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Rosetta Resources Inc. – IPO: ‘424B3’ on 2/13/06

On:  Monday, 2/13/06, at 6:29am ET   ·   Accession #:  1193125-6-27644   ·   File #:  333-128888

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/13/06  Rosetta Resources Inc.            424B3                  1:3.5M                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 424B3       Prospectus                                          HTML   2.75M 

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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-128888

PROSPECTUS

50,000,000 Shares

Common Stock

This prospectus relates to up to 50,000,000 shares of the common stock of Rosetta Resources Inc., which may be offered from time to time for sale by the selling stockholders named in this prospectus. The selling stockholders acquired the shares of common stock offered by this prospectus in private equity purchases. We are registering the offer and sale of the shares of common stock to satisfy registration rights we have granted.

We are not selling any shares of common stock under this prospectus and will not receive any proceeds from the sale of common stock by the selling stockholders. The shares of common stock to which this prospectus relates may be offered and sold from time to time directly from the selling stockholders or alternatively through underwriters or broker-dealers or agents. The shares of common stock may be sold in one or more transactions, at fixed prices, at prevailing market prices at the time of sale or at negotiated prices.

Prior to the date of this prospectus, there has been no public market for our common stock. Because all of the shares being offered under this prospectus are being offered by selling stockholders, we cannot currently determine the price or prices at which our shares of common stock may be sold under this prospectus. However, certain qualified institutional buyers of our common stock in our exempt sale of common stock, which closed in July 2005, have traded our common stock on the PORTAL^® Market. The last trade of our common stock reported on The PORTAL^® Market, of which we are aware, was reported on December 30, 2005 at a price of $18.00 per share. Future prices will likely vary from that price and these sales may not be indicative of prices at which our common stock will trade. Until our shares of common stock are regularly traded as listed on The Nasdaq National Market, we expect that the selling stockholders initially will sell their shares at prices between $18.00 per share and $20.00 per share, if any shares are sold. Please read “Plan of Distribution.”

We are an independent oil and natural gas company engaged in the acquisition, exploration, development and production of primarily natural gas properties in the United States. We have received approval to list our common stock on The Nasdaq National Market under the symbol “ROSE.”

Investing in our common stock involves risks. You should read the section entitled “ Risk Factors” beginning on page 11 for a discussion of certain risk factors that you should consider before buying shares of our common stock.

You should rely only on the information contained in this prospectus or any prospectus supplement or amendment. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted.

Neither the Securities and Exchange Commission (hereinafter “SEC”) nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is February 13, 2006.

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WHERE CAN YOU FIND INFORMATION

We have filed with the SEC, under the Securities Act, a registration statement on Form S-1 with respect to the common stock offered by this prospectus. This prospectus, which constitutes part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules which are part of the registration statement, portions of which are omitted as permitted by the rules and regulations of the SEC. Statements made in this prospectus regarding the contents of any contract or other documents are summaries of the material terms of the contract or document. With respect to each contract or document filed as an exhibit to the registration statement, reference is made to the corresponding exhibit. For further information pertaining to us and to the common stock offered by this prospectus, reference is made to the registration statement, including the exhibits and schedules thereto, copies of which may be inspected without charge at the public reference facilities of the SEC at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Copies of all or any portion of the registration statement may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a web site that contains reports, proxy and information statements and other information that is filed electronically with the SEC. The web site can be accessed at www.sec.gov.

After effectiveness of the registration statement, which includes this prospectus, we will be required to comply with the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, accordingly, will file current reports on Form 8-K, quarterly reports on Form 10-Q, annual reports on Form 10-K, proxy statements and other information with the SEC. Those reports, proxy statements and other information will be available for inspection and copying at the public reference facilities and internet site of the SEC referred to above.

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PROSPECTUS SUMMARY

This summary contains selected information about our prospectus and us. Because it is a summary, it does not contain all the information that you should consider before investing in our common stock. You should read and carefully consider this entire prospectus before making an investment decision, especially the information presented under the heading “Risk Factors” beginning on page 11 and the financial statements and the accompanying notes included elsewhere in this prospectus, as well as the other documents to which we refer you.

