| | Factors—The
marketability of our natural gas production depends on facilities that we typically
do not own or control, which could result in a curtailment of production and revenues.”
We from time to time market our own production where
feasible with a combination of market-sensitive pricing and forwardfixed pricing.
We utilize forward pricing to take advantage of anomalies in the futures market
and to hedge a portion of our production 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.
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