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Item 1A. Risk Factors

2024-06-27 compared with 2023-06-26 · 115 added, 97 removed, 216 unchanged (50% of the section changed)

are many factors that affect our business and results of operations, some of which are beyond our control.

The following is a description

of some of the important factors that could have a material adverse effect on our business, financial position, liquidity and results

of operations.

Some of the following risks relate principally to the industry in which we operate and to our business.

Other risks relate

principally to the securities markets and ownership of our common stock.

Company is subject to various risks and uncertainties in the ordinary course of business.

The following summarizes significant risks

and uncertainties that may adversely affect our business, financial condition or results of operations.

We could also face additional

risks and uncertainties not currently known to us or that we currently deem to be immaterial.

If any of these risks actually occurs,

it could materially harm our business, financial condition or results of operations and the trading price of our shares could decline.

Investors should carefully consider each of the following risk factors and all of the other information set forth in this Annual Report

on Form 10-K.

RELATED TO OUR BUSINESS AND INDUSTRY

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foreign supply and pricing of oil and gas;

the actions of OPEC, its members and other state-controlled oil companies relating to

oil price and production controls;

nature and extent of governmental regulation and taxation, including environmental regulations;

of domestic and international exploration, drilling and production activity;

the cost of exploring for, producing and delivering oil

the actions of OPEC, its members and other

state-controlled oil companies relating to oil price and production controls;

nature and extent of governmental regulation and taxation,

including environmental regulations;

level of domestic and international exploration, drilling and production activity;

the cost of exploring

for, producing and delivering oil and gas;

speculative trading in crude oil and natural gas derivative contracts;

availability, proximity and capacity of oil and gas pipelines

and other transportation facilities;

availability, proximity

and capacity of oil and gas pipelines and other transportation facilities;

weather conditions;

the price and availability of alternative fuels;

technological advances affecting

energy consumption;

the price and availability of alternative

technological advances affecting energy consumption;

national and international pandemics;

and, overall political and economic conditions in oil producing countries.

and, overall political and economic

conditions in oil producing countries.

and decreases in prices also affect the amount of cash flow available for capital expenditures and our ability to borrow money or raise

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results of operations may be negatively impacted by current global events.

economies in the United States and certain countries in Europe and Asia have been growing, with resulting improvements in industrial

demand and consumer confidence.

However, other economies, such as those of certain South American nations, continue to face economic

struggles or slowing economic growth.

If these conditions worsen, combined with a decline in economic growth in other parts of the world,

there could be a significant adverse effect on global financial markets and commodity prices.

In addition, continued hostilities in the

Middle East and the occurrence or threat of terrorist attacks in the United States or other countries could adversely affect the global

Global or national health concerns may adversely affect the Company by (i) reducing demand for its oil, NGLs and gas because of reduced global or national economic activity,

(ii) impairing its supply chain (for example, by limiting manufacturing of materials used in operations) and (iii) affecting the health

of its workforce, rendering employees unable to work or travel.

If the economic climate in the United States or abroad were to deteriorate,

due to inflation, rising interest rates or otherwise, demand for petroleum products could diminish or stagnate, which could depress the

prices at which the Company could sell its oil, NGLs and gas, affect the ability of the Company’s vendors, suppliers and customers

to continue operations and ultimately decrease the Company’s cash flows and profitability.

In addition, reduced worldwide demand

for debt and equity securities issued by oil and gas companies may make it more difficult for the Company to raise capital to fund its

operations or refinance its debt obligations.

United States and certain countries in Europe and Asia are facing economic struggles or slowing economic growth.

If these conditions

worsen, combined with a decline in economic growth in other parts of the world, there could be a significant adverse effect on global

financial markets and commodity prices.

In addition, continued hostilities in the Middle East and the occurrence or threat of terrorist

attacks in the United States or other countries could adversely affect the global economy.

Global or national health concerns may adversely

affect the Company by (i) reducing demand for its oil, NGLs and gas because of reduced global or national economic activity, (ii) impairing

its supply chain (for example, by limiting manufacturing of materials used in operations) and (iii) affecting the health of its workforce,

rendering employees unable to work or travel.

Deteriorating economic climate in the United States or abroad due to inflation, rising

interest rates or otherwise, demand for petroleum products could diminish or stagnate, which could depress the prices at which the Company

could sell its oil, NGLs and gas, affect the ability of the Company’s vendors, suppliers and customers to continue operations and

ultimately decrease the Company’s cash flows and profitability.

