TETON ENERGY CORP Item 1A RISK FACTORS Risks Related to our Business We have incurred significant losses |
We expect future losses and we may never become profitable |
We have incurred significant losses in the past |
The Company incurred net losses from continuing operations for the years ended December 31, 2005, 2004, and 2003 of dlra3cmam777cmam449, dlra5cmam193cmam281, and dlra4cmam036cmam164, respectively |
In addition, we had an accumulated deficit of dlra24cmam499cmam726 at December 31, 2005 |
We may fail to achieve significant revenues or sustain profitability |
There can be no assurance of when, if ever, we will be profitable or be able to maintain profitability |
If we are unable to obtain additional funding our business operations will be harmed |
We believe that our current cash position and estimated 2006 cash from operations will not be sufficient to meet our current estimated operating and general and administrative expenses and capital expenditures through the end of fiscal year 2006 |
As a result, the Company will require additional funding |
In addition, should our operating partners increase their capital expenditures beyond currently anticipated levels, we may be unable to participate in additional wells if we are unable to secure such additional funding |
Additionally, we do not know if additional financing will be available when needed, or if it is available, if it will be available on acceptable terms |
Insufficient funds may prevent us from implementing our business strategy |
Our business depends on the level of activity in the oil and gas industry, which is significantly affected by volatile energy prices |
Our business depends on the level of activity in oil and gas exploration, development and production in markets worldwide |
Oil and gas prices, market expectations of potential changes in these prices and a variety of political and economic and weather-related factors significantly affect this level of activity |
Oil and gas prices are extremely volatile and are affected by numerous factors, including: • worldwide demand for oil and gas; • the ability of the Organization of Petroleum Exporting Countries, commonly called “OPEC,” to set and maintain production levels and pricing; • the level of production in non-OPEC countries; • the policies of the various governments regarding exploration and development of their oil and gas reserves; • local weather; • fluctuating pipeline takeaway capacity; • advances in exploration and development technology; • the political environment surrounding the production of oil and gas; • level of consumer product demand; and • the price and availability of alternative fuels |
Our business involves numerous operating hazards |
Our operations are subject to certain hazards inherent in drilling for oil or natural gas, such as blowouts, reservoir damage, loss of production, loss of well control, punchthroughs, craterings, or fires |
The occurrence of these events could result in the suspension of drilling operations, weather, equipment shortages, damage to or destruction of the equipment involved and injury or death to rig personnel |
Operations also may be suspended because of machinery breakdowns, abnormal drilling conditions, failure of subcontractors to perform or supply goods or services or personnel shortages |
Damage to the environment could also result from our operations, particularly through oil spillage or extensive uncontrolled fires |
We may also be subject to damage claims by other oil and gas companies |
Although we and/or our operating partners maintain insurance in the areas in which we operate, pollution and environmental risks generally are not fully insurable |
Our insurance policies and contractual rights to indemnity may not adequately cover our losses, and we do not have insurance coverage or rights to indemnity for all risks |
If a significant accident or other event occurs and is not fully covered by insurance or contractual indemnity, it could adversely affect our financial position and results of operations |
11 _________________________________________________________________ All of our current producing properties are located in the Rocky Mountains, making us vulnerable to risks associated with operating in one major geographic area |
Our current operations are focused on the Rocky Mountain region, which means our producing properties are geographically concentrated in that area |
As a result, we may be disproportionately exposed to the impact of delays or interruptions of production from these wells caused by significant governmental regulation, transportation capacity constraints, curtailment of production or interruption of transportation of natural gas produced from the wells in these basins |
Competition in the oil and natural gas industry is intense, which may adversely affect our ability to succeed |
The oil and natural gas industry is intensely competitive, and we compete with other companies that are significantly larger and have greater resources |
Many of these companies not only explore for and produce oil and natural gas, but also carry on refining operations and market petroleum and other products on a regional, national or worldwide basis |
These companies may be able to pay more for productive oil and natural gas properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit |
In addition, these companies may have a greater liability to continue exploration activities during periods of low oil and natural gas market prices |
Our larger competitors may be able to absorb the burden of present and future federal, state, local and other laws and regulations more easily than we can, which would adversely affect our competitive position |
Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment |
If oil and natural gas prices decrease, we may be required to take write-downs of the carrying values of our oil and natural gas properties |
Generally accepted accounting principles require that we periodically review the carrying value of our oil and natural gas properties for possible impairment |
Based on specific market factors and circumstances at the time of the prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, we may be required to write down the carrying value of our oil and natural gas properties |
A write-down constitutes a non-cash charge to earnings |
We may incur impairment charges in the future, which could have material adverse effect on our results of operations in the periods taken |
Governmental laws and regulations may add to our costs or limit our drilling activity |
Our operations are affected from time to time in varying degrees by governmental laws and regulations |
We may be required to make significant capital expenditures to comply with governmental laws and regulations |
It is also possible that these laws and regulations may in the future add significantly to our operating costs or may significantly limit drilling activity |
Failure to comply with these laws and regulations may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties, including assessment of natural resource damage |
Some of the information in this 10K contains forward-looking statements that involve substantial risks and uncertainties |
You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words |
You should read statements that contain these words carefully because they: • discuss our future expectations; • contain projections of our future results of operations or of our financial condition; and • state other “forward-looking” information |
We believe it is important to communicate our expectations |
However, there may be events in the future that we are not able to accurately predict and/or over which we have no control |
The risk factors listed in this section, other risk factors about which we may not be aware, as well as any cautionary language in this prospectus, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements |
You should be aware that the occurrence of the events described in these risk factors could have an adverse effect on our business, results of operations and financial condition (See Cautionary Note Regarding Forward-Looking Statements on page 4) |
Risks Relating To Our Common Stock Our stock price and trading volume may be volatile, which could result in losses for our stockholders |
The equity trading markets may experience periods of volatility, which could result in highly variable and unpredictable pricing of equity securities |
The market price of our common stock could change in ways that may or may not be related to our business, our industry or our operating performance and financial condition |
In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur |
Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include: 12 _________________________________________________________________ • actual or anticipated quarterly variations in our operating results; • changes in expectations as to our future financial performance or changes in financial estimates, if any, of public market analysts; • announcements relating to our business or the business of our competitors; • conditions generally affecting the oil and natural gas industry; • the success of our operating strategy; and • the operating and stock price performance of other comparable companies |
We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future |
In addition, the stock markets in general can experience considerable price and volume fluctuations |
Our Insiders beneficially own a significant portion of our stock |
As of December 31, 2005 our executive officers, directors and affiliated persons beneficially own approximately 18dtta24prca of our common stock |
As a result, our executive officers, directors and affiliated persons will have significant influence to: • elect or defeat the election of our directors; • amend or prevent amendment of our articles of incorporation or bylaws; • effect or prevent a merger, sale of assets or other corporate transaction; and • affect the outcome of any other matter submitted to the stockholders for vote |
In addition, sales of significant amounts of shares held by our directors and executive officers, or the prospect of these sales, could adversely affect the market price of our common stock |
Management’s stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price |
We do not expect to pay dividends in the foreseeable future |
As a result, holders of our common stock must rely on stock appreciation for any return on their investment |
We do not anticipate paying cash dividends on our common stock in the foreseeable future |
Certain of our existing credit agreements prohibit the payment of cash dividends without lender consent |
Any payment of cash dividends will also depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of directors |
Accordingly, holders of our common stock will have to rely on capital appreciation, if any, to earn a return on their investment in our common stock |
Furthermore, we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends |