As filed with the Securities and Exchange Commission on April 16, 2010

File No. 333-

 

 

UNITED STATES SECURITIES AND
EXCHANGE COMMISSION

Washington, D.C. 20549

Form S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

RESOLUTE ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		1311		27-0659371
(State or other jurisdiction of		(Primary Standard Industrial		(I.R.S. Employer
incorporation or organization)		Classification Code Number)		Identification Number)

		James M. Piccone
1675 Broadway, Suite 1950		1675 Broadway, Suite 1950
Denver, Colorado 80202		Denver, Colorado 80202
303-534-4600 (Phone)		303-534-4600 (Phone)
(Address, including zip code, and telephone number, including		(Address, including zip code, and telephone number,
area code, of registrant’s principal executive offices)		including area code, of agent for service)

Copies to:
Ronald R. Levine, II
Davis Graham & Stubbs LLP
1550 Seventeenth Street, Suite 500
Denver, Colorado 80202
303-892-9400 (Phone)
303-892-7400 (Fax)

     Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

     If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. þ

     If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

     If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

     If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

CALCULATION OF REGISTRATION FEE

Proposed Maximum

Proposed Maximum

Title of Each Class of Securities to be

Amount to be

Offering Price per

Aggregate

Amount of

Registered

Registered

Security(1)

Offering Price

Registration Fee

Common Stock, par value $0.0001 per share

27,600,000 shares(1)(3)

$13.00

$358,800,000(4)

$—(4)

Common Stock, par value $0.0001 per share

20,800,000 shares(2)(3)

$13.00

$270,400,000(4)

$—(4)

          The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

Explanatory Note

          This registration statement supersedes and replaces in its entirety the proxy statement/prospectus dated September 14, 2009, as supplemented on September 23, 2009, November 24, 2009, March 15, 2010 and April 12, 2010, that were filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) on such dates under Registration Statement No. 333-161076 (the “Original Registration Statement”). This Registration Statement on Form S-1 contains an updated prospectus relating to shares of common stock issuable upon exercise of the Public Warrants, Sponsor’s Warrants and Founder’s Warrants (collectively, the “Warrants”) registered in the Original Registration Statement. All filing fees payable in connection with the registration of the shares of common stock issuable on exercise of Warrants were previously paid in connection with the filing of the Original Registration Statement.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell securities and is not soliciting an offer to buy these securities.

Subject to Completion, Dated April 16, 2010

PROSPECTUS

RESOLUTE ENERGY CORPORATION

          This prospectus relates to the issuance by us of 48,400,000 shares of our common stock, par value $0.0001 per share, of Resolute Energy Corporation, a Delaware corporation (the “Company”), of which:

	•		27,600,000 shares (the “Public Warrant Shares”) are issuable upon the exercise of outstanding Warrants issued to the public (the “Public Warrants”);
	•		7,000,000 shares (the “Sponsor Warrant Shares”) are issuable upon the exercise of outstanding Warrants held by certain persons (the “Sponsor’s Warrants”); and
	•		13,800,000 shares (the “Founder Warrant Shares”) are issuable upon the exercise of 13,800,000 outstanding Warrants held by certain persons (the “Founder’s Warrants” and, together with the Public Warrants and the Sponsor’s Warrants, the “Warrants”).

          The Warrants were all issued on September 25, 2009 pursuant to a prospectus dated September 14, 2009. Each Warrant entitles the holder to purchase one share of our common stock. In order to obtain the shares, the holders of the Warrants must pay an exercise price of $13.00 per share, subject to adjustment. Warrants expire on September 25, 2014. Founder’s Warrants are not currently exercisable, and will become exercisable only if the trading price of our common stock exceeds certain specified thresholds.

          Our common stock and Public Warrants began trading on the New York Stock Exchange on September 28, 2009, and are listed on the NYSE under the symbols “REN” and “RENWS”. On April 12, 2010, the closing price of the Public Warrants was $2.90 per Warrant and the closing price of the common stock was $13.19 per share.

          Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 10 of this prospectus and on Page A-34 of the Form 10-K attached as Appendix A hereto for a discussion of information that should be considered in connection with an investment in our securities.

          Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

          The date of this prospectus is       , 2010.

TABLE OF CONTENTS

		Page
PROSPECTUS SUMMARY			2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			8
RISK FACTORS			10
CAPITALIZATION			11
MARKET PRICE FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS			12
USE OF PROCEEDS			13
PLAN OF DISTRIBUTION			14
DESCRIPTION OF SECURITIES			15
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES			21
LEGAL MATTERS			25
EXPERTS			25
WHERE YOU CAN FIND MORE INFORMATION			26
APPENDIX A: FORM 10-K FOR YEAR ENDED DECEMBER 31, 2009			A-1
EX-5.1
EX-23.1
EX-23.2
EX-23.3
EX-23.4

 i

PROSPECTUS SUMMARY

          This summary highlights information contained in this prospectus, including in our Form 10-K for the year ended December 31, 2009 (the “Form 10-K”), which is Appendix A to this prospectus and forms a part hereof. This summary does not contain all of the information important to you. You should read this entire prospectus carefully, including the Form 10-K. See “Risk Factors” beginning on page 10 hereof and on Page 29 in our Form 10-K.

Company Overview

          We are an independent oil and gas company engaged in the exploration, exploitation and development of oil and gas properties located in Utah, Wyoming, North Dakota and, to a lesser extent, properties in Alabama and Oklahoma. Approximately 90% of our revenue is generated from the sale of oil production. Our main focus is on increasing reserves and production from our properties located in Utah (“Aneth Field Properties”) and from Hilight Field and related properties in Wyoming, (“Wyoming Properties”), while improving efficiency and controlling costs in our operations. We have completed a number of exploitation projects that have increased our proved developed reserve base, and have plans for additional expansion and enhancement projects. We plan to further expand our reserve base through a focused acquisition strategy by looking to acquire properties that have upside potential through development drilling and exploitation projects and through the acquisition, exploration and exploitation of acreage that appears to contain relatively low risk and repeatable drilling opportunities. Also, we seek to reduce the effect of short-term commodity price fluctuations on our cash flow through the use of various derivative instruments.

          Our largest asset, constituting 93% of our proved reserves, is our ownership of working interests in Greater Aneth Field (“Aneth Field”), a mature, long-lived oil producing field located in the Paradox Basin on the Navajo Reservation in southeast Utah. We own a majority of the working interests in, and are the operator of, three federal production units covering approximately 43,000 gross acres. These are the Aneth Unit, in which we own a 62% working interest, the McElmo Creek Unit, in which we own a 75% working interest, and the Ratherford Unit, in which we own a 59% working interest. As of December 31, 2009, we had interests in, and operated 399 gross (262 net) active producing wells and 334 gross (218 net) active water and CO₂ injection wells on our Aneth Field Properties. The crude oil produced from the Aneth Field Properties is generally characterized as light, sweet crude oil that is highly desired as a refinery blending feedstock.

          We were incorporated on July 28, 2009, to consummate a business combination with Hicks Acquisition Company I, Inc. (“HACI”), a Delaware corporation incorporated on February 26, 2007. HACI was formed to acquire through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination, one or more businesses or assets. HACI’s initial public offering was consummated on October 3, 2007. HACI had neither engaged in any operations nor generated any operating revenue prior to the business combination with us.

          On September 25, 2009 (the “Acquisition Date”), we consummated a business combination with HACI (the “Resolute Transaction”) under the terms of a Purchase and IPO Reorganization Agreement, dated as of August 2, 2009 (“Acquisition Agreement”) among the Company, HACI, Resolute Holdings Sub, LLC, Resolute Subsidiary Corporation, Resolute Aneth, LLC, Resolute Holdings, LLC and HH HACI, L.P., as amended. As a result of the Resolute Transaction, HACI became a wholly owned subsidiary of the Company. In addition, the Company owned, directly or indirectly, prior to the Resolute Transaction, and continues to own after the Resolute Transaction, 100% of the equity interests of Resolute Natural Resources Company, LLC (“Resources”), WYNR, LLC (“WYNR”), BWNR, LLC (“BWNR”), RNRC Holdings, Inc. (“RNRC”), and Resolute Wyoming, Inc. (“RWI”) (formerly known as Primary Natural Resources, Inc. (“PNR”)), and a 99.996% equity interest in Resolute Aneth, LLC (“Aneth”), (collectively, Resources, WYNR, BWNR, RNRC, Aneth and RWI are referred to as “Predecessor Resolute”). The entities comprising Predecessor Resolute prior to the Resolute Transaction were wholly-owned by Resolute Holdings Sub, LLC (except for Aneth, which was 99.996% owned by Resolute Holdings Sub, LLC), which in turn is a wholly-owned subsidiary of Resolute Holdings, LLC (“Holdings”). Under generally accepted accounting principles, HACI was the accounting acquirer in the Resolute Transaction.

          As used in this prospectus, unless otherwise indicated, references to “we,” “us,” “our,” “Resolute” and the “Company” refer to Resolute Energy Corporation for periods prior to and following the consummation of the Resolute Transaction. The terms HACI and Predecessor Resolute are used to refer to the respective entities for periods prior to the consummation of the Resolute Transaction.

          Our principal executive offices are located at 1675 Broadway, Suite 1950, Denver, Colorado 80202 and our telephone number is 303-534-4600.

THE OFFERING

Shares Offered by the Company		48,400,000 shares of common stock, of which:

	•		27,600,000 shares of common stock are issuable upon exercise of 27,600,000 outstanding Public Warrants;
	•		7,000,000 shares of common stock are issuable upon the exercise of 7,000,000 outstanding Sponsor’s Warrants; and
	•		13,800,000 shares of common stock are issuable upon the exercise of 13,800,000 outstanding Founder’s Warrants.

Warrants:
Warrant Exercise Price		$13.00 per share. Founder’s Warrants and Sponsor’s Warrants may be exercised on a “cashless exercise” basis.
Warrant Expiration Date		September 25, 2014
Warrant Exercise Period		The Public Warrants and Sponsor’s Warrants became exercisable on issuance on September 25, 2009. Founder’s Warrants will not be exercisable until the trading price of the common stock exceeds $13.75 for any 20 days within a 30 trading day period.
Limitations on Exercise		The Warrants will only be exercisable if a registration statement relating to the common stock issuable upon exercise is effective and current.
Redemption		We may redeem the outstanding Warrants (excluding any Founder’s Warrants or Sponsor’s Warrants held by certain affiliates of the Company or HACI):

	—		in whole and not in part,
	—		at a price of $.01 per Warrant at any time while the Warrants are exercisable,
	—		upon a minimum of 30 days’ prior written notice of redemption, and
	—		if, and only if, the last reported sales price of our common stock equals or exceeds $18.00 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption.

		If the foregoing conditions are satisfied and we issue a notice of redemption, each Warrant holder can exercise his, her or its Warrant prior to the scheduled redemption date.

Common Stock Outstanding as of April 12, 2010		53,160,375 shares(1)
Common Stock to be Outstanding Assuming Exercise of All of the Warrants		101,560,375 shares(1)(2)

SELECTED FINANCIAL DATA

Resolute

          The following table presents Resolute’s selected pro forma statement of operations for the year ended December 31, 2009, and selected historical financial data for the years ended December 31, 2009 and 2008 and for the period from inception in 2007 to December 31, 2007. The selected pro forma statement of operations for the year ended December 31, 2009, are derived from the Unaudited Pro Forma Financial Information included herein. The historical consolidated balance sheet and statement of operations information are derived from Resolute’s audited consolidated financial statements included in the Form 10-K, which is Appendix A to this prospectus. HACI was the accounting acquirer and, accordingly, the historical financial data below reflects HACI since its inception in 2007. Results of oil and gas operations are reflected from the date of the Resolute Transaction in September 2009. Future results may differ substantially from historical results because of changes in oil and gas prices, production increases or declines and other factors. This information should be read in conjunction with the consolidated financial statements and notes thereto and “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in the Form 10-K. The discussion in Item 7 of the Form 10-K regarding the Resolute Transaction affects the comparability of the information provided in this Selected Financial Data.

						Year Ended								For the period from February 26, 2007 to
		Pro Forma				December 31,								December 31,
		2009				2009				2008				2007
		(in thousands, except per share data)
Statement of Operation Data:
Revenue		$	127,760			$	42,416			$	—			$	—
Operating expenses			(154,318	)			(57,361	)			(1,560	)			(1,036	)
Loss from operations			(26,558	)			(14,945	)			(1,560	)			(1,036	)
Other (expense) income			(77,166	)			(50,185	)			7,601				5,154
(Loss) income before taxes			(103,724	)			(65,130	)			6,041				4,118
Income tax benefit (expense)			38,897				19,887				(2,054	)			(1,401	)
Net (loss) income			(64,827	)			(45,243	)			3,987				2,717
Basic and diluted (loss) earnings per share:
Common stock, subject to redemption			—			$	(0.16	)		$	0.09			$	0.06
Common stock		$	(1.30	)		$	(0.93	)		$	0.06			$	0.09
Weighted average shares outstanding:
Common stock, subject to redemption			—				12,114				16,560				16,560
Common stock			49,905				46,394				45,105				18,587
Selected Cash Flow Data:
Net cash (used in) provided by operating activities						$	(12,164	)		$	3,031			$	5,164
Net cash provided by (used in) investing activities							209,987				(2,264	)			(541,302	)
Net cash (used in) provided by financing activities							(198,187	)			—				536,190

		As of December 31,
		2009				2008
		(In thousands)
Balance Sheet Data:
Total assets		$	693,440			$	544,797
Long term debt			109,575				—
Total liabilities			299,903				19,291
Shareholders’ equity			393,537				362,199

Predecessor Resolute

     The following table presents Predecessor Resolute’s selected financial data for the 267 day period ended September 24, 2009, and for the years ended December 31, 2008, 2007, 2006, and 2005. The combined historical financial data for the 2009 period and for the years ended December 31, 2008, 2007, and 2006, have been derived from the audited combined financial statements of Predecessor Resolute. The historical financial data of Predecessor Resolute for the year ended December 31, 2005, has been derived by combining the audited consolidated and combined financial statements of the predecessor entities.

		For the 267 Day
		Period Ended
		September 24,				December 31,
		2009				2008				2007				2006				2005
		(in thousands)
Revenue		$	85,344			$	229,172			$	173,343			$	130,478			$	53,466
Operating expenses			46,771				85,990				66,731				54,640				20,320
(Loss) income from operations			(4,723	)			(172,391	)			38,549				53,051				21,977
Other (expense) income			(41,888	)			63,725				(141,221	)			(7,009	)			(34,113	)
(Loss) Income before income taxes			(46,611	)			(108,666	)			(102,672	)			46,042				(12,136	)
Income tax benefit (expense)			5,019				18,247				(1,740	)			(3,312	)			(4,084	)
Net (loss) Income			(41,592	)			(90,419	)			(104,412	)			42,730				(16,220	)
Net loss (Income) attributable to the noncontrolling interest			—				177				(409	)			(715	)			(55	)
Net (loss) Income attributable to Predecessor Resolute			(41,592	)			(90,242	)			(104,821	)			42,015				(16,275	)

UNAUDITED PRO FORMA FINANCIAL INFORMATION

          The following unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2009 has been derived by the application of pro forma adjustments to the historical consolidated and combined financial statements of Resolute and Predecessor Resolute to reflect the Resolute Transaction as if the Resolute Transaction had been completed on January 1, 2009. The column labeled “Pro Forma” provides data that is compiled according to the requirements for pro forma presentation contained in Regulation S-X. The adjustments are annotated in the information below.

          The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2009 does not include any adjustments for cost savings that are anticipated to be realized from the elimination of historical operating expenses of HACI. Since its inception, HACI’s efforts were limited to organizational activities, activities relating to its initial public offering, activities relating to identifying and evaluating prospective acquisition candidates, and activities relating to general corporate matters.

          The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2009 should not necessarily be considered indicative of actual results that would have been achieved had the Resolute Transaction been consummated on the date indicated and does not purport to indicate results of operations as of any future date or for any future period. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2009 should be read together with the historical financial statements of Resolute and Predecessor Resolute and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Resolute” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Predecessor Resolute” included in the Form 10-K, which is attached hereto as Appendix A.