Except as otherwise indicated or required by the context, references in this prospectus to “we”, “us”, “our” or the “Company” refer to the consolidated/combined business of Rosetta Resources Inc. and its subsidiaries. Unless otherwise indicated, all oil and natural gas statistics of our proved reserves as of December 31, 2004 are based on a reserve report prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers (“Netherland Sewell”). The estimates of our proved reserves as of April 30, 2005, are based on a modified roll forward of our report as of December 31, 2004 prepared by Netherland Sewell as further described in Footnote 1 on page 2. A summary of their report on our proved reserves as of December 31, 2004 and a summary of the adjusted estimates of our proved reserves as of April 30, 2005 are attached to this prospectus as Appendix A.

We have provided definitions for some of the oil and natural gas industry terms used in this prospectus in the “Glossary of Oil and Natural Gas Terms” on page 134 of this prospectus. Crude oil and natural gas equivalents are determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.

Overview

Rosetta Resources Inc. is an independent oil and natural gas company engaged in the acquisition, exploration, development and production of primarily natural gas properties in the United States. Our operations are concentrated in the Sacramento Basin of California, South Texas, the Gulf of Mexico and the Rocky Mountains.

Our company was formed in June 2005. We began active oil and natural gas operations as a separate company in July 2005 following our acquisition of the domestic oil and natural gas business of Calpine Corporation and affiliates (“Calpine”). We sometimes refer to that transaction in this prospectus as the “Acquisition.” Several members of our current management team, including our chief executive officer, and certain key employees operated these oil and natural gas assets while employed by Calpine. The funding for the Acquisition was through a private placement of 45,312,500 shares of our common stock to qualified institutional buyers and non-U.S. persons in a transaction exempt from registration under the Securities Act. We also used borrowings of $325 million under our credit facilities to complete the Acquisition. Additionally, we sold 4,687,500 shares of our common stock in an exempt transaction to fulfill the over-allotment option we granted to our underwriter. A significant portion of these proceeds was used to repay $60 million of debt under our new revolving credit facility in July 2005, and the remaining amount was used for unspecified operating costs of our oil and natural gas properties and general and administrative costs from our oil and natural gas operations. Following the closing of our Acquisition and our receipt of these additional proceeds, we immediately began to increase our development and acquisition activity.

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As of April 30, 2005, our estimated total proved oil and natural gas reserves were approximately 383 Bcfe, including 368 Bcf of natural gas and 2,550 MBbls of oil and condensate. Our proved reserves are approximately 96% natural gas and 68% proved developed. Using prices as of April 30, 2005, the estimated present value of future net revenues from proved reserves before income taxes, using SEC guidelines and discounted at an annual rate of 10% (“PV-10”) of our proved reserves was approximately $1.0 billion. See footnotes (2) (3) and (4) in the table below. Our proved reserves have a reserve life index of approximately 12 years. As operator of approximately 90% of our proved reserves, we have a high degree of control over our capital expenditure budget and other operating matters. The following table sets forth by operating area a summary of certain estimated net proved reserves as of April 30, 2005:

In preparing the sensitivity estimates of our proved reserves as of April 30, 2005, Netherland Sewell did not complete all the steps required to provide a complete, updated evaluation of the reserves as of April 30, 2005, as was completed for reserves as of December 31, 2004. Steps that Netherland Sewell did not complete include re-projecting all wells based on new production data except for new wells completed in 2005.

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As of December 31, 2004, we had 389.3 Bcfe of proved oil and natural gas reserves, including 374 Bcf of natural gas and 2,611 MBbls of oil and condensate. Using prices as of December 31, 2004, PV-10 value was approximately $0.9 billion. The following table sets forth by operating area a summary of our estimated net proved reserves information as of December 31, 2004:

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There are a number of uncertainties inherent in estimating quantities of proved reserves, including many factors beyond our control, such as commodity pricing. Therefore, the reserve information in this prospectus represents only estimates. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that can not be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates of different engineers may vary. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revising the original estimate. Accordingly, initial reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered. The meaningfulness of such estimates depends primarily on the accuracy of the assumptions upon which they were based. Except to the extent that we acquire additional properties containing proved reserves or conduct successful exploration and development activities, or both, our proved reserves will decline as reserves are produced.

