| DELTA PETROLEUM CORP/CO Item 1A Risk Factors |
| An investment in our securities involves a high degree of risk |
| You should carefully read and consider the risks described below before deciding to invest in our securities |
| The occurrence of any of the following risks could materially harm our business, financial condition, results of operations or cash flows |
| In any such case, the trading price of our common stock and other securities could decline, and you could lose all or part of your investment |
| When determining whether to invest in our securities, you should also refer to the other information contained or incorporated by reference in this Transition Report on Form 10-K, including our consolidated financial statements and the related notes |
| Risks Related To Our Business And Industry |
| Oil and natural gas prices are volatile, and a decrease could adversely affect our revenues, cash flows and profitability |
| Our revenues, profitability and future rate of growth depend substantially upon the market prices of oil and natural gas, which fluctuate widely |
| Sustained declines in oil and gas prices may adversely affect our financial condition, liquidity and results of operations |
| Factors that can cause market prices of oil and natural gas to fluctuate include: 12 _________________________________________________________________ [46]Table of Contents • relatively minor changes in the supply of and demand for oil and natural gas; • market uncertainty; • the level of consumer product demand; • weather conditions; • US and foreign governmental regulations; • the price and availability of alternative fuels; • political and economic conditions in oil producing countries, particularly those in the Middle East, including actions by the Organization of Petroleum Exporting Countries; • the foreign supply of oil and natural gas; and • the price of oil and gas imports, consumer preferences and overall US and foreign economic conditions |
| We are not able to predict future oil and natural gas prices |
| At various times, excess domestic and imported supplies have depressed oil and gas prices |
| Lower prices may reduce the amount of oil and natural gas that we can produce economically and may also require us to write down the carrying value of our oil and gas properties |
| Additionally, the location of our producing wells may limit our ability to take advantage of spikes in regional demand and the resulting increase in price |
| Substantially all of our oil and natural gas sales are made in the spot market or pursuant to contracts based on spot market prices, not long-term fixed price contracts |
| Any substantial or extended decline in the prices of or demand for oil or natural gas would have a material adverse effect on our financial condition and results of operations |
| We may not be able to fund our planned capital expenditures |
| We spend and will continue to spend a substantial amount of capital for the acquisition, exploration, exploitation, development and production of oil and gas reserves |
| Our exploration and development capital budget is expected to range between dlra150dtta0 and dlra195dtta0 million for the year ending December 31, 2006 |
| We have historically addressed our short and long-term liquidity needs through the use of cash flow provided by operating activities, borrowings under bank credit facilities, the issuance of equity, and debt securities and the sale of non-core assets |
| Without adequate financing, we may not be able to successfully execute our operating strategy |
| We continue to examine the following sources of capital to supplement cash flow from operations: • bank borrowings or the issuance of debt securities; and • the issuance of common stock, preferred stock or other equity securities |
| The availability of these sources of capital will depend upon a number of factors, some of which are beyond our control |
| These factors include general economic and financial market conditions, oil and natural gas prices and our market value and operating performance |
| We may be unable to execute our operating strategy if we cannot obtain adequate capital |
| If low oil and natural gas prices, lack of adequate gathering or transportation facilities, operating difficulties or other factors, many of which are beyond our control, cause our revenues and cash flows from operating activities to decrease, we may be limited in our ability to spend the capital necessary to complete our capital expenditures program |
| In addition, if our borrowing base under our senior credit facility is re-determined to a lower amount, this could adversely affect our ability to fund our planned capital expenditures through borrowings under our credit facility |
| After utilizing such sources of financing, we may be forced to raise additional capital through the issuance of equity or debt securities to fund such expenditures |
| Additional equity or debt financing may not be available to meet our capital expenditure requirements or may only be available on terms dilutive to our existing investors |
| 13 _________________________________________________________________ [47]Table of Contents Information concerning our reserves is uncertain |
| There are numerous uncertainties inherent in estimating quantities of proved reserves and cash flows from such reserves, including factors beyond our control |
| Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner |
| The accuracy of an estimate of quantities of oil and natural gas reserves, or of cash flows attributable to such reserves, is a function of the available data, assumptions regarding future oil and natural gas prices, expenditures for future development and exploitation activities, and engineering and geological interpretation and judgment |
| Reserves and future cash flows may also be subject to material downward or upward revisions based upon production history, development and exploitation activities, oil and natural gas prices and regulatory changes |
| Actual future production, revenue, taxes, development expenditures, operating expenses, quantities of recoverable reserves and value of cash flows from those reserves may vary significantly from our assumptions and estimates |
| In addition, reserve engineers may make different estimates of reserves and cash flows based on the same available data |
| The estimated quantities of proved reserves and the discounted present value of future net cash flows attributable to those reserves as of December 31, 2005 and the fiscal years ended June 30, 2005, 2004 and 2003 included in our periodic reports filed with the SEC were prepared by our reserve engineers in accordance with the rules of the SEC, and are not intended to represent the fair market value of such reserves |
| As required by the SEC, the estimated discounted present value of future net cash flows from proved reserves is generally based on prices and costs as of the date of the estimate, while actual future prices and costs may be materially higher or lower |
| In addition, the 10prca discount factor, which the SEC requires to be used to calculate discounted future net revenues for reporting purposes, is not necessarily the most appropriate discount factor based on the cost of capital in effect from time to time and risks associated with our business and the oil and gas industry in general |
| Based on our proved reserves at December 31, 2005, a 10prca increase or decrease in oil and gas price used would increase or decrease our proved reserve quantities by approximately +/- 1prca and our PV10 by approximately +/- 15prca |
| We may not be able to replace production with new reserves |
| Our reserves will decline significantly as they are produced unless we acquire properties with proved reserves or conduct successful development and exploration drilling activities |
| Our future oil and natural gas production is highly dependent upon our level of success in finding or acquiring additional reserves that are economically feasible and developing existing proved reserves |
| During the six months ended December 31, 2005, our reserve replacement rate was 776prca |
| If oil or natural gas prices decrease or exploration and development efforts are unsuccessful, we may be required to take writedowns |
| There is a risk that we will be required to take additional writedowns in the future, which would reduce our earnings and stockholders’ equity |
| A writedown could occur when oil and natural gas prices are low or if we have substantial downward adjustments to our estimated proved reserves, increases in our estimates of development costs or deterioration in our exploration and development results |
| We account for our crude oil and natural gas exploration and development activities utilizing the successful efforts method of accounting |
| Under this method, costs of productive exploratory wells, development dry holes and productive wells and undeveloped leases are capitalized |
| Oil and gas lease acquisition costs are also capitalized |
| Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial quantities |
| If the carrying amount of our oil and gas properties exceeds the estimated undiscounted future net cash flows, we will adjust the carrying amount of the oil and gas properties to their fair value |
| We review our oil and gas properties for impairment quarterly or whenever events and circumstances indicate a decline in the recoverability of their carrying value |
| Once incurred, a writedown of oil and gas properties is not reversible at a later date even if gas or oil prices increase |
| Given the complexities associated with oil and gas reserve estimates and the history of price volatility in the oil and gas markets, events may arise that would require us to record an impairment of the recorded carrying values associated with our oil and gas properties |
| As a result of our review, we did not record an impairment for the fiscal years 2005, 2004 or 2003 |
| 14 _________________________________________________________________ [48]Table of Contents During the six months ended December 31, 2005, a dry hole was drilled on a prospect located in Orange County, California |
| Based on drilling results and our evaluation of that prospect, we determined that we would not pursue development and accordingly an impairment was recorded |
| Included in our consolidated statement of operations for the six months ended December 31, 2005 are dlra2dtta0 million for the dry hole that was drilled and dlra1dtta3 million included in exploration expenses, for the full impairment of the remaining leasehold costs related to the prospect |
| The exploration, development and operation of oil and gas properties involve substantial risks that may result in a total loss of investment |
