| |
• | Compass’ ability to market and sell its oil, natural gas liquids and natural gas and its exposure to the credit risk of its customers, working interest owners and other counterparties and the risks associated with drilling activities; |
| |
• | the inherent uncertainty of estimates of oil and natural gas reserves; |
| |
• | the risk that Compass will be unable to identify or complete, or complete on economically attractive terms, suitable disposition and/or acquisition opportunities of oil and gas properties; |
| |
• | Compass’ ability to successfully operate in a highly regulated and litigious environment, including exposure to operating hazards and uninsured risks; |
| |
• | Compass’ ability to effectively mitigate the impact of commodity price volatility from its cash flows with its hedging strategy; |
| |
• | changes in the U.S. federal income tax laws and regulations that may affect the relative income tax advantages of Compass’ products; |
| |
• | the impact of future and existing environmental regulations; |
| |
• | the effects of climate change and unusual weather activity; |
| |
• | the intense competition in the oil and gas industry, including acquiring properties, contracting for drilling equipment and hiring experienced personnel; and |
| |
• | the unavailability of pipelines or other facilities interconnected to Compass’ gathering and transportation pipelines. |
We caution the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this document. Neither we nor any of our subsidiaries undertake any duty or responsibility to update any of these forward-looking statements to reflect events or circumstances after the date of this document or to reflect actual outcomes.
See Note 13, Commitments and Contingencies, to the Company’s Condensed Consolidated Financial Statements included in Part I - Item 1. Financial Statements.
When considering an investment in the Company, you should carefully consider the risk factors discussed in our Form 10-K and last quarterly report on Form 10-Q ("Form 10-Q"), as well as the risk factor below. Any of these risk factors could materially and adversely affect our or our subsidiaries’ business, financial condition and results of operations, and these risk factors are not the only risks that we or our subsidiaries may face. Additional risks and uncertainties not presently known to us or our subsidiaries or that are not currently believed to be material also may adversely affect us or our subsidiaries. With the exception of the additions and modifications to previously disclosed risk factors discussed below, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Form 10-K and Part II, Item IA, of our Form 10-Q.
Risks Related to Compass
The substantial declines in oil and natural gas prices have adversely affected Compass’ business, financial condition, cash flow, liquidity and results of operations, resulting in issues that may impair Compass’ ability to continue as a going concern in the future.
Much of Compass’ revenues and cash flow are greatly dependent upon prevailing prices for oil and natural gas. Compass’ ability to maintain or increase its borrowing capacity and to obtain additional capital on attractive terms is also dependent on oil and natural gas prices. Lower oil and natural gas prices not only decrease its revenues on a per unit basis, but also reduces the amount of oil and natural gas Compass can produce economically, if any.
Pursuant to terms of the agreement governing Compass’ credit facility (the “Compass Credit Agreement”), on March 31, 2016, Compass was required to deliver to the lenders under the credit facility Compass’ financial statements for the fiscal year ended September 30, 2015 that included an unqualified report from Compass’ auditors. Due in part to the current commodity pricing environment and current amount of indebtedness, Compass’ auditors stated in their report on Compass’ consolidated audited financial statements for the fiscal year ended September 30, 2015 that conditions existed that could raise substantial doubt about Compass’ ability to continue as a going concern (the “Compass Audit Report Qualification”). The Compass Audit Report Qualification would have constituted an event of default under the Compass Credit Agreement. Accordingly, on March 29, 2016, Compass entered into an amendment to the terms of the Compass Credit Agreement that included a limited waiver of any event of default that would have occurred due to the Compass Audit Report Qualification. In addition, the amendment modified the Applicable Spread (as defined in the Compass Credit Agreement) whereby (i) the ABR Spread (as defined in the Compass Credit Agreement) was increased from a range of 0.75%-1.75%, based on the Borrowing Base Usage (as defined in the Compass Credit
