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The following is a summary of the principal factors that make an investment in our common stock speculative or risky.
−Removed: ● Failure to complete, and delays in completing, the Merger (as defined below) which could materially and adversely affect our results of operations and our stock price.
−Removed: ● We will continue to incur substantial transaction-related costs in connection with the Merger.
−Removed: ● If the Merger does not close for any reason, it may increase the potential that we elect to “go dark”.
−Removed: ● We and our directors and officers are, and may continue to be, subject to lawsuits relating to the Merger.
−Removed: ● If the merger does not close, we may be unable to either redeem or pay cash dividends on the outstanding shares of our Redeemable Preferred Stock, resulting in increases in the liquidation preference of the Redeemable Preferred Stock and the right of the holders of Redeemable Preferred Stock to receive a greater number of shares of our common stock in the event such holders elect to exercise their conversion rights.
−Removed: Consequently, the financial and voting interests in our Company of the holders of our common stock may be diluted.
−Removed: ● We are subject to various uncertainties and restrictions on the conduct of our business while the Merger is pending, which could have a material adverse effect on our business, results of operations and financial condition.
−Removed: ● The opinion of the financial advisor delivered to our Board prior to the signing of the Merger Agreement (as defined below) did not reflect changes in circumstances since the date of such opinion.
● Oil and natural gas prices are volatile, and low prices could have a material adverse impact on our business.
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● We cannot be certain that the insurance coverage maintained by us will be adequate to cover all losses that may be sustained in connection with all oil and natural gas activities.
−Removed: ● Our ability to use net operating loss carryforwards and realized built in losses to offset future taxable income for United States federal income tax purposes is subject to limitation.
+Added: ● Our ability to use net operating loss carryforwards and realized built in losses to offset future taxable income for U.S.
+Added: federal income tax purposes is subject to limitation.
● We may be required to take non-cash asset write-downs.
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● We may choose to delist our securities from NYSE American and deregister our common stock under the Exchange Act, which could negatively affect the liquidity and trading prices of our common stock and would result in less disclosure about the Company.
+Added: ● Our failure to meet the continued listing standards of NYSE American could result in a delisting of our common stock.
+Added: ● We may be unable to either redeem or pay cash dividends on the outstanding shares of our Redeemable Preferred Stock, resulting in increases in the liquidation preference of the Redeemable Preferred Stock and the right of the holders of Redeemable Preferred Stock to receive a greater number of shares of our common stock in the event such holders elect to exercise their conversion rights.
+Added: Consequently, the financial and voting interests in our Company of the holders of our common stock may be diluted.
● We are subject to complex federal, state, local and other laws and regulations that frequently are amended to impose more stringent requirements that could adversely affect the cost, manner or feasibility of doing business.
● Federal, state and local legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.
−Removed: ● Regulation related to global warming and climate change could have an adverse effect on our operations and demand for oil and natural gas.
+Added: ● Regulation or litigation related to global warming and climate change could have an adverse effect on our operations and demand for oil and natural gas.
● Our operations substantially depend on the availability of water.
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● We depend on computer, telecommunications and information technology systems to conduct our business, and failures, disruptions, cyber-attacks or other breaches in data security could significantly disrupt our business operations, create liability and increase our costs.
−Removed: Risks Related to the Proposed Merger
−Removed: Failure to complete, and delays in completing, the Merger with could materially and adversely affect our results of operations and our stock price.
−Removed: On December 14, 2023, we entered into the Merger Agreement with Fury Resources, Inc.
−Removed: (“Parent”) and San Jacinto Merger Sub, Inc (“Merger Sub”), a direct wholly-owned subsidiary of Parent, pursuant to which Parent will acquire all of the outstanding shares of common stock of the Company.
−Removed: The consummation of the Merger is subject to a number of conditions, including certain financing conditions, that must be satisfied by Parent and Merger Sub, as well as other conditions, a number of which are not within our control.
−Removed: Failure to satisfy the conditions to the Merger could prevent, delay or otherwise materially and adversely affect the completion of the Merger.
−Removed: We can provide no assurance that all closing conditions will be satisfied or as to the terms, conditions and timing or of the completion of the Merger.
−Removed: We also cannot assure you that we will be able to successfully consummate the Merger as currently contemplated under the Merger Agreement or at all.
−Removed: Risks related to the failure of the Merger to be consummated include, but are not limited to, the following:
−Removed: • under some circumstances, we may be required to pay a termination fee of $3.5 million;
−Removed: • we will remain liable for significant transaction costs, including legal, accounting, financial advisory, and other costs relating to the Merger regardless of whether the Merger is consummated;
−Removed: • we may experience negative reactions from financial markets or the trading price of our common stock may decline to the extent that the current market price for our common stock reflects a market assumption that the Merger will be completed;
−Removed: • the attention of our management and employees may have been diverted by the Merger;
−Removed: • we and our directors and officers could be subject to litigation relating to the Merger, including relating to any failure to complete the Merger;
−Removed: • the potential loss of key personnel during the pendency of the Merger as employees may experience uncertainty about their future roles with us following completion of the Merger;
−Removed: • the potential loss of, and negative reactions from business partners or those with whom we are seeking to establish business relationships, due to uncertainties about the Merger, and;
−Removed: • under the Merger Agreement, we are subject to certain restrictions prior to completing the Merger, which restrictions could adversely affect our ability to conduct our business as we otherwise would have done if we were not subject to these restrictions.
−Removed: The occurrence of any of these events individually or in combination could materially and adversely affect our business, results of operations, financial condition, and stock price.
