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(1) Debt repayments include amounts refinanced.
Forward Looking
Statements. The statements contained in all parts of this
document, (including any portion attached hereto) including, but
not limited to, those relating to our schedule, targets, estimates
or results of future drilling, including the number, timing and
results of wells, budgeted wells, increases in wells, the timing
and risk involved in drilling follow-up wells, expected working
or net revenue interests, planned expenditures, prospects budgeted
and other future capital expenditures, risk profile of oil and gas
exploration, acquisition of 3-D seismic data (including number,
timing and size of projects), planned evaluation of prospects, probability
of prospects having oil and natural gas, expected production or
reserves, increases in reserves, acreage, working capital requirements,
hedging activities, the ability of expected sources of liquidity
to implement our business strategy, future hiring, future exploration
activity, production rates, potential drilling locations targeting
coal seams, the outcome of legal challenges to new coalbed methane
drilling permits in Montana, financing for our 2007 exploration
and development program, all and any other statements regarding
future operations, financial results, business plans and cash needs
and other statements that are not historical facts are forward looking
statements. When used in this document, the words “anticipate,”
“budgeted,” “planned,” “targeted,” “potential,” “estimate,” “expect,”
“may,” “project,” “believe” and similar expressions are intended
to be among the statements that identify forward looking statements.
Such statements involve risks and uncertainties, including, but
not limited to, those relating to our dependence on our exploratory
drilling activities, the volatility of oil and natural gas prices,
the need to replace reserves depleted by production, operating risks
of oil and natural gas operations, our dependence on our key personnel,
factors that affect our ability to manage our growth and achieve
our business strategy, risks relating to our limited operating history,
technological changes, our significant capital requirements, the
potential impact of government regulations, adverse regulatory determinations,
including those related to coalbed methane drilling in Montana,
litigation, competition, the uncertainty of reserve information
and future net revenue estimates, property acquisition risks, industry
partner issues, availability of equipment, weather and other factors
detailed herein and in our other filings with the Securities and
Exchange Commission. Some of the factors that could cause actual
results to differ from those expressed or implied in forward-looking
statements are described under “–Item 1A. Risk Factors” and in other
sections of this report. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual
outcomes may vary materially from those indicated. All subsequent
written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety
by reference to these risks and uncertainties. You should not place
undue reliance on forward-looking statements. Each forward-looking
statement speaks only as of the date of the particular statement
and we undertake no duty to update any forward looking statement.
Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
You should read this discussion together
with the consolidated financial statements and other financial information
included in this Form 10-K.
General Overview
For the year ended
December 31, 2006, we achieved record annual drilling success rates,
levels of production, natural gas and oil revenues and at the end
of 2006 our proved oil and gas reserves also reached a record level.
Due to our drilling
success, we produced a record 11.7 Bcfe in 2006 compared to 9.6
Bcfe in 2005. At the end of 2006, we also reached a record estimated
proved reserves level of 210.0 Bcfe with 71.1 Bcfe of net additions
for the year, replacing 607% of our 2006 production. See “Business
and Properties - Natural Gas and Oil Reserve Replacement.”
In 2006, we drilled
70 wells (44.9 net), including 19 wells in the onshore Gulf Coast
area, 46 wells in the Barnett Shale play, one exploratory in the
North Sea and four wells (excluding six injection wells) in the
Camp Hill Field and other East Texas areas,
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