Recent Developments

Business Operations

Since the date of our Acquisition, we have drilled 29 wells, of which 83% are expected to find commercial quantities of production.

Northern

California.    Drilling, which commenced in November 2005, resulted in the successful drilling of four wells which will provide production additions from several separate sands. One deep rig and one shallow rig are now under contract to drill 35 wells in 2006.

One completion rig is currently operating on our properties in the Rio Vista Gas Field and has performed nine recompletions since June 30, 2005. We expect to add a second completion rig during the first quarter of 2006 to help with the 39 recompletions that are planned for 2006. The Company has leased an additional 20,134 net acres in the area since the acquisition.

Colorado.    Ten wells have been drilled in the DJ Basin during the second half of 2005 with seven successes, all of which are expected to be on production in the first quarter of 2006. We are currently installing new production lines to enlarge the gathering system. In addition, 3D seismic data has been acquired and used to identify potential drill sites, with an additional acquisition of 36 square miles scheduled for first quarter 2006. The Company plans to drill 70 locations in 2006. The Company has added 25,157 net acres since June, 2005.

Utah.    As a result of the acquisition of an additional 626 net acres in the Utah State lease sale, we own a 100% working interest in 2,782 net acres. Recent drilling activity in close proximity to our leasehold has made discoveries of production in commercial quantities. Our leasehold now has 35 drillable low risk opportunities. In addition, we are actively pursuing joint venture development drilling projects.

New Mexico.    We are pursuing coal bed methane opportunities in the San Juan Basin of New Mexico, and have a 100% working interest position in 6,796 acres. We are currently permitting our well locations with plans to begin drilling by the middle of 2006. We have now identified 44 drillable locations on our San Juan Basin leases which support this activity.

Southern

Lobo.    We have contracted a drilling rig long term to drill our defined Lobo Trend locations in South Texas. We are currently drilling one well and will utilize the same rig to drill 14 additional locations in 2006 which have been identified with 3-D seismic and subsurface data.

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In addition, we completed 41 workover projects in 2005 with 6 currently in progress.

Additional compression is being put in place to accommodate the expected increase in production. The Company added 4,530 net acres of prospective land in the LOBO with a minimum of 7 additional locations to its inventory of 78.

Perdido.    Two wells in the Perdido Sand Trend area were completed and placed on production in the fourth quarter of 2005 and a third well in January 2006. Based on the success of the recent horizontal drilling, the Company has increased its inventory of drillable locations to 48 (all horizontal).

Frio.    The Company made a discovery on Padre Island, Dunn Beach prospect in the Frio and Cib. Haz. Sands. Three wells are on production and a fourth well is drilling.

Wilcox.    We finished drilling a Lower Wilcox prospect in Colorado County, Texas, which was a dry hole.

Texas State Waters.    We have drilled and completed two wells in Galveston Bay and have begun the installation of additional production facilities to accommodate the increase in production. In addition we have acquired an interest in two other wells which are currently drilling nearby, both of which should reach total depth in February of 2006.

Offshore.    We have acquired a 25% non-operated working interest through a joint venture in two blocks in the Gulf of Mexico Federal Waters. Our first well reached total depth in November 16, 2005. Production casing was set and the well has tested successfully and should be placed on production in 2006. The second well will spud in the first quarter of 2006.

An additional well in the South Timbalier area spudded in December 2005. This well reached total depth in January 2006, and is being evaluated.