−Removed: If the Merger is not consummated and one or more of these events occur, such as payment of a termination fee or other significant transaction costs in connection with the Merger, our cash balances and other outstanding indebtedness at that time could be materially and adversely impacted and our options for sources of financing or refinancing could be more limited than if we had not pursued the Merger.
−Removed: If the Merger is not completed, there can be no assurance that these risks will not materialize and will not materially and adversely affect our stock price, business, financial condition, results of operations or cash flows.
−Removed: We will continue to incur substantial transaction-related costs in connection with the Merger.
−Removed: We have incurred significant legal, advisory and financial services fees in connection with Merger.
−Removed: We have incurred, and expect to continue to incur, additional costs in connection with the satisfaction of the various conditions to closing of the Merger, including seeking approval from our stockholders and from applicable regulatory authorities.
−Removed: Any delays in the consummation of the Merger could increase these costs significantly.
−Removed: If the Merger does not close for any reason, it may increase the potential that we elect to “go dark”.
−Removed: As noted elsewhere herein, we have recently considered the advisability of taking steps to delist our securities with the NYSE American and discontinue our obligations to make periodic filings with the SEC by deregistering our
−Removed: securities with the SEC (i.e., “going dark”) so as to reduce ongoing costs and expenses, while simultaneously pursuing strategic transactions that might render such action unnecessary.
−Removed: We have incurred substantial additional expenses in connection with the Merger and may find it advisable to follow through on a plan to go dark should the Merger Agreement be terminated or the Merger not close for any reason.
−Removed: We and our directors and officers are, and may continue to be, subject to lawsuits relating to the Merger.
−Removed: Litigation is very common in connection with the sale of public companies, regardless of whether the claims have any merit.
−Removed: One of the conditions to consummating the Merger is that no order enjoining, prohibiting or otherwise making illegal the consummation of the Merger shall have been issued by any governmental authority, including a court.
−Removed: These or any similar securities class action lawsuits and derivative lawsuits, regardless of their merits, may result in substantial costs and divert management time and resources.
−Removed: An adverse judgment in such cases could have a negative impact on our liquidity and financial condition or could prevent the Merger from being completed.
−Removed: If the Merger does not close, we may be unable to either redeem or pay cash dividends on the outstanding shares of our Redeemable Preferred Stock, resulting in increases in the liquidation preference of the Redeemable Preferred Stock and the right of the holders of the Redeemable Preferred Stock to receive a greater number of shares of our common stock in the event such holders elect to exercise their conversion rights.
−Removed: Consequently, the financial and voting interests in our Company of the holders of our common stock may be diluted.
−Removed: As noted elsewhere herein, the Company has issued shares of Redeemable Preferred Stock with an initial aggregate liquidation value of $98.0 million.
−Removed: Dividends are payable on the Redeemable Preferred Stock at a rate of 14.5% per annum;
−Removed: however, in the event the Company does not declare and pay dividends in cash when due, the dividend rate increases to 16.0% per annum and is added to the liquidation value of the Redeemable Preferred Stock.
−Removed: The Company has heretofore not paid dividends on the Redeemable Preferred Stock in cash and is not expected to in the future.
−Removed: Accordingly, the liquidation value of the Redeemable Preferred Stock is increasing and would be expected to increase in the future.
−Removed: In addition to other rights, the holders of the Redeemable Preferred Stock are also entitled generally to convert their shares of Redeemable Preferred Stock into shares of our common stock by dividing a “conversion price” specified in the terms of the Redeemable Preferred Stock into the then current liquidation preference of the Redeemable Preferred Stock, such that increases in the liquidation preference may ordinarily result in an increase in the number of shares of common stock received by such holder upon conversion.
−Removed: Accordingly, if the Merger does not close and the Company is unable to redeem the Redeemable Preferred Stock or is unable to pay, or elects not to pay, dividends on the Redeemable Preferred Stock in cash, the liquidation preference of the Redeemable Preferred Stock will continue to increase, thereby diluting the financial interests of the holders of our common stock in our Company and diluting the voting interests of the holders of our common stock to the extent holders of the Redeemable Preferred Stock elect to convert such shares into shares of our common stock.
−Removed: We are subject to various uncertainties and restrictions on the conduct of our business while the Merger is pending, which could have a material adverse effect on our business, results of operations and financial condition.
−Removed: Uncertainty about the pendency of the Merger and the effect of the Merger on our employees, customers, suppliers and other third parties who deal with us may have a material adverse effect on our business, results of operations and financial condition.
−Removed: These uncertainties may impair our ability to attract, retain and motivate key personnel pending the consummation of the Merger, as such personnel may experience uncertainty about their future roles following the consummation of the Merger.
−Removed: Additionally, these uncertainties could cause other business partners who deal with us to seek to change existing business relationships with us or fail to extend an existing relationship with us, which could have a material adverse effect on our business, results of operations, financial condition and market price of our common stock.
−Removed: The opinion of the financial advisor delivered to our Board prior to the signing of the Merger Agreement did not reflect changes in circumstances since the date of such opinion.
−Removed: The opinion of Houlihan Lokey, the financial advisor to the Company in connection with the Merger, was delivered to the our Board on December 14, 2023, and was dated December 14, 2023.
−Removed: Changes in our operations and prospects, general market and economic conditions and other factors that were beyond our control may have significantly altered
−Removed: the Company’s value or the price of shares of our common stock by the time the Merger is completed.
−Removed: The opinion does not speak as of the time the Merger will be completed or as of any date other than the date of such opinion.
Financial and Liquidity Risk Factors
−Removed: Oil, NGL and natural gas prices are volatile, and low prices could have a material adverse impact on our business.
−Removed: Our revenues, profitability, future growth and the carrying value of our properties depend substantially on prevailing oil, NGL and natural gas prices.
+Added: Oil, natural gas and NGLs and natural gas prices are volatile, and low prices could have a material adverse impact on our business.
+Added: Our revenues, profitability, future growth and the carrying value of our properties depend substantially on prevailing oil, natural gas and NGLs prices.
Prices also affect the amount of cash flow we have available for capital expenditures and our ability to borrow and raise additional capital.
Lower prices may also reduce the amount of oil and natural gas that we can economically produce and have an adverse effect on the value of our properties.
−Removed: Oil, NGL and natural gas prices are volatile.
+Added: Oil, natural gas and NGLs prices are volatile.
Among the factors that affect volatility are:
−Removed: ● domestic and foreign supplies of oil, NGLs and natural gas;
+Added: ● domestic and foreign supplies of oil, natural gas and NGLs and natural gas;
● the ability of members of the Organization of Petroleum Exporting Countries and other oil exporting countries, including Russia, to agree upon and maintain production quotas;
−Removed: ● social unrest and political instability, particularly in major oil and natural gas producing regions outside the United States, such as the Middle East, and armed conflict or terrorist attacks;
+Added: ● social unrest and political instability, particularly in major oil and natural gas producing regions outside the U.S., such as the Middle East, and armed conflict or terrorist attacks;
● the level of consumer demand for oil and natural gas, including demand growth in developing countries, such as China and India;
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Such developments, including environmental activism and initiatives aimed at limiting climate change and reducing air pollution, could potentially result in a reduction of available capital funding for development projects, thus impacting future financial results.
−Removed: If we are unable to raise sufficient capital to fund our capital expenditures, we may be required to curtail our drilling, development, land acquisitions and other activities, which could result in a decrease in our production of oil and
−Removed: natural gas, forfeiture of leasehold interests if we are unable or unwilling to renew them, and the sale of some of our assets on an unfavorable basis, each of which could have a material adverse effect on our results and future operations.
+Added: If we are unable to raise sufficient capital to fund our capital expenditures, we may be required to curtail our drilling, development, land acquisitions and other activities, which could result in a decrease in our production of oil and natural gas, forfeiture of leasehold interests if we are unable or unwilling to renew them, and the sale of some of our assets on an unfavorable basis, each of which could have a material adverse effect on our results and future operations.
Failure to comply with the covenants in our 2024 Amended Term Loan Agreement may limit our ability to borrow, result in an event of default and cause amounts outstanding under our 2024 Amended Term Loan Agreement to become immediately due and payable.
−Removed: On November 24, 2021, the Company and its wholly owned subsidiary, Halcón Holdings, LLC (Borrower) entered into an Amended and Restated Senior Secured Credit Agreement (Term Loan Agreement) with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders.
−Removed: On November 14, 2022, the Company entered into a further Amended Credit Agreement (the “Amended Term Loan Agreement”) with its lenders which modified certain provisions of its original Term Loan Agreement.
−Removed: Our Amended Term Loan Agreement limits our borrowings.
−Removed: As of December 31, 2023, we had approximately $200.0 million of indebtedness outstanding and approximately $0.3 million of letters of credit outstanding under the Amended Term Loan Agreement.
−Removed: As of December 31, 2023, we have no additional borrowing capacity under the Amended Term Loan.
−Removed: Additionally, our Amended Term Loan Agreement contains certain covenants (namely our Current Ratio covenant) as well as a mandatory repayment schedule requiring us to make scheduled amortization payments in the aggregate amount of $50.0 million in 2024 and $35.0 million in the aggregate from the fiscal quarter ending March 31, 2025 through the fiscal quarter ending September 30, 2025.
−Removed: In November 2022, anticipated non-compliance with our Current Ratio covenant required us to amend our Term Loan Agreement which reduced our Current Ratio requirement through March 31, 2023.
−Removed: Additionally, in order to provide sufficient liquidity in 2023 to address upcoming debt maturities and covenant compliance while funding our operating and capital programs, we obtained approximately $95.6 million of additional equity funding from certain of our existing equity shareholders during 2023.
−Removed: For a further discussion of these actions, refer to Item 7 , Management’s Discussion and Analysis, “Capital Resources and Liquidity” and Item 9B.
−Removed: Other Information.
+Added: On December 26, 2024, the Company and its wholly owned subsidiary, Halcón Holdings, LLC (the “Borrower”) entered into a Second Amended and Restated Senior Secured Credit Agreement (the “2024 Term Loan Agreement”) with Fortress Credit Corp., as administrative agent, and certain other financial institutions party thereto, as lenders.
+Added: Pursuant to the 2024 Term Loan Agreement, the lenders party thereto agreed to provide the Borrower with (i) an initial term loan facility in the aggregate principal amount of $162.0 million, funded on December 26, 2024 and (ii) an incremental term loan facility in the aggregate principal amount of up to $63.0 million to be made available to the Borrower from January 3, 2025 until the date that is the earliest to occur of (x) the date on which such incremental term facility is fully drawn, (y) the date on which such incremental term facility is terminated and (z) January 11, 2025, subject to the satisfaction of certain conditions.
+Added: On January 9, 2025, the Borrower entered into a first amendment (the “First Amendment”) to its 2024 Term Loan Agreement (as amended, the “2024 Amended Term Loan Agreement”).
+Added: Pursuant to the First Amendment, the Borrower incurred incremental term loans in the aggregate principal amount of $63.0 million (the “Incremental Term Loans”).
