The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , as well as the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q. Executive Summary We are an independentDenver -based exploration and production company focused on the acquisition, development, and extraction of oil and associated liquids-rich natural gas inthe United States . Our oil and liquids-weighted assets and operations are concentrated in the rural portions of the Wattenberg Field inColorado . Our development and extraction activities are primarily directed at the horizontal development of the Niobrara and Codell formations in theDenver -Julesburg ("DJ") Basin. The majority of our revenues are generated through the sale of oil, natural gas, and natural gas liquids production. The Company's primary objective is to maximize shareholder returns by responsibly developing our oil and gas resources. We seek to balance production growth with maintaining a conservative balance sheet. Key aspects of our strategy include multi-well pad development across our leasehold, enhanced completions through continuous design evaluation, utilization of scaled infrastructure, continuous safety improvement, strict adherence to health and safety regulations, and environmental stewardship. Financial and Operating Results Our financial and operational results include: •General and administrative expense per Boe decreased by 24% during the three months endedMarch 31, 2020 when compared to the same period in 2019 and is expected to further decrease throughout 2020; •Lease operating expense per Boe decreased by 13% for the three months endedMarch 31, 2020 when compared to the same period in 2019 and is expected to further decrease throughout 2020; •Crude oil equivalent sales volumes increased 21% for the three months endedMarch 31, 2020 when compared to the same period in 2019 despite the significant curtailment of our drilling and completion program in response to the drop in commodity prices; •Borrowings under our Credit Facility were reduced by$21.0 million to$59.0 million during the three months endedMarch 31, 2020 from the$80.0 million outstanding atDecember 31, 2019 ; •Total liquidity of$302.1 million atMarch 31, 2020 , consisting of cash on hand plus funds available under our Credit Facility. Please refer to Liquidity and Capital Resources below for additional discussion; •Cash flows provided by operating activities for the three months endedMarch 31, 2020 were$48.0 million , as compared to cash flows provided by operating activities of$41.7 million during the three months endedMarch 31, 2019 . Please refer to Liquidity and Capital Resources below for additional discussion; and •Incurred capital expenditures, inclusive of accruals, of$41.1 million during the three months endedMarch 31, 2020 . Rocky Mountain Infrastructure The Company's gathering, treating, and production facilities, maintained under itsRocky Mountain Infrastructure, LLC ("RMI") subsidiary, provide many operational benefits to the Company and provide cost economies of a centralized system. The RMI facilities reduce gathering system pressures at the wellhead, thereby improving hydrocarbon recovery. Additionally, with eleven interconnects to four different natural gas processors, RMI helps ensure that the Company's production is not constrained by any single midstream service provider. Furthermore, in 2019, the Company installed a new oil gathering line toRiverside Terminal , which resulted in a corresponding$1.50 per barrel reduction to our oil differentials for barrels transported on such gathering line. Finally, the system reduces facility site footprints, leading to more cost-efficient operations and reduced surface disturbance. The net book value of the Company's RMI assets was$152.8 million as ofMarch 31, 2020 . 21 -------------------------------------------------------------------------------- Table of Contents Outlook for 2020 The recent worldwide outbreak of COVID-19, the uncertainty regarding the impact of COVID-19, and various governmental actions taken to mitigate the impact of COVID-19, have resulted in an unprecedented decline in demand for oil and natural gas. At the same time, the decision bySaudi Arabia inMarch 2020 to drastically reduce export prices and increase oil production further increased the excess supply of oil and natural gas. Due to the decline in crude oil prices and ongoing uncertainty regarding the oil supply-demand macro environment as a result of these events, we have recently suspended all drilling and significantly reduced completion and infrastructure activities. The COVID-19 outbreak and its development into a pandemic inMarch 2020 have also required that we take precautionary measures intended to help minimize the risk to our business, employees, customers, suppliers, and