Effect of Hurricanes Katrina and Rita.    Subsequent to the passage of Hurricanes Katrina and Rita, we completed a survey of our operated Gulf of Mexico state and federal waters production facilities. Based on our inspections, no pollution or personal injuries were identified as having occurred as a result of Hurricanes Katrina or Rita. Furthermore, there was no damage to our facilities caused by Hurricane Katrina, but production from our offshore Gulf of Mexico properties was shut in for a period of approximately one week. Hurricane Rita damaged our offshore Gulf of Mexico production facilities in federal waters in East Cameron Blocks 88 and 89 and South Pelto Block 17. These damages are covered by property insurance subject to a retention. We have made an insurance claim for property damage. Based on our estimate of damages, the cost of repair to these facilities and the associated loss of production until repairs can be effected will not have a material adverse impact on our financial position, results of operations or operating cash flows. Our combined, net operated and non-operated, production rates from all of our production facilities affected by Hurricane Rita totaled 23.7 MMcfe/d. We have resumed 87% of our operations in these production facilities at year end 2005 or 20.6 MMcfe/d and expect to be back at 100% production rates by the end of January 2006.

Commodity Price Risk Management

In connection with our acquisition of the oil and natural gas business of Calpine as of July 7, 2005, we entered into a series of fixed price swaps to protect against potential negative movements in natural gas prices through 2009. Additional effects of recent gas price increases include increased costs for materials and equipment including drilling rigs and increases in the time required to secure contracts for drilling and workover rigs. Natural gas and oil price volatility has and will continue to have a significant effect on our business.

Consistent with our hedge policy, on December 7, 2005, we entered into two costless collar transactions, which are intended to establish a floor price and ceiling price for approximately 10,000 MMbtu per day in 2006.

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Credit Facilities

Senior Secured Revolving Line of Credit.    We entered into a senior secured revolving line of credit concurrent with the Acquisition in the amount of up to $400 million. This revolving line of credit was amended and syndicated to a group of lenders as of September 27, 2005. Availability under the revolver is restricted to the borrowing base. As a result of the derivative transactions executed on July 7, 2005 and the favorable effects of the exercise of the over-allotment option we granted through which we received $70 million of funds (net of transaction fees), the initial borrowing base of $275 million was reset to $325 million upon amendment. In July 2005, we repaid $60 million in borrowings on the Revolver. Amounts outstanding under the revolver bear interest, as amended, at specified margins over the London Interbank Offered Rate (LIBOR) of 1.25% to 2.00%. Borrowings under the revolver are collateralized by first priority liens on substantially all of our assets. In addition, we are subject to certain financial covenants pertaining to a minimum current ratio and a maximum leverage ratio and covenants limiting dividends and other restricted payments, transactions with affiliates, incurrence of debt, changes of control, asset sales, and liens on properties. All amounts drawn under the revolver are due and payable on July 7, 2009. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and notes to the financial statements for more detail related to this facility.

Second Lien Term Loan.    We also entered into a second lien term loan in the amount of $100 million concurrent with the Acquisition. On September 27, 2005, we repaid $25 million and syndicated the remainder of the loan to a group of lenders. Borrowings under the term loan initially bore interest at LIBOR plus 5.00%. As a result of the hedges put in place on July 7, 2005 and the favorable effects of our private equity placement, as described above, the interest rate for the second lien term loan was reduced to LIBOR plus 4.00%. The $75 million loan is collateralized by second priority liens on substantially all of our assets. In addition, we are subject to certain financial covenants pertaining to a minimum asset coverage ratio and a maximum leverage ratio and covenants limiting dividends and other restricted payments, transactions with affiliates, incurrence of debt, changes of control, asset sales, and liens on properties. The revised principal balance is due and payable on July 7, 2010. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and notes to the financial statements for more detail related to this facility.