+Added: As of December 31, 2024, we had approximately $162.0 million of indebtedness outstanding under the 2024 Amended Term Loan Agreement.
+Added: As of December 31, 2024, we have no additional borrowing capacity under the 2024 Amended Term Loan Agreement.
+Added: Additionally, our 2024 Amended Term Loan Agreement contains certain covenants
+Added: as well as a mandatory repayment schedule requiring us to make scheduled amortization payments in the aggregate amount of $16.9 million in 2025 and $22.5 million in 2026.
Our 2024 Amended Term Loan Agreement contains the following financial covenants (as defined), including the maintenance of the following ratios:
−Removed: ● Asset Coverage Ratio of not less than 1.80 to 1.00 as of December 31, 2023 and the last day of each fiscal quarter thereafter;
−Removed: ● Total Net Leverage Ratio of not greater than 2.50 to 1.00 as of December 31, 2023 and each fiscal quarter thereafter, and
−Removed: ● Current Ratio of not less than 1.00 to 1.00, determined as of the last day of any fiscal quarter period, as of December 31, 2023 and for each fiscal quarter thereafter.
−Removed: As of December 31, 2023, the Company was in compliance with its financial covenants under the Amended Term Loan Agreement.
−Removed: As described above and in other historical periods, we have periodically sought amendments to the covenants under our revolving credit agreements, including the financial covenants, where we have anticipated difficulty in maintaining compliance.
−Removed: In the event we have difficulty in the future meeting the covenants under our Amended Term Loan Agreement, we would be required to seek additional relief, and there is no assurance that it would be granted.
+Added: ● Asset Coverage Ratio not to fall below 1.70x as of March 31, 2025 through and including June 30, 2025, 1.85x as of September 30, 2025 through and including December 31, 2025 and 2.00x for each fiscal quarter thereafter, determined as of the last day of each fiscal quarter;
+Added: ● Total Net Leverage Ratio not to exceed 2.75x as of March 31, 2025 through and including June 30, 2025 and 2.50x for each fiscal quarter thereafter, determined as of the last day of each fiscal quarter;
+Added: ● Current Ratio not to fall below 1.00x, determined on the last day of each calendar month commencing with the calendar month ending March 31, 2025 ;
+Added: ● Liquidity not to fall below the greater of (x) $10,000,000 and (y) the amount equal to the scheduled principal and interest payments for the immediately succeeding three month period, determined as of the last day of any fiscal quarter.
+Added: In the past, we have periodically sought amendments to the covenants under our revolving credit agreements, including the financial covenants, where we have anticipated difficulty in maintaining compliance.
+Added: While historically we have largely been successful in obtaining modifications of our covenants as needed, there can be no assurance that we will be successful in the future.
+Added: In the event we are not successful in obtaining covenant modifications, if needed, there is no assurance that we will be successful in implementing alternatives that allow us to maintain compliance with our covenants or that we will be successful in obtaining alternative financing that provides us with the liquidity that we need to operate our business.
+Added: Even if successful, alternative sources of financing could prove more expensive than borrowings under our 2024 Amended Term Loan Agreement.
Failure to comply with the covenants in our 2024 Amended Term Loan Agreement may limit our ability to borrow, result in an event of default and cause amounts outstanding under our 2024 Amended Term Loan Agreement to become immediately due and payable.
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Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors.
−Removed: Decline rates are typically greatest early in the productive life
+Added: Decline rates are typically greatest early in the productive life of a well.
Estimates of the decline rate of an oil or natural gas well are inherently imprecise, and are less precise with respect to new or emerging oil and natural gas formations with limited production histories than for more developed formations with established production histories.
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Higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business.
−Removed: We have approximately $200.0 million principal amount of debt, including current portions, as of December 31, 2023.
+Added: We had $162.0 million principal amount of debt, including current portions, as of December 31, 2024 and incurred incremental borrowings of $63.0 million in January 2025, resulting in total principal debt outstanding of $225.0 million as of the date of this Annual Report on Form 10-K.
As a result of our indebtedness, we will need to use a portion of our cash flow to pay interest, and outstanding principal during 2025, which will reduce the amount of cash flow we will have available to finance our operations and other business activities and could limit our flexibility in planning for or reacting to changes or adverse developments in our business or economic downturns impacting the industry in which we operate.
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A rise in interest rates could impact on our borrowing costs and could have an adverse effect on our cash flows.
−Removed: In conjunction with the amendment of our Term Loan Agreement in November 2022, we (i) converted our benchmark interest rate from a London Interbank Offered Rate (“LIBOR”) to a Secured Overnight Financing Rate (“SOFR”) plus 0.15% and (ii) increased the applicable margin on borrowings by 0.50%.
−Removed: Borrowings under the Amended Term Loan Agreement will now bear interest at a rate per annum equal to the SOFR plus 7.65%.
+Added: Borrowings under the 2024 Amended Term Loan Agreement bear interest at a rate per annum equal to the Secured Overnight Financing Rate (“SOFR”) (with a credit spread of adjustment of 0.15% per annum) plus an applicable margin of 7.75%.
We may incur substantially more debt in the future.
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Average prices for oil and natural gas for the 12-month period were as follows:
−Removed: WTI crude oil spot price of $78.21 per Bbl, adjusted by lease or field for quality, transportation fees, and market differentials and a Henry Hub natural gas spot price of $2.64 per MMBtu, adjusted by
−Removed: lease or field for energy content, transportation fees, and market differentials.
