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The impact of public health crises, similar to COVID-19, on the Company’s operations, future prospects, the value of its properties, and the economy in general, including the related effect on the supply and demand, and ultimate price of oil and natural gas;
−Removed: Current and future declines in economic activity and recessions, increased inflation and interest rates, and their effect on the Company, its property, prospects and the supply and demand, and ultimate price of oil and natural gas;
+Added: Current and future declines in economic activity and recessions, changes in inflation and interest rates, and their effect on the Company, its property, prospects and the supply and demand, and ultimate price of oil and natural gas;
The status and availability of oil and natural gas gathering, transportation, and storage facilities owned and operated by third parties;
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The fact that Dr.
−Removed: Simon Kukes, our Chief Executive Officer and a member of board of directors, beneficially owns a majority of our common stock and that his interests may be different from other shareholders;
+Added: Kukes, our Chief Executive Officer and a member of board of directors, beneficially owns a majority of our common stock and that his interests may be different from other shareholders;
Our ability to maintain the listing of our common stock on the NYSE American;
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Other risks described under “Risk Factors” below.
−Removed: Risks Related to the Oil, NGL and Natural Gas Industry and Our Business
+Added: Risks Related to the Oil, NGL and Natural Gas Industry;
+Added: Our Business and Operations
Declines in oil and, to a lesser extent, NGL and natural gas prices, have in the past, and will continue in the future, to adversely affect our business, financial condition or results of operations and our ability to meet our capital expenditure obligations or targets and financial commitments.
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Because approximately 67% of our estimated proved reserves as of December 31, 2023 were oil, our financial results are more sensitive to movements in oil prices.
−Removed: The price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate (“ WTI ”) crude rising from a low of $42 in June 2017 to a high of $76 in October 2018, then, in 2020, dropping below $20 per barrel due in part to reduced global demand stemming from the global COVID-19 outbreak, and surging to over $120 a barrel in early March 2022, following Russia’s invasion of the Ukraine.
+Added: The price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate (“ WTI ”) crude, dropping below $20 per barrel in 2020 due in part to reduced global demand stemming from the global COVID-19 outbreak, and surging to over $120 a barrel in early March 2022, following Russia’s invasion of the Ukraine, to the $70s in recent months.
A prolonged period of low market prices for oil and natural gas, or further declines in the market prices for oil and natural gas, will likely result in capital expenditures being further curtailed and will adversely affect our business, financial condition and liquidity and our ability to meet obligations, targets or financial commitments and could ultimately lead to restructuring or filing for bankruptcy, which would have a material adverse effect on our stock price and indebtedness.
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Year ended December 31, 2022
−Removed: Quarter ended March 31, 2023 (through March 21, 2023)
+Added: Year ended December 31, 2023
We have a limited operating history, have incurred net losses in the past and may incur net losses in the future.
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Should these conditions persist our business, results of operations and cash flows could be materially and adversely affected.
−Removed: Year 2022 saw significant increases in the costs of certain services and materials, including steel, sand and fuel, as a result of availability constraints, supply chain disruption, increased demand, labor shortages associated with a fully employed US labor force, high inflation, interest rates and other factors, with supply and demand fundamentals being further aggravated by disruptions in global energy supply caused by multiple geopolitical events, including the ongoing conflict between Russia and Ukraine, all resulting in an estimated cost increase of approximately 25% to 30% per well on our Permian Asset and 10% to 20% on our D-J Asset, based on costs we experienced commencing in the third quarter of 2021 and through 2022.
−Removed: Service and materials costs also increased accordingly through 2022 with general supply chain and inflation issues seen throughout the industry leading to increased operating costs.
−Removed: While the Company is cautiously optimistic that such costs have plateaued and will hold at current levels as we have not seen significant cost increases thus far in 2023, supply chain constraints and inflationary pressures may continue to adversely impact our operating costs and may negatively impact our ability to procure materials and equipment in a timely and cost-effective manner, if at all, which could result in reduced margins and production delays and, as a result, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
−Removed: The conflict in Ukraine and related price volatility and geopolitical instability could negatively impact our business .
−Removed: In late February 2022, Russia launched significant military action against Ukraine.