In addition, reduced worldwide demand for debt and equity securities

issued by oil and gas companies may make it more difficult for the Company to raise capital to fund its operations or refinance its debt

in environmental laws could increase our operators’ costs and adversely impact our business, financial condition and cash flows.

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oil and gas prices increase the risk of ceiling limitation write-downs.

We use the full cost method to account for oil and gas operations.

Accordingly, we capitalize the cost to acquire, explore for and develop crude oil and natural gas properties including the cost of abandoned

properties, dry holes, geophysical costs and annual lease rentals.

Sales or other dispositions of oil and natural gas properties are

accounted for as adjustments to capitalized costs, with no gain or loss recorded.

Depletion of evaluated oil and natural gas properties

is computed in the units of production method, whereby capitalized costs are amortized over total proved reserves.

Under the full cost

accounting rules, the net capitalized cost of crude oil and natural gas properties may not exceed a “ceiling limit” which

is based upon the present value of estimated future net cash flows from proved reserves, discounted at 10% plus the lower of cost or

fair market value of unproved properties.

If net capitalized costs of oil and natural gas properties exceed the ceiling limit, we must

charge the amount of the excess against earnings.

This is called a “ceiling test writedown.” We use the unweighted arithmetic

average first day of the month price for oil and natural gas for the 12-month period preceding the calculation date in estimating discounted

future net reserves.

Under the accounting rules, we are required to perform a ceiling test each quarter.

A ceiling test writedown does

not impact cash flow from operating activities, but does reduce stockholders’ equity and earnings.

The risk that we will be required

to write down the carrying value of oil and natural gas properties increases when oil and natural gas prices are low.

We incurred impairment

charges during fiscal 2016 and may incur additional impairment charges in the future, particularly if commodity prices decline, which

could have a material adverse effect on our results of operations for the periods in which such charges are taken.

There were no ceiling

test impairments on our oil and gas properties during fiscal 2023 and 2022.

We use the full cost method to account for oil and gas

Accordingly, we capitalize the cost to acquire, explore for and develop crude oil and natural gas properties including

the cost of abandoned properties, dry holes, geophysical costs and annual lease rentals.

Sales or other dispositions of oil and

natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded.

Depletion of evaluated

oil and natural gas properties is computed in the units of production method, whereby capitalized costs are amortized over total

proved reserves.

Under the full cost accounting rules, the net capitalized cost of crude oil and natural gas properties may not

exceed a “ceiling limit” which is based upon the present value of estimated future net cash flows from proved reserves,

discounted at 10% plus the lower of cost or fair market value of unproved properties.

If net capitalized costs of oil and natural

gas properties exceed the ceiling limit, we must charge the amount of the excess against earnings.

This is called a “ceiling

test writedown.” We use the unweighted arithmetic average first day of the month price for oil and natural gas for the

12-month period preceding the calculation date in estimating discounted future net reserves.

Under the accounting rules, we are

required to perform a ceiling test each quarter.

A ceiling test writedown does not impact cash flow from operating activities, but

does reduce stockholders’ equity and earnings.

The risk that we will be required to write down the carrying value of oil and

natural gas properties increases when oil and natural gas prices are low.

There were no ceiling test impairments on our oil and gas

properties during fiscal 2024 and 2023.

must replace reserves we produce.

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borrowing base under our credit facility will be determined from time to time by the lender.

Reductions in estimates of oil and gas

reserves could result in a reduction in the borrowing base, which would reduce the amount of financial resources available under the

credit facility to meet our capital requirements.

Such a reduction could be the result of lower commodity prices and/or production,

inability to drill or unfavorable drilling results, changes in oil and gas reserve engineering, the lender’s inability to

agree to an adequate borrowing base or adverse changes in the lender’s practices regarding estimation of reserves.

cash flow from operations or our borrowing base decrease for any reason, our ability to undertake exploration and development

activities could be adversely affected.

As a result, our ability to replace production may be limited.

Reductions in estimates of oil and gas reserves

could result in a reduction in the borrowing base, which would reduce the amount of financial resources available under the credit facility

to meet our capital requirements.

Such a reduction could be the result of lower commodity prices and/or production, inability to drill

or unfavorable drilling results, changes in oil and gas reserve engineering, the lender’s inability to agree to an adequate borrowing

base or adverse changes in the lender’s practices regarding estimation of reserves.