the communities in which we operate. Our operational employees are currently still able to work on site. However, we have taken various precautionary measures with respect to our operational employees such as requiring them to verify they have not experienced any symptoms consistent with COVID-19, or been in close contact with someone showing such symptoms, before reporting to the work site, quarantining any operational employees who have shown signs of COVID-19 (regardless of whether such employee has been confirmed to be infected), and imposing social distancing requirements on work sites, all in accordance with the guidelines released by theCenter for Disease Control . In addition, most of our non-operational employees are now working remotely. We have not yet experienced any material operational disruptions (including disruptions from our suppliers and service providers) as a result of the COVID-19 outbreak, nor had any confirmed cases of COVID-19 on any of our work sites. The Company's initial 2020 capital budget of$215.0 million to$235.0 million assumed the continuation of a one-rig operated program in the Company's legacy acreage and the startup of a one-rig non-operated program in the Company'sFrench Lake area in late 2020. However, due to the unprecedented drop in commodity prices that commenced in earlyMarch 2020 , the Company updated its 2020 operating plan to reflect an anticipated 2020 capital budget of$80.0 million to$100.0 million . The Company's reduced planned development activity included limited drilling and completion activity that concluded inMarch 2020 . We now estimate our capital budget will be between$60.0 million and$70.0 million as our non-operated capital estimate has been reduced and we continue to receive cost concessions from capital service providers. Should commodity prices recover, and the economic returns justify resuming limited development activity, we will do so. Actual capital expenditures could vary significantly based on, among other things, changes in the operator's development pace inFrench Lake , market conditions, commodity prices, drilling and completion costs, well results, and changes in the borrowing base under our Credit Facility. In further response to the recent drop in commodity prices, both our named executive officers and our independent directors have voluntarily reduced their compensation. Effective in earlyApril 2020 , our Chief Executive Officer's salary was reduced by 12.5%, the other named executive officers' salaries were each reduced by 10%, and our independent directors' base annual cash retainers were reduced by 15%. In addition, the Company completed a 12% reduction in its workforce during the first quarter, which helped allow the Company to lower its 2020 recurring cash G&A guidance to a range of$27 million to$29 million , down 13% from$32 million in 2019. The Company has also identified, and is implementing, approximately$8 million in LOE and RMI operating expense savings compared to the Company's original 2020 plan. 22 -------------------------------------------------------------------------------- Table of Contents Results of Operations The following table summarizes our product revenues, sales volumes, and average sales prices for the periods indicated: Three Months Ended
2020 2019 Change Percent Change Revenues (in thousands): Crude oil sales(1)$ 50,589 $ 60,211 $ (9,622) (16) % Natural gas sales(2) 4,962 6,772 (1,810) (27) % Natural gas liquids sales 3,241 4,348 (1,107) (25) % Product revenue$ 58,792 $ 71,331 $ (12,539) (18) % Sales Volumes: Crude oil (MBbls) 1,229.4 1,208.2 21.2 2 % Natural gas (MMcf) 3,562.7 2,198.4 1,364.3 62 % Natural gas liquids (MBbls) 436.9 291.6 145.3 50 % Crude oil equivalent (MBoe)(3) 2,260.1 1,866.2 393.9 21 % Average Sales Prices (before derivatives)(4): Crude oil (per Bbl)$ 41.15 $ 49.83 $ (8.68) (17) % Natural gas (per Mcf)$ 1.39 $ 3.08 $ (1.69) (55) % Natural gas liquids (per Bbl)$ 7.42 $ 14.91 $ (7.49) (50) % Crude oil equivalent (per Boe)(3)$ 26.01 $ 38.22 $ (12.21) (32) % Average Sales Prices (after derivatives)(4): Crude oil (per Bbl)$ 49.64 $ 51.55 $ (1.91) (4) % Natural gas (per Mcf)$ 1.62 $ 2.56 $ (0.94) (37) % Natural gas liquids (per Bbl)$ 7.42 $ 14.91 $ (7.49) (50) % Crude oil equivalent (per Boe)(3)$ 30.99 $ 38.72 $ (7.73) (20) %