−Removed: The conflict has caused, and could intensify, volatility in natural gas, oil and NGL prices, and the extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have a substantial negative impact on the global economy and/or our business for an unknown period of time.
−Removed: We believe that the increase in crude oil prices during the first half of 2022 was partially due to the impact of the conflict between Russia and Ukraine on the global commodity and financial markets, and in response to economic and trade sanctions that certain countries have imposed on Russia.
−Removed: Any such volatility and disruptions may also magnify the impact of other risks described under “Risk Factors” in Item 1A of this Annual Report.
+Added: Year 2022 saw significant increases in the costs of certain services and materials, including steel, sand and fuel, as a result of availability constraints, supply chain disruption, increased demand, labor shortages associated with a fully employed US labor force, high inflation, interest rates and other factors, with supply and demand fundamentals being further aggravated by disruptions in global energy supply caused by multiple geopolitical events, including the ongoing conflict between Russia and Ukraine and the current armed conflict in Israel and the Gaza Strip, all resulting in an estimated cost increase of approximately 25% to 30% per well on our Permian Asset and 10% to 20% on our D-J Basin Asset, based on costs we experienced commencing in the third quarter of 2021 and continuing throughout 2022.
+Added: Service and materials costs also increased accordingly through 2022, stabilizing in 2023, with general supply chain and inflation issues seen throughout the industry leading to increased operating costs.
+Added: While the Company is cautiously optimistic that such costs have plateaued and will hold at current levels as we have not seen significant cost increases in 2023 and thus far in 2024, supply chain constraints and inflationary pressures may continue to adversely impact our operating costs and may negatively impact our ability to procure materials and equipment in a timely and cost-effective manner, if at all, which could result in reduced margins and production delays and, as a result, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
We have been and may continue to be negatively impacted by inflation.
−Removed: Increases in inflation have had an adverse effect on us.
−Removed: Current and future inflationary effects may be driven by, among other things, supply chain disruptions and governmental stimulus or fiscal policies, and geopolitical instability, including the ongoing conflict between the Ukraine and Russia.
−Removed: Continuing increases in inflation, have in the past, and could in the future, impact our costs of labor, equipment and services and the margins we are able to realize on our wells, all of which could have an adverse impact on our business, financial position, results of operations and cash flows.
+Added: Recent increases in inflation have had an adverse effect on us.
+Added: Current and future inflationary effects may be driven by, among other things, supply chain disruptions and governmental stimulus or fiscal policies, and geopolitical instability, including the ongoing conflict between the Ukraine and Russia and the current armed conflict in Israel and the Gaza Strip.
+Added: Increases in inflation, have in the past, and could in the future, impact our costs of labor, equipment and services and the margins we are able to realize on our wells, all of which could have an adverse impact on our business, financial position, results of operations and cash flows.
Inflation has also resulted in higher interest rates, which in turn raises our cost of debt borrowing.
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In the event required capital becomes unavailable in the future, or more costly, it could have a material adverse effect on our business, results of operations, and financial condition.
−Removed: We have entered into Agreed Compliance Orders, as amended (“ ACOs ”), with the State of New Mexico Energy, Minerals and Natural Resources Department (“ EMNRD ”) which require the restoration of production, or plugging and abandonment, of an aggregate of approximately 333 legacy vertical wells in our Permian Basin Asset, with any failure by us to comply with the ACOs likely to materially and adversely affect our business, results of operations and cash flows.
−Removed: The Company has previously entered into ACOs with the EMNRD through its New Mexico operating subsidiaries, Ridgeway Arizona Oil Corp.
−Removed: (“ Ridgeway ”) and EOR Operating Company (“ EOR ”), which require the Company to restore production, or plug and abandon, an aggregate of approximately 333 legacy vertical wells by certain specified dates.
−Removed: In the event the Company is unable to fully comply with the terms of these ACOs, then the Company could be subject to significant civil penalties and sanctions, which would likely have a material adverse effect on our business, financial condition and results of operations, could require us to raise additional funding which may not be available on commercially reasonable terms, if at all, and may negatively affect our drilling plans in the future, and may cause the value of our securities to decline in value.
