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(1) Debt repayments include amounts refinanced.
Forward Looking Statements. The statements
contained in all parts of this document, (including any portion
attached hereto) including, but not limited to, those relating to
our schedule, targets, estimates or results of future drilling,
including the number, timing and results of wells, budgeted wells,
increases in wells, the timing and risk involved in drilling follow-up
wells, expected working or net revenue interests, planned expenditures,
prospects budgeted and other future capital expenditures, risk profile
of oil and gas exploration, acquisition of 3-D seismic data (including
number, timing and size of projects), planned evaluation of prospects,
probability of prospects having oil and natural gas, expected production
or reserves, increases in reserves, acreage, working capital requirements,
hedging activities, the ability of expected sources of liquidity
to implement our business strategy, future hiring, future exploration
activity, production rates, potential drilling locations targeting
coal seams, the outcome of legal challenges to new coalbed methane
drilling permits in Montana, financing for our 2005 exploration
and development program, all and any other statements regarding
future operations, financial results, business plans and cash needs
and other statements that are not historical facts are forward looking
statements. When used in this document, the words "anticipate,"
"budgeted," "planned," "targeted," "potential," "estimate," "expect,"
"may," "project," "believe" and similar expressions are intended
to be among the statements that identify forward looking statements.
Such statements involve risks and uncertainties, including, but
not limited to, those relating to our dependence on our exploratory
drilling activities, the volatility of oil and natural gas prices,
the need to replace reserves depleted by production, operating risks
of oil and natural gas operations, our dependence on our key personnel,
factors that affect our ability to manage our growth and achieve
our business strategy, risks relating to our limited operating history,
technological changes, our significant capital requirements, the
potential impact of government regulations, adverse regulatory determinations,
including those related to coalbed methane drilling in Montana,
litigation, competition, the uncertainty of reserve information
and future net revenue estimates, property acquisition risks, industry
partner issues, availability of equipment, weather and other factors
detailed herein and in our other filings with the Securities and
Exchange Commission. Some of the factors that could cause actual
results to differ from those expressed or implied in forward-looking
statements are described under "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Risk Factors"
and in other sections of this report. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual outcomes may vary materially from those
indicated. All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly
qualified in their entirety by reference to these risks and uncertainties.
You should not place undue reliance on forward-looking statements.
Each forward-looking statement speaks only as of the date of the
particular statement and we undertake no duty to update any forward
looking statement.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion together with
the consolidated financial statements and other financial information
included in this Form 10-K.
GENERAL OVERVIEW
For the year ended December 31, 2004, we achieved
record annual drilling success rates, levels of production, natural
gas and oil revenues and our proved oil and gas reserves at the
end of 2004 also reached a record level.
Due to our drilling success, we produced
a record 8.3 Bcfe in 2004 compared to 7.5 Bcfe in 2003. At the end
of 2004, we also reached a record estimated proved reserves level
of 109.3 Bcfe with 47.3 Bcfe of net additions for the year, replacing
568% of our 2004 production. See "Business and Properties - Natural
Gas and Oil Reserve Replacement."
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