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In addition, we may be liable for environmental
damages caused by previous owners of property we purchase and lease.
As a result, we may incur substantial liabilities to third parties
or governmental entities, the payment of which could reduce or eliminate
the funds available for exploration, development or acquisitions
or result in the loss of our properties.
In accordance with customary industry practices,
we maintain insurance against some, but not all, potential losses.
We do not carry business interruption insurance or protect against
loss of revenues. We cannot assure you that any insurance we obtain
will be adequate to cover any losses or liabilities. We cannot predict
the continued availability of insurance or the availability of insurance
at premium levels that justify its purchase. We may elect to self-insure
if we believe that the cost of available insurance is excessive
relative to the risks presented. In addition, pollution and environmental
risks generally are not fully insurable. The occurrence of an event
not fully covered by insurance could have a material adverse effect
on our financial condition and results of operations.
We participate in a substantial percentage
of our wells on a nonoperated basis, and may be accordingly limited
in our ability to control the risks associated with natural gas
and oil operations.
Title to Properties; Acquisition Risks
We believe we have satisfactory title to
all of our producing properties in accordance with standards generally
accepted in the natural gas and oil industry. Our properties are
subject to customary royalty interests, liens incident to operating
agreements, liens for current taxes and other burdens which we believe
do not materially interfere with the use of or affect the value
of these properties. As is customary in the industry in the case
of undeveloped properties, we make little investigation of record
title at the time of acquisition (other than a preliminary review
of local records). Investigations, including a title opinion of
local counsel, are generally made before commencement of drilling
operations. Our revolving credit facility is secured by substantially
all of our natural gas and oil properties.
In acquiring producing properties, we assess
the recoverable reserves, future natural gas and oil prices, operating
costs, potential liabilities and other factors relating to the properties.
Our assessments are necessarily inexact and their accuracy is inherently
uncertain. Our review of a subject property in connection with our
acquisition assessment will not reveal all existing or potential
problems or permit us to become sufficiently familiar with the property
to assess fully its deficiencies and capabilities. 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. See “Item 1A. Risk Factors
— Our future acquisitions may yield revenues or production that
varies significantly from our projections.”
Customers
The Company sold oil and natural gas production
representing more than 10% of its oil and natural gas revenues as
follows:
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