What changed in this filing

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Item 1A. Risk Factors

2022-02-17 compared with 2021-02-17 · 83 added, 73 removed, 145 unchanged (52% of the section changed)

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Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.

An extended period of depressed oil and natural gas prices will adversely affect our business, financial condition, cash flow, liquidity, results of operations and our ability to meet our capital expenditure obligations and financial commitments.

Our business is heavily dependent upon the prices of, and demand for, oil and natural gas.

Historically, the prices for oil and natural gas have been volatile and are likely to remain volatile in the future.

During 2020, commodity prices fluctuated significantly, with the settlement price for West Texas Intermediate ("WTI") crude oil ranging from a high of approximately $ 63.27 per barrel to a low of approximately negative $ 36.98 per barrel and settlement prices for Henry Hub natural gas ranging from a high of approximately $ 3.14 per Mcf to a low of approximately $ 1.33 per Mcf.

The prices we receive for our oil and natural gas production are subject to wide fluctuations and depend on numerous factors beyond our control, including the following:

• the domestic and foreign supply of oil, natural gas liquids and natural gas;

An extended period of depressed oil and natural gas prices would adversely affect our business, financial condition, cash flow, liquidity, results of operations and our ability to meet our capital expenditure obligations and financial commitments.

Our business is heavily dependent upon the price of, and demand for, natural gas.

Historically, natural gas prices have been volatile and are likely to remain volatile in the future.

The prices we receive for our natural gas production depend on numerous factors beyond our control, including the following:

• the domestic and foreign supply of natural gas;

• weather conditions;

• the price and quantity of imports of oil and natural gas;

• the price and quantity of exports of natural gas;

• political conditions and events in other oil-producing and natural gas-producing countries, including embargoes, hostilities in the Middle East and other sustained military campaigns, and acts of terrorism or sabotage;

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• domestic government regulation, legislation and policies;

• the level of global oil and natural gas inventories;

• the level of global natural gas inventories;

• technological advances affecting energy consumption;

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• overall economic conditions.

Lower oil and natural gas prices will adversely affect:

Lower natural gas prices will adversely affect:

• our revenues, profitability and cash flow from operations;

• the value of our proved oil and natural gas reserves;

• the value of our proved natural gas reserves;

• the economic viability of certain of our drilling prospects;

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Our future production and revenues depend on our ability to replace our reserves.

Our future production and revenues depend upon our ability to find, develop or acquire additional oil and natural gas reserves that are economically recoverable.

Our proved reserves will generally decline as reserves are depleted, except to the extent that we conduct successful exploration or development activities or acquire properties containing proved reserves, or both.

Our future production and revenues depend upon our ability to find, develop or acquire additional natural gas reserves that are economically recoverable.

Our proved reserves will generally decline as reserves are depleted, except to the extent that we conduct successful drilling activities or acquire properties containing proved reserves, or both.

To increase reserves and production, we must continue our acquisition and drilling activities.

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Furthermore, while our revenues may increase if prevailing oil and natural gas prices increase significantly, our finding costs for additional reserves could also increase.

Our access to capital markets may be limited in the future.

Adverse changes in the financial and credit markets could negatively impact our ability to grow production and reserves and meet our future obligations.

In addition, the continuation of the current low oil and natural gas price environment, or further declines of oil and natural gas prices, will affect our ability to obtain financing for acquisitions and drilling activities and could result in a reduction in drilling activity, which could lead to a loss of acreage due to lease expirations, both of which could negatively affect our ability to replace reserves.

Drilling and completion activities are typically regulated by state oil and natural gas commissions.

Our drilling and completion activities are conducted primarily in Louisiana and Texas.

Texas adopted a law in June 2012 requiring disclosure to the Railroad Commission of Texas and the public of certain information regarding the components used in the hydraulic-fracturing process.

In addition, Congress has considered legislation that, if implemented, would subject the process of hydraulic fracturing to regulation under the Safe Drinking Water Act.

In June 2015, the EPA released a draft report on the potential impacts of hydraulic fracturing on drinking water resources, which concluded that hydraulic fracturing activities have not led to widespread, systemic impacts on drinking water resources in the United States, although there may be above and below ground mechanisms by which hydraulic fracturing activities have the potential to impact drinking water resources.

The draft report was finalized in December 2016.

Other governmental agencies, including the U.S.

Department of Energy, have evaluated or are evaluating various other aspects of hydraulic fracturing.

These ongoing or proposed studies have the potential to impact the likelihood or scope of future legislation or regulation.

State and federal regulatory agencies have recently focused on a possible connection between the hydraulic fracturing related activities and the increased occurrence of seismic activity.

When caused by human activity, such events are called induced seismicity.

In a few instances, operators of injection wells in the vicinity of seismic events have been ordered to reduce injection volumes or suspend operations.

Some state regulatory agencies, including those in Arkansas, California, Colorado, Illinois, Kansas, Ohio, Oklahoma, and Texas, have modified their regulations to account for induced seismicity.

Regulatory agencies at all levels are continuing to study the possible linkage between oil and gas activity and induced seismicity.

A 2012 report published by the National Academy of Sciences concluded that only a very small fraction of the tens of thousands of injection wells have been suspected to be, or have been, the likely cause of induced seismicity;

and a 2015 report by researchers at the University of Texas has suggested that the link between seismic activity and wastewater disposal may vary by region.

In 2015, the United States Geological Survey identified eight states, including Texas, with areas of increased rates of induced seismicity that could be attributed to fluid injection or oil and gas extraction.

In March 2016, the United States Geological Survey identified six states with the most significant hazards from induced seismicity, including Texas, Colorado, Oklahoma, Kansas, New Mexico, and Arkansas.

In addition, a number of lawsuits have been filed, most recently in Oklahoma, alleging that disposal well operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal.

Future regulatory developments could adversely affect our operations by placing restrictions on the use of injection wells and hydraulic fracturing.

Our hedging transactions could result in financial losses or could reduce our income.

To the extent we have hedged a significant portion of our expected production and our actual production is lower than we expected or the costs of goods and services increase, our profitability would be adversely affected.

To achieve more predictable cash flows and to reduce our exposure to adverse fluctuations in the prices of natural gas, we have entered into and may continue to enter into hedging transactions for certain of our expected natural gas production.

These transactions could result in both realized and unrealized hedging losses.

Further, these hedges may be inadequate to protect us from continuing and prolonged declines in the price of natural gas.

To the extent that the natural gas prices remain at current levels or declines further, we will not be able to hedge future production at the same level as our current hedges, and our results of operations and financial condition would be negatively impacted.

The extent of our commodity price exposure is related largely to the effectiveness and scope of our derivative activities.

For example, the derivative instruments we utilize are primarily based on NYMEX futures prices, which may differ significantly from the actual natural gas prices we realize in our operations.

Furthermore, we have adopted a policy that requires, and our revolving credit facility also requires, that we enter into derivative transactions related to only a portion of our expected production volumes and, as a result, we will continue to have direct commodity price exposure on the portion of our production volumes not covered by these derivative financial instruments.

Our actual future production may be significantly higher or lower than we estimate at the time we enter into derivative transactions.

If our actual future production is higher than we estimated, we will have greater commodity price exposure than we intended.

If our actual future production is lower than the nominal amount that is subject to our derivative financial instruments, we might be forced to satisfy all or a portion of our derivative transactions without the benefit of the cash flow from our sale or purchase of the underlying physical commodity, resulting in a substantial diminution in our profitability and liquidity.

As a result of these factors, our derivative activities may not be as effective as we intend in reducing the volatility of our cash flows, and in certain circumstances may actually increase the volatility of our cash flows.

In addition, our hedging transactions are subject to the following risks:

• we may be limited in receiving the full benefit of increases in natural gas prices as a result of these transactions;

• a counterparty may not perform its obligation under the applicable derivative financial instrument or may seek bankruptcy protection;

• there may be a change in the expected differential between the underlying commodity price in the derivative instrument and the actual price received;

• the steps we take to monitor our derivative financial instruments may not detect and prevent violations of our risk management policies and procedures, particularly if deception or other intentional misconduct is involved.

Our operations may incur substantial liabilities due to compliance with environmental laws and regulations.

We are subject to stringent federal, state and local laws.