−Removed: We may be required to enter into new or amended ACOs with the EMNRD with respect to our Permian Basin Asset, which could require the accelerated restoration of production, or plugging and abandonment, of our legacy vertical wells in our Permian Basin Asset, which could materially and adversely affect our business, results of operations and cash flows.
−Removed: In the event the Company is required to enter into new, or amend existing, ACOs with the EMNRD with respect to our approximately 333 legacy vertical wells which require the Company to accelerate the restoration of production, or plugging and abandonment, of some or all of these wells, such accelerated actions could have a material adverse effect on our business, financial condition and results of operations, could require us to raise additional funding which may not be available on commercially reasonable terms, if at all, and may negatively affect our drilling plans in the future, and may cause the value of our securities to decline in value.
+Added: We have entered into a Stipulated Final Order (“ SFO ”) with the Director of the Oil and Gas Conservation Division of the State of New Mexico Energy (“ OCD ”) which requires that the Company fund the plugging and abandonment of an aggregate of approximately 299 legacy vertical wells in our Permian Basin Asset, with any failure by us to comply with the SFO likely to materially and adversely affect our business, results of operations and cash flows.
+Added: The Company has entered into an SFO with the OCD through RAZO, the Company’s New Mexico operating subsidiary, which requires, among other things, that the Company reimburse the OCD for actual costs incurred by the OCD for plugging and abandoning approximately 299 inactive legacy wells in the Permian Basin Asset at a rate of $2.00 per gross barrel of oil sold by RAZO during any production reporting period, subject to a minimum payment of $30,000 per month by RAZO.
+Added: In the event the Company is unable to fully comply with the terms of the SFO, then the Company could be subject to significant civil penalties and sanctions, which would likely have a material adverse effect on our business, financial condition and results of operations, could require us to raise additional funding which may not be available on commercially reasonable terms, if at all, and may negatively affect our drilling plans in the future, and may cause the value of our securities to decline in value.
We may not be able to generate sufficient cash flow to meet any future debt service and other obligations due to events beyond our control.
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In addition, we have a large amount of proved reserves attributable to a small number of producing formations.
−Removed: Our operations are focused solely in the Permian Basin located in Chaves and Roosevelt Counties, New Mexico, and the D-J Basin of Weld and Morgan Counties, Colorado, which means our current producing properties and new drilling opportunities are geographically concentrated in those two areas.
+Added: Our current operations are focused solely in the Permian Basin located in Chaves and Roosevelt Counties, New Mexico, and the D-J Basin of Weld and Morgan Counties, Colorado, with potential future operations extending into Laramie County, Wyoming, which means our current producing properties and new drilling opportunities are geographically concentrated in those two areas.
Because our operations are not as diversified geographically as many of our competitors, the success of our operations and our profitability may be disproportionately exposed to the effect of any regional events, including:
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Historically, the commodities market has been volatile.
−Removed: For example, the price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate (“ WTI ”) crude rising from a low of $42 in June 2017 to a high of $76 in October 2018, then, in 2020, dropping below $20 per barrel due in part to reduced global demand stemming from the global COVID-19 outbreak, and surging to over $120 a barrel in early March 2022, following Russia’s invasion of the Ukraine.
+Added: For example, the price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate (“ WTI ”) crude, dropping below $20 per barrel in 2020 due in part to reduced global demand stemming from the global COVID-19 outbreak, and surging to over $120 a barrel in early March 2022, following Russia’s invasion of the Ukraine, to the $70s in recent months.
Prices for natural gas and NGLs experienced declines of similar magnitude.
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weather conditions and natural disasters;
−Removed: political conditions in or affecting oil, NGLs and natural gas producing regions and/or pipelines, including in Eastern Europe, the Middle East and South America, for example, as experienced with the Russian invasion of the Ukraine in February 2022, which conflict is ongoing;
+Added: political conditions in or affecting oil, NGLs and natural gas producing regions and/or pipelines, including in Eastern Europe, the Middle East and South America, for example, as experienced with the Russian invasion of the Ukraine in February 2022, and the current armed conflict in Israel and the Gaza Strip, which conflicts are ongoing;
the continued threat of terrorism and the impact of military action and civil unrest;
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We review our long-lived tangible and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
−Removed: For the year ended December 31, 2020, due to falling oil and gas prices, we incurred a $19.3 million impairment of our oil and gas properties.
