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Financial report summary
?Risks
- As described in the notes to our consolidated financial statements, there is substantial doubt about our ability to continue as a going concern and we are dependent on receipt of additional capital to fund our obligations and to continue in operation.
- We have engaged legal advisors to assist us in, among other things, analyzing various strategic alternatives to address our liquidity and capital structure, including strategic and refinancing alternatives to restructure our indebtedness and we may elect to implement such a restructuring through Chapter 11 of the United States Bankruptcy Code in order to obtain court supervision and to facilitate the stakeholder approvals necessary to implement such a restructuring, or it may otherwise become necessary for us to seek protections under Chapter 11.
- Our secured debt is currently in default and if our effort to negotiate a continuing waiver of that default is unsuccessful, the lenders may foreclose on or force a sale of our assets.
- Our use of debt financing could have a material adverse effect on our financial condition.
- Our estimates of oil and gas reserves involve inherent uncertainty, which could materially affect the quantity and value of our reported reserves and our financial condition.
- Legislation pending in the Colorado legislature and a recent permitting moratorium in Adams County may have an adverse effect on our ability to raise capital and develop our oil and gas properties.
- We may experience a change in control and our officers and/or directors may be replaced.
- Oil and gas wells are depleting assets and our failure or inability to reinvest in additional wells will lead to reduced production.
- The due diligence undertaken by us in connection with recent acquisitions may not have revealed all relevant considerations or liabilities related to those assets, which could have a material adverse effect on our financial condition or results of operations.
- We have granted PEO the option to participate in certain of our acreage acquisitions.
- We have limited management and staff and are dependent upon partnering arrangements and third-party service providers.
- Competition in the oil and natural gas industry is intense and many of our competitors have resources that are substantially greater than ours.
- We are concentrated in one geographic area, which increases our exposure to many of the risks enumerated herein.
- Our ability to sell any production and/or receive market prices for our production has in the past and may in the future be adversely affected by a lack of transportation, capacity constraints and interruptions.
- We are not required to obtain an opinion from our independent registered public accounting firm on the effectiveness of our internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002 until we are no longer an emerging growth company.
- Colorado law and our Articles of Incorporation may protect our directors from certain types of lawsuits at the expense of the shareholders.
- Oil and natural gas exploration and development are affected by fluctuations in oil and natural gas prices, and low prices could have a material adverse effect on the future of our business.
- If we do not hedge our exposure to reductions in oil and natural gas prices, we may be subject to significant reductions in price. Alternatively, we may use oil and natural gas price hedging contracts, which involve credit risk and may limit future revenues from price increases and result in significant fluctuations in our profitability.
- We identified locations scheduled to be drilled over several years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling.
- We may face difficulties in securing and operating under authorizations and permits to drill, complete or operate our wells.
- The unavailability or high cost of drilling rigs, equipment, supplies, personnel and oilfield services could adversely affect our ability to execute exploration and development plans within the established budget and on a timely basis.
- Our operations are subject to health, safety and environmental laws and regulations which may expose us to significant costs and liabilities, and which may not be covered by insurance.
- Federal, state, and local legislative and regulatory initiatives relating to oil and gas production, including hydraulic fracturing, as well as government reviews of such activities, could result in increased costs, additional operating restrictions or delays, and adversely affect our production and/or ability to book future reserves.
- Legislative and regulatory initiatives related to global warming and climate change could have an adverse effect on our operations and the demand for oil and natural gas.
- We may not be able to keep pace with technological developments in the industry.
- We may incur losses as a result of title deficiencies.
- The oil and natural gas business involves many operating risks that can cause substantial losses.
- The price of our common stock may be volatile or may decline and you may have difficulty reselling any shares of our common stock.
- The sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
- A small number of existing shareholders own a significant amount of our common stock, which could limit your ability to influence the outcome of any shareholder vote.
- Since our common stock is not presently nor expected to be listed on a national securities exchange, trading in our shares will likely be subject to rules governing “penny stocks,” which will impair trading activity in our shares.
- If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline.
- Issuance of our stock in the future could dilute existing shareholders and adversely affect the market price of our common stock.
- The issuance of preferred stock in the future could adversely affect the rights of the holders of our common stock.
- We have never paid dividends on our common stock and we do not anticipate paying any in the foreseeable future.
Management Discussion
- ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- As an oil and natural gas exploration and production company, our revenue, results of operation, cash flow from operations, reserve values, access to capital and future rate of growth are influenced by the prevailing prices of oil and natural gas. Changes in prices can affect, both positively and negatively, our financial condition, liquidity, ability to obtain financing, operating results, and the amount of oil and natural gas that we choose to produce. Prevailing prices for such commodities fluctuate in response to changes in supply and demand and a variety of additional factors beyond our control, such as global, political and economic conditions. The price received for oil and natural gas production is unpredictable, and such volatility is expected. All of our production is sold at market prices and, therefore, the amount of revenue that we realize, as well as our estimates of future revenues, is to a large extent determined by factors beyond our control.
- Under the terms of the participation agreements covering our prospects and operating agreements with other third-party operators, we are required to pay our proportionate share of the costs of any wells in which we participate. In exchange, we are entitled to a proportionate share of the revenue, net of related expenses. Accordingly, the ultimate success of our business plan depends on our ability to generate sufficient cash flow from the sale of produced crude oil and natural gas from our interest in the leases to pay our overhead, outstanding liabilities and costs of future acquisitions and development.