+Added: WTI crude oil spot price of $76.32 per Bbl, adjusted by lease or field for quality, transportation fees, and market differentials and a Henry Hub natural gas spot price of $2.13 per MMBtu, adjusted by lease or field for energy content, transportation fees, and market differentials.
Any significant variance in the actual future prices from these assumptions could materially affect the estimated quantity and value of our reserves set forth in this report.
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Federal legislation and rulemaking could have an adverse impact on our ability to use derivative instruments to reduce the effects of commodity prices, interest rates and other risks associated with our business.
−Removed: The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act establishes, among other provisions, federal oversight and regulation of the over-the-counter derivatives market and entities that participate in that market.
+Added: The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) establishes, among other provisions, federal oversight and regulation of the over-the-counter (“OTC”) derivatives market and entities that participate in that market.
The Dodd-Frank Act also establishes margin requirements and certain transaction clearing and trade execution requirements.
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The counterparties to our derivative instruments may also spin off some of their derivatives activities to separate entities, which may not be as creditworthy as the current counterparties.
−Removed: The Dodd-Frank Act and any new regulations could significantly increase the cost of some commodity derivative contracts (including through requirements to post collateral, which could adversely affect our available liquidity),
−Removed: materially alter the terms of some commodity derivative contracts, limit our ability to trade some derivatives to hedge risks, reduce the availability of some derivatives to protect against risks we encounter, and reduce our ability to monetize or restructure our existing commodity derivative contracts.
+Added: The Dodd-Frank Act and any new regulations could significantly increase the cost of some commodity derivative contracts (including through requirements to post collateral, which could adversely affect our available liquidity), materially alter the terms of some commodity derivative contracts, limit our ability to trade some derivatives to hedge risks, reduce the availability of some derivatives to protect against risks we encounter, and reduce our ability to monetize or restructure our existing commodity derivative contracts.
If we reduce our use of derivatives as a consequence, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.
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Under full cost accounting, we are required by SEC regulations to perform a ceiling test each quarter.
−Removed: The ceiling test is an impairment test and generally establishes a maximum, or “ceiling,” of the book value of oil and natural gas properties that is equal to the expected after tax present value (discounted at 10%) of the future net cash flows from proved reserves, including the effect of cash flow hedges when hedge accounting is applied, calculated using the unweighted arithmetic average of the
−Removed: first day of each month for the 12-month period ending at the balance sheet date.
+Added: The ceiling test is an impairment test and generally establishes a maximum, or “ceiling,” of the book value of oil and natural gas properties that is equal to the expected after tax present value (discounted at 10%) of the future net cash flows from proved reserves, including the effect of cash flow hedges when hedge accounting is applied, calculated using the unweighted arithmetic average of the first day of each month for the 12-month period ending at the balance sheet date.
If the net book value of oil and natural gas properties (reduced by any related net deferred income tax liability and asset retirement obligation) exceeds the ceiling limitation, SEC regulations require us to impair or “write-down” the book value of our oil and natural gas properties.
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During any period in which these factors indicate impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and the ceiling test limitation.
−Removed: Accordingly, a significant change in these factors, many of which are beyond our control, may shift a significant amount of cost from unevaluated properties into the full cost pool that is subject to depletion and the ceiling test limitation.
+Added: Accordingly, a significant change in these factors, many of which are
+Added: beyond our control, may shift a significant amount of cost from unevaluated properties into the full cost pool that is subject to depletion and the ceiling test limitation.
Hedging transactions may limit our potential gains and increase our potential losses.
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In addition, wells that are profitable may not achieve our targeted rate of return.
−Removed: Our ability to achieve our target results is dependent upon current and future market prices for our oil and natural gas, costs associated with producing oil and natural gas and our ability to add reserves at an
−Removed: acceptable cost.
+Added: Our ability to achieve our target results is dependent upon current and future market prices for our oil and natural gas, costs associated with producing oil and natural gas and our ability to add reserves at an acceptable cost.
The costs of drilling and completing a well are often uncertain, and are affected by many factors, including:
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Our industry is cyclical.
−Removed: When oil, natural gas and natural gas liquids prices increase, shortages of drilling rigs, equipment, supplies, water or qualified personnel may result.
+Added: When oil, natural gas and NGLs prices increase, shortages of drilling rigs, equipment, supplies, water or qualified personnel may result.
During these periods, the costs and delivery times of rigs, equipment and supplies are substantially greater.
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Commodities pricing may also make drilling some acreage uneconomic.
−Removed: Our actual drilling activities and future drilling budget will depend on drilling results, oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and
−Removed: equipment, lease expirations, gathering system and pipeline transportation constraints, regulatory approvals and other factors.
+Added: Our actual drilling activities and future drilling budget will depend on drilling results, oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, lease expirations, gathering system and pipeline transportation constraints, regulatory approvals and other factors.
In addition, any drilling activities we conduct may not be successful or result in additional proved reserves, which could have a material adverse effect on our future business, financial condition and results of operations.
3 unchanged sentences
Currently, our leases on undeveloped oil and natural gas properties are either categorized as “held by production” or perpetuated by continuous development clauses contained in our leases or tolling agreements.
−Removed: We continually review our leases on acreage subject to these clauses or agreements when planning for our future drilling programs.
+Added: We continually review our leases on acreage subject to these clauses or agreements
+Added: when planning for our future drilling programs.
If our leases on acreage subject to these provisions are not maintained by production in paying quantities or continuous development, our leases could expire and we would lose our right to develop the related properties.
