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deliverability at prices exceeding forecast.
All of these hedging transactions provide for financial rather than
physical settlement. For a discussion of these matters, our hedging
policy and recent hedging positions, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Critical
Accounting Policies and Estimates--Derivative Instruments and Hedging
Activities," "Qualitative and Quantitative Disclosures About Market
Risk--Derivative Instruments and Hedging Activities," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Risk
Factors--We may continue to hedge the price risks associated with
our production. Our hedge transactions may result in our making
cash payments or prevent us from benefiting to the fullest extent
possible from increases in prices for natural gas and oil."
COMPETITION AND TECHNOLOGICAL CHANGES
We encounter competition from other natural
gas and oil companies in all areas of our operations, including
the acquisition of exploratory prospects and proven properties.
Many of our competitors are large, well-established companies that
have been engaged in the natural gas and oil business for much longer
than we have and possess substantially larger operating staffs and
greater capital resources than we do. We may not be able to conduct
our operations, evaluate and select suitable properties and consummate
transactions successfully in this highly competitive environment.
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 (including Louisiana) allow the forced
pooling or integration of tracts to facilitate exploration while
other states (including Texas) rely primarily or exclusively on
voluntary pooling of lands and leases. In
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