| The business of exploring for and, to a lesser extent, developing and operating oil and gas properties involves a high degree of business and financial risk, and thus a substantial risk of investment loss that even a combination of experience, knowledge and careful evaluation may not be able to overcome |
| Oil and gas drilling and production activities may be shortened, delayed or canceled as a result of a variety of factors, many of which are beyond our control |
| These factors include: • unexpected drilling conditions; • pressure or irregularities in formations; • equipment failures or accidents; • adverse changes in prices; • weather conditions; • shortages in experienced labor; and • shortages or delays in the delivery of equipment |
| The cost to develop our proved reserves as of December 31, 2005 is estimated to be approximately dlra321dtta7 million |
| We may drill wells that are unproductive or, although productive, do not produce oil and/or natural gas in economic quantities |
| Acquisition and completion decisions generally are based on subjective judgments and assumptions that are speculative |
| It is impossible to predict with certainty the production potential of a particular property or well |
| Furthermore, a successful completion of a well does not ensure a profitable return on the investment |
| A variety of geological, operational, or market-related factors, including, but not limited to, unusual or unexpected geological formations, pressures, equipment failures or accidents, fires, explosions, blowouts, cratering, pollution and other environmental risks, shortages or delays in the availability of drilling rigs and the delivery of equipment, loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well or otherwise prevent a property or well from being profitable |
| A productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or natural gas from the well |
| In addition, production from any well may be unmarketable if it is contaminated with water or other deleterious substances |
| Prices may be affected by regional factors |
| The prices to be received for the natural gas production from our Rocky Mountain region properties will be determined to a significant extent by factors affecting the regional supply of and demand for natural gas, which include the degree to which pipeline and processing infrastructure exists in the region |
| Those factors result in basis differentials between the published indices generally used to establish the price received for regional natural gas production and the actual price we receive for our production |
| The exploration, development and operation of oil and gas properties also involve a variety of operating risks including the risk of fire, explosions, blowouts, cratering, pipe failure, abnormally pressured formations, 15 _________________________________________________________________ [49]Table of Contents natural disasters, acts of terrorism or vandalism, and environmental hazards, including oil spills, gas leaks, pipeline ruptures or discharges of toxic gases |
| These industry-operating risks can result in injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties, and suspension of operations which could result in substantial losses |
| We maintain insurance against some, but not all, of the risks described above |
| Such insurance may not be adequate to cover losses or liabilities |
| Also, we cannot predict the continued availability of insurance at premium levels that justify its purchase |
| The terrorist attacks on September 11, 2001 and certain potential natural disasters may change our ability to obtain adequate insurance coverage |
| The occurrence of a significant event that is not fully insured or indemnified against could materially and adversely affect our financial condition and operations |
| Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our obligations under our senior unsecured notes |
| As of December 31, 2005, our total outstanding long term liabilities were dlra250dtta7 million |
| Our degree of leverage could have important consequences, including the following: • it may limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, further exploration, debt service requirements, acquisitions and general corporate or other purposes; • a substantial portion of our cash flows from operations will be dedicated to the payment of principal and interest on our indebtedness and will not be available for other purposes, including our operations, capital expenditures and future business opportunities; • the debt service requirements of other indebtedness in the future could make it more difficult for us to satisfy our financial obligations; • certain of our borrowings, including borrowings under our senior credit facility, are at variable rates of interest, exposing us to the risk of increased interest rates; • as we have pledged most of our oil and gas properties and the related equipment, inventory, accounts and proceeds as collateral for the borrowings under our senior credit facility, they may not be pledged as collateral for other borrowings and would be at risk in the event of a default thereunder; • it may limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors that have less debt; and • we may be vulnerable in a downturn in general economic conditions or in our business, or we may be unable to carry out capital spending and exploration activities that are important to our growth |
| We may, under certain circumstances described in the indenture governing our 7prca senior notes and our senior credit facility, be able to incur substantially more debt in the future, which may intensify the risks described herein |
