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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 exploration activity,
production rates, financing for our 2008 exploration and development
program, growth in production, development of new drilling programs,
hedging of production and exploration and development expenditures,
Camp Hill steam injection and development, 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 identifyforward 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 regulatorydeterminations, litigation, competition, the uncertainty
of reserve information and future net revenue estimates, property
acquisition risks, availability of equipment, weather, availability
of financing, ability to obtain permits 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 entiretyby
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 obligation to update or revise 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
In 2007, we recognized record revenues of
$125.8 million, record production of 17.5 Bcfe and a record level
of oil and gas proved reserves of 347.6 Bcfe. The key drivers to
our success for 2007 included the following:
Drilling program. Our success
is largely dependent on the results of our drilling program.
During the year ended December 31, 2007, we drilled 96 gross
wells (68.2 net wells) with an apparent success rate of 98%
that was comprised of: (1) 60 of 60 gross wells (46.5 net wells)
in the Barnett Shale area, (2) seven of eight gross wells (1.9
of 2.3 net wells) in the onshore Gulf Coast area, (3) one of
one gross well (0.2 net well) in the U.K. North Sea, (4) 16
of 17 gross wells (16 of 17 net wells) in the Camp Hill Field
and (5) 10 of 10 gross wells (2.2 net wells) in other areas.
We also drilled 13 gross service wells (13 net wells) in the
Camp Hill area and one gross appraisal well (0.2 net) in the
U.K. North Sea. At December 31, 2007, 53 of these gross wells
were awaiting completion or pipeline connections.
Reserve Growth. As a result of our
drilling program discussed above, our reserves increased 66
percent to a record level of 347.6 Bcfe at December 31, 2007,
replacing 887 percent of 2007 production.
Production. Our 2007 annual production
of 17.5 Bcfe, or 47.9 MMcfe/d was a record high. The 2007
production increased 49% from 2006 production of 11.7 Bcfe.
The increase from the 2006 to the 2007 production was primarily
due to new Barnett Shale wells and the addition of the Baby
Ruth and Doberman #1 wells in the Gulf Coast area.
Commodity prices. Our average natural
gas price during 2007 was $6.77 per Mcf (excluding the impact
of our hedges), $0.21 per Mcf higher than the 2006 price of
$6.56. Our average oil price in 2007 was $71.42 per Bbl, or
$7.80 higher than in 2006. Commodity prices are affected by
changes in market demands, overall economic activity, weather,
pipeline capacity constraints, inventory storage levels, basis
differentials and other factors. Our financial results are largely |
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