We may
not inspect every well, and we may not be able to observe structural and environmental
problems even when we do inspect a well. If problems are identified, the seller
may be unwilling or unable to provide effective contractual protection against
all or part of those problems. Any acquisition of property interests may not be
economically successful, and unsuccessful acquisitions may have a material adverse
effect on our financial condition and future results of operations. Our
business may suffer if we lose key personnel. We
depend to a large extent on the services of certain key management personnel,
including our executive officers and other key employees, the loss of any of whom
could have a material adverse effect on our operations. We have entered into employment
agreements with each of S.P. Johnson IV, our President and Chief Executive Officer,
Paul F. Boling, our Chief Financial Officer, J. Bradley Fisher, our Vice President
of Operations, Gregory E. Evans, our Vice President of Exploration and Jack Bayless,
our Vice President of Land. We do not maintain key-man life insurance with respect
to any of our employees. Our success will be dependent on our ability to continue
to employ and retain skilled technical personnel. We
may experience difficulty in achieving and managing future growth. We
have experienced growth in the past primarily through the expansion of our drilling
program. Future growth may place strains on our financial, technical, operational
and administrative resources and cause us to rely more on project partners and
independent contractors, possibly negatively affecting our financial condition
and results of operations. Our ability to grow will depend on a number of factors,
including: - our ability to obtain leases or options
on properties, including those for which we have 3-D seismic data;
- our
ability to acquire additional 3-D seismic data;
- our ability
to identify and acquire new exploratory prospects;
- our
ability to develop existing prospects;
- our ability to continue
to retain and attract skilled personnel;
- our ability to
maintain or enter into new relationships with project partners and independent
contractors;
- the results of our drilling program;
- hydrocarbon
prices; and
- our access to capital.
We
may not be successful in upgrading our technical, operations and administrative
resources or in increasing our ability to internally provide certain of the services
currently provided by outside sources, and we may not be able to maintain or enter
into new relationships with project partners and independent contractors. Our
inability to achieve or manage growth may adversely affect our financial condition
and results of operations. We may continue to enter into
derivative transactions to manage the price risks associated with our production.
Our derivative 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. Because natural gas and oil
prices are unstable, we periodically enter into price-risk-management transactions
such as swaps, collars, futures and options to reduce our exposure to price declines
associated with a portion of our natural gas and oil production and thereby to
achieve a more predictable cash flow. The use of these arrangements limits our
ability to benefit from increases in the prices of natural gas and oil. Our derivative
arrangements may apply to only a portion of our production, thereby providing
only partial protection against declines in natural gas and oil prices. These
arrangements may expose us to the risk of financial loss in certain circumstances,
including instances in which production is less than expected, our customers fail
to purchase contracted quantities of natural gas and oil or a sudden, unexpected
event materially impacts natural gas or oil prices. | 