| As of December 31, 2005, we had approximately dlra64dtta3 million outstanding under our senior credit facility and additional availability of approximately dlra10dtta7 million |
| Acquisitions are a part of our business strategy and are subject to the risks and uncertainties of evaluating recoverable reserves and potential liabilities |
| We could be subject to significant liabilities related to acquisitions by us |
| The successful acquisition of producing and non-producing properties requires an assessment of a number of factors, many of which are beyond our control |
| These factors include recoverable reserves, future oil and gas prices, operating costs and potential environmental and other liabilities, title issues and other factors |
| It generally is not feasible to review in detail every individual property included in an acquisition |
| Ordinarily, a review is focused on higher valued properties |
| Further, even a detailed review of all properties and records may not reveal existing or potential 16 _________________________________________________________________ [50]Table of Contents problems, nor will it permit us to become sufficiently familiar with the properties to assess fully their deficiencies and capabilities |
| We do not always inspect every well we acquire, and environmental problems, such as groundwater contamination, are not necessarily observable even when an inspection is performed |
| We cannot assure you that our recent and/or future acquisition activity will not result in disappointing results |
| In addition, there is intense competition for acquisition opportunities in our industry |
| Competition for acquisitions may increase the cost of, or cause us to refrain from, completing acquisitions |
| Our strategy of completing acquisitions is dependent upon, among other things, our ability to obtain debt and equity financing and, in some cases, regulatory approvals |
| Our ability to pursue our acquisition strategy may be hindered if we are not able to obtain financing or regulatory approvals |
| Acquisitions often pose integration risks and difficulties |
| In connection with recent and future acquisitions, the process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant management attention and financial resources that would otherwise be available for the ongoing development or expansion of existing operations |
| Possible future acquisitions could result in our incurring additional debt, contingent liabilities and expenses, all of which could have a material adverse effect on our financial condition and operating results |
| We depend on key personnel |
| We currently have only four employees that serve in senior management roles |
| In particular, Roger A Parker and John R Wallace are responsible for the operation of our oil and gas business and Kevin K Nanke is our Treasurer and Chief Financial Officer |
| The loss of any one of these employees could severely harm our business |
| We do not have key man insurance on the lives of any of these individuals |
| Furthermore, competition for experienced personnel is intense |
| If we cannot retain our current personnel or attract additional experienced personnel, our ability to compete could be adversely affected |
| We may not be permitted to develop some of our offshore California properties or, if we are permitted, the substantial cost to develop these properties could result in a reduction of our interest in these properties or cause us to incur penalties |
| Certain of our offshore California undeveloped properties, in which we have ownership interests ranging from 2dtta49prca to 100dtta00prca, are attributable to our interests in four of our five federal units (plus one additional lease) located offshore of California near Santa Barbara |
| These properties had a cost basis of approximately dlra11dtta0 million at December 31, 2005 |
| The development of these properties is subject to extensive regulation and is currently the subject of litigation |
| Pursuant to a ruling in California v |
| Norton, later affirmed by the Ninth Circuit Court of Appeals, the US Government was required to make a consistency determination relating to the 1999 lease suspension requests under a 1990 amendment to the Coastal Zone Management Act |
| In the event that there is some future adverse ruling under the Coastal Zone Management Act that we decide not to appeal or that we appeal without success, it is likely that some or all of our interests in these leases would become impaired and written off at that time |
| It is also possible that other events could occur during the Coastal Zone Management Act review or appellate process that would cause our interests in the leases to become impaired, and we will continuously evaluate those factors as they occur |
| In addition, the cost to develop these properties will be substantial |
| The cost to develop all of these offshore California properties in which we own an interest, including delineation wells, environmental mitigation, development wells, fixed platforms, fixed platform facilities, pipelines and power cables, onshore facilities and platform removal over the life of the properties (assumed to be 38 years), is estimated to be in excess of dlra3dtta0 billion |
| Our share of such costs, based on our current ownership interest, is estimated to be over dlra200dtta0 million |