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(1)Crude oil sales excludes$0.6 million of oil transportation revenues from third parties, which do not have associated sales volumes, for each of the three months endedMarch 31, 2020 and 2019. (2)Natural gas sales excludes$1.0 million and$0.7 million of gas gathering revenues from third parties, which do not have associated sales volumes, for the three months endedMarch 31, 2020 and 2019, respectively. (3)Determined using the ratio of 6 Mcf of natural gas to 1 Bbl of crude oil. (4)Derivatives economically hedge the price we receive for crude oil and natural gas. For the three months endedMarch 31, 2020 , the derivative cash settlement gain for oil contracts was approximately$10.4 million , and the derivative cash settlement gain for natural gas contracts was approximately$0.8 million . For the three months endedMarch 31, 2019 , the derivative cash settlement gain for oil contracts was$2.1 million , and the derivative cash settlement loss for gas contracts was$1.1 million . Please refer to Note 10 - Derivatives of Part I, Item 1 of this report for additional disclosures. Product revenues decreased by 18% to$58.8 million for the three months endedMarch 31, 2020 compared to$71.3 million for the three months endedMarch 31, 2019 . The primary driver of the decrease in revenue is the$12.21 or 32% decrease in oil equivalent pricing offset by a 21% increase in sales volumes. The increase in sales volumes is due to turning 38 gross wells to sales during the twelve-month period endingMarch 31, 2020 . 23
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Table of Contents The following table summarizes our operating expenses for the periods indicated: Three Months Ended March 31, 2020 2019 Change Percent Change Expenses (in thousands): Lease operating expense$ 5,699 $ 5,426 $ 273 5 % Midstream operating expense 4,014 2,321 1,693 73 % Gathering, transportation, and processing 3,481 4,022 (541) (13) % Severance and ad valorem taxes 5,173 4,248 925 22 % Exploration 373 97 276 285 % Depreciation, depletion, and amortization 21,584 15,759 5,825 37 % Abandonment and impairment of unproved properties 30,057 879 29,178 3,319 % Bad debt expense 576 - 576 100 % General and administrative expense 9,429 10,278 (849) (8) % Operating Expenses$ 80,386 $ 43,030 $ 37,356 87 % Selected Costs ($ per Boe): Lease operating expense$ 2.52 $ 2.91 $ (0.39) (13) % Midstream operating expense 1.78 1.24 0.54 44 % Gathering, transportation, and processing 1.54 2.16 (0.62) (29) % Severance and ad valorem taxes 2.29 2.28 0.01 - % Exploration 0.17 0.05 0.12 240 % Depreciation, depletion, and amortization 9.55 8.44 1.11 13 % Abandonment and impairment of unproved properties 13.30 0.47 12.83 2,730 % Bad debt expense 0.25 - 0.25 100 % General and administrative expense 4.17 5.51 (1.34) (24) % Operating Expenses$ 35.57 $ 23.06 $ 12.51 54 % Lease operating expense. Our lease operating expense increased$0.3 million , or 5%, to$5.7 million for the three months endedMarch 31, 2020 , from$5.4 million for the three months endedMarch 31, 2019 , and decreased on an equivalent basis per Boe by 13%. The overall increase was primarily due to higher salt water disposal costs, and the lease operating expense per unit decreased due to oil equivalent sales volumes being 21% higher in the later period. Midstream operating expense. Our midstream operating expense increased$1.7 million to$4.0 million for the three months endedMarch 31, 2020 , from$2.3 million for the three months endedMarch 31, 2019 , and increased 44% on a per Boe basis during the comparable periods. The increase was primarily due to costs associated with the Company's new and expanded oil gathering line connected to theRiverside Terminal that came online inJuly 2019 . Gathering, transportation, and processing. Gathering, transportation, and processing expense decreased by$0.5 million to$3.5 million for the three months endedMarch 31, 2020 , from$4.0 million for the three months endedMarch 31, 2019 . Sales volumes have a direct correlation to gathering, transportation, and processing expense. Although sales volumes increased 21% during the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 , a decrease in fees on sales contracts contributed to the overall decrease in gathering, transportation, and processing expense. Severance and ad valorem taxes. Our severance and ad valorem taxes increased 22% to$5.2 million for the three months endedMarch 31, 2020 , from$4.2 million for the three months endedMarch 31, 2019 . The increase was primarily due to additional property value associated with ad valorem taxes between the comparable periods. Depreciation, depletion, and amortization. Our depreciation, depletion, and amortization expense increased 37% to$21.6 million for the three months endedMarch 31, 2020 , from$15.8 million for the three months endedMarch 31, 2019 , and increased 13% on a per Boe basis during the comparable periods. The increase in depreciation, depletion, and amortization expense during the three months endedMarch 31, 2020 when compared to the three months endedMarch 31, 2019 is the result of (i) a$201.3 million increase in the depletable property base and (ii) an increase in the depletion rate driven by a substantial increase in production between the comparable periods. 24 -------------------------------------------------------------------------------- Table of Contents Abandonment and impairment of unproved properties. During the three months endedMarch 31, 2020 , the Company incurred a$30.1 million abandonment and impairment of unproved properties due to the reassessment of estimated probable and possible reserve locations based primarily upon economic viability. In addition, during the three months endedMarch 31, 2019 , the Company incurred$0.9 million in abandonment and impairment of unproved properties costs due to the expiration of non-core leases. Bad debt expense. Our bad debt expense increased 100% to$0.6 million for the three months endedMarch 31, 2020 , compared to the three months endedMarch 31, 2019 . The increase is due to the establishment of an allowance against our joint interest receivable, which have greater recoverability risk due to the deterioration of commodity prices. General and administrative. Our general and administrative expense decreased by$0.8 million or 8% for the three months endedMarch 31, 2020 , compared to the three months endedMarch 31, 2019 , and decreased by 24% on a per Boe basis between the comparable periods. The decrease in general and administrative expense between the comparable periods is primarily due to a decrease in salaries, benefits, and stock compensation expense. General and administrative expense per Boe decreased on a higher percentage basis due to oil equivalent sales volumes being 21% higher during the three months endedMarch 31, 2020 as compared to the same period in 2019. Derivative gain (loss). Our derivative gain for the three months endedMarch 31, 2020 was$100.4 million , as compared to a derivative loss of$36.5 million for the three months endedMarch 31, 2019 . Our derivative gain is due to settlements and fair market value adjustments caused by market prices being lower than our contracted hedge prices. Please refer to Note 10 - Derivatives of Part I, Item 1 of this report for additional discussion. Interest expense. Our interest expense for the three months endedMarch 31, 2020 and 2019 was$0.2 million and$1.2 million , respectively. Average debt outstanding for the three months endedMarch 31, 2020 and 2019 was$84.8 million and$64.7 million , respectively. The components of interest expense for the periods presented are as follows (in thousands): Three Months Ended March 31, 2020 2019 Credit Facility $ 810
$ 758 Commitment fees on available borrowing base under the Credit Facility
251 268 Amortization of deferred financing costs 123 125 Capitalized interest (967) - Total interest expense, net $ 217$ 1,151 Liquidity and Capital Resources The Company's anticipated sources of liquidity include cash from operating activities, borrowings under the Credit Facility, proceeds from sales of assets, and potential proceeds from capital and/or debt markets. Our cash flows from operating activities are subject to significant volatility due to changes in commodity prices, as well as variations in our production. The prices for these commodities are driven by a number of factors beyond our control, including global and regional product supply and demand, weather, product distribution, refining and processing capacity, regulatory constraints, and other supply chain dynamics, among other factors. To mitigate pricing risk, we have approximately 100% of our average 2020 guided oil production hedged as ofMarch 31, 2020 and as of the filing date of this report. Consequently, the value of our commodity contracts as ofMarch 31, 2020 was a net asset of$89.1 million . Additionally, in light of the recent suspension of drilling activities, we intend to pay down our Credit Facility to an undrawn balance byDecember 31, 2020 using net cash provided by operating activities. As ofMarch 31, 2020 , our liquidity was$302.1 million , consisting of$11.1 million of cash on hand and$291.0 million of available borrowing capacity on the Credit Facility. The next scheduled redetermination is set to occur inMay 2020 , but was not completed prior to the date of this filing. The Company does not expect that any reduction resulting from theMay 2020 redetermination will result in a substantial impact to our future operations or liquidity. We anticipate investing approximately$60.0 million to$70.0 million during 2020, which will allow us to preserve our reserve value while maintaining almost flat production. Our weighted-average interest rate on borrowings from the Credit Facility was 3.78% for the three months endedMarch 31, 2020 . As of bothMarch 31, 2020 and the date of this filing, we had$59.0 million outstanding on our Credit Facility. 25 -------------------------------------------------------------------------------- Table of Contents The following table summarizes our cash flows and other financial measures for the periods indicated (in thousands):