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● blowouts, fires, adverse weather events, pollution and equipment failures that may result in damage to or destruction of wells, producing formations, production facilities and equipment;
−Removed: ● accidental releases of natural gas, including gas with high levels of hydrogen sulfide (H2S), and other hydrocarbons or toxic or hazardous materials in the environment as a result of human error or the malfunction of equipment or facilities, which can result in personal injury and loss of life, pollution, damage to equipment and suspension of operations;
+Added: ● accidental releases of natural gas, including gas with high levels of hydrogen sulfide (H2S), and other hydrocarbons or toxic or hazardous materials into the environment as a result of human error or the malfunction of equipment or facilities, which can result in personal injury and loss of life, pollution, damage to equipment and suspension of operations;
● well-on-well interference that may reduce recoveries;
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For instance, certain of our wells produce high levels of H 2 S, a highly toxic, naturally-occurring gas frequently associated with oil and natural gas production.
−Removed: Safely handling H2S gas requires highly skilled operations and field personnel as well as specialized infrastructure, treating facilities, disposal facilities, and/or third party sour gas takeaway.
+Added: Safely handling H 2 S gas requires complex operations and highly skilled field personnel as well as specialized infrastructure, treating facilities, disposal facilities, and/or third-party sour gas takeaway.
If we are unable to attract and retain qualified and highly skilled personnel, our ability to effectively manage this and other risks may be adversely impacted.
−Removed: Additionally, if we are unable to successfully operate our specialized treating facilities or secure adequate sour gas takeaway capacity from third parties when and if necessary, our ability to effectively manage the H2S levels we see in our natural gas production may be adversely impacted.
−Removed: As a result, our production, revenues, operating costs and liabilities and expenses may be materially and adversely affected and may differ materially from those anticipated by us and availability of certain facilities may impact our processing costs.
+Added: Additionally, if we are unable to successfully operate our specialized treating facilities or secure adequate sour gas takeaway capacity from third parties when and if necessary, our ability to effectively manage the H 2 S levels we see in our natural gas production may be adversely impacted and our processing costs may increase.
+Added: As a result, our production, revenues, operating costs and liabilities and expenses may be materially and adversely affected and may differ materially from those anticipated by us.
Our ability to sell our production and/or receive market prices for our production may be adversely affected by transportation capacity constraints and interruptions.
17 unchanged sentences
However, there is no assurance that we will not suffer a monetary loss from title defects or title failure.
−Removed: Additionally, undeveloped acreage has greater
−Removed: risk of title defects than developed acreage.
+Added: Additionally, undeveloped acreage has greater risk of title defects than developed acreage.
Generally, under the terms of the operating agreements affecting our properties, any monetary loss is to be borne by all parties to any such agreement in proportion to their interests in such property.
2 unchanged sentences
Our success depends upon the continued contributions of our executive officers and key employees, particularly with respect to providing the critical management decisions and contacts necessary to manage and maintain growth within a highly competitive industry.
−Removed: Competition for qualified personnel can be intense, particularly in the oil and natural gas industry, and there are a limited number of people with the requisite knowledge and experience.
+Added: Competition for qualified personnel can be intense, particularly in the oil and
+Added: natural gas industry, and there are a limited number of people with the requisite knowledge and experience.
Under these conditions, we could be unable to attract and retain these personnel.
20 unchanged sentences
While no decision has been made, should we ultimately make the decision to go dark, there would be a substantial decrease in disclosure by us of our operations and prospects, and a potential decrease in the liquidity in our common stock even though stockholders may still continue to trade our common stock on an over-the-counter (“OTC”) market.
−Removed: As a result of going dark, investors may find it more difficult to dispose of or obtain accurate quotations as to the market value of our common stock, and the ability of our stockholders to sell our common stock in the secondary market may be materially limited.
+Added: As a result of going dark, investors may find it more difficult to dispose of or obtain accurate
+Added: quotations as to the market value of our common stock, and the ability of our stockholders to sell our common stock in the secondary market may be materially limited.
+Added: Our failure to meet the continued listing requirements of NYSE American could result in a delisting of our common stock.
+Added: If we fail to satisfy the continued listing requirements of NYSE American, such as minimum financial and other continued listing requirements and standards, including those regarding minimum stockholders’ equity, minimum share price and certain corporate governance requirements, the NYSE may take steps to delist our common stock.
+Added: Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so.
+Added: In the event of a delisting, we would expect to take actions to restore our compliance with NYSE American’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the NYSE minimum bid price requirement or prevent future non-compliance with NYSE’s listing requirements.
+Added: We may be unable to either redeem or pay cash dividends on the outstanding shares of our Redeemable Preferred Stock, resulting in increases in the liquidation preference of the Redeemable Preferred Stock and the right of the holders of the Redeemable Preferred Stock to receive a greater number of shares of our common stock in the event such holders elect to exercise their conversion rights.
+Added: Consequently, the financial and voting interests in our Company of the holders of our common stock may be diluted.
+Added: As noted elsewhere herein, the Company has issued shares of Redeemable Preferred Stock with an initial aggregate liquidation value of $138.0 million.
+Added: Dividends are payable on the Redeemable Preferred Stock at a rate of 14.5% per annum;
+Added: however, in the event the Company does not declare and pay dividends in cash when due, the dividend rate increases to 16.0% per annum and is added to the liquidation value of the Redeemable Preferred Stock.
+Added: The Company has heretofore not paid dividends on the Redeemable Preferred Stock in cash and is not expected to in the future.
+Added: Accordingly, the liquidation value of the Redeemable Preferred Stock is increasing and would be expected to increase in the future.