		Unaudited Pro Forma Condensed Consolidated Statement of Operations
		For the Year Ended December 31, 2009
						Predecessor								Pro
		Resolute				Resolute				Adjustments				Forma
		(in thousands except per share data)
Total revenue		$	42,416			$	85,344			$	—			$	127,760
Operating expenses			21,992				46,771				—				68,763
Depletion, depreciation, amortization and asset retirement obligation accretion			11,541				21,925				6,890	a			40,356
Impairment of proved properties			—				13,295				—				13,295
Write off of deferred acquisition costs			3,500				—				—				3,500
General and administrative expenses			20,328				8,076				—				28,404
Total operating expenses			57,361				90,067				6,890				154,318
Income (loss) from operations			(14,945	)			(4,723	)			(6,890	)			(26,558	)
Other income (expense):
Interest income (expense)			(762	)			(18,416	)			14,907	b			(4,271	)
(Loss) gain on derivative instruments			(49,514	)			(23,519	)			—				(73,033	)
Other income (expense)			91				47				—				138
Total other income (expense)			(50,185	)			(41,888	)			14,907				(77,166	)
Income (loss) before taxes			(65,130	)			(46,611	)			8,017				(103,724	)
Income tax (expense) benefit			19,887				5,019				13,991	c			38,897
Net income (loss)		$	(45,243	)		$	(41,592	)		$	22,008			$	(64,827	)
Basic and diluted earnings (loss) per share:
Common stock, subject to redemption		$	(0.16	)											—
Common stock		$	(0.93	)										$	(1.30	)
Weighted average shares outstanding:
Common stock, subject to redemption			12,114												—
Common stock			46,394												49,905

Adjustments to Unaudited Pro Forma
Condensed Consolidated Statement of Operations
for the Year Ended December 31, 2009

     a. Represents the increase in depletion, depreciation, amortization and accretion computed on a unit of production basis following the allocation of the excess of the aggregate purchase price consideration over the historical book value of Predecessor Resolute to proved oil and gas properties, as if the Resolute Transaction had been consummated on January 1, 2009.

     b. Represents reduced interest income and interest expense resulting from the repayment of Predecessor Resolute’s $225.0 million second lien term loan and a $99.5 million partial repayment of Resolute’s revolving credit facility as if the repayments occurred on January 1, 2009.

     c. Assumes an effective tax rate of 37.5% on income (loss) before income taxes. This reflects both the federal and state statutory income taxes rates that were in effect during the periods presented.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

          This prospectus contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. The use of any statements containing the words “anticipate,” “intend,” “believe,” “estimate,” “project,” “expect,” “plan,” “should” or similar expressions are intended to identify such statements. Forward-looking statements included in this report relate to, among other things, expected future production, expenses and cash flows in 2010, the nature, timing and results of capital expenditure projects, amounts of future capital expenditures, our future debt levels and liquidity and future compliance with covenants under our revolving credit facility, whether conditions to exercise of Founder’s Warrants will be satisfied and the extent to which Warrants will be exercised. Although we believe that the expectations reflected in such forward-looking statements are reasonable, those expectations may prove to be incorrect. All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement. Factors that could cause actual results to differ materially from our expectations include, among others, those factors referenced in the “Part I— Item 1A. Risk Factors” section of our Form 10-K for the year ended December 31, 2009, and such things as:

	•		volatility of oil and gas prices, including reductions in prices that would adversely affect our revenue, income, cash flow from operations, liquidity and reserves;
	•		a continuation of, or further deterioration in, currently adverse conditions in global credit markets and in economic conditions generally;
	•		discovery, estimation, development and our ability to replace oil and gas reserves;
	•		our future cash flow, liquidity and financial position of the Company;
	•		the success of our business and financial strategy, hedging strategies and plans of the Company;
	•		the amount, nature and timing of our capital expenditures, including future development costs;
	•		a lack of available capital and financing;
	•		the effectiveness and results of our CO2 flood program;
	•		the success of the development plan and production from our Aneth Field Properties;
	•		the timing and amount of future production of oil and gas;
	•		exploratory drilling in the Bakken trend of the Williston Basin;
	•		volatility of stock prices generally and in the oil and gas industry, and in the price of our common stock;
	•		availability of drilling and production equipment;
	•		success of refracs scheduled in the Muddy formation;
	•		commencement of activities in the Big Horn Basin;
	•		inaccuracy in reserve estimates and expected production rates;
	•		our operating costs and other expenses;
	•		the success in marketing oil and gas;
	•		competition in the oil and gas industry;
	•		uninsured or underinsured losses in, or operational problems affecting, our operations;
	•		the impact and costs related to compliance with or changes in laws or regulations governing our oil and natural gas operations;
	•		our relationship with the Navajo Nation and Navajo Nation Oil and Gas, as well as the timing of when certain purchase rights held by Navajo Nation Oil and Gas become exercisable;
	•		the impact of weather and the occurrence of disasters, such as fires, floods and other events and natural disasters;
	•		environmental liabilities;
	•		expected increase in capacity due to additional pumps in the McElmo Creek pipeline;
	•		anticipated CO2 supply to be sourced from Kinder Morgan;

	•		risks related to our level of indebtedness;
	•		developments in oil-producing and gas-producing countries;
	•		the success of strategic plans, expectations and objectives of our future operations;
	•		loss of senior management or technical personnel;
	•		acquisitions and other business opportunities (or the lack thereof) that may be presented to and pursued by us;
	•		risk factors discussed or referenced in this prospectus; and
	•		other factors, many of which are beyond our control.

RISK FACTORS

          An investment in our securities involves a high degree of risk. You should carefully consider and evaluate all of the information contained in this prospectus and in the Form 10-K before you decide to purchase our common stock. In particular, you should carefully consider and evaluate the risks and uncertainties described in “Part I— Item 1A. Risk Factors” on Page 29 of our Form 10-K, which appears as Appendix A in this prospectus. Any of the risks and uncertainties set forth therein and below could materially and adversely affect our business, results of operations and financial condition, which in turn could materially and adversely affect the trading price of our common stock. As a result, you could lose all or part of your investment.

Offers or availability for resale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

          If after the effectiveness of the registration statement of which this prospectus forms a part, our warrant holders exercise outstanding Warrants and sell substantial amounts of our common stock in the public market, or if our stockholders resell substantial amounts of our common stock pursuant to a registration statement or upon the expiration of any statutory holding period under Rule 144 or Rule 145 under the Securities Act of 1933, as amended (the “Securities Act”), such resales could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make it more difficult for us to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

Registration rights held by certain of our stockholders may have an adverse effect on the market price of our common stock.

          Under a Registration Rights Agreement entered into in connection with the Resolute Transaction, holders of registrable securities have the right to demand registration under the Securities Act of all or a portion of their registrable securities subject to amount and time limitations. Holders of the registrable securities may demand four registrations. Additionally, whenever (i) we propose to register any of our securities under the Securities Act and (ii) the method we select would permit the registration of registrable securities, holders of registrable securities have the right to request the inclusion of their registrable securities in such registration. The resale of these shares in the public market upon exercise of the registration rights described above could adversely affect the market price of our common stock or impact our ability to raise additional equity capital. Parties to the Registration Rights Agreement have right to request registration of (i) shares representing approximately 25% of our outstanding common stock at March 31, 2010, and (ii) an additional 20,800,000 shares purchasable on exercise of outstanding warrants.

We may choose to redeem our outstanding Public Warrants at a time that is disadvantageous to the Warrant holders.

          We may redeem the Public Warrants at any time in whole and not in part, at a price of $0.01 per warrant, upon a minimum of 30 days’ prior written notice of redemption, if and only if the last sales price of our common stock equals or exceeds $18.00 per share (the “Trigger Price”) for any 20-trading days within a 30-trading day period ending three business days before we send the notice of redemption. If the Trigger Price is exceeded and the redemption notice given, the redemption may proceed even if the stock price falls below the $18.00 Trigger Price during the period prior to redemption. Redemption of the Public Warrants could force the Warrant holders (1) to exercise the Warrants and pay the exercise price therefor at a time when it may be disadvantageous for the holders to do so, (2) to sell the Warrants at the then current market price when they might otherwise wish to hold the Warrants or (3) to accept the nominal redemption price which is likely to be substantially less than the market value of the Warrants.

Exercise of outstanding Warrants would result in dilution to our stockholders and might have an adverse effect on the market price of our common stock.

          An aggregate of 27,600,000 Public Warrants and 13,800,000 Sponsor’s Warrants are currently exercisable at an exercise price of $13.00 per share. These warrants would only be exercised if the market price of our common stock exceeds the $13.00 per share exercise price. Exercise of these warrants at such time will result in dilution to our stockholders, which could cause the market price of our common stock to decline.

Delaware law and our amended and restated charter documents may impede or discourage a takeover that our stockholders may consider favorable.

          Our amended and restated charter and bylaws have provisions that may deter, delay or prevent a third party from acquiring us. These provisions include:

	•		limitations on the ability of stockholders to amend our charter documents, including stockholder supermajority voting requirements;
	•		the inability of stockholders to act by written consent or to call special meetings;
	•		a classified board of directors with staggered three-year terms;
	•		the authority of our board of directors to issue, without stockholder approval, up to 1,000,000 shares of preferred stock with such terms as the board of directors may determine and to issue additional shares of our common stock; and
	•		advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors.

          These provisions could have the effect of delaying, deferring or preventing a change in control, discourage others from making tender offers for our shares, lower the market price of our stock or impede the ability of our stockholders to change our management, even if such a change would be beneficial to our stockholders.

CAPITALIZATION

          The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2009.

          You should read this table in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto contained in our Form 10-K for the year ended December 31, 2009, which is attached as Appendix A hereto:

		December 31,
		2009
		(In thousands,
		except share data)
Cash and cash equivalents		$	455
Long-term debt:
Total long-term debt		$	109,575
Stockholders’ equity:
Common stock, $0.0001 par value: 225,000,000 shares authorized; 53,154,883 shares issued and outstanding			5
Preferred stock, $0.0001 par value, 1,000,000 shares authorized; no shares issued and outstanding			—
Additional paid-in capital			432,650
Retained earnings accumulated (deficit)			(39,118	)
Total stockholders’ equity			393,537
Total capitalization		$	503,112

MARKET PRICE FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

          Our common stock and Public Warrants began trading on the NYSE on September 28, 2009, and are listed on the NYSE under the symbols “REN” and “RENWS”. The closing prices of our common stock and Public Warrants on the NYSE on April 12, 2010 were $13.19 per share and $2.90 per Warrant.

          The following sets forth the high and low closing sales price of our common stock and Warrants, as reported on the NYSE for the periods shown:

		Common Stock								Warrants
		High				Low				High				Low
2010
Second Quarter (through April 12, 2010)		$	13.19			$	12.33			$	2.92			$	2.59
First Quarter		$	12.38			$	10.56			$	2.53			$	1.87
2009
Fourth Quarter			11.79				10.12				2.38				1.40
Third Quarter (September 28 – September 30)			10.60				9.72				1.65				1.00

USE OF PROCEEDS

          We will receive up to an aggregate of approximately $629.2 million from the exercise of the Warrants, if they are exercised in full, assuming no holders of Founder’s Warrants or Sponsor’s Warrants elected to exercise their Warrants on a “cashless exercise” basis. If all such holders elected cashless exercise, based on the stock price of $13.19 on April 12, 2010, we would receive proceeds of $358.8 million.

          We expect that any net proceeds from the exercise of the Warrants will be used for general corporate purposes, including possible acquisitions, and to fund working capital. There can be no assurance that the holders of Warrants will exercise any or all of them.

PLAN OF DISTRIBUTION

          We are registering the shares of common stock underlying the Warrants originally issued in the Resolute Transaction that are issuable upon the exercise of such Warrants by the holders thereof. The Warrants may be exercised at the offices of the Warrant Agent, Continental Stock Transfer & Trust Company, with the exercise form on the reverse of the Warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified check payable to us, for the number of Warrants being exercised. Alternatively, if “cashless exercise” is available, the exercise form would indicate that such method of exercise was being elected. Promptly upon receipt of the notice of exercise together with full payment of the Warrant price, the Warrant Agent will deliver to the holder the shares of common stock being purchased. We do not know if or when the Warrants will be exercised. We also do not know whether any of the shares acquired upon exercise will be sold.

          If the shares of common stock issuable on exercise of the Founder’s Warrants or Sponsor’s Warrants are considered as having been acquired “in connection with” the Resolute Transaction for purposes of Rule 145 of the Securities Act, the resale of such shares by affiliates would be restricted under that rule until September 25, 2010, unless the resale were registered under the Securities Act. We do not believe the shares were so acquired because the acquisition of common stock upon the exercise of the Founder’s Warrants and Sponsor’s Warrants requires an investment decision that is separate and distinct from the investment decision made to receive the Warrants in the Resolute Transaction. However, the SEC could take a different position, and each holder of Founder’s Warrants or Sponsor’s Warrants that is an affiliate should seek the advice of its counsel regarding the ability to resell the stock received on exercise of such Warrants prior to September 25, 2010.

DESCRIPTION OF SECURITIES

Common Stock

Authorized and Outstanding

          We are authorized to issue up to 225,000,000 shares of common stock, par value $0.0001 per share, of which 53,160,375 shares are outstanding as of April 12, 2010.

Voting

          Holders of our common stock (including earnout shares) each have one vote per share. Our directors are elected by the vote of a plurality of the common stock represented in person or by proxy at such meeting and entitled to vote on the election of directors. A majority of the outstanding shares of common stock constitute a quorum. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors.

          Upon our dissolution, our stockholders will be entitled to receive pro rata all assets remaining available for distribution to stockholders after payment of all liabilities and provision for the liquidation of any shares of preferred stock with preferential liquidation rights, if any, at the time outstanding. Our common stockholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the common stock.

Earnout Shares

          Earnout shares are common stock subject to forfeiture in the event that the earnout trigger price of $15.00 per share for any 20 trading days in any 30 trading day period is not met by September 25, 2014. The earnout shares have voting rights and are transferable; however, they are not registered for resale and have no economic rights until the trigger price is met.

          Earnout shares bear a restrictive legend that states that such shares are subject to forfeiture in the event that the trigger price earnout target of $15.00 per share is not met by September 25, 2014, and other restrictions as set forth in the Purchase and IPO Reorganization Agreement dated as of August 2, 2009 among HACI Resolute, Resolute Subsidiary Corporation, Resolute Aneth, LLC, Resolute Holdings, LLC, Resolute Holdings Sub, LLC, and HH-HACI, L.P.

Dividends

          The Delaware General Corporation Law permits a corporation to declare and pay dividends out of “surplus” or, if there is no “surplus,” out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. “Surplus” is defined as the excess of the net assets of the corporation over the amount determined to be the capital of the corporation by the board of directors. The capital of the corporation is typically calculated to be (and cannot be less than) the aggregate par value of all issued shares of capital stock. Net assets equals the fair value of the total assets minus total liabilities. The DGCL also provides that dividends may not be paid out of net profits if, after the payment of the dividend, capital is less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets.

          Declaration and payment of any dividend are subject to the discretion of the our board of directors, except in the case of the Earnout Shares, which are subject to forfeiture and will not have dividend participation rights unless the common stock trading price target of $15.00 is exceeded for any 20 trading days in any 30 day period prior to September 25, 2014. The time and amount of dividends will be dependent upon the our financial condition, operations, cash requirements and availability, debt repayment obligations, capital expenditure needs and restrictions in our debt instruments, industry trends, the provisions of Delaware law affecting the payment of distributions to stockholders and other factors.

          There are no restrictions in our certificate of incorporation or bylaws that prevent us from declaring dividends on our common stock; however, we are currently prohibited from declaring dividends under our amended revolving credit facility. We have not declared any dividends and do not plan to declare any dividends in the foreseeable future.

Preferred Stock

          We are authorized to issue up to 1,000,000 shares of preferred stock, par value $0.0001 per share. No shares of preferred stock are outstanding as of the date of this prospectus.

Warrants

          There are currently three types of Warrants outstanding: (1) Public Warrants, (2) Founder’s Warrants, and (3) Sponsor’s Warrants. The terms of the Founder’s Warrants and Sponsor’s Warrants are identical to the terms of the Public Warrants except as described below.

          As of April 12, 2010, there were 27,600,000 Public Warrants, 13,800,000 Founder’s Warrants and 7,000,000 Sponsor’s Warrants outstanding.

          Each type of Warrant entitles the holder to purchase one share of our common stock at a price of $13.00 per share, subject to adjustment and the limitations discussed below, at any time until September 25, 2014. However, the Warrants will be exercisable only if a registration statement relating to the common stock issuable upon exercise of the Warrants is effective and current.

          At any time while the Warrants are exercisable and there is an effective registration statement covering the shares of common stock issuable upon exercise of the Warrants available and current throughout the 30-day redemption period, we may call the outstanding Warrants (except as described below with respect to the Founder’s Warrants and the Sponsor’s Warrants) for redemption:

	•		in whole and not in part;
	•		at a price of $0.01 per Warrant;
	•		upon a minimum of 30 days’ prior written notice of redemption (the 30-day redemption period) to each Warrantholder; and
	•		if, and only if, the closing sale price of our common stock equals or exceeds $18.00 per share for any 20 trading days within a 30 trading day period ending on the third business day prior to the notice of redemption to Warrantholders.

          If the foregoing conditions are satisfied and we issue a notice of redemption of the Warrants, each Warrantholder will be entitled to exercise its Warrant prior to the scheduled redemption date. However, the price of our common stock may fall below the $18.00 redemption trigger price as well as the $13.00 Warrant exercise price after the redemption notice is issued.

          The exercise price and number of shares of common stock issuable on exercise of the Warrants may be adjusted in certain circumstances, including in the event of a stock dividend, stock split, extraordinary dividend, or our recapitalization, reorganization, merger or consolidation. However, the exercise price and number of shares of our common stock issuable upon exercise of the Warrants will not be adjusted for issuances of common stock at a price below the Warrant exercise price.

          The Warrants were issued in registered form under a Warrant agreement dated September 25, 2009, between Continental Stock Transfer & Trust Company, as Warrant agent, and the Company. You should review a copy of the Warrant Agreement, included as Exhibit 4.1 to our Form 10-K and to the registration statement of which this prospectus is a part (the “Warrant Agreement”), for a complete description of the terms and conditions applicable to the Warrants.

          The Warrants may be exercised upon surrender of the Warrant certificate on or prior to the expiration date at the offices of the Warrant agent, with the exercise form on the reverse side of the Warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to Resolute Energy Corporation, for the number of Warrants being exercised. The Warrant holders do not have any rights or privileges as holders of common stock and any voting rights until they exercise their Warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the Warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.

          No Warrants will be exercisable unless at the time of exercise a prospectus relating to our common stock issuable upon exercise of the Warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the Warrants. The terms of the Warrant agreement require us to use our best efforts to effectuate and maintain the effectiveness of a registration statement covering such shares and maintain a current prospectus relating to common stock issuable upon exercise of the Warrants until the expiration of the Warrants. However, no assurances can be provided that we will be able to do so, and if the condition is not met, holders will be unable to exercise their Warrants and we would not be required to settle any such Warrant exercise. If the prospectus relating to the common stock issuable upon the exercise of the Warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the Warrants reside, we will not be required to net cash settle or cash settle the Warrant exercise, the Warrants may have no value, the market for the Warrants may be limited and the Warrants may expire worthless.

          No fractional shares will be issued upon exercise of the Warrants. If, upon exercise of the Warrants, a holder would be entitled to receive a fractional interest in a share, we would, upon exercise, round up to the nearest whole number the number of shares of common stock to be issued to the Warrant holder.

Founder’s Warrants and Sponsor’s Warrants

Founder’s Warrants

          The terms of the Founder’s Warrants are identical to the terms of the Public Warrants except that the Founder’s Warrants:

	•		are not redeemable so long as they are held by the Initial Stockholders (as defined below), Resolute Holdings, LLC or their Permitted Transferees (as defined below);
	•		may not be exercised unless and until the last sale price of our common stock exceeds $13.75 for any 20 days within any 30 trading day period prior to September 25, 2014; and
	•		may be exercised at the option of the holder on a cashless basis.

          If the Founder’s Warrants are held by holders other than William H. Cunningham, William A. Montgomery, Brian Mulroney and William F. Quinn (the “Initial Stockholders”), HH-HACI, L.P., Resolute Holdings, LLC, or their Permitted Transferees, the Founder’s Warrants will be redeemable by Resolute and exercisable by the holders on the same basis as the Public Warrants.