Calpine Bankruptcy

On December 20, 2005, Calpine and certain of its subsidiaries, including Calpine Fuels, filed for federal bankruptcy protection in the Southern District of New York. Although we believe that Calpine’s bankruptcy filing will not materially disrupt our operations, the filing raises certain concerns regarding aspects of our relationship with Calpine which we will closely monitor as the Calpine bankruptcy proceeds. Following are our principal areas of concern:

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As to all of these matters, see also “Risk Factors—Risks Relating to Our Business—Calpine’s recent bankruptcy filing may adversely affect us in several respects” for a further discussion of the potential risks relating to Calpine’s bankruptcy. We have engaged bankruptcy counsel to monitor this proceeding and advocate our interests as necessary. As of the date of this prospectus, the only significant event affecting us directly has been the approval of the bankruptcy court for Calpine, as debtor-in-possession, to continue payments to us for our delivery of natural gas under our gas purchase and sale agreement.

We believe the structure of the equity offering of our common stock and the process followed by Calpine allowed market action to determine the sales price received by Calpine in the Acquisition. Senior management of Calpine, in consultation with its various advisors, structured the Acquisition and the private issuance of our common stock to fund the Acquisition. Our equity was purchased by sophisticated investors knowledgeable in oil and natural gas transactions. See “Description of Separation from Calpine—Overview” and “—Structuring the Acquisition Transaction”.

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Summary of Development and Exploration Projects

The following table summarizes information regarding our estimated capital expenditures for the three months ending December 31, 2005 (successor), our historical capital expenditures for the three months ended September 30, 2005 (successor), the six months ended June 30, 2005 (predecessor), and the historical capital expenditures for the year ended December 31, 2004 (predecessor). The estimates are subject to change depending upon a number of factors, including availability of capital, drilling results, oil and natural gas prices, costs of drilling and completion and availability of drilling rigs, equipment and labor:

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CORPORATE INFORMATION

On July 7, 2005, we completed a private offering of 45,312,500 shares of our common stock exempt from registration under the Securities Act for aggregate consideration of $725 million or $16.00 per share. We used the net proceeds from the offering and borrowings of $325 million under our credit facilities to purchase Calpine’s domestic oil and natural gas exploration and production business. In connection with that offering, on July 13, 2005, we sold an additional 4,687,500 shares of our common stock in an exempt transaction to fulfill the over-allotment option we granted for $75 million before fees, also at $16.00 per share. The net proceeds generated from the exercise of our over-allotment option were used to repay $60 million of debt under our new revolving credit facility in July 2005 and the remaining amount was used for unspecified operating costs of our oil and natural gas properties and general and administrative costs of our oil and natural gas operations. Following the closing of our Acquisition and our receipt of these additional proceeds, we increased our development and acquisition activities.

We were incorporated in June 2005 as a Delaware corporation. Our principal executive offices are located at 717 Texas, Suite 2800, Houston, TX 77002 and our telephone number is (713) 335-4000. Our website is http://www.rosettaresources.com.

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THE OFFERING

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RISK FACTORS

You should consider carefully each of the risks described below, together with all of the other information contained in this prospectus, before deciding to invest in our common stock.

Risks Related to Our Business

Calpine’s recent bankruptcy filing may adversely affect us in several respects.

Calpine and certain of its subsidiaries (the “Debtors”) filed for protection under the federal bankruptcy laws in the Southern District of New York on December 20, 2005 (the “Petition Date”). The Debtors could bring an action under the Bankruptcy Code or relevant state fraudulent conveyance laws asserting that Calpine’s transfer of its domestic oil and natural gas business to us (as either the initial transferee or the immediate or mediate transferee from the initial transferee) should be avoided or set aside as a fraudulent transfer. To prevail in such a legal action, the Debtors would be required to prove, that Calpine either:

(i) transferred its domestic oil and natural gas business to us with the intent of hindering, delaying or defrauding its current or future creditors; or

(ii) as of July 7, 2005 (the date of the closing of the Acquisition) it (a) received less than reasonably equivalent value for the business; and (b) was insolvent, became insolvent as a result of such transfer, was engaged in a business or transaction or was about to engage in a business or transaction for which any property remaining was unreasonably small, or intended to incur or believed it would incur debts that would be beyond its ability to pay as such debts matured.