| Operating expenses for the same properties over the same period of time, including platform operating costs, well maintenance and repair costs, oil, gas and water treating costs, lifting costs and pipeline transportation costs, are estimated to be approximately dlra3dtta5 billion, with our share, based on our current ownership interest, estimated to be approximately dlra300dtta0 million |
| There will be additional costs of a currently undetermined amount to develop the Rocky Point Unit |
| Each working interest owner will be required to pay its proportionate share of these costs based upon the amount of the interest that it owns |
| If we are unable to fund our share of these costs or otherwise cover them through farm-outs or other arrangements, then we could 17 _________________________________________________________________ [51]Table of Contents either forfeit our interest in certain wells or properties or suffer other penalties in the form of delayed or reduced revenues under our various unit operating agreements, which could impact the ultimate realization of this investment |
| The estimates discussed above may differ significantly from actual results |
| We are exposed to additional risks through our drilling business |
| We currently have a 49dtta5prca ownership interest in and management control of a drilling business |
| The operations of that entity are subject to many additional hazards that are inherent to the drilling business, including, for example, blowouts, cratering, fires, explosions, loss of well control, loss of hole, damaged or lost drill strings and damage or loss from inclement weather |
| No assurance can be given that the insurance coverage maintained by that entity will be sufficient to protect it against liability for all consequences of well disasters, personal injury, extensive fire damage or damage to the environment |
| No assurance can be given that the drilling business will be able to maintain adequate insurance in the future at rates it considers reasonable or that any particular types of coverage will be available |
| The occurrence of events, including any of the above-mentioned risks and hazards that are not fully insured could subject the drilling business to significant liability |
| It is also possible that we might sustain significant losses through the operation of the drilling business even if none of such events occurs |
| Hedging transactions may limit our potential gains or cause us to lose money |
| In order to manage our exposure to price risks in the marketing of oil and gas, we periodically enter into oil and gas price hedging arrangements, typically costless collars |
| While intended to reduce the effects of volatile oil and gas prices, such transactions, depending on the hedging instrument used, may limit our potential gains if oil and gas prices were to rise substantially over the price established by the hedge |
| In addition, such transactions may expose us to the risk of financial loss in certain circumstances, including instances in which: • production is substantially less than expected; • the counterparties to our futures contracts fail to perform under the contracts; or • a sudden, unexpected event materially impacts gas or oil prices |
| The net realized losses from hedging activities recognized in our statements of operations were dlra8dtta0 million, dlra960cmam000, dlra859cmam000 and dlra1dtta9 million for the six months ended December 31, 2005 and years ended June 30, 2005, 2004 and 2003, respectively |
| These losses are recorded as a decrease in revenues |
| At December 31, 2005, we had unrealized hedging losses of dlra18dtta2 million reflected in our consolidated balance sheet based on market prices in effect on December 31, 2005 |
| Our actual hedging results may differ materially from the amount recorded at December 31, 2005 |
| We may not receive payment for a portion of our future production |
| Our revenues are derived principally from uncollateralized sales to customers in the oil and gas industry |
| The concentration of credit risk in a single industry affects our overall exposure to credit risk because customers may be similarly affected by changes in economic and other conditions |
| We do not attempt to obtain credit protections such as letters of credit, guarantees or prepayments from our purchasers |
| We are unable to predict, however, what impact the financial difficulties of any of our purchasers may have on our future results of operations and liquidity |
| We have no long-term contracts to sell oil and gas |
| We do not have any long-term supply or similar agreements with governments or other authorities or entities for which we act as a producer |
| We are therefore dependent upon our ability to sell oil and gas at the prevailing wellhead market price |
| There can be no assurance that purchasers will be available or that the prices they are willing to pay will remain stable |
| 18 _________________________________________________________________ [52]Table of Contents There is currently a shortage of available drilling rigs and equipment which could cause us to experience higher costs and delays that could adversely affect our operations |
| Although equipment and supplies used in our business are usually available from multiple sources, there is currently a general shortage of drilling equipment and supplies |