          “Permitted Transferees” are (A) (i) the Company’s officers or directors or any affiliates or family members of any of the Company’s officers or directors, or (ii) any affiliates or partners of HH-HACI, L.P. or their partners, affiliates or family members, or (iii) Resolute Holdings, LLC or its members, directors and officers or their partners, affiliates or family members; (B) in the case of an Initial Stockholder, a member of the Initial Stockholder’s immediate family or a trust, the beneficiary of which is a member of the Initial Stockholder’s immediate family, an affiliate of the Initial Stockholder or a charitable organization; (C) any transferee receiving Founder’s Warrants or Sponsor’s Warrants upon the death of an Initial Stockholder by virtue of the laws of descent and distribution; (D) any transferee receiving Founder’s Warrants or Sponsor’s Warrants upon dissolution of HH-HACI, L.P. by virtue of the laws of the state of Delaware or

HH-HACI, L.P.’s limited partnership agreement; or (E) in the case of an Initial Stockholder, any transferee receiving Founder’s Warrants or Sponsor’s Warrants pursuant to a qualified domestic relations order.

          While the Founder’s Warrants were registered under the Securities Act, they will continue to bear a restrictive legend that states that such Warrants are subject to restrictions including that they are not exercisable until the closing price of our common stock exceeds $13.75 for any 20 days within any 30 day trading period, and that the Founder’s Warrants are subject to certain other terms that apply so long as the Founder’s Warrants are held by the Initial Stockholders or Permitted Transferees. The Founder’s Warrants were issued pursuant to the Warrant Agreement.

Sponsor’s Warrants

          The terms of the Sponsor’s Warrants will be identical to the terms of the Public Warrants except that the Sponsor’s Warrants:

	•		will not be redeemable so long as they are held by HH-HACI, L.P., Resolute Holdings, LLC or their Permitted Transferees (as defined above); and
	•		may be exercised at the option of the holder on a cashless basis.

          If the Sponsor’s Warrants are held by holders other than HH-HACI, L.P., Resolute Holdings, LLC or their Permitted Transferees (the “Sponsor Warrant Holders”), the Sponsor’s Warrants will be redeemable by us and exercisable by the holders on the same basis as the Public Warrants.

          While the Sponsor’s Warrants were registered under the Securities Act, they will continue to bear a restrictive legend that states that such Warrants are subject to certain other terms that apply so long as they are held by the Sponsor Warrant Holders. The Sponsor’s Warrants were issued pursuant to the Warrant Agreement.

Transfer Agent

          Our transfer agent and registrar for our common stock and Warrants Agent for our Warrants is Continental Stock Transfer & Trust Company.

Registration Rights Agreement

          On September 25, 2009, in connection with the closing of the Resolute Transaction, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with HH-HACI, L.P., Thomas O. Hicks, Resolute Holdings, LLC, Natural Gas Partners VII, L.P., NGP-VII Income Co-Investment Opportunities, L.P. Nicholas Sutton, James Piccone, Richard Betz, Dale Cantwell, Theodore Gazulis, Janet Pasque, Kenneth Hersh, Richard Covington, William Quinn, William Cunningham, Thomas Hicks, Jr. and Robert Swartz (the “Holders”). Pursuant to the Registration Rights Agreement, the Holders are entitled to registration rights, subject to certain limitations, with respect to shares of the Company’s Common Stock, Earnout Shares, Founder’s Warrants (including the shares of Common Stock issuable upon the exercise of such Founder’s Warrants ), and Sponsor’s Warrants (including the shares of Common Stock issuable upon the exercise of such Sponsor’s Warrants) (collectively, the “Registrable Securities”) received in the Resolute Transaction and pursuant to distributions made to respective members or partners by HH-HACI, L.P. and Resolute Holdings, LLC . Each of two groups of Holders (the Hicks Registration Rights Holders and the REC Registration Rights Holders) is entitled to require the Company, on two occasions, to register under the Securities Act of 1933, as amended (the “Securities Act”) the Registrable Securities (“Demand Registration Rights”). The Company shall not be required to (y) effect a Demand Registration unless the aggregate offering price to the public in the offering is expected to be at least $10.0 million or (z) file a Registration Statement with respect to a Demand Registration within one hundred and eighty (180) days of the completion of any underwritten offering of the Company’s securities. The Holders may elect to exercise Demand Registration Rights at any time after March 25, 2010, 180 days following the consummation of the Resolute Transaction.

          In addition, the Holders may request registration on a Shelf Registration Statement, provided that the Company is not obligated to effect such a request (i) through an underwritten offering, (ii) where it is not eligible to use Form S-3 or

(iii) where the aggregate price to the public is less than $5.0 million. Registrations on Shelf Registration Statements shall not be counted as a Demand Registration subject to the limitations set forth above except in the case of an underwritten offering. The Holders also have certain “piggyback” registration rights on registration statements filed by the Company. The demand and piggyback registration rights are subject to certain customary conditions and limitations, including the right of the underwriters to limit the number of securities included in any underwritten offering.

          Rights under the Registration Rights Agreement are assignable by holders of Registrable Securities in conjunction with permitted transfers of Registrable Securities.

          The Company will bear the expenses incurred in connection with the filing of any such registration statements, including all reasonable expenses incurred in performing its obligations under the Registration Rights Agreement. The Holders will pay the underwriting commissions and fees associated with the sale of their respective securities in any underwritten offering. The preceding summary of the Registration Rights Agreement is qualified in its entirety by reference to the complete text of the agreement, which is filed as an exhibit to the Registration Statement of which this prospectus forms a part.

Anti-takeover Effects of Certain Provisions of the Resolute’s Charter and Bylaws

          Some provisions of our charter and our bylaws contain provisions that could make it more difficult to acquire the Company by means of a merger, tender offer, proxy contest or otherwise, or to remove our incumbent officers and directors. These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of the Company to first negotiate with our board of directors. We believe that the benefits of increasing our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure the Company outweigh the disadvantages of discouraging such proposals because negotiation of such proposals could result in an improvement of their terms.

Undesignated preferred stock

          The ability to authorize and issue undesignated preferred stock may enable our board of directors to render more difficult or discourage an attempt to change control of the Company by means of a merger, tender offer, proxy contest or otherwise. For example, if in the due exercise of its fiduciary obligations, the board of directors were to determine that a takeover proposal is not in our best interest, the board of directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group.

Classified board of directors

          Our charter provides for a board of directors divided into three classes and serving staggered, three-year terms. Approximately one-third of our board of directors are elected each year. This classified board of directors provision could discourage a third party from making a tender offer for our shares of capital stock or attempting to obtain control of the Company. It could also delay stockholders who do not agree with the policies of the board of directors from removing a majority of the board of directors for two years.

Removal of director

          Our charter provides that members of our board of directors may only be removed by the affirmative vote of holders of at least a majority of the voting power of all then outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class.

Stockholder meetings

          Our charter and bylaws provide that a special meeting of stockholders may be called only by the chairman of the board, the chief executive officer, the president or by a resolution adopted by a majority of the whole board of directors of the Company.

Requirements for advance notification of stockholder nominations and proposals

          Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors.

Stockholder action by written consent

          Our charter and bylaws provide that, except as may otherwise be provided with respect to the rights of the holders of preferred stock, no action that is required or permitted to be taken by the Company’s stockholders at any annual or special meeting may be effected by written consent of stockholders in lieu of a meeting of stockholders. This provision, which may not be amended except by the affirmative vote of at least 66²/₃% of the voting power of all then outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, makes it difficult for stockholders to initiate or effect an action by written consent that is opposed by our board of directors.

Amendment of the bylaws

          Under Delaware law, the power to adopt, amend or repeal bylaws is conferred upon the stockholders. A corporation may, however, in its certificate of incorporation also confer upon the board of directors the power to adopt, amend or repeal its bylaws. Our charter and bylaws grant our board the power to adopt, amend and repeal our bylaws at any regular or special meeting of the board on the affirmative vote of a majority of the directors then in office. The Company’s stockholders may adopt, amend or repeal the Company’s bylaws but only at any regular or special meeting of stockholders by an affirmative vote of holders of at least 66²/₃% of the voting power of all then outstanding shares of capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class.

Amendment of the certificate of incorporation

          Our charter provides that, in addition to any other vote that may be required by law or any preferred stock designation, the affirmative vote of the holders of at least 66²/₃% of the voting power of all then outstanding shares of capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class, is required to amend, alter or repeal, or adopt any provision as part of the Company’s charter inconsistent with the current provisions of the Company’s charter dealing with the board of directors, bylaws, meetings of the Company’s stockholders or amendment of the Company’s charter.

          The provisions of our certificate of incorporation and bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests.

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

          The following is a summary of the material U.S. Federal income tax consequences to U.S. holders and non-U.S. holders (each defined below) regarding (1) the exercise of Warrants for shares of our common stock, and (2) the acquisition, ownership and disposition of shares of our common stock obtained upon the exercise of a Warrant.

          For purposes of this discussion, a U.S. holder is a beneficial owner of shares of our common stock or Warrants exercisable for shares of our common stock who is:

	•		an individual who is a citizen or resident of the United States;
	•		a corporation (or other entity taxed as a corporation for U.S. Federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
	•		an estate the income of which is subject to U.S. Federal income taxation regardless of its source; or
	•		a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (ii) it has in effect a valid election to be treated as a U.S. person.

          For purposes of this discussion, a non-U.S. holder is a beneficial owner of shares of our common stock or Warrants exercisable for shares of our common stock that is not a U.S. holder.

          This section is based on current provisions of the Code, current and proposed Treasury regulations promulgated thereunder, and administrative and judicial decisions as of the date hereof, all of which are subject to change, possibly on a retroactive basis.

          Changes in these authorities may cause the tax consequences to vary substantially from the consequences described below. This summary is not binding on the IRS, and the IRS is not precluded from adopting a contrary position.

          This section does not purport to be a comprehensive description of all of the tax considerations that may be relevant to each holder of shares of our common stock or Warrants exercisable for shares of our common stock. This section does not address all aspects of U.S. Federal income taxation that may be relevant to any particular investor based on such investor’s individual circumstances. In particular, this section considers only U.S. holders and non-U.S. holders that hold shares of our common stock or Warrants exercisable for shares of our common stock as capital assets and does not address the potential application of the alternative minimum tax or the U.S. Federal income tax consequences to investors that are subject to special treatment, including:

	•		broker-dealers;
	•		insurance companies;
	•		taxpayers who have elected mark-to-market accounting;
	•		tax-exempt organizations;
	•		regulated investment companies;
	•		real estate investment trusts;
	•		financial institutions or “financial services entities;”
	•		taxpayers who hold shares of our common stock or Warrants exercisable for shares of our common stock as part of a straddle, hedge, conversion transaction or other integrated transaction;

	•		controlled foreign corporations;
	•		passive foreign investment companies;
	•		certain expatriates or former long-term residents of the United States; and
	•		U.S. holders whose functional currency is not the U.S. dollar.

          The following does not address any aspect of U.S. Federal gift or estate tax laws, or state, local or non-U.S. tax laws. In addition, the section does not consider the tax treatment of entities taxable as partnerships for U.S. Federal income tax purposes or other pass-through entities or persons who hold shares of our common stock or Warrants exercisable for shares of our common stock through such entities. Prospective investors are urged to consult their tax advisors regarding the specific tax consequences to them of the acquisition, ownership or disposition of shares of our common stock or Warrants exercisable for shares of our common stock in light of their particular circumstances.

Tax Consequences of Owning Shares of Our Common Stock and Warrants Exercisable for Shares of Common Stock

U.S. Holders

Exercise or Lapse of a Warrant

          A U.S. holder generally will not recognize gain or loss upon the exercise of a Warrant exercisable for shares of our common stock, other than cashless exercise addressed below. Shares of our common stock acquired pursuant to the exercise of such a Warrant will have a tax basis equal to the U.S. holder’s adjusted tax basis in the Warrant increased by the exercise price paid to exercise the Warrant. The holding period of such shares of our common stock will begin on the date following the date of exercise of the Warrant (or possibly the date of exercise).

          The tax consequences of a cashless exercise of a Warrant are not clear under current tax law. A cashless exercise may be tax-free, either because the exercise is not a gain realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either tax-free situation, the basis in the shares of our common stock received would equal the basis in the Warrant. If the cashless exercise were treated as a recapitalization, the holding period of the shares of our common stock would include the holding period of the Warrant. If the cashless exercise were otherwise treated as not being a gain realization event, the holding period in the shares of our common stock would likely be treated as commencing on the date following the date of exercise (or possibly on the date of exercise) of the Warrant.

          Alternatively, it is also possible that a cashless exercise could be treated as a taxable exchange in which gain or loss would be recognized. In such event, a U.S. holder could be deemed to have exchanged for cash equal to their fair market value, a number of Warrants equal to the number of shares of our common stock having a value equal to the exercise price for the total number of Warrants to be exercised. U.S. holders would recognize capital gain or loss in an amount equal to the difference between the fair market value of the shares of our common stock represented by the Warrants deemed surrendered and its tax basis in the Warrants deemed surrendered. In this case, the tax basis in the shares of our common stock received would equal the sum of the fair market value of the shares of our common stock represented by the Warrants deemed surrendered and the tax basis in the Warrants exercised. The holding period for the shares of our common stock would commence on the date following the date of exercise (or possibly on the date of exercise) of the Warrant.

          Due to the absence of authority on the U.S. federal income tax treatment of a cashless exercise, there can be no assurance which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders should consult their tax advisors regarding the tax consequences of a cashless exercise.

          If a Warrant is allowed to lapse unexercised, a U.S. holder will have a capital loss equal to such holder’s tax basis in the Warrant. Such loss will be long term if the Warrant has been held for more than one year.

Dividends and Other Distributions on Shares of Common Stock

          Distributions on shares of our common stock received upon exercise of a Warrant will constitute dividends for U.S. Federal income tax purposes to the extent paid from the Company’s current or accumulated earnings and profits, as determined under U.S. Federal income tax principles. If a distribution exceeds the Company’s current or accumulated earnings and profits, the excess will be treated first as a tax-free return of capital and will reduce (but not below zero) the U.S. holder’s adjusted tax basis in the common stock, and any remaining excess will be treated as capital gain from a sale or exchange of the shares of common stock, subject to the tax treatment described below in “Disposition of Shares of our Common Stock or Warrants.”

          Dividends received by a corporate U.S. holder generally will qualify for the dividends received deduction if the requisite holding period is satisfied. With certain exceptions, and provided certain holding period requirements are met, dividends received by a non-corporate U.S. holder generally will constitute “qualified dividends” that will be subject to tax at the maximum tax rate accorded to long-term capital gains for tax years beginning on or before December 31, 2010, after which the rate applicable to dividends is currently scheduled to change to the tax rate generally then applicable to ordinary income.

Surtax on Unearned Income

          For tax years beginning after December 31, 2012, a 3.8% surtax called the Unearned Income Medicare Contribution, would be placed on net investment income of a taxpayer earning over $200,000 ($250,000 for a joint return). Net investment income would be interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from a disposition of property (other than property held in a trade or business). Net investment income would be reduced by properly allocable deductions to such income.

Disposition of Shares of Our Common Stock or Warrants

          Upon the sale, exchange, redemption or other disposition of Warrants or shares of our common stock received upon exercise of a Warrant, a U.S. holder will recognize gain or loss in an amount equal to the difference between the amount realized on the sale, exchange or other disposition of the Warrants or shares of our common stock and the U.S. holder’s adjusted tax basis in such Warrants or stock. Generally, such gain or loss will be capital gain or loss. Any such capital gain or loss will be long-term capital gain or loss if the U.S. holder’s holding period for the shares or Warrants exceeds one year, and will otherwise be short-term capital gain or loss.

Tax Rates Applicable to Ordinary Income and Capital Gains

          Ordinary income and short-term capital gains of non-corporate U.S. holders is generally taxable, for tax years beginning on or before December 31, 2010, at rates of up to 35%. For tax years beginning after December 31, 2010, the maximum rate for non-corporate U.S. holders on ordinary income and short-term capital gains is scheduled to increase to 39.6%. Long-term capital gains of non-corporate U.S. holders are currently subject to a reduced maximum rate of 15% for tax years beginning on or before December 31, 2010. After December 31, 2010, the maximum long-term capital gains rate is scheduled to increase to 20%. The deductibility of capital losses is subject to limitations.

Adjustment to Exercise Price

          Under Section 305 of the Code, if certain adjustments are made (or not made) to the number of shares to be issued upon the exercise of a Warrant or to the Warrant’s exercise price, a U.S. holder may be deemed to have received a constructive distribution, which could result in the inclusion of dividend income.

Non-U.S. Holders

Exercise or Lapse of a Warrant

          The U.S. Federal income tax treatment of a non-U.S. holder’s exercise or lapse of a Warrant generally will correspond to the U.S. Federal income tax treatment of the exercise or lapse of a Warrant by a U.S. holder, as described under “U.S. Holders — Exercise or Lapse of a Warrant” above. However, capital loss recognized by a non-U.S. Holder on lapse of a warrant will generally be taken into account for U.S. income tax purposes only in the circumstances described under “— Disposition of Our Common Stock or Warrants.”

Dividends and Other Distributions on Shares of our Common Stock

          In general, any distributions made to a non-U.S. holder of shares of our common stock received upon exercise of a Warrant (and any constructive distributions a non-U.S. holder may be deemed to receive, see “U.S. Holders — Adjustment to Exercise Price”), to the extent paid out of current or accumulated earnings and profits of the Company (as determined under U.S. Federal income tax principles), will constitute dividends for U.S. Federal income tax purposes. Provided such dividends are not effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States, such dividends generally will be subject to withholding of U.S. Federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

          Any distribution not constituting a dividend will be treated first as a tax-free return of capital and will reduce (but not below zero) the non-U.S. holder’s adjusted tax basis in its shares of our common stock and any remaining excess will be treated as gain realized from the sale or other disposition of the common stock, as described under “— Disposition of our Common Stock or Warrants” below.

          Dividends paid to a non-U.S. holder that are effectively connected with such non-U.S. holder’s conduct of a trade or business within the United States generally will not be subject to U.S. withholding tax, provided such non-U.S. holder complies with certain certification and disclosure requirements (usually by providing an IRS Form W-8ECI). Instead, such dividends generally will be subject to U.S. Federal income tax at the same graduated individual or corporate rates applicable to U.S. holders. If the non-U.S. holder is a corporation, dividends that are effectively connected income may also be subject to a “branch profits tax” at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty.

          A non-U.S. holder who wishes to claim the benefit of an applicable treaty rate for dividends will be required (a) to complete IRS Form W-8BEN (or other applicable form) and certify under penalty of perjury that such holder is not a United States person as defined under the Code and is eligible for treaty benefits or (b) if the Company Common Stock is held through certain foreign intermediaries, to satisfy the relevant certification requirements of applicable U.S. Treasury regulations.

          A non-U.S. holder eligible for a reduced rate of U.S. Federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.

