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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 reserve data and estimated discounted
future net cash flows are estimates based on assumptions that may
be inaccurate and are based on existing economic and operating conditions
that may change in the future.
There are uncertainties inherent in estimating
natural gas and oil reserves and their estimated value, including
many factors beyond the control of the producer. The reserve data
set forth in this Form 10-K represents only estimates. Reservoir
engineering is a subjective and inexact process of estimating underground
accumulations of natural gas and oil that cannot be measured in
an exact manner and is based on assumptions that may vary considerably
from actual results.
Accordingly, reserve estimates may be subject
to upward or downward adjustment, and actual production, revenue
and expenditures with respect to our reserves likely will vary,
possibly materially, from estimates. Additionally, there recently
has been increased debate and disagreement over the classification
of reserves, with particular focus on proved undeveloped reserves.
Changes in interpretations as to classification standards, or disagreements
with our interpretations, could cause us to write down these reserves.
As of December 31, 2006, approximately 75%
of our proved reserves were proved undeveloped and proved nonproducing.
Moreover, some of the producing wells included in our reserve reports
as of December 31, 2006 had produced for a relatively short period
of time as of that date. Because most of our reserve estimates are
calculated using volumetric analysis, those estimates are less reliable
than estimates based on a lengthy production history. Volumetric
analysis involves estimating the volume of a reservoir based on
the net feet of pay of the structure and an estimation of the area
covered by the structure based on seismic analysis. In addition,
realization or recognition of our proved undeveloped reserves will
depend on our development schedule and plans. Lack of certainty
with respect to development plans for proved undeveloped reserves
could cause the discontinuation of the classification of these reserves
as proved. Although we have increased our development of the Camp
Hill Field in East Texas, we have in the past chosen to delay development
of our proved undeveloped reserves in the Camp Hill Field in favor
of pursuing shorter-term exploration projects with higher potential
rates of return, adding to our lease position in this field and
further evaluating additional economic enhancements for this field’s
development.
The discounted future net cash flows included
in this Form 10-K are not necessarily the same as the current market
value of our estimated natural gas and oil reserves. As required
by the Commission, the estimated discounted future net cash flows
from proved reserves are based on prices and costs as of the date
of the estimate. Actual future net cash flows also will be affected
by factors such as:
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