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 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.
We 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 subsidiaries 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
the restrictions of our credit facilities 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:
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