Disposition of our Common Stock or Warrants

          A non-U.S. holder generally will not be subject to U.S. Federal income or withholding tax in respect of gain recognized on a sale, exchange or other disposition of shares of our common stock received upon exercise of a Warrant or Warrants exercisable for shares of our common stock (including redemption of such warrants) unless:

	•		the gain is effectively connected with the conduct of a trade or business by the non-U.S. holder within the United States;
	•		the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are met; or
	•		the Company is or has been a “United States real property holding corporation” for U.S. Federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that the non-U.S. holder held shares of our common stock or Warrants exercisable for shares of our common stock and, in the case where shares of our common stock are regularly traded on an established securities market, the non-U.S. holder has owned, directly or indirectly, more than 5% of shares of our common stock at any time within the shorter of the five-year period preceding a disposition of shares of our common stock or such non-U.S. holder’s holding period for the shares of our common stock (or, in the case of a disposition of Warrants exercisable for shares of our common stock, the non-U.S. holder owned warrants exercisable for shares of our common stock that is regularly traded on an established securities market and that had a fair market value on the date they were acquired that was greater than the fair market value on that date of 5% of such shares of our common stock).

          Unless an applicable treaty provides otherwise, gain described in the first bullet point above will be subject to tax at generally applicable U.S. Federal income tax rates. Any gain described in the first bullet point above of a non-U.S. holder that is a foreign corporation may also be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. Gain described in the second bullet point above (which may be offset by U.S. source capital losses) will be subject to a flat 30% U.S. Federal income tax.

          With respect to the third bullet point above, there can be no assurance that shares of our common stock will be treated as regularly traded on an established securities market. The Company believes that it will be a “United States real property holding corporation” for U.S. Federal income tax purposes. Any capital gain described in the third bullet point will generally be subject to the same maximum tax rates that are applicable to U.S. holders.

Information Reporting and Back-up Withholding

          A U.S. holder may be subject to information reporting requirements with respect to dividends paid on shares of our common stock, and on the proceeds from the sale, exchange or disposition of shares of our common stock or warrants exercisable for shares of our common stock. In addition, a U.S. holder may be subject to back-up withholding (currently at 28%) on dividends paid on common shares, and on the proceeds from the sale, exchange or other disposition of shares of our common stock or Warrants exercisable for shares of our common stock unless the U.S. holder provides certain identifying information, such as a duly executed IRS Form W-9 certifying that he, she, or it is not subject to backup withholding or appropriate W-8, or otherwise establishes an exemption. Back-up withholding is not an additional tax and the amount of any back-up withholding will be allowable as a credit against a U.S. holder’s U.S. Federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished to the IRS. In general, a non-U.S. holder will not be subject to information reporting and backup withholding. However, a non-U.S. holder may be required to establish an exemption from information reporting and backup withholding by certifying the non-U.S. holder’s non-U.S. status on Form W-8BEN. Holders are urged to consult their own tax advisors regarding the application of the information reporting and backup withholding rules to them.

LEGAL MATTERS

          The validity of the shares of our common stock offered hereby will be passed upon for us by Davis Graham & Stubbs LLP, Denver, Colorado.

EXPERTS

          The consolidated financial statements of Resolute Energy Corporation as of December 31, 2009 and 2008, and for each of the years in the two-year period then ended, and for the period from February 26, 2007 (inception) to December 31, 2007, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, incorporated herein, and upon the authority of said firm as experts in accounting and auditing.

          The combined balance sheet of Resolute Natural Resources Company, LLC, Resolute Aneth, LLC, WYNR, LLC, BWNR, LLC, RNRC Holdings, Inc. and Resolute Wyoming, Inc. as of December 31, 2008 and the related combined statements of operations, shareholder’s/member’s equity (deficit), and cash flows for the period from January 1, 2009 to September 24, 2009, and the years ended December 31, 2008 and 2007 (with the exception of Resolute Wyoming, Inc. for the year ended December 31, 2007) have been audited by Deloitte & Touche LLP, independent registered public accounting firm, as stated in their report dated March 29, 2010 appearing in our Annual Report on Form 10-K for the year ended December 31, 2009 attached as Appendix A hereto (which report expresses an unqualified opinion on the financial statements and includes an explanatory paragraph relating to the retrospective adjustment for the change in accounting for non controlling interests as described in Note 2). The 2007 financial statements of Resolute Wyoming Inc. not presented separately herein have been audited by Grant Thorton LLP. Such financial statements are included in reliance upon the report of such firm given upon their authority as experts in auditing and accounting. All of the foregoing firms are independent public accounting firms.

          The financial statements of Resolute Wyoming, Inc., formerly Primary Natural Resources, Inc., as of December 31, 2007 and for the year then ended (not presented separately herein) have been audited by Grant Thornton LLP, independent registered public accountants, as indicated in their report with respect

thereto. The report of Grant Thornton LLP is included as an exhibit to the registration statement of which this prospectus forms a part in reliance upon the authority of said firm as experts in auditing and accounting in giving said report.

          Estimates of historical oil and natural gas reserves and related information of the Company as of December 31, 2009, December 31, 2008 and December 31, 2007 included in the Form 10-K attached as Appendix A hereto are based upon engineering studies prepared by the Company and audited by Netherland, Sewell & Associates, Inc., independent petroleum engineers. Such estimates and related information have been so included in reliance upon the authority of such firm as experts in such matters.

WHERE YOU CAN FIND MORE INFORMATION

          We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document that we file at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov.

          These filings and other documents are available and may be accessed on our website at www.resolutenergy.com. You may request a copy of these filings at no cost, by writing or calling Resolute Energy Corporation, Attention: Secretary, 1675 Broadway, Suite 1950 Denver, CO, 303-534-4600.

          We make our website content available for information purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference in this prospectus.

APPENDIX A

ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

 

 

 

 

FORM 10-K

 

 

Commission File No. 001-34464

 

 

 

 

RESOLUTE ENERGY CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

(303) 534-4600

 

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes o No þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 of the Exchange Act Yes o No þ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

 

Indicate by check mark if delinquent filers pursuant to item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, indefinite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

 

The aggregate market value of registrant’s common stock held by non-affiliates on June 30, 2009, computed by reference to the price at which the common stock was last sold as posted on the New York Stock Exchange, was $ N/A. (The Registrant became subject to reporting requirements of the Exchange Act in September 2009, and therefore is not able to provide information about the market value as of the end of the second quarter of 2009.)

 

As of March 29, 2010, 53,160,375 shares of the Registrant’s $0.0001 par value Common Stock were outstanding.

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. The use of any statements containing the words “anticipate,” “intend,” “believe,” “estimate,” “project,” “expect,” “plan,” “should” or similar expressions are intended to identify such statements. Forward-looking statements included in this report relate to, among other things, expected future production, expenses and cash flows in 2010, the nature, timing and results of capital expenditure projects, amounts of future capital expenditures, our future debt levels and liquidity and future compliance with covenants under our revolving credit facility. Although we believe that the expectations reflected in such forward-looking statements are reasonable, those expectations may prove to be incorrect. Disclosure of important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are included under the heading “Risk Factors” in this report and our Registration Statement on Form S-4, as amended (Registration No. 333-161076). All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement. Factors that could cause actual results to differ materially from our expectations include, among others, those factors referenced in the “Risk Factors” section of this report and our Registration Statement on Form S-4, as amended, and such things as:

 

 

 

TABLE OF CONTENTS

 

 

RESOLUTE’S BUSINESS

 

Resolute Energy Corporation (“Resolute” or the “Company”), a Delaware corporation incorporated on July 28, 2009, was formed to consummate a business combination with Hicks Acquisition Company I, Inc. (“HACI”), a Delaware corporation incorporated on February 26, 2007. HACI was a blank check company that was formed to acquire through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination, one or more businesses or assets. HACI’s initial public offering (the “Offering”) was consummated on October 3, 2007. HACI had not engaged in any operations or generated any operating revenue prior to the business combination with Resolute.

 

On September 25, 2009 (the “Acquisition Date”), HACI consummated a business combination under the terms of a Purchase and IPO Reorganization Agreement (“Acquisition Agreement”) with Resolute and Resolute Holdings Sub, LLC (“Sub”), whereby, through a series of transactions, HACI’s stockholders collectively acquired a majority of the outstanding shares of Resolute common stock (the “Resolute Transaction”). As a result of the Resolute Transaction, Resolute owned, directly or indirectly, 100% of the equity interests of Resolute Natural Resources Company, LLC (“Resources”), WYNR, LLC (“WYNR”), BWNR, LLC (“BWNR”), RNRC Holdings, Inc. (“RNRC”), and Resolute Wyoming, Inc. (“RWI”) (formerly known as Primary Natural Resources, Inc. (“PNR”)), and owned a 99.996% equity interest in Resolute Aneth, LLC (“Aneth”), (collectively “Predecessor Resolute”). The entities comprising Predecessor Resolute prior to the Resolute Transaction were wholly owned by Sub (except for Aneth, which was 99.996% owned by Sub), which in turn is a wholly-owned subsidiary of Resolute Holdings, LLC (“Holdings”). Under generally accepted accounting principles, HACI was the accounting acquirer.

 

Resolute is an independent oil and gas company engaged in the exploration, exploitation and development of its oil and gas properties located in Utah, Wyoming, North Dakota and, to a lesser extent, properties in Alabama and Oklahoma. Approximately 90% of Resolute’s revenue is generated from the sale of oil production. Resolute’s main focus is on increasing reserves and production from its properties located in Utah (its “Aneth Field Properties”) and from Hilight Field and related properties in Wyoming, (“Wyoming Properties”), while improving efficiency and controlling costs in its operations. Resolute believes that significantly more oil can be recovered from its Aneth Field Properties through industry standard secondary and tertiary recovery techniques. Resolute has completed a number of exploitation projects that have increased its proved developed reserve base, and it has plans for additional expansion and enhancement projects. In its Wyoming Properties, Resolute has identified 36 exploitation opportunities similar to those successfully completed by the previous operator. Resolute plans to further expand its reserve base through a focused acquisition strategy by looking to acquire properties that have upside potential through development drilling and exploitation projects and through the acquisition, exploration and exploitation of acreage that appears to contain relatively low risk and repeatable drilling opportunities. Also, Resolute seeks to reduce the effect of short-term commodity price fluctuations on its cash flow through the use of various derivative instruments.

 

Resolute’s largest asset, constituting 93% of its proved reserves, is its ownership of working interests in Greater Aneth Field (“Aneth Field”), a mature, long-lived oil producing field located in the Paradox Basin on the Navajo Reservation in southeast Utah. Resolute owns a majority of the working interests in, and is the operator of, three federal production units covering approximately 43,000 gross acres. These are the Aneth Unit, in which Resolute owns a 62% working interest, the McElmo Creek Unit, in which Resolute owns a 75% working interest, and the Ratherford Unit, in which Resolute owns a 59% working interest. As of December 31, 2009, Resolute had interests in, and operated 399 gross (262 net) active producing wells and 334 gross (218 net) active water and CO₂ injection wells on its Aneth Field Properties. The crude oil produced from the Aneth Field Properties is generally characterized as light, sweet crude oil that is highly desired as a refinery blending feedstock.

 

Resolute’s Wyoming Properties are largely located in the Powder River Basin of Wyoming and constitute approximately 7% of Resolute’s net proved reserves. Hilight Field, anchoring the Wyoming production and reserves, produces oil and gas from the Muddy formation. Shallow coalbed methane (“CBM”) production also

comes from this area. Resolute also owns properties in eastern Wyoming and Oklahoma that produce oil and gas. As of December 31, 2009, the Wyoming Properties consisted of 466 gross (420 net) active wells and Resolute operates all but 6 gross (1 net) wells. In addition, Resolute holds exploration leasehold rights in Wyoming’s Big Horn Basin and Alabama’s Black Warrior Basin.

 

In March 2010, Resolute acquired a 45% working interest in approximately 61,000 gross (42,000 net leasehold) acres in Williams County, North Dakota. This undeveloped leasehold is located within the Bakken shale trend of the Williston Basin. Although the Middle Bakken formation will be the primary objective, secondary objectives include the Three Forks, Madison and Red River formations. Resolute expects to participate in drilling at least three horizontal wells in this area during 2010.

 

As of December 31, 2009, Resolute’s estimated net proved reserves were approximately 64.4 MMBoe, of which approximately 35% were proved developed producing reserves and approximately 77% were oil. The pre-tax PV-10 of Resolute’s net proved reserves at December 31, 2009, was $479.9 million and the standardized measure of its estimated net proved reserves as of December 31, 2009, was $361.0 million. For additional information about the calculation of Resolutes’s PV-10 and its standardized measure, please read “Business and Properties — Estimated Net Proved Reserves.” The following table sets forth summary information attributable to Resolute’s estimated net proved reserves that is derived from its December 31, 2009, reserve report which was developed by Resolute and audited by Netherland, Sewell & Associates, Inc. (“NSAI”), independent petroleum engineers. Reserves and production information is as follows.

 

 

 

 

Resolute’s Business Strategies

 

Bring Proved Developed Non-Producing and Proved Undeveloped Reserves into Production. At December 31, 2009, Resolute had estimated net proved reserves of approximately 42.1 MMBoe that were classified as proved developed non-producing and proved undeveloped. An estimated 40.0 MMBoe, or 95% of those reserves, are attributable to recoveries associated with expansions, extensions and processing of the tertiary recovery CO₂ floods that are currently in operation on Resolute’s Aneth Field Properties. Predecessor Resolute and Resolute incurred approximately $21.9 million of capital expenditures related to the Aneth Field Properties during 2009, and Resolute expects to incur an additional $377.4 million of capital expenditures over the next 28 years (including purchases of CO₂), in connection with bringing those incremental reserves attributable to Resolute’s CO₂ flood projects into production. Resolute’s current plan anticipates approximately $162 million of these future capital expenditures will be incurred from 2010 through 2012.

Increase Production and Improve Efficiency of Operations on Resolute’s Existing Properties. Resolute’s management team has experience in managing operationally intensive oil and gas properties. As the operator of the Aneth Field Properties, Resolute has the ability to directly manage its costs, control the timing of its exploitation activities and effectively implement programs to increase production and improve the efficiency of its operations. For example, Predecessor Resolute initiated a program to actively work with vendors to reduce labor and material costs. Predecessor Resolute also conducted a proprietary 3-D seismic survey of the Aneth Unit in 2007, which is the first 3-D seismic survey covering Aneth Field. Resolute expects that the data obtained from this seismic survey will provide information to enable it to more efficiently develop and improve the recovery from its Aneth Field Properties. In addition, soon after Predecessor Resolute acquired properties from Chevron and from ExxonMobil and became the operator of the Aneth, McElmo Creek and Ratherford Units, Predecessor Resolute undertook a program of repair and maintenance of those producing assets. As a result of these efforts, Resolute has seen a reduction in the well workover costs. Also, because Resolute is the operator of three federal units in Aneth Field, it has been able to assemble a critical mass of employees and projects and allocate its resources across a broader area in a more efficient manner than was previously the case when each unit had a different operator.

 

Pursue Acquisitions of Properties with Development Potential. From inception, Predecessor Resolute’s goal was to grow its reserve base through a focused acquisition strategy. It completed three significant acquisitions, two in Utah and one in Wyoming. Substantially all of its Aneth Field Properties were acquired through significant purchases in November 2004 and April 2006. Predecessor Resolute then acquired its Wyoming Properties in July 2008. Resolute looks to acquire similar producing properties in the onshore United States that have upside potential through relatively low-risk development drilling and exploitation projects. It believes its knowledge of various operating areas, strong management and staff and solid industry relationships will allow it to find, capitalize on and integrate strategic acquisition opportunities in various areas.

 

Acquire and Explore Properties in Oil Prone Areas. Resolute recently acquired leasehold interests in the Williston Basin that are prospective for oil production in the Middle Bakken formation as well as other formations. Resolute intends to explore these properties and to acquire, explore and develop other properties in areas of the United States that are prospective for production of oil or natural gas liquids (“NGL”).

 

Reduce Commodity Price Risk through Hedging. Resolute seeks to reduce the effect of short-term commodity price fluctuations and achieve less volatile and more predictable cash flows through the use of various derivative instruments such as swaps, puts, calls and collars. Resolute expects to continue to use these financial arrangements to reduce its commodity price risk. As of December 31, 2009, Resolute had in place oil and gas swaps, oil and gas collars and a gas basis hedge. These included oil swaps covering approximately 75% of its anticipated 2010 oil production at a weighted average price of $67.24 per Bbl, oil collars covering approximately 4% of its anticipated 2010 oil production with a floor of $105.00 per Bbl and ceiling of $151.00 per Bbl, gas swaps covering approximately 73% of its anticipated 2010 gas production at a weighted average price of $9.69 per MMBtu, and a CIG gas basis hedge priced at $2.10 per MMBtu covering approximately 34% of its anticipated 2010 gas production. Additional instruments are also in place for future years and are summarized in the table below.

 

 

Competitive Strengths

 

A High Quality Base of Long-Lived Oil Producing Properties. The Aneth Field Properties have several characteristics that Resolute believes will provide a stable production platform with which to fund its development and growth activities:

 

 

Properties with Significant Low-Risk and Low-Cost Development Opportunities. As of December 31, 2009, approximately 42.1 MMBoe, or 65% of Resolute’s estimated net proved reserves, were classified as proved developed non-producing or proved undeveloped. An estimated 40.0 MMBoe, or 95% of those reserves, are attributable to recoveries associated with expansions, extensions and processing of the tertiary recovery CO₂ floods that are currently in operation on Resolute’s Aneth Field Properties. Resolute’s current development plan for its Aneth Field Properties indicates that in six years the daily production rate, on a Boe basis, should be double the average production rate achieved during the twelve months ended December 31, 2009. After that, Resolute expects the production rate to remain relatively stable for approximately four years and then begin a natural decline. Resolute believes these development projects, particularly its planned CO₂ flood projects, are relatively low risk compared to other conventional drilling-focused exploration and production activities, in large part because of the successful results of the McElmo Creek Unit CO₂ flood program that has been in operation since 1985 and because of the observed response from the CO₂ flood expansion Resolute has undertaken in the Aneth Unit. Following the initiation of the CO₂ flood project in the McElmo Creek Unit in 1985, oil production from the unit increased by approximately 30% over a thirteen year period (approximately 22% as a result of the CO₂ flood project and approximately 8% as a result of 24 newly drilled wells). Production then returned to a state of natural decline in 1998. Because of similar geological characteristics across Resolute’s Aneth Field Properties, Resolute expects to achieve analogous incremental reserves in Aneth Unit as were seen in McElmo Creek Unit,, but at accelerated production rates, due to the higher rate of CO₂injection in Resolute’s Aneth Unit project.