These laws, among other things, govern the issuance of permits to conduct exploration, drilling and production operations, the amounts and types of materials that may be released into the environment, the discharge and disposition of waste materials, the remediation of contaminated sites and the reclamation and abandonment of wells, sites and facilities.

Numerous governmental departments issue rules and regulations to implement and

enforce such laws, which are often difficult and costly to comply with and which carry substantial civil and even criminal penalties for failure to comply.

The regulatory burden on the oil and natural gas industry from these environmental laws and regulations increases our cost of doing business and consequently affects our profitability.

Environmental laws and regulations have been subject to frequent changes over the years, and the imposition of more stringent requirements or new regulatory schemes such as carbon "cap and trade" or pricing programs could have a material adverse effect upon our capital expenditures, earnings or competitive position, including the suspension or cessation of operations in affected areas.

We may be subject to physical and financial risks associated with climate change.

Changing climate may create physical and financial risks to our business.

Energy needs vary with weather conditions.

To the extent weather conditions may be affected by climate change, energy use could increase or decrease depending on the duration and magnitude of any changes.

Increased energy use due to weather changes may require us to invest in more infrastructure to serve increased demand.

A decrease in energy use due to weather changes may affect our financial condition through decreased revenues.

Extreme weather conditions in general require more equipment redundancy, adding to costs, and can contribute to increased risk of delivery disruptions.

Additionally, many climate models indicate that global warming is likely to result in rising sea levels and increased frequency and severity of weather events, which may lead to higher insurance costs, or a decrease in available coverage, for our assets in areas subject to severe weather.

These climate-related changes could damage our physical assets, especially operations located in low-lying areas near coasts and river banks, and facilities situated in hurricane-prone and rain-susceptible regions.

To the extent the frequency of extreme weather events increases, this could increase our cost of producing products.

We may not be able to pass on the higher costs to our customers or recover all costs related to mitigating these physical risks.

Regulations relating to climate change and/or greenhouse gases could also reduce demand for our products or increase our operating and drilling costs.

Our business could also be affected by the potential for lawsuits against companies that emit greenhouse gases, based on links drawn between greenhouse gas emissions and climate change.

To the extent financial markets view climate change and GHG emissions as a financial risk, this could negatively impact our cost of and access to capital.

Increasing scrutiny and changing expectations from stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.

Companies across all industries are facing increasing scrutiny from stakeholders related to their environmental, social and governance ("ESG") practices.

Investor advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments.

Regardless of the industry, investors' increased focus and activism related to ESG and similar matters may hinder access to capital, as investors may decide to reallocate capital or to not commit capital as a result of their assessment of a company's ESG practices.

Companies that do not adapt to or comply with investor or other stakeholder expectations and standards, which are evolving, or that are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and the business, financial condition, and/or stock price of such a company could be materially and adversely affected.

We face pressures from our stockholders, who are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability.

Our stockholders may require us to implement new ESG procedures or standards in order to continue engaging with us, to remain invested in us or before they may make further investments in us.

Additionally, we may face reputational challenges in the event our ESG procedures or standards do not meet the standards set by certain constituencies.

We have adopted certain practices and metrics as highlighted on our website, including with respect to air emissions, land use, environmental, health and safety management and corporate governance.

It is possible, however, that our stockholders might not be satisfied with our sustainability efforts or the speed of their adoption.

If we do not meet our stockholders' expectations, our business, ability to access capital, and/or our stock price could be harmed.

Additionally, adverse effects upon the oil and gas industry related to the worldwide social and political environment, including uncertainty or instability resulting from climate change, changes in political leadership and environmental policies, changes in geopolitical-social views toward fossil fuels and renewable energy, concern about the environmental impact of climate change, and investors' expectations regarding ESG matters, may also adversely affect demand for our products.

Any long-term material adverse effect on the oil and natural gas industry could have a significant financial and operational adverse impact on our business.

The occurrence of any of the foregoing could have a material adverse effect on the price of our stock and our business and financial condition.

Substantial exploration and development activities could require significant outside capital, which could dilute the value of our common shares and restrict our activities.

Also, we may not be able to obtain needed capital or financing on satisfactory terms, which could lead to a limitation of our future business opportunities and a decline in our oil and natural gas reserves.