+Added: For example, for the year ended December 31, 2020, due to falling oil and gas prices, we incurred a $19.3 million impairment of our oil and gas properties.
No impairment was incurred for the years ended December 31, 2023 and 2022.
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Declining general economic, business or industry conditions have, and will continue to have, a material adverse effect on our results of operations, liquidity and financial condition, and are expected to continue having a material adverse effect for the foreseeable future.
−Removed: Concerns over global economic conditions, the duration and effects of future pandemics, and the results thereof, energy costs, geopolitical issues (including, but not limited to the current Ukraine/Russia conflict), inflation, increasing interest rates and the availability and cost of credit have contributed to increased economic uncertainty and diminished expectations for the global economy.
+Added: Concerns over global economic conditions, the duration and effects of future pandemics, and the results thereof, energy costs, geopolitical issues (including, but not limited to the current Ukraine/Russia and Israel/Gaza Strip conflicts), inflation, increasing interest rates and the availability and cost of credit have contributed to increased economic uncertainty and diminished expectations for the global economy.
These factors, combined with volatile prices of oil and natural gas, and declining business and consumer confidence, have precipitated an economic slowdown, which could expand to a recession or global depression.
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Our strategy as an onshore resource player may result in operations concentrated in certain geographic areas and may increase our exposure to many of the risks described in this Annual Report.
−Removed: Our current operations are concentrated in the states of New Mexico and Colorado.
+Added: Our current operations are concentrated in the states of New Mexico and Colorado, with future operations potentially extending into Wyoming.
This concentration may increase the potential impact of many of the risks described in this Annual Report.
−Removed: For example, we may have greater exposure to regulatory actions impacting New Mexico and/or Colorado, adverse weather and natural disasters in New Mexico and/or Colorado, competition for equipment, services and materials available in, and access to infrastructure and markets in, these states.
+Added: For example, we may have greater exposure to regulatory actions impacting New Mexico, Colorado and/or Wyoming, adverse weather and natural disasters in New Mexico, Colorado and/or Wyoming, competition for equipment, services and materials available in, and access to infrastructure and markets in, these states.
Unless we replace our oil and natural gas reserves, our reserves and production will decline, which will adversely affect our business, financial condition and results of operations.
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Hydraulic fracturing in oil and gas plays requires high pressure pumping service crews.
−Removed: A shortage of service crews or proppant, chemical, water or water disposal options, especially if this shortage occurred in eastern New Mexico or eastern Colorado, could materially and adversely affect our operations and the timeliness of executing our development plans within our budget.
+Added: A shortage of service crews or proppant, chemical, water or water disposal options, especially if this shortage occurred in eastern New Mexico, eastern Colorado, or southern Wyoming, could materially and adversely affect our operations and the timeliness of executing our development plans within our budget.
Our operations are substantially dependent on the availability of water.
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When drought conditions occur, governmental authorities may restrict the use of water subject to their jurisdiction for hydraulic fracturing to protect local water supplies.
−Removed: Both New Mexico and Colorado have relatively arid climates and experience drought conditions from time to time and the U.S.
+Added: New Mexico, Colorado and Wyoming, all have relatively arid climates and experience drought conditions from time to time and the U.S.
Southwest is currently experiencing significant drought conditions which have reduced the flow of certain rivers and forced the reduction or reallocation of certain waterways and reservoirs.
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These could result in a material adverse effect on our prospects, business, financial condition and our results of operations.
−Removed: A substantial percentage of our New Mexico properties are undeveloped;
+Added: A substantial percentage of our New Mexico properties, and all of our Wyoming properties, are undeveloped;
therefore, the risk associated with our success is greater than would be the case if the majority of such properties were categorized as proved developed producing.
−Removed: Because a substantial percentage of our New Mexico properties are undeveloped, we will require significant additional capital to develop such properties before they may become productive.
+Added: Because a substantial percentage of our New Mexico properties, and all of our Wyoming properties, are undeveloped, we will require significant additional capital to develop such properties before they may become productive.
Further, because of the inherent uncertainties associated with drilling for oil and gas, some of these properties may never be developed to the extent that they result in positive cash flow.