 

Operating Control Over the Resolute Properties. Resolute is the operator of the Aneth, McElmo Creek and Ratherford Units. As a result of having a critical mass of employees and projects and operating control across the three federal units encompassing approximately 43,000 acres, it has the ability to utilize its employees on a prioritized basis. Because Resolute is the operator of all of its Aneth Field Properties, it believes it can attract contract services, materials and equipment from a broader market and negotiate more favorable terms than would otherwise be available. Resolute also has the ability to control the timing, scope and costs of development projects undertaken in its Aneth Field Properties. Resolute also operates Hilight Field and most of its other Wyoming Properties.

 

Experienced Management Team with Operational, Transactional and Financial Experience in the Energy Industry. With an average industry work experience of more than 25 years, the senior management team of Resolute has considerable experience in acquiring, exploring, exploiting, developing and operating oil and gas properties, particularly in operationally intensive oil and gas fields. Five members of its senior management who formed Holdings in 2004 previously worked together as part of the senior management team of HS Resources, Inc., an independent oil and gas company that was listed on the New York Stock Exchange and primarily operated in the Denver-Julesburg Basin in northeast Colorado. HS Resources conducted resource development programs, managed and enhanced a gas gathering and processing system and built a hydrocarbon physical marketing and transportation business. Its development activities included drilling new wells, deepening wells and recompleting and refracturing existing wells to add reserves and enhance production. HS Resources also had an active program of acquiring producing properties and properties with development potential. HS Resources was acquired by Kerr-McGee Corporation in 2001.

Aneth Field

 

Aneth Field, located in San Juan County, Utah, was discovered by Texaco in 1956 and was subsequently developed by several large integrated oil companies. It is the largest oil field in the Paradox Basin. Resolute’s Aneth Field Properties cover approximately 43,000 acres and during the twelve months ended December 31, 2009, gross production from the Aneth Field Properties averaged 9,188 barrels of oil per day.

 

The primary producing horizon in Aneth Field is the Pennsylvanian-age Desert Creek formation, which is a carbonate algal-mound formation with average depth of approximately 5,525 feet. While there is some reservoir heterogeneity in Aneth Field, development of the reserves generally has been accomplished with well-tested methodologies, including drilling and infilling vertical wells, horizontal drilling, waterflood activities and CO₂ flooding. For administrative, organizational and operational reasons, in 1961 Aneth Field was divided into four separate federal production units to facilitate efficient development of the field and recovery of reserves. The three units that Resolute operates, the Aneth Unit, the McElmo Creek Unit and the Ratherford Unit, which constitute Resolute’s Aneth Field Properties, possess substantially similar geologic and operating characteristics.

 

Predecessor Resolute acquired its Aneth Field Properties primarily through two significant acquisitions. In November 2004, it acquired a 53% operating working interest in the Aneth Unit, a 15% non-operating working interest in the McElmo Creek Unit and a 3% non-operating working interest in the Ratherford Unit (“Chevron Properties”). In the April 2006 acquisition, it acquired an additional 7.5% non-operating working interest in the Aneth Unit, a 60% operating working interest in the McElmo Creek Unit and a 56% operating working interest in the Ratherford Unit ( “ExxonMobil Properties”).

 

Predecessor Resolute acquired its Aneth Field Properties in connection with its strategic alliance with Navajo Nation Oil and Gas Company, Inc., (” NNOG”), an oil and gas company owned by the Navajo Nation. NNOG maintains a minority interest in each of the Chevron Properties and the ExxonMobil Properties and possesses options to purchase additional minority interests in those properties from Resolute under certain circumstances. Please read “— Relationship with the Navajo Nation.”

 

Aneth Unit. During the twelve months ended December 31, 2009, Aneth Unit production averaged approximately 3,115 barrels of oil per day (gross) from 162 gross (100 net) active producing wells. Resolute operated 150 gross (93 net) active injection wells in the Aneth Unit. Since the discovery of oil at the site in 1956, the Aneth Unit has produced a total of approximately 153 MMBbl of oil. The Aneth Unit was originally developed with vertical wells drilled on 80-acre spacing and was infill drilled to 40-acre spacing in the 1970s. Since unitization in 1961, the unit has been under waterflood. Between 1994 and 1998, an affiliate of Texaco operated the Aneth Unit and drilled 43 multi-lateral horizontal wells (23 producers and 20 injectors). Most of these horizontal wells were utilized to create a horizontal waterflood pattern on the eastern side of the unit. In 1998, the injectors in two square miles of the Aneth Unit were converted to a water-alternating-gas CO₂ pilot project to assess the possibility of a field-wide CO₂ injection flood program. The multi-lateral horizontal wells and the pilot CO₂ program were successful in increasing production rate and adding reserves, however, the pilot CO₂ program was never expanded into a unit-wide program. Predecessor Resolute became operator of the Aneth Unit on December 1, 2004, and has been successful in reducing the decline rate such that the average daily gross oil production from the Aneth Unit as a whole has remained relatively constant since the time of acquisition.

 

McElmo Creek Unit. During the twelve months ended December 31, 2009, McElmo Creek Unit production averaged approximately 3,649 barrels of oil per day (gross) from 140 gross (105 net) active producing wells. Resolute operated 107 gross (80 net) active injection wells on the McElmo Creek Unit. Since its discovery, the McElmo Creek Unit has produced a total of approximately 163 MMBbl of oil. The McElmo Creek Unit has been under waterflood since the early 1960s and prior operators commenced infill drilling to 40-acre spacing during the 1970s. A stabilized oil production decline trend was established for the waterflood over approximately seven years prior to the initiation of a CO₂ flood program in 1985. Following the initiation of the CO₂ flood project in the McElmo Creek Unit in 1985, oil production from the unit increased by approximately 30% over a 13 year period (approximately 22% as a result of the CO₂ flood project and approximately 8% as a result of 24 newly drilled wells). Production then returned to a state of natural decline in 1998. Prior to Predecessor Resolute’s acquisition of the ExxonMobil Properties, the McElmo Creek Unit was operated by ExxonMobil. Predecessor Resolute became operator of the McElmo Creek Unit on June 1, 2006, and was successful in increasing the average daily

gross production rate. This was due to a number of factors, including its efforts to return wells to operation, improve artificial lift capacity at producing wells, improve compressor run times, increase production from new horizontal drilling, reduce freeze problems in the winter months and increase CO₂ injection.

 

Ratherford Unit. During the twelve months ended December 31, 2009, Ratherford Unit production averaged approximately 2,424 barrels of oil per day (gross) from 97 gross (57 net) active producing wells. Resolute operated 77 gross (45 net) active injection wells on the Ratherford Unit. Since discovery, the Ratherford Unit has produced a total of approximately 102 MMBbl of oil. The core of the Ratherford Unit has been developed with horizontal wells, while the edges of the unit have been developed with vertical wells. Predecessor Resolute became operator of the Ratherford Unit on June 1, 2006, and was successful in increasing the average daily gross production rate. This increase in production resulted from a number of factors, including its efforts to improve artificial lift capacity at producing wells, increase production from new horizontal drillings, return wells to operation and increase water injection resulting from injection well cleanouts.

 

Wyoming Properties

 

Resolute’s Wyoming Properties consist of three units in Hilight Field, minor non-unitized Muddy formation production in the Hilight area, non-unitized CBM production in the Hilight area and twelve other small fields in Wyoming. Resolute also owns interests in two small fields in Oklahoma. All but one of the Wyoming Properties are operated by Resolute.

 

Hilight Field consists of the Jayson Unit, the Grady Unit, the Central Hilight Unit, and the South Hilight Unit. Resolute has an 82.7% working interest in Jayson, an 82.5% working interest in the Grady Unit and a 98.5% working interest in Central Hilight Unit. The Jayson, Grady and Central Hilight Units cover an area of almost 50,000 acres, and are operated by Resolute. Hilight Field was discovered by Inexco Oil Company in 1969, was developed on 160-acre spacing, unitized in 1971-1972 and underwent waterflood between 1972 and the mid-1990s. As of December 31, 2009, there were 144 active producing wells, and cumulative production through December 31, 2009, from Resolute’s three operated units was 68.3 MMBbl of oil and 150.0 Bcf of gas. Average daily gross production for the twelve months ending December 31, 2009, was 215 Bbl of oil per day and 10,258 Mcf of gas per day. Net proved reserves assigned to these properties as of December 31, 2009, were 4.4 MMBoe. Muddy formation sandstones form the main reservoir in the field. Average depth to the Muddy formation is approximately 9,100 ft. Minor production also comes from the Upper Cretaceous Niobrara, Upper Cretaceous Turner, and Pennsylvanian Minnelusa reservoirs. Recent activity includes 21 infill wells, including three horizontal laterals drilled by the prior operator in 2006 and 2007, and five Muddy re-stimulation, or refrac projects. Future activity may include the continuation of the infill and refrac programs, new drilling to extend the field boundaries, and exploration for unconventional oil from the overlying Niobrara and Mowry shales.

 

Resolute’s CBM production in the Hilight area comes from 263 producing wells. Average daily gross production for the twelve months ending December 31, 2009, was 2,900 Mcf per day. Although it varies from well to well, Resolute has an average of approximately 91% working interest in its Hilight area CBM properties. No net proved reserves were attributable to these wells as of December 31, 2009, The Wyodak-Anderson coals of the Paleocene Fort Union formation are the reservoir for this shallow gas reserve. Average depth to the reservoir is less than 500 feet. Recent activity by the prior operator includes seventeen wells that were drilled to extend the central portion of the field to the east. Since Predecessor Resolute took over operations, the CBM field has undergone downsizing and reconfiguration in an attempt to find the most economic balance between lease operating expenses and production.

 

Resolute also has working interests in twelve small fields in Wyoming and two in Oklahoma. Currently, Resolute operates wells in Campbell, Carbon, Natrona and Crook counties, Wyoming, and Dewey and Woodward counties, Oklahoma. During the twelve months ending December 31, 2009, these properties produced an average of approximately 299 barrels of oil per day from 52 gross (34 net) active producing wells. In addition, there are 5 gross (3 net) active water injection wells. Net proved reserves assigned to these properties as of December 31, 2009, were 311 MBoe.

Exploration Properties

 

Big Horn Basin Properties. Predecessor Resolute developed a grassroots exploration concept in early 2005 to target an unconventional oil resource in the Mowry shale of the Big Horn Basin in northwest Wyoming. Since that time, the Mowry shale has become an emerging oil play over a larger area in northern Wyoming and southern Montana. Predecessor Resolute began leasing in June 2005 and it has acquired 82,133 gross (70,811 net) acres in the play with more than 99% of its leased properties having at least five years remaining on the lease term. Predecessor Resolute entered into an area of mutual interest agreement effective November 1, 2006, with Fidelity Exploration and Production Company (“Fidelity”) covering acreage in the southeast part of the basin where 22,644 gross acres were jointly acquired on a 50-50 basis. That agreement has expired, but the acreage remains subject to a joint operating agreement for its remaining term. Resolute has not yet commenced development of this asset.

 

Black Warrior Basin Properties. In mid-2005, Predecessor Resolute initiated an exploration program in the Black Warrior Basin of northwest Alabama that targeted unconventional gas resources in the Devonian Chattanooga shale, the Mississippian Floyd shale, and the Pennsylvanian Pottsville coals. Approximately 39,500 net acres are currently leased. Predecessor Resolute drilled a vertical well in April 2007 that penetrated all three objectives and was cased without a completion attempt. It later entered into a participation agreement with Huber Energy LLC (“Huber”), effective June 26, 2008, under which Huber can earn an interest in the acreage by incurring all costs on specific development activities. Huber re-entered Resolute’s vertical well and completed the Chattanooga shale and recovered gas, but at uneconomic rates. The well is currently shut-in. Huber acquired proprietary 2-D seismic data in July 2009 for risk reduction on potential future operational activities targeting the Chattanooga and Floyd shales. Huber is also undertaking permitting activities for a potential CBM pilot program on the leasehold. The Pottsville formation has been producing CBM from adjacent areas since the early 1980s.

 

Recently Announced Activities

 

Williston Basin Properties. In March 2010, Resolute acquired a 45% working interest in approximately 61,000 gross (42,000 net leasehold) acres in Williams County, North Dakota. This undeveloped leasehold is located within the Bakken shale trend of the Williston Basin. Although the Middle Bakken formation will be the primary objective, secondary objectives include the Three Forks, Madison and Red River formations. For 2010, Resolute has allocated approximately $25 million for acreage acquisition, drilling and completion activities in this area, and expects to participate in drilling at least three horizontal wells during 2010.

 

Oil Recovery Overview

 

When an oil field is first produced, the oil typically is recovered as a result of natural pressure within the producing formation. The only natural force present to move the crude oil through the reservoir rock to the wellbore is the pressure differential between the higher pressure in the rock formation and the lower pressure in the wellbore. Various types of pumps are often used to reduce pressure in the wellbore, increasing the pressure differential. At the same time, there are many factors that act to impede the flow of crude oil, depending on the nature of the formation and fluid properties, such as pressure, permeability, viscosity and water saturation. This stage of production, referred to as “primary recovery,” recovers only a small fraction of the crude oil originally in place in a producing formation.

 

Many, but not all, oil fields are amenable to assistance from a waterflood, a form of “secondary recovery,” which is used to maintain reservoir pressure and to help sweep oil to the wellbore. In a waterflood, some of the wells are used to inject water into the reservoir while other wells are used to produce the fluid. As the waterflood matures, the fluid produced contains increasing amounts of water and decreasing amounts of oil. Surface equipment is used to separate the oil from the water, with the oil going to pipelines or holding tanks for sale and the water being recycled to the injection facilities. Primary recovery followed by secondary recovery usually produces between 15% and 40% of the crude oil originally in place in a producing formation.

 

A third stage of oil recovery is called “tertiary recovery” or “enhanced oil recovery”, (“EOR”). In addition to maintaining reservoir pressure, this type of recovery seeks to alter the properties of the oil in ways that facilitate

production. The three major types of tertiary recovery are chemical flooding, thermal recovery (such as a steamflood) and miscible displacement involving CO₂ or hydrocarbon injection.

 

In a CO₂ flood, CO₂ is liquefied under high pressure and injected into the reservoir. The CO₂ then swells the oil in a way that increases the mobilization of bypassed oil while also reducing the oil’s viscosity. The lighter components of the oil vaporize into the CO₂ while the CO₂ also condenses into the oil. In this manner, the two fluids become miscible, mixing to form a homogeneous fluid that is mobile and has lower viscosity and lower interfacial tension, thus facilitating the migration of oil and gas to the producer wells.

 

Miscible CO₂ flooding was first commercially successful with Chevron’s 1972 miscible CO₂ flood in the SACROC field in Scurry County, Texas. According to the Oil & Gas Journal’s 2008 Worldwide EOR Survey, there were 105 miscible CO₂ projects in the United States (with an additional sixteen miscible CO₂ projects in the planning stages) that produced an estimated 249,700 barrels of oil per day during 2008. In addition to Resolute’s projects in its Aneth Field Properties, CO₂ projects are located in Texas, Oklahoma, New Mexico, Colorado, Wyoming, Michigan and Mississippi. Four companies, Occidental Petroleum, Kinder Morgan, Amerada Hess and Chevron, are responsible for the majority of the estimated daily production from these CO₂ projects.

 

Planned Operating and Development Activities

 

Resolute has prepared a development program for its Aneth Field Properties that includes CO₂ flooding, field infrastructure enhancements, recompletions, workovers of producing and injection wells, infill drilling and waterflood enhancement. The application of each of these activities and technologies has been successfully established in various locations within the Aneth Field Properties, and the development plans have been designed to enhance or extend projects that were tested or initiated by the previous operators but were never fully completed due to such factors as lack of fieldwide operatorship and lower commodity prices. Resolute believes that its close working relationship with NNOG and the Navajo Nation will enhance its ability to advance development of its Aneth Field Properties.

 

CO₂ Floods. A major component of planned activity over the next several years involves extensions and expansions of the CO₂ floods initiated by the major oil companies, first in the McElmo Creek Unit in 1985 and then in the Aneth Unit in 1998. The McElmo Creek Unit CO₂ flood is virtually unit-wide, whereas the Aneth Unit CO₂ flood was limited to a pilot project covering approximately two square miles in the northeast corner of that unit.

 

The Aneth and McElmo Creek Units exhibit similar geologic characteristics. As a result, Resolute expects its Aneth Unit CO₂ flood to achieve results analogous to those achieved in the McElmo Creek CO₂ flood program, adjusted for operating and timing differences. Therefore, Resolute has modeled its estimate of increased incremental proved developed non-producing and proved undeveloped reserves based upon the results achieved in the McElmo Creek Unit CO₂ flood. It also has modeled its projection of increased rate of oil production based upon the oil production response of the McElmo Creek Unit as a function of the injection of CO₂. The oil production rate response is related to the rate at which CO₂ is injected. The McElmo Creek CO₂ project was initiated in 1985 with a relatively low rate of CO₂ injection, and therefore experienced an oil production rate response that was lower than what might have been achieved had CO₂ been injected at a higher rate. Resolute estimates that the rate of oil production will increase faster at the Aneth Unit than the production response experienced at the McElmo Creek Unit because of Resolute’s plan to inject CO₂ volumes at a greater rate at the Aneth Unit than at the McElmo Creek Unit.

 

Aneth Unit. Construction activities and costs associated with phases 1, 2 and 3 of the Aneth Unit CO₂ expansion project, covering the western portion of the Aneth Unit, are now substantially complete. Initial CO₂ injection began in July 2007 and oil response has been observed in all three active phases. Phase 4 construction is scheduled to begin during the fourth quarter of 2010 and injection of CO₂ is expected to commence in the second quarter of 2011 with significant production response estimated in 2012.

 

McElmo Creek Unit. Resolute plans to expand the existing CO₂ flood project into a segment of the Desert Creek zone that has not yet been CO₂ flooded. It performed well under waterflood and was abandoned by a prior operator after it reached a prior economic limit of water cut and before the existing CO₂ flood was implemented.

This segment is expected to perform well under CO₂ flood. Additional waterflood reserves will also be recovered as the waterflood will be effectively restarted in conjunction with the start of the CO₂ flood.

 

Ratherford Unit. The geology and, except for the prevalence of horizontal wells, the overall operations of the Ratherford Unit are fundamentally the same as the other two units, including an extensive waterflood of the Desert Creek reservoir. Resolute is evaluating future plans to include a CO₂ flood of this unit.