We expect to expend substantial capital in the acquisition of, exploration for and development of oil and natural gas reserves.

We expect to expend substantial capital in the acquisition of, exploration for and development of natural gas reserves.

In order to finance these activities, we may need to alter or increase our capitalization substantially through the issuance of debt or equity securities, the sale of non-strategic assets or other means.

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• our estimated proved reserves;

• the level of oil and natural gas we are able to produce from existing wells;

• the level of natural gas we are able to produce from existing wells;

• our ability to extract natural gas liquids from the natural gas we produce;

• the prices at which oil, natural gas liquids and natural gas are sold;

• the prices at which natural gas liquids and natural gas are sold;

• our ability to acquire, locate and produce new reserves.

If our revenues decrease as a result of lower oil or natural gas prices, operating difficulties or declines in reserves, our ability to obtain the capital necessary to undertake or complete future exploration and development programs and to pursue other opportunities may be limited, which could result in a curtailment of our operations relating to exploration and development of our prospects, which in turn could result in a decline in our oil and natural gas reserves.

If our revenues decrease as a result of lower natural gas prices, operating difficulties or declines in reserves, our ability to obtain the capital necessary to undertake or complete future exploration and development programs and to pursue other opportunities may be limited, which could result in a curtailment of our operations relating to exploration and development of our prospects, which in turn could result in a decline in our oil and natural gas reserves.

We pursue acquisitions as part of our growth strategy and there are risks associated with such acquisitions.

Our growth has been attributable in part to acquisitions of producing properties and companies.

More recently we have been focused on acquiring acreage for our drilling program.

Recently we have been focused on acquiring acreage for our drilling program.

We expect to continue to evaluate and, where appropriate, pursue acquisition opportunities on terms we consider favorable.

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• exploration potential;

• future oil and natural gas prices;

• future natural gas prices;

• operating costs;

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While our current operations are focused in Texas and Louisiana, we may pursue acquisitions or properties located in other geographic areas.

Our hedging transactions could result in financial losses or could reduce our income.

To achieve more predictable cash flows and to reduce our exposure to adverse fluctuations in the prices of oil and gas, we have entered into and may continue to enter into hedging transactions for certain of our expected oil and natural gas production.

These transactions could result in both realized and unrealized hedging losses.

Further, these hedges may be inadequate to protect us from continuing and prolonged declines in the price of oil and natural gas.

To the extent that the prices of oil and natural gas remain at current levels or declines further, we will not be able to hedge future production at the same level as our current hedges, and our results of operations and financial condition would be negatively impacted.

The extent of our commodity price exposure is related largely to the effectiveness and scope of our derivative activities.

For example, the derivative instruments we utilize are primarily based on NYMEX futures prices, which may differ significantly from the actual crude oil and gas prices we realize in our operations.

Our actual future production may be significantly higher or lower than we estimate at the time we enter into derivative transactions.

If our actual future production is higher than we estimated, we will have greater commodity price exposure than we intended.

In addition, our hedging transactions are subject to the following risks:

• we may be limited in receiving the full benefit of increases in oil and gas prices as a result of these transactions;

• a counterparty may not perform its obligation under the applicable derivative financial instrument or may seek bankruptcy protection;

• there may be a change in the expected differential between the underlying commodity price in the derivative instrument and the actual price received;

Market conditions or operational impediments may hinder our access to oil and natural gas markets or delay our production.

Market conditions or the unavailability of satisfactory oil and natural gas transportation arrangements may hinder our access to oil and natural gas markets or delay our production.

The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for and supply of oil and natural gas and the proximity of reserves to pipelines and processing facilities.

Market conditions or operational impediments may hinder our access to natural gas markets or delay our production.

Market conditions or the unavailability of satisfactory natural gas transportation arrangements may hinder our access to natural gas markets or delay our production.

The availability of a ready market for our natural gas production depends on a number of factors, including the demand for and supply of natural gas and the proximity of reserves to pipelines and processing facilities.

Our ability to market our production depends in a substantial part on the availability and capacity of gathering systems, pipelines and processing facilities, which, in some cases, may be owned and operated by third parties.

Our failure to obtain such services on acceptable terms could materially harm our business.

