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have substantial capital requirements that, if not met, may hinder operations.
We have experienced and expect to continue to experience
substantial capital needs as a result of our active exploration, development and
acquisition programs. We expect that additional external financing will be required
in the future to fund our growth. We may not be able to obtain additional financing,
and financing under existing or new credit facilities may not be available in
the future. Even if additional capital becomes available, it may not be on terms
acceptable to us. Without additional capital resources, we may be forced to limit
or defer our planned natural gas and oil exploration and development program and
thereby adversely affect the recoverability and ultimate value of our natural
gas and oil properties, in turn negatively affecting our business, financial condition
and results of operations. High demand for field services
and equipment and the ability of suppliers to meet that demand may limit our ability
to drill and produce our oil and natural gas properties. Due
to current industry demands, well service providers and related equipment and
personnel are in short supply. This is causing escalating prices, delays in drilling
and other exploration activities, the possibility of poor services coupled with
potential damage to downhole reservoirs and personnel injuries. Such pressures
will likely increase the actual cost of services, extend the time to secure such
services and add costs for damages due to any accidents sustained from the over
use of equipment and inexperienced personnel. Our credit
facilities contain operating restrictions and financial covenants, and we may
have difficulty obtaining additional credit. Over
the past few years, increases in commodity prices and proved reserve amounts and
the resulting increase in our estimated discounted future net revenue have allowed
us to increase our available borrowing amounts. In the future, commodity prices
may decline, we may increase our borrowings or our borrowing base may be adjusted
downward, thereby reducing our borrowing capacity. Our credit facilities are secured
by a pledge of substantially all of our producing natural gas and oil properties
and assets, are guaranteed by our subsidiary and contain covenants that limit
additional borrowings, dividends, the incurrence of liens, investments, sales
or pledges of assets, changes in control, repurchases or redemptions for cash
of our common stock, speculative commodity transactions and other matters. The
credit facilities also require that specified financial ratios be maintained.
We may not be able to refinance our debt or obtain additional financing, particularly
in view of our credit facilities restrictions on our ability to incur additional
debt and the fact that substantially all of our assets are currently pledged to
secure obligations under the credit facilities. The restrictions of our credit
facilities and our difficulty in obtaining additional debt financing may have
adverse consequences on our operations and financial results including: - our
ability to obtain financing for working capital, capital expenditures, our drilling
program, purchases of new technology or other purposes may be impaired;
- the
covenants in our credit facilities that limit our ability to borrow additional
funds and dispose of assets may affect our flexibility in planning for, and reacting
to, changes in business conditions;
- because our indebtedness
is subject to variable interest rates, we are vulnerable to increases in interest
rates;
- any additional financing we obtain may be on unfavorable
terms;
- we may be required to use a substantial portion
of our cash flow to make debt service payments, which will reduce the funds that
would otherwise be available for operations and future business opportunities;
- a
substantial decrease in our operating cash flow or an increase in our expenses
could make it difficult for us to meet debt service requirements and could require
us to modify our operations, including by curtailing portions of our drilling
program, selling assets, reducing our capital expenditures, refinancing all or
a portion of our existing debt or obtaining additional financing; and
- we
may become more vulnerable to downturns in our business or the economy.
In
addition, under the terms of our credit facilities, our borrowing base is subject
to redeterminations at least quarterly based in part on prevailing natural gas
and oil prices. In the event the amount outstanding exceeds the redetermined borrowing
base, we could be forced to repay a portion of our borrowings. We may not have
sufficient funds to make any required repayment. If we do | |