 

The following table sets forth, as of December 31, 2009, Resolute’s estimate of the future capital expenditures, net to its interest, for construction, well work and other costs and for purchases of CO₂ required to implement its CO₂ flood projects in two of the units of its Aneth Field Properties through 2038. The following table also sets forth the estimated net proved developed non-producing and proved undeveloped reserves included in Resolute’s reserve report as of December 31, 2009, which Resolute anticipates will be produced as a result of these projects. Resolute and Predecessor Resolute incurred $21.9 million of capital expenditures related to the Aneth Field Properties during 2009, and Resolute expects to incur an additional $377.4 million of capital expenditures over the next 28 years (including purchases of CO₂), in connection with bringing into production those incremental proved developed non-producing and proved undeveloped reserves attributable to its CO₂ flood project. Resolute has entered into two CO₂ purchase contracts for a substantial portion of the CO₂ it expects to use in connection with its CO₂ flood projects. In order to further these CO₂ flood projects, it expects to incur approximately $162 million of these future capital expenditures from 2010 through 2012.

 

 

As Resolute advances its CO₂ projects, the injected CO₂ will displace an increasing portion of the water currently being injected in the waterflood operation. Resolute will need to safely dispose of that water, and, to that end, has drilled a water disposal well with four horizontal laterals. Engineering studies have indicated that this initial well should be able to handle most of the incremental water production. To protect against the possibility that the first water disposal well might become incapable of handling all volumes of water to be disposed of, Resolute is presently in the process of securing permits to drill a second water disposal well to handle any excess water disposal needs. This well could be ready for water disposal by the second quarter of 2011.

 

The success of Resolute’s CO₂ projects also depends on acquiring adequate amounts of CO₂. Resolute has entered into two CO₂ purchase contracts that provide a significant portion of the anticipated CO₂ required through 2016 to pursue CO₂ projects and to continue its existing CO₂ floods. Resolute estimates that, as of December 31, 2009 and through 2016, it will need gross aggregate volumes of CO₂ of approximately 177.7 Bcf, or approximately 115.6 Bcf net to its working interest. As of December 31, 2009, it had gross aggregate volumes of approximately 108.7 Bcf committed to it under the two contracts noted above.

 

One of these contracts is with ExxonMobil Gas & Power Marketing Company (“EMGP”). The price per Mcf of CO₂ under this contract is 1.4% of the price of West Texas Intermediate crude oil. The volume Resolute is allowed to take and that EMGP is required to deliver is 20,000 Mcf per day, or approximately 3.6 Bcf over the six months remaining on the contract from January 1, 2010. Resolute is obligated to take or if not taken, pay for 80% of this volume on a monthly basis, with limited make-up rights for volumes not taken. Resolute also has the right to resell any CO₂ it is obligated to take under this contract but that it is not able to use. Resolute has the right to take delivery into either the McElmo Creek Pipeline (which would be for its own use) or into Kinder Morgan’s Cortez Pipeline (which would occur if it were reselling the CO₂). The contract term runs until June 30, 2010, and it will not be renewed. As of December 31, 2009, Resolute had made payments of $0.3 million under this contract for 0.4 MMcf of CO₂ for which it had not yet taken delivery.

The second contract for the purchase of CO₂ is with Kinder Morgan CO₂ Company, L.P (“Kinder Morgan”). This gas is also delivered from the McElmo Dome field. The price per Mcf of CO₂ under this contract is 1.75% of the price of West Texas Intermediate crude oil, and the contract runs through December 31, 2016. This contract has a variable schedule of committed contract quantities intended to make available the expected requirements of Phases 1, 2, 3 and 4 of Resolute’s Aneth Unit CO₂ project as well as the requirements of its expansion project in the McElmo Creek Unit, less the volumes expected to be provided under its EMGP contract. The Kinder Morgan contract maximum daily quantities range from a high of approximately 41,000 Mcf per day in 2010, declining to approximately 6,000 Mcf per day during 2016, the last year of the contract. The aggregate total contract quantity over the term of the contract for these projects is approximately 63.6 Bcf. Resolute has the option to increase the total contract volume by approximately 41.5 Bcf between 2011 and 2016. Following the termination of the EMGP contract in June 2010, all of Resolute’s supply of CO₂ is expected to be under the Kinder Morgan contract.

 

Resolute is required to take, or pay for if not taken, 75% of the total of the maximum daily quantities for each month during the term of the Kinder Morgan contract. There are make-up provisions allowing any take-or-pay payments it makes to be applied against future purchases for specified periods of time. Resolute has a one time right to reduce committed volumes under the contract by an amount between 10.0 and 25.3 Bcf for 25% of the contract price at the time the volumes are released. It does not have the right to resell CO₂ required to be purchased under the Kinder Morgan contract. As of December 31, 2009, Resolute had made payments of $1.4 million under this contract for 1.3 MMcf of CO₂ for which it had not yet taken delivery.

 

The CO₂ that Resolute purchases for its use will be delivered to it through the McElmo Creek Pipeline. This pipeline is approximately 25 miles in length and runs directly from the McElmo Dome Field to Resolute’s McElmo Creek Unit. Pipelines within the Aneth Field Properties are used to distribute the CO₂ to the Aneth Unit. Resolute owns a 75% interest in, and is the operator of, the McElmo Creek Pipeline. Resolute recently added a pump to the pipeline to increase capacity to 70,000 Mcf per day. Additional pumps are planned to further increase capacity to more than 130,000 Mcf per day.

 

Wyoming Properties. Resolute has prepared a multi-year development plan for the Wyoming Properties. At Hilight Field, the previous operator was successful in adding new reserves by stimulating the Muddy formation. Resolute plans to continue this program with 38 refracs scheduled to be completed between 2010 and 2012. The repair and maintenance program will continue and certain water discharge facilities are scheduled to be reconfigured in 2010. At the Hilight area CBM property, any new operational activities will be planned after the results of the field reconfiguration, which was implemented on a trial basis beginning in April 2009, are fully analyzed. At the other fourteen properties acquired in June 2008, two proved undeveloped reserve locations are scheduled to be drilled in 2011, and the repair and maintenance program will continue.

 

Other Planned Activities

 

Aneth Field — Gas Processing. Currently there are two types of gas production in Aneth Field, saleable gas and contaminated gas. The saleable gas stream has low levels of CO₂and is sold. The contaminated gas stream has high levels of CO₂ which prevents it from being sold. This contaminated gas stream currently is compressed and re-injected into the reservoir. As Resolute continues its CO₂ injection and expansion plans, the volume of contaminated gas will significantly increase. This contaminated stream is rich in NGL, which represents a valuable product. Resolute plans to install new facilities and gas plant equipment to process and treat this contaminated stream. This project will recover condensate and also strip the majority of the CO₂ from the contaminated stream. The condensate will be sold and the CO₂ will be compressed and re-injected. The residue gas stream will be marketed through third party facilities.

 

Black Warrior Basin Properties. Activities on Resolute’s Black Warrior Basin exploration acreage in Alabama are expected to occur in 2010 and 2011. Under a participation agreement with Huber, Huber has the option to perform specified activities which would earn it an interest in Resolute’s Black Warrior acreage. Huber may drill, complete, and test a five-well CBM pilot in 2010 to earn into the CBM leasehold interests. Permitting for such a pilot is ongoing. In addition, Huber has the option to further develop the deeper Floyd and/or Chattanooga shale-gas plays to earn additional interest in the acreage. Potential earning activities include completing the Floyd formation from Resolute’s existing vertical well, or drilling, completing, and testing the Chattanooga formation in a

horizontal lateral from Resolute’s existing vertical well, or drilling, completing, and testing the Chattanooga formation from a new well.

 

Big Horn Basin Properties. Resolute has 82,133 gross (70,811 net) acres in the Big Horn Basin. In 2006, Predecessor Resolute entered into an area of mutual interest agreement with Fidelity covering certain acreage in the southeast portion of the basin, under which approximately 22,644 gross acres were jointly acquired on a 50-50 basis. That agreement has expired, but the acreage remains subject to a joint operating agreement for its remaining term. In addition, both Resolute and Fidelity independently control additional leaseholds in the immediate area. The emerging Mowry shale oil resource play is the primary reservoir target and the Frontier and Phosphoria are secondary reservoir targets. A well to test the Mowry is tentatively planned for 2011.

 

Williston Basin Properties. In March 2010, Resolute acquired a 45% working interest in approximately 61,000 gross (42,000 net) leasehold acres in Williams County, North Dakota. This undeveloped leasehold is located within the Bakken shale trend of the Williston Basin. Although the Middle Bakken formation will be the primary objective, secondary objectives include the Three Forks, Madison and Red River formations. For 2010, Resolute has allocated approximately $25 million for acreage acquisition, drilling and completion activities in this area and expects to participate in drilling at least three horizontal wells.

 

Estimated Net Proved Reserves

 

Reserve estimates as of December 31, 2009, were prepared by Resolute and audited by NSAI, Resolute’s independent petroleum engineers. Please read “Risk Factors — Risks Related to Resolute’s Business, Operations and Industry” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Resolute” in evaluating the material presented below.

 

Resolute’s reserve report was prepared under the direct supervision of Resolute’s Reservoir Engineering Manager, who is a qualified reserve estimator and auditor. The report was based upon a review of property interests being appraised, production from such properties, current costs of operation and development, current prices for production, agreements relating to current and future operations and sale of production, geoscience and engineering data, and other information. The reserve estimates were reviewed internally by senior management. An audit of the reserve estimates was performed by NSAI.

 

The professional qualifications of Resolute’s Reservoir Engineering Manager meet or exceed the qualifications of reserve estimators and auditors set forth in the “Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information” promulgated by the Society of Petroleum Engineers. His qualifications include: Bachelor of Science degree in Petroleum Engineering from the Colorado School of Mines, 1982; registered professional engineer with the State of Colorado since 1987; member of Society of Petroleum Engineers since 1980; more than 27 years of practical petroleum engineering experience; more than 27 years of practical experience in estimating and evaluating reserves information with at least five of these years being in charge of estimating and evaluating reserves.

 

The reserves estimates shown herein have been independently audited by NSAI, a worldwide leader in petroleum property analysis for industry, financial organizations and government agencies. NSAI was founded in 1961 and is registered to perform consulting petroleum engineering services by the Texas Board of Professional Engineers Registration. Within NSAI, the technical person primarily responsible for the NSAI audit is David Miller. Mr. Miller has been practicing consulting petroleum engineering at NSAI since 1997. He is a Registered Professional Engineer in the State of Texas and has more than 28 years of practical experience in petroleum engineering, with more than 12 years experience in the estimation and evaluation of reserves. He graduated from the University of Kentucky in 1981 with a Bachelor of Science degree in Civil Engineering and from Southern Methodist University in 1994 with a Master of Business Administration degree. Mr. Miller meets or exceeds the education, training, and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers; he is proficient in judiciously applying industry standard practices to engineering and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines.

 

A report of NSAI regarding its audit of the estimates of proved reserves at December 31, 2009, has been filed as Exhibit 99.1 to this report and is incorporated herein,

The following table presents Resolute’s estimated net proved oil, gas and NGL reserves and the present value of its estimated net proved reserves as of December 31, 2009, all according to standards set by the Securities and Exchange Commission (“SEC”). The standardized measure shown in the table below is not intended to represent the current market value of Resolute’s estimated oil and gas reserves. Resolute’s estimates of net proved reserves have not been filed with or included in reports to any federal authority or agency other than the SEC.

 

 

 

 

Proved developed reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are proved reserves that are expected to be recovered from new wells drilled within five years to known reservoirs on undrilled acreage for which the existence and recoverability of such reserves can be estimated with reasonable certainty, or from existing wells on which a relatively major expenditure is required to establish production.

 

The data in the above table represent estimates only. Oil and gas reserve engineering is inherently a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way. The accuracy of any reserves estimate is a function of the quality of available data and engineering and geological

interpretation and judgment. Accordingly, reserves estimates may vary, perhaps significantly, from the quantities of oil and gas that are ultimately recovered. Please read “Risk Factors — Risks Related to Resolute’s Business, Operations and Industry.”

 

Future prices received for production and costs may vary, perhaps significantly, from the prices and costs assumed for purposes of these estimates. The 10% discount factor used to calculate present value, which is required by SEC and FASB pronouncements, is not necessarily the most appropriate discount rate. The present value, no matter what discount rate is used, is materially affected by assumptions as to timing of future production, which may prove to be inaccurate.

 

Producing oil and gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Therefore, without reserve additions in excess of production through successful exploitation and development activities or acquisitions, Resolute’s reserves and production will ultimately decline over time. Please read “Risk Factors — Risks Related to Resolute’s Business, Operations and Industry” and “Note 15 — Supplemental Oil and Gas Information (unaudited)” to the audited consolidated financial statements of Resolute for a discussion of the risks inherent in oil and gas estimates and for certain additional information concerning Resolute’s estimated proved reserves.

 

At December 31, 2009, no proved undeveloped reserves have remained undeveloped for more than five years.

 

Proved reserves reported by Resolute of 64.4 MMBoe at December 31, 2009, represent a 31% increase over the 49.3 MBoe reported by Predecessor Resolute at December 31, 2008. Production (including that of Predecessor Resolute) during 2009 reduced proved reserves by 2.7 MMBoe, while revisions of previous estimates increased proved reserves by 17.8 MMBoe. Commodity pricing was the principal factor leading to the revisions in proved reserves. In accordance with the varying SEC requirements in effect at each year end, the reserves at December 31, 2009, utilized prices of $61.18 per barrel of oil and $3.87 per MMBtu, as compared to prices of $44.60 per barrel of oil and $5.24 per MMBtu of gas at December 31, 2008.

 

Costs incurred of $23 million (including that incurred by Predecessor Resolute) to develop Resolute’s proved undeveloped reserves in 2009 declined from the $52.3 million incurred by Predecessor Resolute in 2008, primarily due to a lower average cost of CO₂ purchased and lower activity levels in response to lower commodity prices in the first half of 2009.

 

The following table sets forth Resolute’s net proved reserves at December 31, 2009, based on alternative price scenarios as identified below in the footnotes to the table. The price scenarios illustrate the sensitivity of our estimated reserve quantities under various price and cost assumptions.

 

 

 

Production and Price History

 

Set forth in the table below are Resolute and Predecessor Resolute’s operating data for 2009, 2008 and 2007.

 

 

Productive Wells

 

The following table sets forth information as of December 31, 2009, relating to the productive wells in which Resolute owns a working interest. Productive wells consist of producing wells and wells capable of producing, including wells awaiting connection to production facilities. Gross wells are the total number of producing wells in which Resolute has a working interest, and net wells are the sum of Resolute’s fractional working interests owned in gross wells. In addition to the wells set forth below, as of December 31, 2009, Resolute had interests in and operated 334 gross (218 net) active water and CO₂ injection wells on the Aneth Field Properties, and 5 gross (3 net) active water injection wells associated with the Wyoming Properties.

 

 

Acreage

 

All of Resolute’s leasehold acreage is categorized as developed or undeveloped. The following table sets forth information as of December 31, 2009, relating to the Company’s leasehold acreage:

 

 

 

Approximately 22,000 net acres of undeveloped acreage expires in 2010 and approximately 2,000 and 1,300 net acres expire in 2011 and 2012, respectively. The majority of the expirations (approximately 19,000 net acres) in 2010 through 2012 relate to acreage in the Black Warrior Basin in Alabama.

 

 

 

Drilling Results

 

Subsequent to the acquisition in September 2009, Resolute did not engage in drilling exploratory or developmental wells. Predecessor Resolute did not engage in drilling in 2009 and 2008, but in 2007 drilled 15 gross (14.6 net) wells.

 

Relationship with the Navajo Nation

 

The purchase of Resolute’s Aneth Field Properties was facilitated by Predecessor Resolute’s strategic alliance with NNOG and, through NNOG, the Navajo Nation. The Navajo Nation formed NNOG, a wholly-owned corporate entity, under Section 17 of the Indian Reorganization Act. Resolute supplies NNOG with acquisition, operational and financial expertise and NNOG helps Resolute communicate and interact with the Navajo Nation agencies.

 

Resolute’s strategic alliance with NNOG is embodied in a Cooperative Agreement that Predecessor Resolute entered into with NNOG in 2004 to facilitate Resolute and NNOG’s joint acquisition of the Chevron Properties. The agreement was amended subsequently to facilitate the joint acquisition of the ExxonMobil Properties. Among other things, this agreement provides that:

 

 

In addition to the above provisions, Predecessor Resolute granted NNOG three separate but substantially similar purchase options. Each purchase option entitles NNOG to purchase from Resolute up to 10% of the undivided working interests that Resolute acquired from Chevron or ExxonMobil, as applicable, as to each unit in the Aneth Field Properties. Each purchase option entitles NNOG to purchase at fair market value, for a limited

period of time, the applicable portion of the undivided working interest Resolute acquired. The fair market value is to be determined without giving effect to the existence of the Navajo Nation statutory preferential purchase right or the fact that the properties are located on the Navajo Reservation. Each option becomes exercisable based upon Resolute’s achieving payout multiples of the relevant acquisition costs, subsequent capital costs and ongoing operating costs attributable to the applicable working interests. Revenue applicable to the determination of payout includes the effect of Resolute’s hedging program. The multiples of payout that trigger the exercisability of the purchase options with respect to each of the Chevron Properties and the ExxonMobil Properties are 100%, 150% and 200%. The options are not exercisable prior to four years from the relevant acquisition except in the case of a sale of such assets by, or a change of control of, Resolute. In that case, the first option for 10% would be accelerated and the other options would terminate.

 

As of December 31, 2009, the payout balance on the Chevron Properties was approximately $51.6 million and the payout balance on the ExxonMobil Properties was approximately $108.3 million. Assuming the purchase options are not accelerated due to a change of control of Resolute, and assuming Resolute continues to develop its Aneth Field Properties in accordance with its plans, Resolute expects that the initial payout associated with the purchase options would not occur for a number of years.

 

The following table demonstrates the maximum net undivided working interest in each of the Aneth Unit, the McElmo Creek Unit and the Ratherford Unit that NNOG could acquire from Resolute upon exercising each of its purchase options under the Cooperative Agreement. The exercise by NNOG of its purchase options in full would not give it the right to remove Resolute as operator of any of Resolute’s Aneth Field Properties.

