| REMINGTON OIL & GAS CORP Item 1A Risk Factors Not completing the merger could negatively impact our stock price and future results Although our board of directors will, subject to fiduciary exceptions, recommend that our stockholders approve and adopt the merger agreement, there is no assurance that the merger agreement and the merger will be approved, and there is no assurance that the other conditions to the completion of the merger will be satisfied |
| If the merger is not completed, we will be subject to several risks, including the following: • We may be required to pay Helix the sum of (i) Helix’s documented out of pocket fees and expenses incurred or paid by or on behalf of Helix in connection with the merger or the consummation of any of the transactions contemplated by the merger agreement, including all regulatory filing fees, fees and expenses of counsel, commercial banks, investment banking firms, accountants, experts, environmental consultants, and other consultants to Helix, up to a maximum amount not to exceed dlra2 million, and (ii) dlra45 million if the merger agreement is terminated under certain circumstances and we enter into or complete an alternative transaction; • The current market price of our common stock may reflect a market assumption that the merger will occur, and a failure to complete the merger could result in a negative perception of us by the stock market and a resulting decline in the market price of our common stock; • Certain costs relating to the merger (such as legal, accounting and financial advisory fees) are payable by us whether or not the merger is completed; and • There may be substantial disruption to our business and a distraction of our management and employees from day-to-day operations, because matters related to the merger (including integration planning) may require substantial commitments of time and resources, which could otherwise have been devoted to other opportunities that could have been beneficial to us; In addition, we would not realize any of the expected benefits of having completed the merger |
| If the merger is not completed, these risks may materialize and materially adversely affect our business, financial results, financial condition and stock price |
| Natural gas and oil prices are volatile, which makes future revenue uncertain |
| Our financial condition and results of operations depend on the prices we receive for the oil and gas we produce |
| The market prices for oil and gas are subject to fluctuation in response to events beyond our control, such as: • supply of and demand for oil and gas; • market uncertainty; • worldwide political and economic instability; and • government regulations |
| Oil and gas prices have historically been volatile, and such volatility is likely to continue |
| Our ability to estimate the value of producing properties for acquisition and to budget and project the financial return of exploration and development projects is made more difficult by this volatility |
| A dramatic decline in such prices could have a substantial and material effect on: • our revenues; • financial condition: • results of operations; 6 _________________________________________________________________ [57]Table of Contents • our ability to increase production and grow reserves in an economically efficient manner; and • our access to capital |
| A resulting significant decline in our cash flows from operations could cause us to fail to meet our operational obligations, thus requiring us to modify our capital expenditure program which could then affect our ability to find and develop reserves and our level of production |
| Moreover, such a decline could affect the measure of the discounted future net cash flow of reserves, which could then affect our borrowing base and may increase the likelihood that we will incur impairment charges on our oil and gas properties for financial accounting purposes |
| Our future success depends on our ability to economically increase our reserves and production, which historically have had relatively short production lives |
| Our future success will depend on our ability to find, develop or acquire additional economically recoverable oil and gas reserves and convert these reserves to production |
| Because our proved reserves will normally decline as they are produced, we must maintain successful exploration and development activities in order to replace reserves depleted through production |
| We may not be able to replace our reserves in an economically viable manner |
| Our forward sales decisions regarding some of our production may reduce our potential gains from increases in oil and gas prices |
| Oil and gas prices can fluctuate significantly and have a direct impact on our reserves |
| To manage our exposure to the risks inherent in such a volatile market, from time to time, we have forward sold for future physical delivery an amount, not more than half, of our future production |
| This means that a portion of our production is sold at a fixed price as a shield against dramatic price declines that could occur in the market |
| We may from time to time engage in other hedging activities that limit our upside potential from price increases |
| These sales activities may limit our benefit from dramatic price increase |
| The merger agreement requires that prior to the consummation of the merger and upon request from Helix that we enter into limited forward sales of our production in instances when both we and Helix believe that such sales are reasonably prudent to Helix’s acquisition economics and our expected economics |