Our primary defense against such a legal challenge rests on the extensive negotiations leading up to and the market pricing mechanisms incorporated into the terms of the Acquisition. (For a description of the negotiations and terms of the Acquisition, see “Description of Separation from Calpine—Structuring the Acquisition Transaction”.) Nonetheless, if after a trial on the merits, the court were to determine that the Debtors have met their burden of proof in this regard, it could, void the transfer or take other actions against us, including (i) setting aside the Acquisition and returning our purchase price and give us a first lien on all the properties and assets we purchased in the Acquisition or (ii) sustain the Acquisition subject to our being required to pay the Debtors the amount, if any, by which the fair value of the business transferred, as determined by the court as of July 7, 2005, exceeded the purchase price determined and paid on July 7, 2005. If the bankruptcy court should so rule, a setting aside of the Acquisition would be materially detrimental to us in that substantially all our properties would be returned to Calpine, subject to our right (as a good faith transferee) to retain a lien in our favor to secure the return of the purchase price we paid for the properties. Additionally, if the bankruptcy court should so rule, any requirement to pay an increased purchase price could adversely affect us depending on the amount we might be required to pay. See “Description of Separation from Calpine—Structuring the Acquisition Transaction”.

Additionally, at the closing of the Acquisition, Calpine agreed to sell but retained title to certain domestic oil and gas properties, subject to obtaining various third party consents or waivers of preferential purchase rights necessary in order to effect transfer of title (the “Non-Consent Properties”). On July 7, 2005, as part of the transactions undertaken in connection with closing the Acquisition, we accepted possession of and have since been operating all of the Non-Consent Properties for which Calpine retained legal title. We withheld approximately $75 million from the aggregate purchase price as the allocated dollar amount for the Non-Consent Properties, which amount is essentially equivalent to the PV-10 value of those properties at April 30, 2005, the date of the modified roll forward of our proved reserves by Netherland, Sewell & Associates, Inc. Subsequent to the closing of the Acquisition, we obtained substantially all of the consents to assign these properties (the “Cured Non-Consent Properties”), except for certain properties with an approximate allocated value of $7.1 million that were subject to a third party preferential purchase right, for which consents have not been obtained and as to which the third party has subsequently exercised the preferential purchase right and acquired those properties. Prior to the Calpine bankruptcy, we were prepared to consummate the assignments of these Cured Non-Consent Properties (not including those subject to the preferential purchase right). If the assignment of these Cured Non-Consent Properties does not occur, the portion of the purchase price we held back pending obtaining consent will

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be retained by us and will be available to us for general corporate purposes. Further, because of the exercise by the third party of the preferential purchase right as described above, we will retain and use for general corporate purposes the $7.1 million allocated to those properties subject to that right. In addition, at July 7, 2005, we purchased properties having a PV-10 value at April 30, 2005 of approximately $17 million as to which we were awaiting transfer of legal title from Calpine at the date it filed bankruptcy.

Certain of Calpine’s properties involving state or federal leases that we purchased were not fully assigned to us in the closing of our Acquisition on July 7, 2005. The final effectiveness of the assignment of these properties is subject to consent from applicable state or federal regulatory or governmental authorities having certain lease rights in connection with these properties. The consent process was commenced prior to the Acquisition and remained ongoing as of the commencement of Calpine’s bankruptcy. The PV-10 value of these properties as of April 30, 2005, was approximately $33 million based on the modified roll forward of our estimated reserves. If we do not eventually receive legal title to these properties, we will make a claim against Calpine to return to us the cash we paid to them for the properties.

Oil and natural gas prices are volatile, and a decline in oil and natural gas prices would significantly affect our financial results and impede our growth.

Our revenues, profitability and cash flow depend substantially upon the prices and demand for oil and natural gas. The markets for these commodities are volatile and even relatively modest drops in prices can significantly affect our financial results and impede our growth. Prices for oil and natural gas fluctuate widely in response to relatively minor changes in the supply and demand for oil and natural gas, market uncertainty and a variety of additional factors beyond our control, such as:

Further, oil prices and natural gas prices do not necessarily fluctuate in direct relationship to each other. Because the majority of our estimated proved reserves are natural gas reserves, our financial results are more sensitive to movements in natural gas prices. Lower oil and natural gas prices may not only decrease our revenues on a per unit basis but also may reduce the amount of oil and natural gas that we can produce economically. Thus a significant reduction in commodity prices may result in our having to make substantial downward adjustments to our estimated proved reserves and could have a material adverse effect on our financial condition, results of operations and cash flows.

Development and exploration drilling activities do not ensure reserve replacement and thus our ability to produce revenue.

Development and exploration drilling and strategic acquisitions are the main methods of replacing reserves. However, development and exploration drilling operations may not result in any increases in reserves for various reasons. Development and exploration drilling operations may be curtailed, delayed or cancelled as a result of:

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Counterparty credit default could have an adverse effect on us.

Our revenues are generated under contracts with various counterparties. Results of operations would be adversely affected as a result of non-performance by any of these counterparties of their contractual obligations under the various contracts. A counterparty’s default or non-performance could be caused by factors beyond our control. A default could occur as a result of circumstances relating directly to the counterparty, or due to circumstances caused by other market participants having a direct or indirect relationship with the counterparty. Defaults by counterparties may occur from time to time, and this could negatively impact our results of operations, financial position and cash flows. Calpine’s recent bankruptcy could result in failure of Calpine to continue purchasing natural gas from us under our natural gas purchase and sale agreements with Calpine discussed below.

We sell a significant amount of our production to one customer.

In connection with the Acquisition, we entered into a natural gas purchase and sale contract with Calpine that obligates us to sell all of our current and future production from our existing California leases in production as of May 1, 2005 for a term ending December 31, 2009. As of September 30, 2005, this production comprises approximately 40% of our current overall production based on MMcfe/d. Calpine’s recent bankruptcy could result in failure of Calpine to continue purchasing natural gas from us. Additionally, under separate monthly spot agreements, we may sell our natural gas production, not subject to the term contract to Calpine, which could increase our credit exposure to Calpine. Under the terms of our natural gas purchase and sale contract and spot agreements with Calpine, all natural gas volumes that are contractually sold to Calpine are collateralized by Calpine making daily margin payments to our collateral account equal to the previous day’s natural gas sales. In the event of a default by Calpine, we could be exposed to the loss of up to four days of natural gas sales revenue, which at prices and volumes in effect as of December 21, 2005 would be approximately $2.0 million.

Unless we replace our oil and natural gas reserves, our reserves and production will decline.

Our future oil and natural gas production depends on our success in finding or acquiring additional reserves. If we fail to replace reserves through drilling or acquisitions, our level of production and cash flows will be affected adversely. In general, production from oil and natural gas properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Our total proved reserves decline as reserves are produced. Our ability to make the necessary capital investment to maintain or expand our asset base of oil and natural gas reserves would be impaired to the extent cash flow from operations is reduced and external sources of capital become limited or unavailable. We may not be successful in exploring for, developing or acquiring additional reserves.

We will require additional capital to fund our future activities. If we fail to obtain additional capital, we may not be able to implement fully our business plan, which could lead to a decline in reserves.

Future projects and acquisitions may depend on our ability to obtain financing beyond our cash flow from operations. We will finance our business plan and operations primarily with internally generated cash flow, bank borrowings, entering into exploratory arrangements with other parties and privately raised equity. In the future, we will require substantial capital to fund our business plan and operations. Sufficient capital may not be available on acceptable terms or at all. If we cannot obtain additional capital resources, we may curtail our drilling, development and other activities or be forced to sell some of our assets on unfavorable terms.

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The terms of our credit facilities contain a number of restrictive and financial covenants that limit our ability to pay dividends. If we are unable to comply with these covenants, our lenders could accelerate the repayment of our indebtedness.