 

 

Marketing and Customers

 

Aneth Field. Resolute currently sells all of its crude from its Aneth Field Properties to a single customer, Western Refining Southwest, Inc. (“Western”), a subsidiary of Western Refining, Inc. under a contract that terminates August 31, 2010. This contract which was effective September 1, 2009, provides for a fixed differential to the NYMEX price for crude oil of $6.25 per Bbl. This contract continues month-to-month after August 31, 2010, with either party having the right to terminate after the initial term, upon ninety days’ notice. The contract may also be terminated by Western after December 30, 2009, upon sixty days notice, if Western is not able to renew its right-of-way agreements with the Navajo Nation or if such rights-of-way are declared invalid and either Western is prevented from using such rights-of way or the Navajo Nation declares Western to be in trespass with respect to such rights-of-way.

 

Western has two refineries in the Four Corners area, the 16,800 barrel per day Bloomfield refinery in Farmington, New Mexico, and the 26,000 barrel per day Gallup refinery in Gallup, New Mexico. In November 2009 Western announced that it intended to discontinue refining operations at the Bloomfield refinery. Western now refines Resolute’s crude oil at the Gallup refinery. Resolute’s production is transported to the refinery via the Running Horse crude oil pipeline owned by NNOG to a terminal known as Bisti, approximately 20 miles south of Farmington, New Mexico, that serves the refinery. The Resolute and NNOG oil has been jointly marketed to Western. The combined Resolute and NNOG volumes are approximately 7,000 barrels of oil per day.

Resolute’s Aneth Field crude oil is a sweet, light crude oil that is particularly well suited to be refined in Western’s refinery. Although Resolute has sold all of its crude oil production to Western since Predecessor Resolute acquired the Chevron Properties in November 2004, and despite the value of Resolute’s crude oil production to Western, Resolute cannot be certain that the commercial relationship with Western will continue for the indefinite future, and Resolute cannot be certain that the refinery will not suffer significant down-time or be closed. If for any reason Western is unable or unwilling to purchase Resolute’s crude oil production, Resolute has other alternatives for marketing its crude oil production. Resolute has been working with NNOG to establish alternative transportation and markets for Resolute’s crude oil. A joint venture comprised of affiliates of NNOG and Resolute has completed construction of a high volume truck loading facility located at the terminal end of NNOG’s Running Horse Pipeline that will be operative and capable of loading all of Resolute and NNOG’s production. Crude oil can be trucked a relatively short distance from the loading facility to rail loading sites near and south of Gallup, New Mexico, or longer distances to refineries or oil pipelines in southern New Mexico and west Texas. Resolute can also transport its crude oil by various combinations of truck, pipeline and rail from its Aneth Field Properties to markets north in Utah, Colorado and Wyoming. The cost of selling Resolute’s crude oil to alternative markets in the short term would result in a greater differential to the NYMEX price for crude oil than Resolute currently receives. If Resolute chooses or is forced to sell to these alternative markets for a longer period of time, these costs could be lowered significantly. Under long term arrangements, which may require the investment of capital, Resolute believes it would realize a NYMEX differential substantially equivalent to the current differential realized in the price received from Western.

 

Resolute’s gas production is minimally processed in the field and then sent via pipeline to the San Juan River Gas Plant for further processing. Resolute sells its gas at daily market prices to numerous purchasers at the tailgate of the plant, and it receives a contractually specified percentage of the proceeds from the sale of NGL and plant products.

 

Wyoming. Resolute sells the majority of its crude oil in Wyoming to TEPPCO Crude Oil, LLC and minor amounts to other purchasers in a competitive market. The price it receives relative to the NYMEX price varies depending on supply and demand differentials in the relevant geographic areas in which Resolute’s wells are located and the quality of Resolute’s crude oil. Resolute’s conventional gas in Wyoming comes from Hilight Field and is sold to the Anadarko Petroleum Corporation Fort Union Gas Plant. Resolute receives a percentage of proceeds for the liquids sold by the plant, and Resolute can either take its residue gas in kind or market it through Anadarko. Currently, Resolute is selling its gas through Anadarko. Resolute’s CBM gas also comes from the Hilight areas and is minimally conditioned at the Fort Union Gas Plant and is sold through Anadarko. Resolute receives the Colorado Interstate Gas Company index price for all the gas it sells.

 

Hedging. Resolute enters into hedging transactions from time to time with unaffiliated third parties for portions of its crude oil and gas production to achieve more predictable cash flows and to reduce exposure to short-term fluctuations in oil and gas prices. For more a detailed discussion, please read “Pursue Acquisitions of Properties with Low-Risk Development Potential, Management’s Discussion and Analysis of Financial Condition and Results of Operations of Resolute — Overview” and “— Quantitative and Qualitative Disclosures About Market Risk.”

 

Other Factors. The market for Resolute’s production depends on factors beyond its control, including domestic and foreign political conditions, the overall level of supply of and demand for oil and gas, the price of imports of oil and gas, weather conditions, the price and availability of alternative fuels, the proximity and capacity of transportation facilities and overall economic conditions. The oil and gas industry as a whole also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers.

 

Aneth Gas Processing Plant

 

Resolute has an interest in gas gathering and compression facilities located within and adjacent to its Aneth Field Properties. Collectively called the Aneth Gas Processing Plant, the facility comprises: a) an active gas compression operation currently operated by Resolute and b) a larger complex of inactive, decommissioned and partially dismantled gas processing plant facilities for which Chevron remains the operator of record. In 2006, Chevron began the process of demolishing the inactive portions of the Aneth Gas Processing Plant. It continues to manage the project, and it retains a 39% interest in all demolition and environmental clean-up expenses. Resolute acquired ExxonMobil’s 25% interest in the decommissioned plant and is responsible for that portion of

decommissioning and cleanup costs. Activities performed to date include removal of asbestos-containing building and insulation materials, partial dismantling of inactive gas plant buildings and facilities, and limited remediation of hydrocarbon-affected soil.

 

As of December 31, 2009, Resolute estimates the total cost to fully decommission the inactive portion of the Aneth Gas Processing Plant site to be $28.0 million, of which approximately $17.1 million had already been incurred and paid for. The remaining demolition liability net to Resolute’s interest is $1.4 million (on a GAAP basis that includes an inflation factor and a discount rate). Demolition activities are scheduled to be concluded in 2012. These costs do not include any costs for clean-up or remediation of the subsurface. The Aneth Gas Processing Plant site was previously evaluated by the Environmental Protection Agency (“EPA”) for possible listing on the National Priorities List (“NPL”), of sites contaminated with hazardous substances with the highest priority for clean-up under the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”). Based on its investigation, the EPA concluded no further investigation was warranted and that the site was not required to be listed on the NPL. The Navajo Environmental Protection Agency now has primary jurisdiction over the Aneth Gas Processing Plant site. Resolute cannot predict whether it will require further investigation and possible clean-up, and the ultimate clean-up liability may be affected by the Navajo Nation’s recent enactment of a Navajo CERCLA. The Navajo CERCLA, in some cases, imposes broader obligations and liabilities than the federal CERCLA. Resolute has been advised by Chevron that a significant portion of the subsurface clean-up or remediation costs, if any, would be covered by an indemnity from the prior owner of the plant, and Chevron has provided Resolute with a copy of the pertinent purchase agreement that appears to support its position. Resolute cannot predict, however, whether any subsurface remediation will be required or what the cost of this clean-up or remediation could be. Additionally, it cannot be certain whether any of such costs will be reimbursable to it pursuant to the indemnity of the prior owner. Please read also “— Environmental, Health and Safety Matters and Regulation — Waste Handling.”

 

Title to Properties

 

In connection with Predecessor Resolute’s acquisition of the Chevron Properties and the ExxonMobil Properties, it obtained attorneys’ title opinions showing good and defensible title in the seller to at least 80% of the proved reserves of the acquired properties as shown in the relevant reserve reports presented by the sellers. Predecessor Resolute also reviewed land files and public and private records on substantially all of the acquired properties containing proved reserves. It performed similar title and land file reviews prior to acquiring the Wyoming Properties; however, the prior title opinions available for it to review and update constituted 62% of the proved reserves of the acquired properties and only the public records for these properties were reviewed. Resolute believes it has satisfactory title to all of its material proved properties in accordance with standards generally accepted in the industry. Prior to completing an acquisition of proved hydrocarbon leases in the future, it intends to perform title reviews on the most significant leases, and, depending on the materiality of properties, it may obtain a new title opinion or review previously obtained title opinions.

 

The Aneth Field Properties are subject to a statutory preferential purchase right for the benefit of the Navajo Nation to purchase at the offered price any Navajo Nation oil and gas lease or working interest in such a lease at the time a proposal is made to transfer the lease or interest. This could make it more difficult to sell Resolute’s oil and gas leases and, therefore, could reduce the value of the Aneth Field leases if it were to attempt to sell them.

 

Resolute’s properties are also subject to certain other encumbrances, such as customary interests generally retained in connection with the acquisition of real property, customary royalty interests and contract terms and restrictions, liens under operating agreements, liens for current taxes and other burdens, easements, restrictions and minor encumbrances customary in the oil and gas industry. It believes that none of these liens, restrictions, easements, burdens and encumbrances will materially detract from the value of these properties or from its interest in these properties or will materially interfere with the intended operation of its business.

 

Competition

 

Competition is intense in all areas of the oil and gas industry. Major and independent oil and gas companies actively bid for desirable properties, as well as for the equipment and labor required to operate and develop such properties. Many of Resolute’s competitors have financial and personnel resources that are substantially greater

than its own, and such companies may be able to pay more for productive properties and to define, evaluate, bid for and purchase a greater number of properties than Resolute’s financial or human resources permit. Resolute’s ability to acquire additional properties and to discover reserves in the future will depend on its ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment.

 

Seasonality

 

Resolute’s operations have not historically been subject to seasonality in any material respect.

 

Environmental, Health and Safety Matters and Regulation

 

General. Resolute is subject to various stringent and complex federal, tribal, state and local laws and regulations governing environmental protection, including the discharge of materials into the environment, and protection of human health and safety. These laws and regulations may, among other things:

 

 

These laws and regulations may also restrict the rate of oil and gas production to a level below the rate that would otherwise be possible. The regulatory burden on the oil and gas industry increases the cost of doing business in the industry and consequently affects profitability.

 

Governmental authorities have the power to enforce compliance with environmental laws, regulations and permits, and violations are subject to injunctive action, as well as administrative, civil and criminal penalties. The effects of these laws and regulations, as well as other laws or regulations that may be adopted in the future, could have a material adverse impact on Resolute’s business, financial condition and results of operations.

 

Resolute believes its operations are in substantial compliance with all existing environmental, health and safety laws and regulations and that continued compliance with existing requirements will not have a material adverse impact on its financial condition and results of operations. Spills or releases may occur, however, in the course of its operations. There can be no assurance that Resolute will not incur substantial costs and liabilities as a result of such spills or releases, including those relating to claims for damage to property, persons and the environment, nor can there be any assurance that the passage of more stringent laws or regulations in the future will not have a negative effect on Resolute’s business, financial condition, or results of operations.

 

The following is a summary of the more significant existing environmental, health and safety laws and regulations to which oil and gas business operations are generally subject and with which compliance may have a material adverse effect on Resolute’s capital expenditures, earnings or competitive position, as well as a discussion of certain matters that specifically affect its operations.

 

Comprehensive Environmental Response, Compensation, and Liability Act. CERCLA, also known as the “Superfund law,” and comparable tribal and state laws may impose strict, joint and several liability, without regard to fault, on classes of persons who are considered to be responsible for the release of CERCLA hazardous substances into the environment. These persons include the owner or operator of the site where a release occurred, and anyone who disposed or arranged for the disposal of a hazardous substance released at the site. Under CERCLA, such persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for

the costs of certain health studies. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. Such claims may be filed under CERCLA, as well as state common law theories or state laws that are modeled after CERCLA. In the course of its operations, Resolute generates waste that may fall within the definition of hazardous substances under CERCLA, as well as under the recently adopted Navajo Nation CERCLA which, unlike the federal CERCLA, defines hazardous substances to include crude oil and other hydrocarbons, thereby subjecting Resolute to potential liability under CERCLA, tribal and state law equivalents to CERCLA and common law. Therefore, governmental agencies or third parties could seek to hold Resolute responsible for all or part of the costs to clean up a site at which such hazardous substances may have been released or deposited, or other damages resulting from a release.

 

Waste Handling. The Resource Conservation and Recovery Act (“RCRA”) and comparable tribal and state statutes, regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. Under the auspices of the federal EPA, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. Drilling fluids, produced waters and many of the other wastes associated with the exploration, development and production of crude oil or gas are currently exempt under federal law from regulation as hazardous wastes and instead are regulated under RCRA’s non-hazardous waste provisions. It is possible, however, that oil and gas exploration and production wastes now classified federally as non-hazardous could be classified as hazardous wastes in the future. Any such change could result in an increase in Resolute’s operating expenses, which could have a material adverse effect on the results of operations and financial position. Also, in the course of operations, Resolute generates some amounts of industrial solid wastes, such as paint wastes, waste solvents, and waste oils, that may be regulated as hazardous wastes under RCRA, tribal and state laws and regulations.

 

Resolute has an interest in the Aneth Gas Processing Plant located in the Aneth Unit. This gas plant consists of a non-operational portion of the plant that is in the process of being decommissioned and removed by Chevron and an operational portion dedicated to compression. Resolute is responsible for a portion of the costs of decommissioning and removal and clean-up of the non-operational portion of the plant and any restoration and other costs related to the operational processing facilities. For additional information related to Resolute’s obligations related to this plant, please read “— Aneth Gas Processing Plant.”

 

Air Emissions. The federal Clean Air Act and comparable tribal and state laws regulate emissions of various air pollutants through air emissions permitting programs and the imposition of other requirements. These regulatory programs may require Resolute to install expensive emissions control equipment, modify its operational practices and obtain permits for existing operations, and before commencing construction on a new or modified source of air emissions such laws may require Resolute to reduce its emissions at existing facilities. As a result, Resolute may be required to incur increased capital and operating costs. Federal, tribal and state regulatory agencies can impose administrative, civil and criminal penalties for non- compliance with air permits or other requirements of the federal Clean Air Act and associated tribal and state laws and regulations.

 

In June 2005, the EPA and ExxonMobil entered into a consent decree settling various alleged violations of the federal Clean Air Act associated with ExxonMobil’s prior operation of the McElmo Creek Unit. In response, ExxonMobil submitted amended Title V and Prevention of Significant Deterioration (“PSD”) permit applications for the McElmo Creek Unit main flare and other sources, and also paid a civil penalty and costs associated with a Supplemental Environmental Project, or “SEP.” Pursuant to the consent decree, upgrades to the main flare were completed in May 2006 by ExxonMobil, and all of the remaining material compliance measures of the consent decree have been met by Resolute. The EPA is processing the Title V and PSD permit applications. Resolute remains subject to the consent decree, including stipulated penalties for violations of emissions limits and compliance measures set forth in the consent decree.

 

Actual air emissions reported for these facilities are in material compliance with emission limits contained in the draft permits and the consent decree when emissions associated with qualified equipment malfunctions are taken into account.

 

Water Discharges. The federal Water Pollution Control Act, or the Clean Water Act, and analogous tribal and state laws, impose restrictions and strict controls with respect to the discharge of pollutants, including spills and

leaks of oil and other substances, into waters of the United States, including wetlands. The discharge of pollutants into regulated waters is prohibited by the Clean Water Act, except in accordance with the terms of a permit issued by the EPA or an authorized tribal or state agency. Federal, tribal and state regulatory agencies can impose administrative, civil and criminal penalties for unauthorized discharges or non- compliance with discharge permits or other requirements of the Clean Water Act and analogous tribal and state laws and regulations.

 

In addition, the Oil Pollution Act of 1990, or OPA, augments the Clean Water Act and imposes strict liability for owners and operators of facilities that are the source of a release of oil into waters of the United States. OPA and its associated regulations impose a variety of requirements on responsible parties related to the prevention of oil spills and liability for damages resulting from such spills. For example, operators of oil and gas facilities must develop, implement, and maintain facility response plans, conduct annual spill training for employees and provide varying degrees of financial assurance to cover costs that could be incurred in responding to oil spills. In addition, owners and operators of oil and gas facilities may be subject to liability for cleanup costs and natural resource damages as well as a variety of public and private damages that may result from oil spills.

 

In August 2004, the EPA and ExxonMobil entered into a consent decree settling alleged violations of the federal Clean Water Act related to past spills of produced water and crude oil from the McElmo Creek and Ratherford Units and failure to prepare and implement Spill Prevention, Control and Countermeasure Plans. ExxonMobil paid a civil penalty and costs to implement a SEP, and made improvements to the production and injection systems. Resolute expects the consent decree to be terminated during 2010 following confirmation by the EPA of completion of the SEP. Until the consent decree is terminated by the EPA, Resolute remains subject to various monitoring, recordkeeping, and reporting requirements outlined in the consent decree, as well as stipulated penalties for spills of produced water and crude oil at the McElmo Creek and Ratherford Units.

 

In November 2001, the EPA issued an administrative order to ExxonMobil for removal and remediation of crude oil released as a result of a shallow casing leak at the McElmo Creek P-20 well in January 2001. In response, ExxonMobil performed various site assessment activities and began recovering crude oil from the ground water. Resolute is obligated to complete the ground water monitoring and remedial activities required under the administrative order, at an estimated cost of approximately $100,000 per year, with anticipated closure to occur in the fourth quarter of 2010 or early 2011.

 

Underground Injection Control. Resolute’s underground injection operations are subject to the federal Safe Drinking Water Act, as well as analogous tribal and state laws and regulations. Under Part C of the Safe Drinking Water Act, the EPA established the Underground Injection Control program, which established the minimum program requirements for tribal and state programs regulating underground injection activities. The Underground Injection Control program includes requirements for permitting, testing, monitoring, recordkeeping and reporting of injection well activities, as well as a prohibition against the migration of fluid containing any contaminant into underground sources of drinking water. Federal, tribal and state regulations require Resolute to obtain a permit from applicable regulatory agencies to operate its underground injection wells. Resolute believes it has obtained the necessary permits from these agencies for its underground injection wells and that it is in substantial compliance with permit conditions and applicable federal, tribal and state rules. Nevertheless, these regulatory agencies have the general authority to suspend or modify one or more of these permits if continued operation of one of the underground injection wells is likely to result in pollution of freshwater, the substantial violation of permit conditions or applicable rules, or leaks to the environment. Although Resolute monitors the injection process of its wells, any leakage from the subsurface portions of the injection wells could cause degradation of fresh groundwater resources, potentially resulting in cancellation of operations of a well, issuance of fines and penalties from governmental agencies, incurrence of expenditures for remediation of the affected resource and imposition of liability by third parties for property damages and personal injuries.