| Our actual drilling results may differ from our estimates of proved reserves |
| Our estimates of the quantities of proved reserves and our projections of both future production rates and the timing of development expenditures are uncertain |
| Any downward revisions of these estimates could adversely affect our financial condition and could reduce our borrowing base under our credit facility |
| Netherland, Sewell & Associates, Inc, our independent reservoir engineers, audit our estimate of our reserves |
| The accuracy of these reserve estimates depends in large part on the quality of available data and on the engineering and geological interpretation of reservoir engineers |
| Because they are estimates, they are subject to revision based on the results of actual drilling, testing, and production and will often differ from the quantities of oil and gas we ultimately recover |
| Further, the estimate of our future net cash flows contained in our reserve report depends upon numerous assumptions including the amount of the reserves actually produced, the cost and timing of producing those reserves, and the price received for the production |
| To the extent these assumptions prove inaccurate, material changes to our estimates of our future net cash flows and our reserves could results |
| We are dependent on other operators who influence our productivity |
| We have limited influence over operations, including limited control over the maintenance of both safety and environmental standards, on properties we do not operate |
| The operators of those properties may, depending on the terms of the applicable joint operating agreement: • refuse to initiate exploration or development projects; • initiate exploration or development projects on a slower or faster schedule than we prefer; and/or • drill more wells or build more facilities on a project than we can afford, whether on a cash basis or through financing, which may limit our participation in those projects or limit the percentage of our revenues from those projects |
| 7 _________________________________________________________________ [58]Table of Contents The occurrence of any of the foregoing events could have a material adverse effect on our anticipated exploration and development activities |
| Adverse changes in the financial condition of our joint interest partners due to price declines, industry conditions, or events specific to a partner may affect our ability to carry out our program |
| These problems may lead to their attempting to delay the pace of drilling or development in order to conserve cash |
| Any such delay may be detrimental to our projects and the planned timing thereof |
| The oil and gas industry is highly competitive |
| Our quest to discover additional oil and gas reserves and acquire additional properties occurs in competition with some of the largest oil and gas companies in the world |
| These companies may be able to devote significantly greater financial resources to exploration and production projects and federal lease sales than we can |
| Moreover, if these companies operate projects in which we are joint interest owners, they may propose exploration and development programs in which we may not be able to participate due to financial constraints |
| This could cause us to lose our interest, at least for a time, in a particular lease or project |
| In addition, we compete with these companies in the hiring and retention of talented technical employees |
| Government regulation may affect our ability to conduct operations, and the nature of our business exposes us to environmental liability |
| Numerous federal and state regulations affect our oil and gas operations |
| Current regulations are constantly reviewed by the various agencies at the same time that new regulations are being considered and implemented |
| In addition, because we hold federal leases, the federal government requires us to comply with numerous additional regulations that focus on government contractors |
| The regulatory burden upon the oil and gas industry increases the cost of doing business and consequently affects our profitability |
| Our oil and gas operations are subject to stringent federal, state, and local environmental laws and regulations |
| Environmental laws and regulations are complex, change frequently, and have tended to become more stringent over time |
| Many environmental laws require permits from governmental authorities before construction on a project may commence or before wastes or other materials may be discharged into the environment |
| The process for obtaining necessary permits can be lengthy and complex, and can sometimes result in the establishment of permit conditions that make the project or activity for which the permit was sought either unprofitable or otherwise unattractive |
| Even where permits are not required, compliance with environmental laws and regulations can require significant capital and operating expenditures, and we may be required to incur costs to remediate contamination from past releases of wastes into the environment |
| Failure to comply with these statues, rules and regulations may result in the assessment of administrative, civil and even criminal penalties |
| The most significant environmental obligations applicable to our operations relate to compliance with the federal Oil Pollution Act and the Clean Water Act |
| The Oil Pollution Act and its implementing regulations (“OPA”) establish requirements for the prevention of oil spills and impose liability for damages resulting from spills into waters of the United States |
