Natural Gas and Oil Prices are Volatile. Revenues, operating results, profitability and future rate of growth depend primarily upon the prices for the natural gas and oil produced at its properties and whether any hydrocarbons are discovered in the first place. Prices also affect the amount of cash flow available for capital expenditures and the business’s ability to borrow money or raise additional capital. Historically, the markets for natural gas and oil have been volatile and they are likely to continue to be volatile. Wide fluctuations in natural gas and oil prices may result from relatively minor changes in the supply of and demand for natural gas and oil, market uncertainty and other factors that are beyond the business’s control, including: (i) worldwide and domestic supplies of natural gas and oil; (ii) weather conditions; (iii) the level of consumer demand; (iv) the price and availability of alternative fuels; (v) the proximity and capacity of natural gas pipelines and other transportation facilities; (vi) the price and level of foreign imports; (vii) domestic and foreign governmental regulations and taxes; (viii) the nature and extent of regulation relating to carbon and other greenhouse gas emissions; (ix) the ability of members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls; (x) political instability or armed conflict in oil-producing regions; and (xi) overall domestic and global economic conditions. These factors and the volatility of the energy markets make it extremely difficult to predict future natural gas and oil price movements with any certainty. Declines in natural gas and oil prices not only reduce revenue, but also reduce the amount of natural gas and oil that the Debtor can produce economically and, as a result, have had, and could in the future have a material adverse effect on the Company’s financial condition, results of operations, cash flows and reserves.