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As a result, we may incur material write-downs and the value of our undeveloped acreage could decline if drilling results are unsuccessful.
−Removed: Our operations in the Permian Basin in Chaves and Roosevelt Counties, New Mexico, and the D-J Basin in Weld and Morgan Counties, Colorado, involve utilizing the latest drilling and completion techniques in order to maximize cumulative recoveries and therefore generate the highest possible returns.
+Added: Our operations in the Permian Basin in Chaves and Roosevelt Counties, New Mexico, and the D-J Basin in Weld and Morgan Counties, Colorado, and potentially extending into Laramie County, Wyoming, involve utilizing the latest drilling and completion techniques in order to maximize cumulative recoveries and therefore generate the highest possible returns.
The additional risks that we face while drilling horizontally include, but are not limited to, the following:
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There is no way to predict in advance of drilling and testing whether any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to be economically viable.
−Removed: This risk may be enhanced in our situation, due to the fact that a significant percentage of our reserves is undeveloped.
+Added: This risk may be enhanced in our situation, due to the fact that a significant percentage of our reserves are undeveloped.
The use of seismic data and other technologies and the study of producing fields in the same area will not enable us to know conclusively prior to drilling whether oil or natural gas will be present or, if present, whether oil or natural gas will be present in commercial quantities.
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The nature of these efforts and their effects on our business are inherently unpredictable and subject to change.
−Removed: Certain regulatory responses to climate change issues are discussed above under the headings ”Changes in the legal and regulatory environment governing the oil and natural gas industry, particularly changes in the current Colorado forced pooling system and drilling operation set-back rules, salt water disposal permitting regulations in New Mexico, and new federal orders restricting operations on federal lands, could have a material adverse effect on our business” and “New or amended environmental legislation or regulatory initiatives could result in increased costs, additional operating restrictions, or delays, or have other adverse effects on us” and in Item 1 - Business - Regulation in the Oil and Gas Industry.
+Added: Certain regulatory responses to climate change issues are discussed above under the headings “Changes in the legal and regulatory environment governing the oil and natural gas industry, particularly changes in the current Colorado forced pooling system and drilling operation set-back rules, salt water disposal permitting regulations in New Mexico or Wyoming, and new federal orders restricting operations on federal lands, could have a material adverse effect on our business” and “New or amended environmental legislation or regulatory initiatives could result in increased costs, additional operating restrictions, or delays, or have other adverse effects on us” and in Item 1 - Business – Regulation in the Oil and Gas Industry.
However, actions taken by private parties in anticipation of, or to facilitate, a transition to a lower-GHG economy will affect us as well.
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Technological changes, such as developments in renewable energy and low-carbon transportation, could also adversely affect demand for our products.
+Added: The $1.1 million owed to us under a secured convertible promissory note due from Tilloo Exploration may not be repaid timely, if at all.
+Added: On November 9, 2023, in accordance with the sale of our wholly-owned subsidiary EOR to Tilloo Exploration, the Company entered into a five-year secured promissory note (the “ Note ”) with Tilloo Exploration, bearing interest at 10% per annum, with no payments due during the first twelve months, and fully-amortized payments due monthly over the remaining four years of the term thereafter until maturity.
+Added: The Note contains customary events of default and is secured by a lien over all the assets and capital shares of EOR created under a Security Agreement, a Security Agreement (Pledge of Corporate Securities), and a Mortgage entered into by and between the Company and Tilloo Exploration.
+Added: Tilloo Exploration may not timely pay the Note when due, if at all.
Risks Related to Management, Employees and Directors
Potential conflicts of interest could arise for certain members of our management team that hold management positions with other entities and our largest stockholder.
−Removed: Simon Kukes, our Chief Executive Officer and member of our board of directors, J.
+Added: Kukes, our Chief Executive Officer and member of our board of directors, J.
Douglas Schick, our President, and Clark R.
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We have in the past been significantly dependent on capital provided to us by Dr.
−Removed: Simon Kukes and may rely on Dr.
+Added: Kukes and may rely on Dr.
Kukes for additional funding in the future.
In 2018 and 2019, Dr.