 

Pipeline Integrity, Safety, and Maintenance. Resolute’s ownership interest in the McElmo Creek Pipeline has caused it to be subject to regulation by the federal Department of Transportation, or the DOT, under the Hazardous Liquid Pipeline Safety Act and comparable state statutes, which relate to the design, installation, testing, construction, operation, replacement and management of hazardous liquid pipeline facilities. Any entity that owns or operates such pipeline facilities must comply with such regulations, permit access to and copying of records, and file reports and provide required information. The DOT may assess fines and penalties for violations of these and other requirements imposed by its regulations. Resolute believes it is in material compliance with all

regulations imposed by the DOT pursuant to the Hazardous Liquid Pipeline Safety Act. Pursuant to the Pipeline Inspection, Protection, Enforcement, and Safety Act of 2006, the DOT was required to issue new regulations by December 31, 2007, setting forth specific integrity management program requirements applicable to low stress hazardous liquid pipelines. Resolute believes that these new regulations, which have yet to be issued, will not have a material adverse effect on its financial condition or results of operations.

 

Environmental Impact Assessments. Significant federal decisions, such as the issuance of federal permits or authorizations for many oil and gas exploration and production activities are subject to the National Environmental Policy Act (“NEPA”). NEPA requires federal agencies, including the Department of Interior, to evaluate major federal agency actions having the potential to significantly impact the environment. In the course of such evaluations, an agency will prepare an environmental assessment that assesses the potential direct, indirect and cumulative impacts of a proposed project and, if necessary, will prepare a more detailed Environmental Impact Statement that may be made available for public review and comment. All of Resolute’s current exploration and production activities, as well as proposed exploration and development plans on federal lands, require governmental permits that are subject to the requirements of NEPA. This process has the potential to delay any oil and gas development projects.

 

Other Laws and Regulations

 

Climate Change. Recent scientific studies have suggested that emissions of gases commonly referred to as “greenhouse gases” or “GHG”, including CO₂, nitrogen dioxide and methane, may be contributing to warming of the Earth’s atmosphere. Other nations have already agreed to regulate emissions of GHG pursuant to the United Nations Framework Convention on Climate Change, (“UNFCCC”) and the Kyoto Protocol, an international treaty (not including the United States) pursuant to which many UNFCCC member countries have agreed to reduce their emissions of GHG to below 1990 levels by 2012. In response to such studies and international action, the U.S. Congress is now considering legislation to reduce emissions of GHG, and the EPA has promulgated a mandatory GHG reporting rule that took effect January 1, 2010. As finalized, the mandatory reporting rule (MRR) does not require reporting by Resolute for its operations in Aneth Field. However, on March 23, 2010, EPA proposed several amendments to the MRR that would trigger reporting requirements for the Company. Among the proposed amendments are provisions that would apply to operators that inject CO₂ for enhanced oil recovery and geologic sequestration, regardless of the magnitude of associated CO₂ emissions, and also to operators of oil and natural gas systems that emit more than 25,000 metric tons of CO₂-equivalent GHGs across an entire producing basin, based on the aggregated GHG emissions of all facilities in a basin under common control of an operator. On June 26, 2009, the House of Representatives passed H.R. 2454, the Waxman-Markey “American Clean Energy and Security Act of 2009,” which would require 17% reduction in GHG emission by “covered entities” by 2020, relative to 2005 GHG emission levels, and create an elaborate system of allocated and tradable emission allowances and offsets to achieve mandated reductions of up to 80% by the year 2050. Companion legislation is being considered in the Senate, and a consensus bill could be developed later in 2010. Prior to this legislative action on climate change by the U.S. Congress, a number of states chose not to wait for Congress to develop and implement climate control legislation and have already taken legal measures to reduce emissions of GHG, primarily through the planned development of GHG emission inventories and/or regional cap and trade programs. For example, on August 22, 2007, the Western Climate Initiative, which is comprised of a number of Western states and Canadian provinces, including the State of Utah, issued a GHG reduction goal statement seeking to collectively reduce regional GHG emissions to 15% below 2005 levels by 2020. Also, as a result of the U.S. Supreme Court’s decision on April 2, 2007, in Massachusetts, et al. v. EPA, the EPA may be required to regulate GHG emissions from mobile sources (e.g., cars and trucks) even if Congress does not adopt new legislation specifically addressing emissions of GHG. The Court’s holding in Massachusetts v. EPA that GHG fall under the federal Clean Air Act’s definition of “air pollutant” also may result in future regulation of GHG emissions from stationary sources under Clean Air Act programs, due to EPA’s recent “endangerment finding” that links global warming to man-caused emissions of GHGs and concludes there is an endangerment to public health and the environment that requires regulatory action. The passage or adoption of new legislation or regulations that restrict emissions of GHG or require reporting of such emissions in areas where Resolute conducts business could adversely affect its operations.

Department of Homeland Security. The Department of Homeland Security Appropriations Act of 2007 requires the Department of Homeland Security (“DHS”), to issue regulations establishing risk-based performance standards for the security at chemical and industrial facilities, including oil and gas facilities that are deemed to present “high levels of security risk.” The DHS is in the process of adopting regulations that will determine whether some of Resolute’s facilities or operations will be subject to additional DHS-mandated security requirements. Presently, it is not possible to accurately estimate the costs Resolute could incur to comply with any such facility security laws or regulations, but such expenditures could be substantial.

 

Occupational Safety and Health Act. Resolute is subject to the requirements of the federal Occupational Safety and Health Act (“OSHA”) and comparable state statutes that strictly govern protection of the health and safety of workers. The Occupational Safety and Health Administration’s hazard communication standard, the Emergency Planning and Community Right-to-Know Act, and similar state statutes require that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities, and the public. Resolute believes that it is in substantial compliance with these applicable requirements and with other OSHA and comparable requirements.

 

Laws and Regulations Pertaining to Oil and Gas Operations on Navajo Nation Lands

 

General. Laws and regulations pertaining to oil and gas operations on Navajo Nation lands derive from both Navajo law and federal law, including federal statutes, regulations and court decisions, generally referred to as federal Indian law.

 

The Federal Trust Responsibility. The federal government has a general trust responsibility to Indian tribes regarding lands and resources that are held in trust for such tribes. The trust responsibility may be a consideration in courts’ resolution of disputes regarding Indian trust lands and development of oil and gas resources on Indian reservations. Courts may consider the compliance of the Secretary of the U.S. Department of the Interior, or the Interior Secretary, with trust duties in determining whether leases, rights-of-way, or contracts relative to tribal land are valid and enforceable.

 

Tribal Sovereignty and Dependent Status. The United States Constitution vests in Congress the power to regulate the affairs of Indian tribes. Indian tribes hold a sovereign status that allows them to manage their internal affairs, subject to the ultimate legislative power of Congress. Tribes are therefore often described as domestic dependent nations, retaining all attributes of sovereignty that have not been taken away by Congress. Retained sovereignty includes the authority and power to enact laws and safeguard the health and welfare of the tribe and its members and the ability to regulate commerce on the reservation. In many instances, tribes have the inherent power to levy taxes and have been delegated authority by the United States to administer certain federal health, welfare and environmental programs.

 

Because of their sovereign status, Indian tribes also enjoy sovereign immunity from suit and may not be sued in their own courts or in any other court absent Congressional abrogation or a valid tribal waiver of such immunity. The United States Supreme Court has ruled that for an Indian tribe to waive its sovereign immunity from suit, such waiver must be clear, explicit and unambiguous.

 

NNOG is a federally chartered corporation incorporated under Section 17 of the Indian Reorganization Act and is wholly owned by the Navajo Nation. Section 17 corporations generally have broad powers to sue and be sued. Courts will review and construe the charter of a Section 17 corporation to determine whether the tribe has either universally waived the corporation’s sovereign immunity, or has delegated that power to the Section 17 corporation.

 

The NNOG federal charter of incorporation provides that NNOG shares in the immunities of the Navajo Nation, but empowers NNOG to waive such immunities in accordance with processes identified in the charter. NNOG has contractually waived its sovereign immunity, and certain other immunities and rights it may have regarding disputes with Resolute relating to certain of the Aneth Field Properties, in the manner specified in its charter. Although the NNOG waivers are similar to waivers that courts have upheld, if challenged, only a court of competent jurisdiction may make that determination based on the facts and circumstances of a case in controversy.

Tribal sovereignty also means that in some cases a tribal court is the only court that has jurisdiction to adjudicate a dispute involving a tribe, tribal lands or resources or business conducted on tribal lands or with tribes. Although language similar to that used in Resolute’s agreements with NNOG that provide for alternative dispute resolution and federal or state court jurisdiction has been upheld in other cases, there is no guarantee that a court would enforce these dispute resolution provisions in a future case.

 

Federal Approvals of Certain Transactions Regarding Tribal Lands. Under current federal law, the Interior Secretary (or the Interior Secretary’s appropriate designee) must approve any contract with an Indian tribe that encumbers, or could encumber, for a period of seven years or more, (1) lands owned in trust by the United States for the benefit of an Indian tribe or (2) tribal lands that are subject to a federal restriction against alienation, or collectively Tribal Lands. Failure to obtain such approval, when required, renders the contract void.

 

Except for Resolute’s oil and gas leases, rights-of-way and operating agreements with the Navajo Nation, Resolute’s agreements do not by their terms specifically encumber Tribal Lands, and it believes that no Interior Secretarial approval was required to enter into those agreements. With respect to its oil and gas leases and unit operating agreements, these and all assignments to Resolute have been approved by the Interior Secretary. In the case of rights-of-way and assignments of these to Resolute, some of these have been approved by the Interior Secretary and others are in various stages of applications for renewal and approval. It is common for these approvals to take an extended period of time, but such approvals are routine and Resolute believes that all required approvals will be obtained in due course.

 

Federal Management and Oversight. Reflecting the federal trust relationship with tribes, the Bureau of Indian Affairs, or the BIA, exercises oversight of matters on the Navajo Nation reservation pertaining to health, welfare and trust assets of the Navajo Nation. Of relevance to Resolute, the BIA must approve all leases, rights-of-way, applications for permits to drill, seismic permits, CO₂ pipeline permits and other permits and agreements relating to development of oil and gas resources held in trust for the Navajo Nation. While NNOG has been successful in facilitating timely approvals from the BIA, such timeliness is not guaranteed and obtaining such approvals may cause delays in developing the Aneth Field Properties.

 

Resources Committee of the Navajo Nation Council. The Resources Committee is a standing committee of the Navajo Nation Tribal Council, and has oversight and regulatory authority over all lands and resources of the Navajo Nation. The Resources Committee reviews, negotiates and recommends to the Navajo Nation Tribal Council actions involving the approval of energy development agreements and mineral agreements; gives final approvals of rights of way, surface easements, geophysical permits, geological prospecting permits, and other surface rights for infrastructure; oversees and regulates all activities within the Navajo Nation involving natural resources and surface disturbance; sets policy for natural resource development and oversees the enforcement of federal and Navajo law in the development and utilization of resources, including issuing cease and desist orders and assessing fines for violation of its regulations and orders. The Resources Committee also has oversight authority over, among other agencies and matters, the Navajo Nation Environmental Protection Agency and Navajo Nation environmental laws, the Navajo Nation Minerals Department and Navajo Nation oil and gas laws and the Navajo Nation Land Department and Navajo Nation land use laws. While NNOG has been successful thus far in facilitating timely approvals from the Resources Committee for Resolute’s operations, such timeliness is not guaranteed and obtaining future approvals may cause delays in developing the Aneth Field Properties.

 

Navajo Nation Minerals Department of the Division of Natural Resources. The day-to-day operation of the Navajo Nation minerals program, including the initial negotiation of agreements, applications for approval of assignments, exercise of tribal preferential rights and most other permits and licenses relating to oil and gas development, is managed by the professional staff of the Navajo Nation Minerals Department, located within the Division of Natural Resources and subject to the oversight of the Resources Committee. The Resources Committee and the Navajo Nation Council typically defer to the Minerals Department in decisions to approve all leases and other agreements relating to oil and gas resources held in trust for the Navajo Nation. While NNOG has been successful thus far in facilitating timely action and favorable recommendations from the Minerals Department for Resolute’s operations, such timeliness is not guaranteed and obtaining future approvals may cause delays in developing the Aneth Field Properties.

Taxation Within the Navajo Nation. In certain instances, federal, state and tribal taxes may be applicable to the same event or transaction, such as severance taxes. State taxes are rarely applicable within the Navajo Nation Reservation except as authorized by Congress or when the application of such taxes does not adversely affect the interests of the Navajo Nation. Federal taxes of general application are applicable within the Navajo Nation, unless specifically exempted by federal law. Resolute currently pays the following taxes to the Navajo Nation:

 

 

Royalties from Production on Navajo Nation Lands. Under Resolute’s agreements and leases with the Navajo Nation, it pays royalties to the Navajo Nation. The Navajo Nation is entitled to take its royalties in kind, which it currently does for its oil royalties but not its gas royalties. The Minerals Management Service of the United States Department of the Interior has the responsibility for managing and overseeing royalty payments to the Navajo Nation as well as the right to audit royalty payments.

 

Navajo Preference in Employment Act. The Navajo Nation has enacted the Navajo Preference in Employment Act, or the Employment Act, requiring preferential hiring of Navajos by non-governmental employers operating within the boundaries of the Navajo Nation. The Employment Act requires that any Navajo candidate meeting job description requirements receives a preference in hiring. The Employment Act also provides that Navajo employees can only be terminated, penalized, or disciplined for “just cause,” requires a written affirmative action plan that must be filed with the Navajo Nation, establishes the Navajo Labor Commission as a forum to resolve employment disputes and provides authority for the Navajo Labor Commission to establish wage rates on construction projects. The restrictions imposed by the Employment Act and its recent broad interpretations by the Navajo Supreme Court may limit Resolute’s pool of qualified candidates for employment.

 

Navajo Business Opportunity Act. Navajo Nation law requires companies doing business in the Navajo Nation to provide preference priorities to certified Navajo-owned businesses by giving them a first opportunity and contracting preference for all contracts within the Navajo Nation. While this law does not apply to the granting of mineral leases, subleases, permits, licenses and transactions governed by other applicable Navajo and federal law, Resolute treats this law as applicable to its material non-mineral contracts and procurement relating to its general business activities within the Navajo Nation.

 

Navajo Environmental Laws. The Navajo Nation has enacted various environmental laws that may be applicable to Resolute’s Aneth Field Properties. As a practical matter, these laws are patterned after similar federal laws, and the EPA currently enforces these laws in conjunction with the Navajo EPA. The current practice does not preclude the Navajo Nation from taking a more active role in enforcement or from changing direction in the future. Some of the Navajo Nation environmental laws not only provide for civil, criminal and administrative penalties, but also provide for third-party suits brought by Navajo Nation tribal members directly against an alleged violator, with specified jurisdiction in the Navajo Nation District Court in Window Rock. A recent example of this relates to the March 2008 adoption by the Navajo Nation of the Navajo Comprehensive Environmental Response, Compensation, and Liability Act (“Navajo CERCLA”), which gives the Navajo EPA broad authority over environmental assessment and remediation of facilities contaminated with hazardous substances. Navajo CERCLA is patterned after federal CERCLA with the important exception that, unlike federal CERCLA, Navajo CERCLA considers crude oil and other hydrocarbons to be hazardous substances subject to CERCLA response actions and damages. Navajo CERCLA also imposes a tariff on the transportation of hazardous substances,

including petroleum and petroleum products, across Navajo lands. Resolute is negotiating with representatives of the Navajo Nation Council, Navajo Department of Justice, Navajo Environmental Protection Agency, NNOG, an industry group headed by the New Mexico Oil and Gas Association and Colorado Oil and Gas Association, (“the NMOGA Group”), and others, to mitigate Navajo CERCLA’s potential impact on oilfield operations on Navajo lands. The NMOGA Group in particular has challenged the validity of the law and has entered into a tolling agreement with Navajo EPA that should forestall material implementation of Navajo CERCLA at oil and gas facilities while appropriate rules and guidelines are developed with input from the oil and gas sector. The tolling agreement was renewed in August 2009, and negotiations among Navajo EPA, Resolute and the NMOGA Group remain ongoing.

 

Thirty-Two Point Agreement. An explosion at an ExxonMobil facility in Aneth Field in December 1997 prompted protests by local tribal members. The protesters asserted concerns about environmental degradation, health problems, employment opportunities and renegotiating leases. The protest was settled among the local residents, ExxonMobil and the Navajo Nation by the Thirty-Two Point Agreement that provided, among other things, for ExxonMobil to pay partial salaries for two Navajo public liaison specialists, follow Navajo hiring practices, and settle further issues addressed in the Thirty-Two Point Agreement in the Navajo Nation’s “peacemaker” courts, which follow a community-level conflict resolution format. After the Thirty-Two Point Agreement was executed, Aneth Field resumed normal operations. While Resolute did not assume the obligations of ExxonMobil under the Thirty-Two Point Agreement when it acquired the ExxonMobil Properties in 2006, it has been its policy to voluntarily comply with this agreement.

 

Moratorium on Future Oil and Gas Development Agreements and Exploration. In February 1994, the Navajo Nation issued a moratorium on future oil and gas development agreements and exploration on lands situated within the Aneth Chapter on the Navajo Reservation. All of the Aneth Unit and a significant portion of the McElmo Creek Unit are located within the Aneth Chapter. The Navajo Nation has recently taken the position that the term of the moratorium is indefinite. Given that Resolute’s operations within the Aneth Chapter are based on existing agreements and that Resolute currently does not contemplate new exploration in this mature field, the moratorium has had and is expected to continue to have minor impact to Resolute operations.

 

Other Regulation of the Oil and Gas Industry

 

The oil and gas industry is extensively regulated by numerous federal, state and local authorities, including Native American tribes. Legislation affecting the oil and gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden. Also, numerous departments and agencies, both federal and state and Native American tribes, are authorized by statute to issue rules and regulations binding on the oil and gas industry and individual companies, some of which carry substantial penalties for failure to comply. Although the regulatory burden on the oil and gas industry increases Resolute’s cost of doing business and, consequently, affects profitability, these burdens generally do not affect Resolute any differently or to any greater or lesser extent than they affect other companies in the industry with similar types, quantities and locations of production.

 

Drilling and Production. Resolute’s operations are subject to various types of regulation at federal, state, local and Navajo Nation levels. These types of regulation include requiring permits for the drilling of wells, drilling bonds and reports concerning operations. Most states, and some counties, municipalities, the Navajo Nation and other Native American tribes also regulate one or more of the following: