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- changes in governmental regulations or
taxation.
In addition, the 10% discount factor we use
when calculating discounted future net cash flows for reporting
requirements in compliance with the Financial Accounting Standards
Board in Statement of Financial Accounting Standards No. 69 may
not be the most appropriate discount factor based on interest rates
in effect from time to time and risks associated with us or the
natural gas and oil industry in general.
WE DEPEND ON SUCCESSFUL EXPLORATION, DEVELOPMENT
AND ACQUISITIONS TO MAINTAIN RESERVES AND REVENUE IN THE FUTURE.
In general, the volume of production from
natural gas and oil properties declines as reserves are depleted,
with the rate of decline depending on reservoir characteristics.
Except to the extent we conduct successful exploration and development
activities or acquire properties containing proved reserves, or
both, our proved reserves will decline as reserves are produced.
Our future natural gas and oil production is, therefore, highly
dependent on our level of success in finding or acquiring additional
reserves. The business of exploring for, developing or acquiring
reserves is capital intensive. Recovery of our reserves, particularly
undeveloped reserves, will require significant additional capital
expenditures and successful drilling operations. To the extent cash
flow from operations is reduced and external sources of capital
become limited or unavailable, our ability to make the necessary
capital investment to maintain or expand our asset base of natural
gas and oil reserves would be impaired. In addition, we are dependent
on finding partners for our exploratory activity. To the extent
that others in the industry do not have the financial resources
or choose not to participate in our exploration activities, we will
be adversely affected.
NATURAL GAS AND OIL PRICES ARE HIGHLY VOLATILE,
AND LOWER PRICES WILL NEGATIVELY AFFECT OUR FINANCIAL RESULTS.
Our revenue, profitability, cash flow, future
growth and ability to borrow funds or obtain additional capital,
as well as the carrying value of our properties, are substantially
dependent on prevailing prices of natural gas and oil. Historically,
the markets for natural gas and oil prices have been volatile, and
those markets are likely to continue to be volatile in the future.
It is impossible to predict future natural gas and oil price movements
with certainty. Prices for natural gas and oil are subject to wide
fluctuation in response to relatively minor changes in the supply
of and demand for natural gas and oil, market uncertainty and a
variety of additional factors beyond our control. These factors
include:
- the level of consumer product demand;
- overall economic conditions;
- weather conditions;
- domestic and foreign governmental relations;
- the price and availability of alternative
fuels;
- political conditions;
- the level and price of foreign imports of
oil and liquefied natural gas; and
- the ability of the members of the
Organization of Petroleum Exporting Countries to agree upon and
maintain oil price controls.
Declines in natural gas and oil prices may
materially adversely affect our financial condition, liquidity and
ability to finance planned capital expenditures and results of operations.
WE FACE STRONG COMPETITION FROM OTHER NATURAL
GAS AND OIL COMPANIES.
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.
Our competitors include major integrated natural gas and oil companies
and numerous independent natural gas and oil companies, individuals
and drilling and income programs. Many of our competitors are large,
well-established companies that have been engaged in the natural
gas and oil business much longer than we have and possess substantially
larger operating staffs and greater capital resources than we do.
These companies may be able to pay more for exploratory projects
and productive natural gas and oil properties and may be able to
define, evaluate, bid for and purchase a greater number of properties
and
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