−Removed: Simon Kukes, the Company’s Chief Executive Officer and director, loaned us an aggregate of $51.7 million to support our operations and for acquisitions through an entity owned and controlled by him, all of which loans were evidenced by promissory notes.
+Added: Kukes, the Company’s Chief Executive Officer and director, loaned us an aggregate of $51.7 million to support our operations and for acquisitions through an entity owned and controlled by him, all of which loans were evidenced by promissory notes.
The promissory notes generally had terms which were more favorable to us than we would have been able to obtain from third parties, including, generally favorable interest rates, no restrictions on further borrowing or financial covenants and no security interests in our assets.
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We depend to a significant degree upon the involvement of our management, specifically, our Chief Executive Officer, Dr.
−Removed: Simon Kukes and our President, Mr.
+Added: Kukes and our President, Mr.
Douglas Schick.
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If any of our directors resign or become unable to continue in their present role, it may be difficult to find replacements with the same knowledge and experience and as a result, our operations may be adversely affected.
−Removed: Simon Kukes, our Chief Executive Officer and a member of board of directors, beneficially owns 66.6% of our common stock, which gives him majority voting control over stockholder matters and his interests may be different from your interests;
+Added: Kukes, our Chief Executive Officer and a member of board of directors, beneficially owns 66.5% of our common stock, which gives him majority voting control over stockholder matters and his interests may be different from your interests;
and as a result of such ownership, we are a “ controlled company ” under applicable NYSE American rules.
−Removed: Simon Kukes, our Chief Executive Officer and member of the board of directors, through his individual ownership of the Company and through his position as trustee and beneficiary of The SGK 2018 Revocable Trust, which beneficially owns approximately 59.5% of our issued and outstanding common stock and Dr.
+Added: Kukes, our Chief Executive Officer and member of the board of directors, through his individual ownership of the Company and through his position as trustee and beneficiary of The SGK 2018 Revocable Trust, which beneficially owns approximately 58% of our issued and outstanding common stock and Dr.
Kukes, together with the ownership of The SGK 2018 Revocable Trust, beneficially owns approximately 66.5% of our issued and outstanding common stock.
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Risks Relating to Government Regulations
−Removed: Changes in the legal and regulatory environment governing the oil and natural gas industry, particularly changes in the current Colorado forced pooling system and drilling operation set-back rules, salt water disposal permitting regulations in New Mexico, and new federal orders restricting operations on federal lands, could have a material adverse effect on our business.
+Added: Changes in the legal and regulatory environment governing the oil and natural gas industry, particularly changes in the current Colorado forced pooling system and drilling operation set-back rules, salt water disposal permitting regulations in New Mexico or Wyoming, and new federal orders restricting operations on federal lands, could have a material adverse effect on our business.
Our business is subject to various forms of government regulation, including laws, regulations and federal orders concerning the location, spacing and permitting of the oil and natural gas wells we drill, among other matters.
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In recent quarters, we have encountered significant delays in receiving such permits, and increasing difficulty in obtaining required permits, from the New Mexico State Land Office, which has delayed completion operations and the bringing of new wells on to full production.
−Removed: Changes in the legal and regulatory environment governing our industry, particularly any changes to Colorado’s forced pooling procedures that make forced pooling more difficult to accomplish and changes in minimum set-backs distances for drilling operations from buildings (including those recently adopted), or increased regulation in New Mexico with respect to salt water disposal well permitting, could result in increased compliance costs and operational delays, and adversely affect our business, financial condition and results of operations.
−Removed: In addition, approximately 26% of our Permian Basin Assets and 1% of our D-J Basin Asset are located on federal leases, which may be subject to federal laws, regulations and orders that could limit our ability to operate.
+Added: Changes in the legal and regulatory environment governing our industry, particularly any changes to Colorado’s forced pooling procedures that make forced pooling more difficult to accomplish and changes in minimum set-backs distances for drilling operations from buildings (including those recently adopted), or increased regulation in New Mexico or Wyoming with respect to salt water disposal well permitting, could result in increased compliance costs and operational delays, and adversely affect our business, financial condition and results of operations.