+Added: In addition to other rights, the holders of the Redeemable Preferred Stock are also entitled generally to convert their shares of Redeemable Preferred Stock into shares of our common stock by dividing a “conversion price” specified in the terms of the Redeemable Preferred Stock into the then current liquidation preference of the Redeemable Preferred Stock, such that increases in the liquidation preference may ordinarily result in an increase in the number of shares of common stock received by such holder upon conversion.
+Added: Accordingly, if the Company is unable to redeem the Redeemable Preferred Stock or is unable to pay, or elects not to pay, dividends on the Redeemable Preferred Stock in cash, the liquidation preference of the Redeemable Preferred Stock will continue to increase, thereby diluting the financial interests of the holders of our common stock in our Company and diluting the voting interests of the holders of our common stock to the extent holders of the Redeemable Preferred Stock elect to convert such shares into shares of our common stock.
Regulatory Risk Factors
22 unchanged sentences
Such laws may impose strict as well as joint and several liability for environmental contamination, which could subject us to liability for the conduct of others or for our own actions that were in compliance with all applicable laws at the time such actions were taken.
−Removed: Environmental and other governmental laws and regulations also
−Removed: increase the costs to plan, design, drill, install, operate and abandon oil and natural gas wells.
+Added: Environmental and other governmental laws and regulations also increase the costs to plan, design, drill, install, operate and abandon oil and natural gas wells.
Moreover, public interest in environmental protection has increased in recent years, and environmental organizations have opposed, with some success, certain drilling and pipeline projects.
4 unchanged sentences
Additionally, the oil and natural gas regulatory environment could change in ways that might substantially increase the financial and managerial costs to comply with the requirements of these laws and regulations and, consequently, adversely affect our profitability.
−Removed: By way of example, in 2015 the EPA lowered the primary national ambient air quality standard for ozone from 75 parts per billion to 70 parts per billion and is reconsidering whether an even stricter standard is warranted.
+Added: By way of example, in 2015 the EPA lowered the primary national ambient air quality standard for ozone from 75 parts per billion to 70 parts per billion.
Implementation eventually could result in more stringent emissions controls and additional permitting obligations for our operations.
5 unchanged sentences
Further, the EPA issued a study in 2016 finding that hydraulic fracturing could potentially harm drinking water resources under adverse circumstances such as injection directly into groundwater or into production wells lacking mechanical integrity.
−Removed: Other governmental reviews have also been conducted that focus on environmental aspects of hydraulic fracturing.
−Removed: Such activities eventually could result in additional regulatory control.
+Added: That study led to calls for additional federal regulatory control.
Certain states, including Texas where we conduct our operations, likewise are considering or have adopted more stringent requirements for various aspects of hydraulic fracturing operations, such as permitting, disclosure, air emissions, well construction, seismic monitoring, waste disposal and water use.
10 unchanged sentences
Meanwhile, several countries, including those comprising the European Union, have established greenhouse gas regulatory systems.
−Removed: In the United States, many states, either individually or through multi-state regional initiatives, have been implementing legal measures to reduce emissions of greenhouse gases, primarily through emission inventories, emission targets, product bans, greenhouse gas cap and trade programs or incentives for renewable energy generation, while others have considered adopting such greenhouse gas programs.
−Removed: At the federal level, the Obama Administration addressed climate change through a variety of administrative actions.
−Removed: The EPA thus issued greenhouse gas monitoring and reporting regulations that cover oil and natural gas facilities, among other industries.
−Removed: Beyond measuring and reporting, the EPA issued an “Endangerment Finding” under section 202(a) of the Clean Air Act, concluding certain greenhouse gas pollution threatens the public health and welfare of current and future generations.
−Removed: The finding served as the first step to issuing regulations that require permits for and reductions in greenhouse gas emissions for certain facilities.
−Removed: In March 2014, moreover, then President Obama released a Strategy to Reduce Methane Emissions that included consideration of both voluntary programs and targeted regulations for the oil and gas sector.
−Removed: Consistent with that strategy, the EPA issued final rules in 2016 for new and modified oil and gas production sources (including hydraulically fractured oil wells, natural gas well sites, natural gas processing plants, natural gas gathering and boosting stations and natural gas transmission sources) to reduce emissions of methane as well as volatile organic compound and toxic pollutants.
−Removed: In addition, the BLM promulgated standards for reducing venting and flaring on public lands (which were eventually vacated).
−Removed: The Trump Administration tried to roll back many of the Obama-era climate change policies and rules.
−Removed: But shortly after his inauguration, President Biden accepted the Paris Agreement on behalf of the United States, declared climate considerations an essential part of the United States’ foreign policy, limited new oil and natural gas leases on federal lands, and directed federal agencies to incorporate climate change considerations in their operations.
−Removed: New federal programs relating to climate change appear to be likely through at least 2024.
+Added: In the U.S., many states, either individually or through multi-state regional initiatives, have been implementing legal measures to reduce emissions of greenhouse gases, primarily through emission inventories, emission targets, product bans, greenhouse gas cap and trade programs or incentives for renewable energy generation, while others have considered adopting such greenhouse gas programs.
+Added: At least two states have also passed statutes that would authorize collection of payments from certain fossil fuel companies to address the effects of climate change.
+Added: At the federal level, the U.S.
+Added: has taken a variety of steps intended to address climate change.
For example, the EPA announced new final regulations in December 2023 that impose more comprehensive restrictions on emissions of methane (a greenhouse gas) and volatile organic compounds from new, existing, and modified facilities in the oil and gas sector (such as wells and storage tank batteries).
3 unchanged sentences
and prohibits flaring from new oil wells.
−Removed: In addition, BLM has proposed new rules to reduce venting, flaring and leaks from oil and gas production on public lands.
+Added: In addition, BLM promulgated new rules in 2024 to reduce venting, flaring and leaks from oil and gas production on public lands.
Aside from new controls, the 2022 Inflation Reduction Act creates incentives designed to increase use of electric cars and fuels other than oil and natural gas.
That statute imposes a fee on certain excess methane emissions from oil and gas facilities of $900 per metric ton of methane for 2024, $1,200 per metric ton for 2025, and $1,500 per metric ton each year thereafter.
+Added: As a general matter, recent Democratic Presidential Administrations have been spearheading the development of federal climate policies and controls.
+Added: With President Trump’s return to office in 2025, however, the White House issued executive orders that, among other things, directed the U.S.
+Added: Ambassador to the United Nations to give notice of the U.S.’ withdrawal from the Paris Agreement and the heads of all agencies to review their actions that impose an undue burden on the development or use of domestic energy resources, “with particular attention to oil, natural gas, coal, hydropower, biofuels, critical mineral, and nuclear energy resources.” We therefore expect the pace of new federal climate regulation to slow at least in the short-term.
In the courts, several decisions have been issued that may increase the risk of claims being filed by governments and private parties against companies that cause or contribute to significant greenhouse gas emissions.
4 unchanged sentences
Water is an essential component of our drilling and hydraulic fracturing processes.
−Removed: If we are unable to obtain water to use in our operations from local sources, we may be unable to economically produce oil, natural gas liquids and natural gas, which could have an adverse effect on our business, financial condition and results of operations.
+Added: If we are unable to obtain water from local sources to use in our operations, we may be unable to economically produce oil, natural gas liquids and natural gas, which could have an adverse effect on our business, financial condition and results of operations.
Wastewaters from our operations typically are disposed of via underground injection.
Some studies have linked earthquakes in certain areas to underground injection, which is leading to greater public scrutiny and regulation of disposal wells.
−Removed: Any new environmental initiatives or regulations that restrict injection of fluids, including, but not limited to, produced water, drilling fluids and other wastes associated with the exploration, development or production of oil and gas, or that limit the withdrawal, storage or use of surface water or ground water necessary for hydraulic
−Removed: fracturing of our wells, could increase our operating costs and cause delays, interruptions or cessation of our operations, the extent of which cannot be predicted, and all of which would have an adverse effect on our business, financial condition, results of operations and cash flows.
+Added: Any new environmental initiatives or regulations that restrict injection of fluids, including, but not limited to, produced water, drilling fluids and other wastes associated with the exploration, development or production of oil and gas, or that limit the withdrawal, storage or use of surface water or ground water necessary for hydraulic fracturing of our wells, could increase our operating costs and cause delays, interruptions or cessation of our operations, the extent of which cannot be predicted, and all of which would have an adverse effect on our business, financial condition, results of operations and cash flows.
Macroeconomic Risk Factors
16 unchanged sentences
Actual or anticipated declines in domestic or foreign economic growth rates, regional or worldwide increases in tariffs or other trade restrictions, turmoil affecting the U.S.
−Removed: or global financial system and markets and a severe economic contraction either regionally or worldwide, resulting from efforts to contain the COVID-19 coronavirus or other factors, could materially affect our business and financial condition and impact our ability to finance operations by worsening the actual or anticipated future drop in worldwide oil demand, negatively impacting the price we receive for our oil and natural gas production.
−Removed: Negative economic conditions could also adversely affect the collectability of our trade receivables or performance by our vendors and suppliers or cause our commodity hedging arrangements to be ineffective if our counterparties are unable to perform their obligations.
+Added: or global financial system and markets and a severe economic contraction either regionally or worldwide could materially affect our business and financial condition and impact our ability to finance operations by worsening the actual or anticipated future drop in worldwide oil demand, negatively impacting the price we receive for our oil and natural gas production.
+Added: Negative economic conditions could also
+Added: adversely affect the collectability of our trade receivables or performance by our vendors and suppliers or cause our commodity hedging arrangements to be ineffective if our counterparties are unable to perform their obligations.
All of the foregoing may adversely affect our business, financial condition, results of operations and cash flows.
3 unchanged sentences
We have agreements with third parties for hardware, software, telecommunications and other information technology services necessary to our business and have developed proprietary software systems, management techniques and other information technologies incorporating software licensed from third parties.
−Removed: We use these systems and data to, among other things, estimate
−Removed: quantities of oil, natural gas liquids and natural gas reserves, process and record financial data and communicate with our employees and third parties.
+Added: We use these systems and data to, among other things, estimate quantities of oil, natural gas liquids and natural gas reserves, process and record financial data and communicate with our employees and third parties.
Failures in these systems due to hardware or software malfunctions, computer viruses, natural disasters, fire, human error or other causes could significantly affect our ability to conduct our business.
−Removed: In particular, cyber-security attacks on systems are increasing in frequency and sophistication and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data.
+Added: In particular, cybersecurity attacks on systems are increasing in frequency and sophistication and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data.
Although we utilize various procedures and controls to monitor and protect against these threats and to mitigate our exposure to them, there can be no assurance that these procedures and controls will be sufficient to prevent security threats from materializing and any interruptions to our arrangements with third parties, to our computing and communications infrastructure or our information systems could significantly disrupt our business operations.
1 unchanged sentence
In addition, as cyber-attacks continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any vulnerability to cyber-attacks.
−Removed: We generally do not maintain insurance coverage for the costs associated with cyber-security events.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.