| The costs and delivery times of equipment and supplies are substantially greater now than in prior periods and are currently escalating |
| In partial response to this trend, during 2004 and 2005 we acquired a controlling interest in a drilling company |
| We believe that our ownership interest in the drilling company will allow us to have priority access to drilling rigs |
| We are also attempting to establish arrangements with others to assure adequate availability of certain other necessary drilling equipment and supplies on satisfactory terms, but there can be no assurance that we will be able to do so |
| Accordingly, there can be no assurance that we will not experience shortages of, or material price increases in, drilling equipment and supplies, including drill pipe, in the future |
| Any such shortages could delay and adversely affect our ability to meet our drilling commitments |
| The marketability of our production depends mostly upon the availability, proximity and capacity of gas gathering systems, pipelines and processing facilities, which are owned by third parties |
| The marketability of our production depends upon the availability, operation and capacity of gas gathering systems, pipelines and processing facilities, which are owned by third parties |
| The unavailability or lack of capacity of these systems and facilities could result in the shut-in of producing wells or the delay or discontinuance of development plans for properties |
| We currently own several wells that are capable of producing but are currently shut-in pending the construction of gas gathering systems, pipelines and processing facilities |
| United States federal, state and foreign regulation of oil and gas production and transportation, tax and energy policies, damage to or destruction of pipelines, general economic conditions and changes in supply and demand could adversely affect our ability to produce and market oil and natural gas |
| If market factors changed dramatically, the financial impact on us could be substantial |
| The availability of markets and the volatility of product prices are beyond our control and represent a significant risk |
| Our industry is highly competitive, making our results uncertain |
| We operate in the highly competitive areas of oil and gas exploration, development and production |
| We compete for the purchase of leases from the US government and from other oil and gas companies |
| We face competition in every aspect of our business, including, but not limited to: • acquiring reserves and leases; • obtaining goods, services and employees needed to operate and manage our business; • access to the capital necessary to drill wells and acquire properties; and • marketing oil and natural gas |
| Competitors include multinational oil companies, independent production companies and individual producers and operators |
| Many of our competitors have greater financial, technological and other resources than we do |
| New technologies may cause our current exploration and drilling methods to become obsolete, resulting in an adverse effect on our production |
| The oil and natural gas industry is subject to rapid and significant advancements in technology, including the introduction of new products and services using new technologies |
| As competitors use or develop new technologies, we may be placed at a competitive disadvantage, and competitive pressures may force us to implement new technologies at a substantial cost |
| In addition, competitors may have greater financial, technical and personnel resources that allow them to enjoy technological advantages and may in the future allow them to implement new technologies before we can |
| We cannot be certain that we will be able to 19 _________________________________________________________________ [53]Table of Contents implement technologies on a timely basis or at a cost that is acceptable to us |
| One or more of the technologies that we currently use or that we may implement in the future may become obsolete, and we may be adversely affected |
| Terrorist attacks aimed at our facilities could adversely affect our business |
| The United States has been the target of terrorist attacks of unprecedented scale |
| The US government has issued warnings that US energy assets may be the future targets of terrorist organizations |
| These developments have subjected our operations to increased risks |
| Any future terrorist attack at our facilities, or those of our purchasers, could have a material adverse effect on our business |
| We own properties in the Gulf Coast region that could be susceptible to damage by severe weather |
| Certain areas in and near the Gulf of Mexico experience hurricanes and other extreme weather conditions on a relatively frequent basis |
| Some of our properties in the Gulf Coast Region are located in areas that could cause them to be susceptible to damage by these storms |
| Damage caused by high winds and flooding could potentially cause us to curtail operations and/or exploration and development activities on such properties for significant periods of time until damage can be repaired |
| Moreover, even if our properties are not directly damaged by such storms, we may experience disruptions in our ability to sell our production due to damage to pipelines, roads and other transportation and refining facilities in the area |
| Our production was negatively impacted as certain wells were shut in during Hurricane Rita |
