Our offshore operations are subject to substantial regulations and risks, which could adversely
affect our ability to operate and our financial results.
We conduct operations offshore California and the U.S. Gulf of Mexico. Our offshore activities are
subject to more extensive governmental regulation than our other oil and gas activities. In addition, we
are vulnerable to the risks associated with operating offshore, including risks relating to:
• hurricanes and other adverse weather conditions;
• oil field service costs and availability;
• compliance with environmental and other laws and regulations;
• remediation and other costs resulting from oil spill releases of hazardous materials and other
environmental damages; and
• failure of equipment or facilities.
We are currently conducting some of our exploration in the deeper waters of the Gulf of Mexico,
where operations are more difficult and costly than in shallower waters. The deeper waters in the Gulf
of Mexico lack the physical and oilfield service infrastructure present in its shallower waters. As a
result, deepwater operations may require a significant amount of time between a discovery and the
time that we can market our production, thereby increasing the risk involved with these operations.
Our operations in the Gulf of Mexico and offshore California could be adversely impacted by
the Macondo accident and resulting oil spill.
The six-month moratorium on the drilling of new deepwater wells and a suspension of permitted
wells being drilled in the Outer Continental Shelf regions of the Gulf of Mexico and Pacific Ocean was
conditionally lifted in October 2010. Notwithstanding the lifting of the moratorium some permits have
been issued, but at a much slower rate than before the Macondo accident.
We have offshore exploration, development and production ongoing in the Gulf of Mexico and
California. The BOEM/BSEE is expected to issue additional governmental regulation of the offshore
exploration and production industry. Recent legislative proposals include limitations upon, or
elimination of, existing liability caps, an increased minimum level of financial responsibility and
additional safety and spill-response requirements. We cannot predict with any certainty what form the
additional regulation or limitations will take. The impact upon our business of such regulations or
limitations could include cost increases, offshore exploration and development activity delay, as well as
changes in the availability and cost of insurance.
A significant portion of our oil production is dedicated to one customer and as a result, our
credit exposure to this customer is significant.
We have entered into an oil marketing arrangement with ConocoPhillips under which
ConocoPhillips purchases a significant portion of our oil production. We generally do not require letters
of credit or other collateral to support these trade receivables. Accordingly, a material adverse change
in their financial condition could adversely impact our ability to collect the applicable receivables, and
thereby affect our financial condition.
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