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