Three Months Ended
2020 2019 Net cash provided by operating activities$ 47,994 $ 41,721 Net cash used in investing activities (26,871) (36,788) Net cash provided by (used in) financing activities (21,071) 14,847 Cash, cash equivalents, and restricted cash 11,147 32,782 Acquisition of oil and gas properties (284) (1,362) Exploration and development of oil and gas properties (26,225) (36,503) Cash flows provided by operating activities Our cash flows for the three months endedMarch 31, 2020 and 2019 include cash receipts and disbursements attributable to our normal operating cycle. See Results of Operations above for more information on the factors driving these changes. Cash flows used in investing activities Expenditures for development of oil and natural gas properties are the primary use of our capital resources. The Company spent$26.2 million and$36.5 million on the exploration and development of oil and gas properties during the three months endedMarch 31, 2020 and 2019, respectively. The decrease in capital expenditures among the periods is primarily due to the reduced drilling and completion activity in response to the unprecedented drop in commodity prices inMarch 2020 . The Company also spent$1.1 million less on acquisitions of oil and gas properties during the three months endedMarch 31, 2020 when compared to the same period in 2019. Cash flows provided by financing activities Net cash used in financing activities for the three months endedMarch 31, 2020 was$21.1 million , compared to cash provided by financing activities for the three months endedMarch 31, 2019 of$14.8 million . The change was primarily due to net payments on our Credit Facility during the three months endedMarch 31, 2020 . Non-GAAP Financial Measures Adjusted EBITDAX represents earnings before interest, income taxes, depreciation, depletion, and amortization, exploration expense, and other non-cash and non-recurring charges. Adjusted EBITDAX excludes certain items that we believe affect the comparability of operating results and can exclude items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. Adjusted EBITDAX is a non-GAAP measure that we present because we believe it provides useful additional information to investors and analysts, as a performance measure, for analysis of our ability to internally generate funds for exploration, development, acquisitions, and to service debt. We are also subject to financial covenants under our Credit Facility based on adjusted EBITDAX ratios as further described Note 5 - Long-Term Debt in Part I, Item I of this document. In addition, adjusted EBITDAX is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the oil and gas exploration and production industry. Adjusted EBITDAX should not be considered in isolation or as a substitute for net income, income from operations, net cash provided by operating activities, or other profitability or liquidity measures prepared under GAAP. Because adjusted EBITDAX excludes some, but not all, items that affect net income (loss) and may vary among companies, the adjusted EBITDAX amounts presented may not be comparable to similar metrics of other companies. 26 -------------------------------------------------------------------------------- Table of Contents The following table presents a reconciliation of the GAAP financial measure of net income to the non-GAAP financial measure of Adjusted EBITDAX (in thousands):
Three Months Ended
2020 2019 Net income (loss)$ 78,551 $ (6,993) Exploration 373 97 Depreciation, depletion, and amortization 21,584 15,759 Amortization of deferred financing costs - 125 Abandonment and impairment of unproved properties 30,057 879 Stock-based compensation (1) 1,239 1,380 Severance costs (1) 413 418 Gain on sale of properties, net - (1,126) Interest expense, net 217 1,151 Derivative (gain) loss (100,419) 36,544 Derivative cash settlements 11,254 936 Adjusted EBITDAX$ 43,269 $ 49,170
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(1) Included as a portion of general and administrative expense in the accompanying statements of operations.
New Accounting Pronouncements Please refer to Note 2 - Basis of Presentation under Part I, Item 1 of this report for any recently issued or adopted accounting standards.
Critical Accounting Policies and Estimates Information regarding our critical accounting policies and estimates is contained in Part II, Item 7 of our 2019 Form 10-K.
Off-Balance Sheet Arrangements Currently, we do not have any off-balance sheet arrangements that are not disclosed within this report.