| We may incur substantial costs to comply with the various federal, state and local laws and regulations that affect our oil and gas operations |
| Our oil and gas operations are subject to stringent federal, state and local laws and regulations relating to the release or disposal of materials into the environment or otherwise relating to health and safety, environmental protection or the oil and gas industry generally |
| Legislation affecting the industry is under constant review for amendment or expansion, frequently increasing our regulatory burden |
| Compliance with such laws and regulations often increases our cost of doing business and, in turn, decreases our profitability |
| Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the incurrence of investigatory or remedial obligations, or issuance of cease and desist orders |
| The environmental laws and regulations to which we are subject may: • require applying for and receiving a permit before drilling commences; • restrict the types, quantities and concentration of substances that can be released into the environment in connection with drilling and production activities; • limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; and • impose substantial liabilities for pollution resulting from our operations |
| Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to maintain compliance, and may otherwise have a material adverse effect on our earnings, results of operations, competitive position or financial condition |
| Over the years, we have owned or leased numerous properties for oil and gas activities upon which petroleum hydrocarbons or other materials may have been released by us or by predecessor property owners or lessees who were not under our control |
| Under applicable environmental laws and regulations, including CERCLA, RCRA and analogous state laws, we could be held strictly liable for the removal or remediation of previously released materials or property contamination at such locations regardless of whether we were responsible for the release or if our operations were standard in the industry at the time they were performed |
| We may issue shares of preferred stock with greater rights than our common stock |
| Although we have no current plans, arrangements, understandings or agreements to issue any preferred stock, our certificate of incorporation authorizes our board of directors to issue one or more series of preferred stock and set the terms of the preferred stock without seeking any further approval from our stockholders |
| Any preferred stock that is issued may rank ahead of our common stock, in terms of dividends, liquidation rights and voting rights |
| There may be future dilution of our common stock |
| Further, if we sell additional equity or convertible debt securities, such sales could result in increased dilution to our stockholders |
| We do not expect to pay dividends on our common stock |
| We do not expect to pay any dividends, in cash or otherwise, with respect to our common stock in the foreseeable future |
| In addition, the credit agreement relating to our credit facility prohibits us from paying any dividends until the loan is retired |
| The common stock is an unsecured equity interest in our Company |
| Therefore, in the event we are liquidated, the holders of the common stock will receive a distribution only after all of our secured and unsecured creditors have been paid in full |
| There can be no assurance that we will have sufficient assets after paying our secured and unsecured creditors to make any distribution to the holders of the common stock |
| In addition, the Company’s stock price has been and is likely to continue to be volatile |
| Our stockholders do not have cumulative voting rights |
| Holders of our common stock are not entitled to accumulate their votes for the election of directors or otherwise |
| Accordingly, a plurality of holders of our outstanding common stock will be able to elect all of our directors |
| As of December 31, 2005, our directors and executive officers and their respective affiliates collectively and beneficially owned approximately 6dtta6prca of our outstanding common stock |
| Our Certificate of Incorporation may have provisions that discourage corporate takeovers and could prevent stockholders from realizing a premium on their investment |
| Certain provisions of our Certificate of Incorporation and the provisions of the Delaware General Corporation Law may discourage persons from considering unsolicited tender offers or other unilateral takeover proposals |
| Such persons might choose to negotiate with our board of directors rather than pursue non-negotiated takeover attempts |
| As a result, these provisions could have the effect of preventing stockholders from realizing a premium on their investment |
| Our Certificate of Incorporation authorizes our board of directors to issue preferred stock without stockholder approval and to set the rights, preferences and other designations, including voting rights of those shares, as the board of directors may determine |
| In addition, our Certificate of Incorporation authorizes a substantial number of shares of common stock in excess of the shares outstanding |
| These provisions may discourage transactions involving actual or potential changes of control, including transactions that otherwise could involve payment of a premium over prevailing market prices to stockholders for their common stock |