Petroleum engineering is a subjective process of estimating underground accumulations of oil and
gas that cannot be measured in an exact manner. Estimates of economically recoverable oil and gas
reserves and of future net cash flows depend upon a number of variable factors and assumptions,
including:
• historical production from the area compared with production from other comparable producing
areas;
• the assumed effects of regulations by governmental agencies;
• assumptions concerning future oil and gas prices; and
• assumptions concerning future operating costs, transportation costs, severance and excise
taxes, development costs and workover and remedial costs.
Because all reserve estimates are to some degree subjective, each of the following items may
differ materially from those assumed in estimating reserves:
• the quantities of oil and gas that are ultimately recovered;
• the timing of the recovery of oil and gas reserves;
• the production and operating costs incurred; and
• the amount and timing of future development expenditures.
Furthermore, different reserve engineers may make different estimates of reserves and cash flows
based on the same available data. Actual production, revenues and expenditures with respect to
reserves will vary from estimates and the variances may be material, with the variability likely to be
higher for probable reserves estimates.
The discounted future net revenues included in this document should not be considered as the
market value of the reserves attributable to our properties. As required by the SEC, the estimated
discounted future net revenues from proved reserves are generally based on costs as of the date of
the estimates and the twelve-month average of the first-day-of-the-month reference prices as adjusted
for location and quality differentials. Actual future prices and costs may be materially higher or lower.
Actual future net revenues will also be affected by factors such as:
• the amount and timing of actual production;
• supply and demand for oil and gas; and
• changes in governmental regulations or taxation.
In addition, the 10% discount factor, which the SEC requires to be used to calculate discounted
future net revenues for reporting purposes, is not necessarily the most appropriate discount factor
based on the cost of capital in effect from time to time and risks associated with our business and the
oil and gas industry in general.
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