60
Our ability to discover and develop oil and gas reserves
Our future results of operations and financial condition will be
directly affected by our ability to discover and develop reserves through our exploration, appraisal and development drilling
activities, specifically our ability to sanction our North Platte, Shenandoah and Anchor projects for development. The
calculation of our geological and petrophysical estimates is complex and imprecise, and it is possible that our future exploration
will not result in additional discoveries, and, even if we are able to successfully make such discoveries, there is no certainty that
the discoveries will be commercially viable to produce. Our results of operations will be adversely affected in the event that our
estimated oil and gas asset base does not result in reserves that may eventually be commercially developed.
Production Costs.
We have only recently commenced production activities and started to incur production costs.
Production costs are the costs incurred in the operation of producing and processing our production and are primarily comprised
of lease operating expense, workover costs and production and ad valorem taxes. No production costs are reflected in our
historical financial statements.
General and Administrative Expenses.
These costs include expenses associated with our staff costs, information
technology, rent, travel, annual and quarterly reporting, investor relations, registrar and transfer agent fees, incremental
insurance costs, and accounting and legal services. In light of the current market environment and significant downturn in oil
and gas prices, we are continuing our efforts to reduce our cost structure company-wide which includes reducing or deferring
certain activities. On February 19, 2016, the Company initiated a workforce reduction program. We estimate that this program
will result in cash expenditures between $10 million to $15 million relating to severance payments. Actual expenditures will
vary if planned reductions do not occur as expected. See Note 22 “Subsequent Events” to our consolidated financial statement
for the year ended December 31, 2015 included elsewhere in this Annual Report on Form 10-K.
Depreciation, Depletion and Amortization.
We have only recently commenced production activities. In future periods,
we will amortize the costs of successful exploration, appraisal, drilling and field development using the unit-of-production
method based on total estimated proved developed oil and gas reserves. Costs of acquiring proved and unproved leasehold
properties and associated asset retirement costs will be amortized using the unit-of-production method based on total estimated
proved developed and undeveloped reserves. No depletion of oil and gas properties is reflected in our historical financial
statements.
Demand and Price.
The demand for oil and gas is susceptible to volatility related to, among other factors, policy
decisions by oil-producing nations, the level of global economic activity and may also fluctuate depending on the performance
of specific industries. We expect that a decrease in economic activity, in the United States and elsewhere, would adversely affect
demand for oil and gas we expect to produce. Since we have not generated revenues, these key factors will only affect our
financial statements when we produce and sell hydrocarbons.
Results of Operations
We operate our business in the U.S. Gulf of Mexico and Gabon, West Africa. The discussion of the results of operations and the
period-to-period comparisons presented below for consolidated operations analyzes our historical results. The following discussion
may not be indicative of future results.