If cash flow from operations or our borrowing

base decrease for any reason, our ability to undertake exploration and development activities could be adversely affected.

our ability to replace production may be limited.

identified drilling locations are scheduled out over several years, making them susceptible to uncertainties that could materially alter

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in supply and demand and general economic conditions could all affect our ability to produce and market our oil and gas.

have limited control over activities on properties we do not operate, which could reduce our production and revenues.

of our business activities are conducted through joint operating or other agreements under which we own working and royalty interests

in natural gas and oil properties in which we do not operate.

As a result, we have a limited ability to exercise influence over normal

operating procedures, expenditures or future development of underlying properties and their associated costs.

The failure of an operator

of our wells to adequately perform operations could reduce our revenues and production.

own non-operating interests in properties developed and operated by third parties and, as a result, we are unable to control the operation

and profitability of such properties.

We participate in the drilling and completion of wells with third-party operators that exercise exclusive control

over such operations.

As a participant, we rely on third-party operators to successfully operate these properties pursuant to joint operating

agreements and other similar contractual arrangements.

As a participant in these operations, we may not be able to maximize the value

associated with these properties in the manner we believe appropriate, or at all.

For example, we cannot control the success of drilling

and development activities on properties operated by third-parties, which depend on a number of factors under the control of a third-party

operator, including such operator’s determinations with respect to, among other things, the nature and timing of drilling and operational

activities, the timing and amount of capital expenditures and the selection of suitable technology.

In addition, the third-party operator’s

operational expertise and financial resources and its ability to gain the approval of other participants in drilling wells will impact

the timing and potential success of drilling and development activites in a manner that we are unable to control.

A third-party operator’s

failure to adequately perform operations, breach of the applicable agreements or failure to act in ways that are favorable to us could

reduce our production and revenues, negatively impact our liquidity and cause us to spend capital in excess of our current plans, and

have a material adverse effect on our financial condition and results of operations.

reserves in the oil and gas industry is highly competitive.

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uninsured risks or in amounts in excess of existing insurance coverage.

federal income tax deductions currently available with respect to crude oil and natural gas exploration and development may be eliminated

as a result of proposed legislation.

previously has been proposed that would, if enacted into law, make significant changes to U.

federal income tax laws, including the

elimination of certain key U.S.

federal income tax incentives currently available to crude oil and natural gas exploration and production

These changes include, but are not limited to:

(1) the repeal of the percentage depletion allowance for crude oil and natural

gas properties, (2) the elimination of current deductions for intangible drilling and development costs, (3) the elimination of the deduction

for certain U.S.

domestic production activities, and (4) an extension of the amortization period for certain geological and geophysical

expenditures.

It is unclear whether any such changes will be enacted and, if enacted, how soon any such changes could become effective.

The passage of this type of legislation or any other similar changes in U.S.

federal income tax laws could eliminate or postpone certain

tax deductions that are currently available with respect to crude oil and natural gas exploration and development, and any such change

could have an adverse effect on the value of an investment in our Common Stock as well as our financial position, results of operations

and cash flows.

effective tax rate may change in the future, which could adversely impact us.

Tax Cuts and Jobs Act of 2017 (“TCJA”) significantly changed the U.S.

federal income taxation of U.S.

corporations, including

by reducing the U.S.

corporate tax rate, limiting interest deductions and certain deductions for executive compensation, permitting immediate

expensing of certain capital expenditures, and revising the rules governing net operating losses.

The TCJA remains unclear in some respects

and continues to be subject to potential amendments and technical corrections.

Treasury Department and the IRS have issued significant

guidance since the TCJA was enacted, interpreting the TCJA and clarifying some the uncertainties, and are continuing to issue new guidance.

There are still significant aspects of the TCJA for which further guidance is expected, and both the timing and contents of any such

future guidance are uncertain.

changes to the U.S.

federal income tax laws are proposed regularly and there can be no assurance that, if enacted, any such changes would

not have an adverse impact on us.

For example, President Biden has suggested the reversal or modification of some portions of the TCJA

and certain of these proposals, if enacted, could increase our effective tax rate.

There can be no assurance that any such proposed changes

will be introduced as legislation or, if introduced, later enacted and, if enacted, what form such enacted legislation would take.

changes could potentially have retroactive effect.

In light of these factors, there can be no assurance that our effective tax rate will

not change in future periods.

If the effective tax rates were to increase as a result of the future legislation, our business could be

adversely affected.

reliance on information technology, including those hosted by third parties, exposes us to cyber security risks that could affect our

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in general can experience considerable price and volume fluctuations.

UNRESOLVED STAFF COMMENTS

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