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Liquidity and Capital Resources
Sources and Uses of Cash. During
the year ended December 31, 2007, capital expenditures, net of proceeds
from property sales, exceeded our net cash. During 2007, we funded
our capital expenditures with cash generated from operations, additional
borrowings under the Second Lien Credit Facility and the Senior
Credit Facility and proceeds from the issuance of common stock.
Potential primary sources of future liquidity include the following:
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Cash
on hand and cash generated by operations. Cash flows from operations
are highly dependent on commodity prices and market conditions
for oil and gas field services. We hedge a portion of our production
to reduce the downside risk of declining natural gas and oil
prices. |
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Available
borrowings under the Senior Credit Facility. On December 20,
2007, the borrowing base availability under the Senior Credit
Facility increased from $117.0 million to $145.0 million. At
February 21, 2008, borrowings available under the Senior Credit
Facility were $145.0 million (after repaying $85.0 million of
outstanding borrowings, using a portion of the net proceeds
from the February 2008 equity offering). The next borrowing
base redetermination is scheduled for May 2008. |
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Other
debt and equity financings. As situations or conditions arise,
we may seek to issue additional debt or equity to supplement
our cash flows. We raised approximately $71.9 million and $135.4
million from the issuances of our common stock in September
2007 and February 2008, respectively. |
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Asset sales. In order
to fund our drilling program, we may consider the sale of certain
properties or assets that we no longer deem core to our future
growth. |
Our primary use of cash is capital expenditures
related to our drilling and leasing program. Our capital expenditures
budget in 2008 provides for approximately $250 million for drilling
and approximately $50 million for lease and seismic acquisitions.
In 2008 we plan to drill 68 gross (62.6 net) wells in the Barnett
Shale area, 15 gross (5.8 net) wells in the Gulf Coast area, 40
gross (40.0 net) wells in the Camp Hill Field (which includes approximately
17 service wells), three (0.5 net) U.K. North Sea appraisal wells
and 29 gross (14.5 net) wells in other areas. The actual number
of wells drilled and capital expended is dependent upon our available
financing, cash flow, availability and cost of drilling rigs, land
and partner issues and other factors. Capital expenditures do not
include operating costs such as the steam costs that will be required
for the multi-year development of our Camp Hill project. In addition
to our capital expenditure program, we have contractual obligations
as discussed below.
We have increased the development of our
Camp Hill project. In August 2005, management proposed the acceleration
of the Camp Hill development to our board of directors. Accordingly,
a development plan was formally approved by the board for increased
drilling activity in the Camp Hill Field, beginning with an initial
60-well drilling program. In February 2006, our board of directors
formally approved a multi-year plan to fully develop the entire
Camp Hill Field. In furtherance of this plan,we expect to drill
40 gross wells in this area at an estimated cost of $5.6 million
during 2008. To fully develop the field, weexpect to drill approximately
296 wells from 2008 through 2024, at a total cost of approximately
$21.4 million and total operating costs including steam of approximately
$148.8 million. The precise timing and amount of our expenditures
on additional well drilling and increased steam injection to develop
the proved undeveloped reserves in this project will depend on several
factors including the relative prices of oil and natural gas.
Overview of Cash Flow Activities.
Cash flows provided by operating activities were $95.2 million,
$65.4 million and $38.8 million for the years ended December 31,
2007, 2006 and 2005, respectively. The increase from 2006 to 2007
was primarily due to an increase in operating income largely attributable
to increased production and higher average oil and natural gas prices.
Cash flows used in investing activities
were $227.7 million for the year ended December 31, 2007 and related
primarily to oil and gas property expenditures. Cash flows used
in investing activities of $161.6 million for the year ended December
31, 2006 were largely attributable to capital expenditures for oil
and gas properties of $201.8 million partially offset by proceedsfrom
the sale of properties of $38.3 million. The 2005 cash flows used
in investing activities of $111.4 million were largely attributable
to capital expenditures for oil and gas properties.
Net cash provided by financing activities
for the year ended December 31, 2007 was $135.1 million and related
primarily to the additional borrowings of $75.0 million under the
Second Lien Credit Facility in January 2007 and net proceeds of
$71.9 million from the issuance of common stock in September 2007.
These cash proceeds were partially offset by the repayment of borrowings
under the Senior Credit Facility. Net cash provided by financing
activities for the year ended December 31, 2006 was $72.8 million
and related primarily to additional borrowings under the Senior
Credit Facility of $80.0 million and net
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