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Project Areas U.K. North Sea Region We
were originally awarded seven acreage blocks in 2003, consisting of one “Traditional”
and three “Promote” licenses, in the United Kingdom’s 21st Round of Licensing.
Subsequently, the Company has generated a number of prospects from certain of
these blocks and, accordingly, has renewed the promote licenses on certain of
these blocks in 2005. As of December 31, 2005, the awarded blocks, to explore
for natural gas and oil totaling six blocks and 124,000 acres, are located within
mature producing areas of the Central and Southern North Sea in water depths of
30 to 350 feet. The Promote licenses do not have drilling commitments and have
two-year terms. The Traditional license will be canceled after four years if we
or our assignee elects not to commit to drilling a well. We believe our U.K. North
Sea interest is a natural extension to our technical analyses, portfolio and business
plan. The U.K. North Sea includes proven hydrocarbon trends with established technological
expertise, available large 3-D seismic datasets and significant exploration potential.
We plan to promote our interests to other parties experienced in drilling and
operating in this region. We expect to drill two prospects in 2006, retaining
a 25% carried interest in each. Geological and geophysical costs will be incurred
in an attempt to maximize the value of our retained interest. Our estimated project
commitments for 2006 are $1.3 million, largely for data processing and prospect
generation. Working Interest and Drilling in Project
Areas The actual working interest we will ultimately
own in a well will vary based upon several factors, including the depth, cost
and risk of each well relative to our strategic goals, activity levels and budget
availability. From time to time some fraction of these wells may be sold to industry
partners either on a prospect by prospect basis or a program basis. In addition,
we may also contribute acreage to larger drilling units thereby reducing prospect
working interest. We have, in the past, retained less than 100% working interest
in our drilling prospects. References to our interests are not intended to imply
that we have or will maintain any particular level of working interest. Although
we have identified or budgeted for numerous drilling prospects, we may not be
able to lease or drill those prospects within our expected time frame or at all.
Wells that are currently part of our capital budget may be based on statistical
results of drilling activities in other 3-D project areas that we believe are
geologically similar rather than on analysis of seismic or other data in the prospect
area, in which case actual drilling and results are likely to vary, possibly materially,
from those statistical results. In addition, our drilling schedule may vary from
our expectations because of future uncertainties. Our final determination of whether
to drill any scheduled or budgeted wells will be dependent on a number of factors,
including (1) the results of our exploration efforts and the acquisition, review
and analysis of the seismic data; (2) the availability of sufficient capital resources
to us and the other participants for the drilling of the prospects; (3) the approval
of the prospects by the other participants after additional data has been compiled;
(4) economic and industry conditions at the time of drilling, including prevailing
and anticipated prices for natural gas and oil and the availability and prices
of drilling rigs and crews; and (5) the availability of leases and permits on
reasonable terms for the prospects. There can be no assurance that these projects
can be successfully developed or that any identified drillsites or budgeted wells
discussed will, if drilled, encounter reservoirs of commercially productive oil
or natural gas. We may seek to sell or reduce all or a portion of our interest
in a project area or with respect to prospects or wells within a project area.
Our success will be materially dependent upon the success
of our exploratory drilling program, which is an activity that involves numerous
risks. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Risk Factors—Natural gas and oil drilling is a speculative activity
and involves numerous risks and substantial and uncertain costs that could adversely
affect us.” Oil and Natural Gas Reserves The
following table sets forth our estimated net proved oil and natural gas reserves
and the PV-10 Value of such reserves as of December 31, 2005. The reserve data
and the present value as of December 31, 2005 were prepared by Ryder Scott Company,
DeGolyer and MacNaughton and Fairchild & Wells, Inc., Independent Petroleum Engineers.
For further information concerning Ryder Scott’s, DeGolyer and MacNaughton’s and
Fairchild’s estimate of our proved reserves at December 31, 2005, see the reserve
reports included as exhibits to this Annual Report on Form 10-K/A. The PV-10 Value
was prepared using constant prices as of the calculation date, discounted at 10%
per annum on a pretax basis, and is not intended to represent the current market
value of the estimated oil and natural gas reserves owned by us. For further information
concerning the present value of future net revenue from these proved reserves,
see Note 12 of Notes to Consolidated Financial Statements. | |