Contractual Obligations There have been no significant changes from our 2019 Form 10-K in our obligations and commitments, other than what is disclosed within Note 3 - Leases and Note 6 - Commitments and Contingencies under Part I, Item 1 of this report. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains various statements, including those that express belief, expectation, or intention, as well as those that are not statements of historic fact, that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). When used in this Quarterly Report on Form 10-Q, the words "could," "believe," "anticipate," "intend," "estimate," "expect," "may," "continue," "predict," "potential," "project," "plan," "will," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management's current belief, based on currently available information, as to the outcome and timing of future events. Forward-looking statements include statements related to, among other things: •the Company's business strategies; 27 -------------------------------------------------------------------------------- Table of Contents •reserves estimates; •estimated sales volumes; •amount and allocation of forecasted capital expenditures and plans for funding capital expenditures and operating expenses; •ability to modify future capital expenditures; •anticipated costs; •compliance with debt covenants; •ability to fund and satisfy obligations related to ongoing operations; •compliance with government regulations, including environmental, health, and safety regulations and liabilities thereunder; •adequacy of gathering systems and continuous improvement of such gathering systems; •impact from the lack of available gathering systems and processing facilities in certain areas; •impact of any pandemic or other public health epidemic, including the ongoing COVID-19 pandemic; •natural gas, oil, and natural gas liquid prices and factors affecting the volatility of such prices; •impact of lower commodity prices; •sufficiency of impairments; •the ability to use derivative instruments to manage commodity price risk and ability to use such instruments in the future; •our drilling inventory and drilling intentions; •impact of potentially disruptive technologies; •our estimated revenue gains and losses; •the timing and success of specific projects; •our implementation of standard and long reach laterals; •our use of multi-well pads to develop the Niobrara and Codell formations; •intention to continue to optimize enhanced completion techniques and well design changes; •stated working interest percentages; •management and technical team; •outcomes and effects of litigation, claims, and disputes; •primary sources of future production growth; •full delineation of the Niobrara B, C and Codell benches in our legacy,French Lake , and northern acreage; •our ability to replace oil and natural gas reserves; •our ability to convert PUDs to producing properties within five years of their initial proved booking; •impact of recently issued accounting pronouncements; •impact of the loss a single customer or any purchaser of our products; •timing and ability to meet certain volume commitments related to purchase and transportation agreements; 28 -------------------------------------------------------------------------------- Table of Contents •the impact of customary royalty interests, overriding royalty interests, obligations incident to operating agreements, liens for current taxes, and other industry-related constraints; •our financial position; •our cash flow and liquidity; •the adequacy of our insurance; and •other statements concerning our operations, economic performance, and financial condition. We have based these forward-looking statements on certain assumptions and analyses we have made in light of our experience and our perception of historical trends, current conditions, and expected future developments as well as other factors we believe are appropriate under the circumstances. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining actual future results. The actual results or developments anticipated by these forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, and may not be realized or, even if substantially realized, may not have the expected consequences. Actual results could differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the following: •the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2019 and in Part II, Item 1A of this report; •further declines or volatility in the prices we receive for our oil, natural gas liquids, and natural gas; •general economic conditions, whether internationally, nationally or in the regional and local market areas in which we do business; •the effects of disruption of our operations or excess supply of oil and natural gas due to the COVID-19 pandemic and the actions by certain oil and natural gas producing countries; •ability of our customers to meet their obligations to us; •our access to capital; •our ability to generate sufficient cash flow from operations, borrowings, or other sources to enable us to fully develop our undeveloped acreage positions; •the presence or recoverability of estimated oil and natural gas reserves and the actual future sales volume rates and associated costs; •uncertainties associated with estimates of proved oil and gas reserves; •the possibility that the industry may be subject to future local, state, and federal regulatory or legislative actions (including additional taxes and changes in environmental regulation); •environmental risks; •seasonal weather conditions; •lease stipulations; •drilling and operating risks, including the risks associated with the employment of horizontal drilling and completion techniques; •our ability to acquire adequate supplies of water for drilling and completion operations; •availability of oilfield equipment, services, and personnel; •exploration and development risks; •operational interruption of centralized gas and oil processing facilities; •competition in the oil and natural gas industry; 29
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Table of Contents •management's ability to execute our plans to meet our goals; •our ability to attract and retain key members of our senior management and key technical employees; •our ability to maintain effective internal controls; •access to adequate gathering systems and pipeline take-away capacity; •our ability to secure adequate processing capacity for natural gas we produce, to secure adequate transportation for oil, natural gas, and natural gas liquids we produce, and to sell the oil, natural gas, and natural gas liquids at market prices; •costs and other risks associated with perfecting title for mineral rights in some of our properties; •continued hostilities in theMiddle East ,South America , and other sustained military campaigns or acts of terrorism or sabotage; and •other economic, competitive, governmental, legislative, regulatory, geopolitical, and technological factors that may negatively impact our businesses, operations, or pricing. All forward-looking statements speak only as of the date of this report. We disclaim any obligation to update or revise these statements unless required by law, and you should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions, or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under Part II, Item 1A. Risk Factors and Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
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