Our failure to obtain such

services on acceptable terms could materially harm our business.

We may be required to shut in wells due to a lack of market demand or because of the inadequacy or unavailability of pipelines or gathering system capacity.

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Complying with these covenants may cause us to take actions that we otherwise would not take or not take actions that we otherwise would take.

Prospects that we decide to drill may not yield oil or natural gas in commercially viable quantities or quantities sufficient to meet our targeted rate of return and firm transportation commitments.

Prospects that we decide to drill may not yield natural gas in commercially viable quantities or quantities sufficient to meet our targeted rate of return and firm transportation commitments.

A prospect is a property in which we own an interest, or have operating rights to, and that has what our geoscientists believe, based on available seismic and geological information, to be an indication of potential oil or natural gas.

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Further, unsuccessful drilling may impact our ability to fulfill our firm transportation commitments.

We recently entered into an agreement with Enterprise Products Partners to be an anchor shipper on its new one Bcf per day Haynesville Acadian Extension to transport natural gas to the Gillis Hub.

As part of this agreement, we entered into firm transportation commitments that may be incurred in the event of unsuccessful drilling operations.

Our business involves many uncertainties and operating risks that can prevent us from realizing profits and can cause substantial losses.

Our success depends on the success of our exploration and development activities.

Exploration activities involve numerous risks, including the risk that no commercially productive natural gas or oil reserves will be discovered.

Exploration activities involve numerous risks, including the risk that no commercially productive natural gas reserves will be discovered.

In addition, these activities may be unsuccessful for many reasons, including weather, cost overruns, equipment shortages and mechanical difficulties.

Moreover, the successful drilling of a natural gas or oil well does not ensure we will realize a profit on our investment.

Moreover, the successful drilling of a natural gas well does not ensure we will realize a profit on our investment.

A variety of factors, both geological and market-related, can cause a well to become uneconomical or only marginally economical.

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• blow-outs and surface cratering;

• uncontrollable flows of natural gas, oil and formation water;

• uncontrollable flows of natural gas and formation water;

• natural disasters, such as hurricanes, tropical storms and other adverse weather conditions;

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Although we utilize various procedures and controls to monitor and protect against these threats and to mitigate our exposure to such threats, there can be no assurance that these procedures and controls will be sufficient in preventing security threats from materializing.

If any of these events were to materialize, either to the Company or a third party upon which we rely, they could lead to losses of sensitive information, critical infrastructure, personnel or capabilities, essential to our operations and could have a material adverse effect on our reputation, financial position, results of operations, or cash flows.

any of these events were to materialize, either to the Company or a third party upon which we rely, they could lead to losses of sensitive information, critical infrastructure, personnel or capabilities, essential to our operations and could have a material adverse effect on our reputation, financial position, results of operations, or cash flows.

We are subject to extensive governmental laws and regulations that may adversely affect the cost, manner or feasibility of doing business.

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In December 2019, a novel strain of coronavirus (SARS-CoV-2), which causes COVID-19, was reported to have surfaced in China.

The spread of this virus has caused business disruption beginning in January 2020, including disruption to the oil and natural gas industry.

The spread of this virus caused business disruption beginning in January 2020, including disruption to the oil and natural gas industry.

In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a pandemic, and the U.S.

economy began to experience pronounced effects.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, reduced global demand for oil and gas, and created significant volatility and disruption of financial and commodity markets.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, reduced global demand for oil and natural gas, and created significant volatility and disruption of financial and commodity markets.

The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, is uncertain and depends on various factors, including the demand for oil and natural gas, the availability of personnel, equipment and services critical to our ability to operate our properties and the impact of potential governmental restrictions on travel, transports and operations.

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The degree to which the COVID-19 pandemic or any other public health crisis adversely impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, its impact on the economy and market conditions, and how quickly and to what extent normal economic and operating conditions can resume.

In 2020, the pandemic did not significantly disrupt our operations except for the impact it had on oil and natural gas prices.

In 2021, the pandemic did not significantly disrupt our operations apart from the impact it had on oil and natural gas prices.

UNRESOLVED STAFF COMMENTS

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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.

What changed 10-K

Item 1A. Risk Factors