| OPA also requires operators of offshore oil production facilities, such as our facilities in the Gulf of Mexico, to demonstrate to the US Minerals Management Service that they possess at least dlra35dtta0 million in financial resources that are available to pay for costs that may be incurred in responding to an oil spill |
| The Clean Water Act and its implementing regulations impose restrictions and strict controls on the discharge of wastes typically generated by the oil and gas industry |
| The cost of compliance with this federal and state legislation could have a significant impact on our financial ability to carry out our oil and gas operations |
| Our operations create the risk of environmental liabilities |
| We may incur liability to governments or to third parties for any unlawful discharge of oil, gas or other pollutants into the air, soil or water |
| We could potentially discharge oil and gas into the environment in any of the following ways: • from a well or drilling equipment at a drill site; • from a leak in storage tanks, pipelines or other gathering and transportation facilities; 8 _________________________________________________________________ [59]Table of Contents • from damage to oil and gas wells resulting from accidents during otherwise normal operations; and • from blowouts, cratering or explosions |
| Environmental discharges may move through the soil to water supplies or to adjoining properties, giving rise to additional liabilities |
| Some laws and regulations could result in liability for failure to obtain the proper permits for, to control the use of, or to notify the proper authorities of a hazardous discharge |
| Such liability could substantially reduce our net income and could cause us to suspend operations |
| Our operations are also subject to environmental laws and regulations that impose requirements for remediation of soil and groundwater contamination |
| In many cases, these laws apply retroactively to previous waste disposal practices regardless of fault, legality of the original activities, or ownership or control of sites |
| A company could be subject to severe fines and cleanup costs of found liable under these laws |
| We own and operate properties previously owned and operated by companies whose waste disposal practices may have resulted in on-site contamination that may require remedial action under current standards |
| We may be required to undertake remedial actions for contamination in those properties |
| Our business exposes us to casualty risks above our insurance coverage |
| Our offshore and onshore operations are subject to inherent casualty risks such as fines, blowouts, cratering and explosions |
| Other risks include pollution, the uncontrollable discharge of oil, gas, brine or well fluids, and hazards of marine and helicopter operations such as capsizing, collision, and adverse weather and sea conditions |
| These risks may result in injury or loss of life, suspension of operations, environmental damage or property and equipment damage, all of which could cause us to experience substantial losses |
| Our drilling operations involve risks from high pressures in the wells and from mechanical difficulties such as stuck pipes, collapsed casings and separated cables |
| Our offshore properties involve higher exploration and drilling risks that include the cost of constructing platforms and pipeline interconnections as well as weather delays and other risks |
| Our insurance may not cover the full extent of all losses |
| This insurance coverage includes, among other things, comprehensive general liability, business interruption and limited coverage for sudden environmental damage |
| We do not believe that insurance that fully covers all environmental damage that occurs over time or all sudden environmental damage is available at a reasonable cost |
| The occurrence of an event that is not fully covered by insurance could materially increase our operating expenses and decrease our net income |
| We undertake significant operational risks connected with our business |
| Our drilling activities involve risks, such as drilling non-productive wells or dry holes, which are beyond our control |
| Often, the cost of drilling and operating wells and of installing production facilities is uncertain |
| Cost overruns are common risks that sometimes make a project uneconomical |
| The decision to purchase and exploit a prospect property depends on the evaluations of our operations staff |
| We may also decide to reduce or cease our drilling operations due to title problems, weather conditions, noncompliance with governmental requirements or shortages and delays in the delivery or availability of equipment or fabrication yards |
| Another risk of our operations is the difficulty in marketing our oil and gas production |
| The proximity of our reserves to pipelines and the available capacity of pipelines and other transportation, processing and refining facilities also affect the marketing efforts |
| Even if we discover hydrocarbons in commercial quantities, a substantial period of time may elapse before we begin commercial production |
| If pipeline facilities in an area are insufficient, we may have to arrange for, and possibly bear the cost of, the construction or expansion of pipeline capacity before our production from that area can be marketed |
| Furthermore, if any of the major facilities into which we deliver our product become non-operational for any reason, our revenues will decline |