Legislation and regulatory initiatives relating to hydraulic fracturing could increase our cost of
doing business and adversely affect our operations.
From time to time, legislation has been introduced in Congress to amend the federal SDWA to
eliminate exemptions for most fracturing activities. Similar efforts to review the practice and impose
new regulatory conditions are taking place at the state and local level in states where we operate,
several of which have adopted or are considering new regulations and statutes. Hydraulic fracturing
involves the injection of water, sand and chemicals under pressure into rock formation to stimulate oil
and natural gas production. The use of hydraulic fracturing is necessary to produce commercial
quantities of oil and natural gas from many reservoirs, especially shale formations such as the
Haynesville Shale and the Eagle Ford Shale. These new requirements will (and future regulatory and
legislative changes, if enacted, could) create new permitting and financial assurance requirements,
require us to adhere to certain construction specifications, fulfill monitoring, reporting and
recordkeeping obligations, and meet plugging and abandonment requirements. The imposition of
stringent new regulatory and permitting requirements related to the practice of hydraulic fracturing
could significantly increase our cost of doing business and adversely affect our operations.
Certain of our undeveloped leasehold acreage is subject to leases that will expire over the next
several years unless production is established on units containing the acreage.
As of December 31, 2011, we had leases on approximately 84,000 net acres in the Haynesville
Shale area and approximately 60,000 net acres in the Eagle Ford Shale area. Over 85% of our
acreage in the Haynesville Shale and over 25% of our acreage in the Eagle Ford Shale is currently
held by production or held by operations. Unless production in paying quantities is established on units
containing these leases during their terms, the leases will expire. If our leases expire and we are
unable to renew the leases, we will lose our right to develop the related properties. Our drilling plans
for these areas are subject to change based upon various factors, including drilling results, gas prices,
the availability and cost of capital, drilling and production costs, availability of drilling services and
equipment, gathering system and pipeline transportation constraints and regulatory approvals. Further,
since we do not operate the Haynesville Shale acreage and portions of the Eagle Ford Shale acreage,
we have limited impact upon the drilling schedule for those leases.
Increased drilling in the Eagle Ford Shale may cause pipeline and gathering system capacity
constraints that could limit our ability to sell our oil and gas.
Because of the current economic climate, certain pipeline projects that are planned for the
Haynesville Shale and the Eagle Ford Shale may not occur because the prospective owners of these
pipelines may be unable to secure the necessary financing. In such event, this could result in wells
being shut-in awaiting a pipeline connection or capacity and/or gas being sold at much lower prices
than those quoted on the NYMEX or than we currently project, which would adversely affect our results
of operations.
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