+Added: In addition, approximately 16% of the Company’s acreage in New Mexico, 1% of the Company’s acreage in Colorado, and 3% of the Company’s acreage in Wyoming is located on federal lands, which may be subject to federal laws, regulations and orders that could limit our ability to operate.
For example, on January 20, 2021, the Acting Secretary of the Interior issued Order Number 3395 (“ Order No.
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By further example, in April 2019, Colorado Senate Bill 19-181 (the “ Bill ”) was passed into law, which prioritizes the protection of public safety, health, welfare, and the environment in the regulation of the oil and gas industry by modifying the State’s oil and gas statutes and clarifying, reinforcing, and establishing local governments’ regulatory authority over the surface impacts of oil and gas development in Colorado.
−Removed: This Bill, among other things, gives more power to local government entities in making land use decisions about oil and gas development and regulation, and directs the Colorado Oil & Gas Conservation Commission (“ COGCC ”) to promulgate rules to ensure, among other things, proper wellbore integrity, allow public disclosure of flowline information, and evaluate when inactive or shut-in wells must be inspected before being put into production or used for injection.
+Added: This Bill, among other things, gives more power to local government entities in making land use decisions about oil and gas development and regulation, and directs the Energy & Carbon Management Commission (“ ECMC ”) (formally the Colorado Oil & Gas Conservation Commission (“ COGCC ”)) to promulgate rules to ensure, among other things, proper wellbore integrity, allow public disclosure of flowline information, and evaluate when inactive or shut-in wells must be inspected before being put into production or used for injection.
In addition, the Bill requires that owners of more than 50% of the mineral interests in lands to be pooled must have joined in the application for a pooling order and that the application must include proof that the applicant received approval for the facilities from the affected local government or that the affected local government does not regulate such facilities.
In addition, the Bill provides that an operator cannot use the surface owned by a nonconsenting owner without permission from the nonconsenting owner, and increases nonconsenting owners’ royalty rates during a well’s pay-back period from 12.5% to 13.0%.
−Removed: Pursuant to the Bill, the COGCC conducted a series of rulemaking hearings during 2020 which resulted in updated regulatory and permitting requirements, including siting requirements.
−Removed: The COGCC commissioners determined that locations with residential or high occupancy building units within 2,000 feet would be subject to additional siting requirements, but also supported “off ramps” allowing oil and gas operators to site their drill pads as close as 500 feet from building units in certain circumstances.
+Added: Pursuant to the Bill, the COGCC (now the ECMC) conducted a series of rulemaking hearings during 2020 which resulted in updated regulatory and permitting requirements, including siting requirements.
+Added: The COGCC (now the ECMC) commissioners determined that locations with residential or high occupancy building units within 2,000 feet would be subject to additional siting requirements, but also supported “off ramps” allowing oil and gas operators to site their drill pads as close as 500 feet from building units in certain circumstances.
We anticipate that the Bill may make it more difficult and more costly for us to undertake oil and gas development activities in Colorado.
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This increase in non-attainment status to “serious” triggered significant additional obligations for the state under the CAA and resulted in Colorado adopting new and more stringent air quality control requirements in December 2020 that are applicable to our operations, with additional obligations for the state under the CAA possible that could result in new and more stringent air quality permitting and control requirements, which may in turn result in significant costs and delays in obtaining necessary permits applicable to our operations.
−Removed: While there were no oil and gas ballot initiatives in 2022 that would have imposed additional regulations on the oil and gas industry in the State of Colorado, it is possible that future ballot initiatives will be proposed that could limit the areas of the state in which drilling would be permitted to occur or otherwise impose increased regulations on our industry.
+Added: It is possible that future ballot initiatives will be proposed that could limit the areas of the state in which drilling would be permitted to occur or otherwise impose increased regulations on our industry.
The Federal Government previously instituted a moratorium on new oil and gas leases and permits on federal onshore and offshore lands, which may have a material adverse effect on the Company and its results of operations.
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President Biden subsequently announced that his administration will resume onshore oil and gas lease sales on federal lands effective April 18, 2022.
−Removed: A total of approximately 26% of the Company’s acreage in New Mexico and 1% of the Company’s acreage in Colorado are located on federal lands.
+Added: A total of approximately 16% of the Company’s acreage in New Mexico, 1% of the Company’s acreage in Colorado, and 3% of the Company’s acreage in Wyoming is located on federal lands.
