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Risk Factors
DOUBLE EAGLE PETROLEUM CO ITEM 1a RISK FACTORS In evaluating the Company, careful consideration should be given to the following risk factors, in addition to the other information included or incorporated by reference in this annual report
Each of these risk factors could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common stock
In addition, the ‘‘Forward-Looking Statements’’ located in this Form 10-K, and the forward-looking statements included or incorporated by reference herein describe additional uncertainties associated with our business
We cannot predict the future price of oil and natural gas and an extended decline in prices could hurt our business prospects
Our revenues, profitability and liquidity are substantially dependent upon prevailing prices for natural gas and oil, which can be extremely volatile and in recent years have been depressed by excess total domestic and imported supplies
Prices also are affected by actions of state and local agencies, the United States and foreign governments, and international cartels
In addition, sales of oil and natural gas are seasonal in nature, leading to substantial differences in cash flow at various times throughout the year
These external factors and the volatile nature of the energy markets make it difficult to estimate future prices of oil and natural gas
Any substantial or extended decline in the price of oil and/or natural gas would have a material adverse effect on our financial condition and results of operations, including reduced cash flow and borrowing capacity
We could be adversely impacted by a variety of changes in the oil and gas market which are beyond our control
The marketability of our oil and gas production depends in part upon the availability, proximity and capacity of gas gathering systems, pipelines and processing facilities
Federal and state regulation of oil and gas production and transportation, general economic conditions, changes in supply and changes in demand all could adversely affect our ability to produce and market its oil and natural gas
If market factors were to change dramatically, the financial impact could be substantial because we would incur expenses without receiving revenues from the sale of production
The availability of markets is beyond our control
Our revenues depend on whether we acquire or find additional reserves
Unless we acquire properties containing proved reserves or conduct successful exploration and development activities, or both, our proved reserves will decline as reserves are produced
Our planned exploration and development projects may not result in significant additional reserves
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 dlra24 million for the year ended December 31, 2006
We have historically addressed our short and long-term liquidity needs through the use of cash flow provided by operating activities, borrowing under bank credit facilities, and the issuance of equity
Without adequate financing we may not be able to successfully execute our operating strategy
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
12 _________________________________________________________________ [62]Table of Contents Oil and gas operations are inherently risky
The nature of the oil and gas business involves a variety of risks, including the risks of operating hazards such as fires, explosions, cratering, blow-outs, and encountering formations with abnormal pressures
The occurrence of any of these risks could result in losses
We maintain insurance against some, but not all, of these risks
Management believes that the level of insurance against these risks is reasonable and is in accordance with customary industry practices
The occurrence of a significant event, however, that is not fully insured could have a material adverse effect on our financial position and results of operations
New government regulation and environmental risks could increase our cost of doing business
The production and sale of oil and gas are subject to a variety of federal, state and local government regulations
These include: • prevention of waste • discharge of materials into the environmentconservation of oil and natural gas, pollution, permits for drilling operations, drilling bonds, reports concerning operations • spacing of wells • unitization and pooling of properties Many jurisdictions have at various times imposed limitations on the production of oil and gas by restricting the rate of flow for oil and gas wells below their actual capacity to produce
Because current regulations covering our operations are subject to change at any time, and despite our belief that we are in substantial compliance with applicable environmental and other government laws and regulations, we may incur significant costs for compliance in the future
Our prices may be impacted adversely by new taxes
The federal, state and local governments in which we operate impose taxes on the oil and gas products we sell
In the past, there has been a significant amount of discussion by legislators and presidential administrations concerning a variety of energy tax proposals
In addition, many states have raised state taxes on energy sources and additional increases may occur
We cannot predict whether any of these measures would have an adverse impact on oil and natural gas prices
Our reserves and future net revenues may differ significantly from our estimates
This Form 10-K contains estimates of our reserves and future net revenues
We prepared these estimates and they were then reviewed by an independent petroleum engineer
The estimates of reserves and future net revenues are not exact and are based on many variable and uncertain factors; therefore, the estimates may vary substantially from the actual amounts depending, in part, on the assumptions made and may be subject to adjustment either up or down in the future
The actual amounts of production, revenues, taxes, development expenditures, operating expenses, and quantities of recoverable oil and gas reserves to be encountered may vary substantially from the estimated amounts
In addition, estimates of reserves are extremely sensitive to the market prices for oil and gas
We depend on a key employee
We are highly dependent on the services of Stephen H Hollis, our President and Chief Executive Officer
We do carry “key man” life insurance on Mr
There is a limited market for our shares and an investor cannot expect to liquidate his investment regardless of the necessity of doing so
The prices of our shares are highly volatile
In addition, there is no assurance that an investor will be in a position to borrow funds using our shares as collateral