It is currently unclear whether the moratorium will be reinstated, or whether such moratorium is the start of a change in federal policies regarding the grant of oil and gas permits on federal lands.
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regulatory developments in connection with these activities will not be known with certainty until such derivatives market regulations are fully implemented and related market practices and structures are fully developed.
+Added: We have identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting.
+Added: If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.
+Added: Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements.
+Added: As reported under “ Part II ” - “ Item 9 A .
+Added: Controls and Procedures ” , as of December 31, 2023, our Chief Executive Officer (“ CEO ”) and Chief Accounting Officer (“ CAO ”) have determined that our disclosure controls and procedures were not effective.
+Added: Separately, management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 and determined that such internal control over financial reporting was not effective as a result of such assessment, and such internal control over financial reporting.
+Added: A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
+Added: A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
+Added: As of December 31, 2023, the material weakness in our internal control over financial reporting related to the review of the inputs to the calculation of depreciation, depletion, and amortization of our reserves, including the review over the proper inclusion of all developed reserves and the review of proper exclusion of certain segments of certain wells towards the end of the life in the reserve quantity estimates.
+Added: The error was identified through the course of the Company’s preparation of its year-ended December 31, 2023 financial statements.
+Added: The Company has already developed a plan to implement new controls and procedures designed to address the identified material weakness.
+Added: The Company believes these new controls and procedures will remediate the material weaknesses in a future period.
+Added: However, there is the potential that the Company’s already implemented efforts to remedy the material weakness will be ineffective and/or that additional material weaknesses could occur regardless of the remediation or additional controls implemented by the Company.
+Added: Maintaining effective disclosure controls and procedures and effective internal control over financial reporting are necessary for us to produce reliable financial statements and the Company is committed to remediating its material weaknesses in such controls as promptly as possible.
+Added: However, there can be no assurance as to when these material weaknesses will be remediated or that additional material weaknesses will not arise in the future.
+Added: Any failure to remediate the material weaknesses, or the development of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements and cause us to fail to meet our reporting and financial obligations, which in turn could have a material adverse effect on our financial condition and the trading price of our common stock, and/or result in litigation against us or our management.
+Added: In addition, even if we are successful in strengthening our controls and procedures, those controls and procedures may not be adequate to prevent or identify irregularities or facilitate the fair presentation of our financial statements or our periodic reports filed with the SEC.
Risks Related to Our Common Stock
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In addition, a stockholder may not be able to borrow funds using our common stock as collateral because lenders may be unwilling to accept the pledge of securities having such a limited market.
−Removed: We cannot assure you that an active trading market for our common stock will develop or, if one develops, be sustained.
+Added: We cannot assure you that an active trading market for our common stock will develop or, if one develops, that it will be sustained.
An active and sustained trading market for our common stock may not develop in the future.
138 unchanged sentences
The perception in the public market that our shareholders might sell shares of our common stock could also depress the market price of our common stock.
−Removed: Up to $100,000,000 in total aggregate value of securities have been registered by us on a “ shelf ” registration statement on Form S-3 (File No.
−Removed: 333-250904) that we filed with the Securities and Exchange Commission on November 23, 2020 (the “ November 2020 Form S-3 ”), and which was declared effective on December 2, 2020.
−Removed: To date, an aggregate of approximately $15.95 million in securities have been sold by us under the November 2020 Form S-3, leaving approximately $84.05 million in securities which will be eligible for sale in the public markets from time to time, when sold and issued by us, subject to the requirements of Form S-3, which limits us, until such time, if ever, as our public float exceeds $75 million, from selling securities in a public primary offering under Form S-3 with a value exceeding more than one-third of the aggregate market value of the common stock held by non-affiliates of the Company every twelve months.
−Removed: On November 17, 2021 we registered up to $3.6 million in securities for sale from time to time in an “at the market offering” under the November 2020 Form S-3 pursuant to a Prospectus Supplement, of which approximately $0.1 million of securities have been sold to date.
Additionally, if our existing shareholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline significantly.
65 unchanged sentences
Such changes might have a materially adverse impact on our financial position or results of operations.
−Removed: 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.