The terms of our credit facilities subject us to a number of covenants that impose restrictions on us, including our ability to incur indebtedness and liens, make loans and investments, make capital expenditures, sell assets, engage in mergers, consolidations and acquisitions, enter into transactions with affiliates, enter into sale and leaseback transactions, change our lines of business and pay dividends on our common stock. We will also be required by the terms of our credit facilities to comply with financial covenant ratios. A more detailed description of our credit facilities is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and the footnotes to the consolidated/combined financial statements.

A breach of any of the covenants imposed on us by the terms of our indebtedness, including the financial covenants under our credit facilities, could result in a default under such indebtedness. In the event of a default, the lenders for our revolving credit facility could terminate their commitments to us, and they and the lenders of our second lien term loan could accelerate the repayment of all of our indebtedness. In such case, we may not have sufficient funds to pay the total amount of accelerated obligations, and our lenders under the credit facilities could proceed against the collateral securing the facilities. Any acceleration in the repayment of our indebtedness or related foreclosure could adversely affect our business.

Properties we acquire may not produce as expected, and we may be unable to determine reserve potential, identify liabilities associated with the properties or obtain protection from sellers against such liabilities.

We continually review opportunities to acquire producing properties, undeveloped acreage and drilling prospects; however, such reviews are not capable of identifying all potential conditions. Generally, it is not feasible to review in depth every individual property involved in each acquisition. Ordinarily, we will focus our review efforts on higher value properties or properties with known adverse conditions and will sample the remainder.

However, even a detailed review of records and properties may not necessarily reveal existing or potential problems or permit a buyer to become sufficiently familiar with the properties to assess fully their condition, any deficiencies, and development potential. Inspections may not always be performed on every well, and environmental problems, such as ground water contamination, are not necessarily observable even when an inspection is undertaken.

Our exploration and development activities may not be commercially successful.

Exploration activities involve numerous risks, including the risk that no commercially productive oil or natural gas reservoirs will be discovered. In addition, the future cost and timing of drilling, completing and producing wells is often uncertain. Furthermore, drilling operations may be curtailed, delayed or canceled as a result of a variety of factors, including:

Our decisions to purchase, explore, develop and exploit prospects or properties depend in part on data obtained through geophysical and geological analyses, production data and engineering studies, the results of which are often uncertain. Even when used and properly interpreted, 3-D seismic data and visualization techniques only assist geoscientists and geologists in identifying subsurface structures and hydrocarbon indicators. They do not allow the interpreter to know conclusively if hydrocarbons are present or producible

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economically. In addition, the use of 3-D seismic and other advanced technologies requires greater pre-drilling expenditures than traditional drilling strategies. Because of these factors, we could incur losses as a result of exploratory drilling expenditures. Poor results from exploration activities could have a material adverse effect on our future cash flows, results of operations and financial position.

Numerous uncertainties are inherent in our estimates of oil and natural gas reserves and our estimated reserve quantities and present value calculations may not be accurate. Any material inaccuracies in these reserve estimates or underlying assumptions will affect materially the estimated quantities and present value of our reserves.

Estimates of proved oil and natural gas reserves and the future net cash flows attributable to those reserves are prepared by independent petroleum engineers and geologists. There are numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves and cash flows attributable to such reserves, including factors beyond our control and that of our engineers. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. The accuracy of an estimate of quantities of reserves, or of cash flows attributable to such reserves, is a function of the available data, assumptions regarding future oil and natural gas prices and expenditures for future development and exploration activities, and of engineering and geological interpretation and judgment. Additionally, reserves and future cash flows may be subject to material downward or upward revisions, based upon production history, development and exploration activities and prices of oil and natural gas. Actual future production, revenue, taxes, development expenditures, operating expenses, underlying information, quantities of recoverable reserves and the value of cash flows from such reserves may vary significantly from the assumptions and underlying information set forth herein. In addition, different reserve engineers may make different estimates of reserves and cash flows based on the same available data. The present value of future net revenues from our proved reserves referred to in this prospectus is not necessarily the actual current market value of our estimated oil and natural gas reserves. In accordance with SEC requirements, we base the estimated discounted future net cash flows from our proved reserves on fixed prices and costs as of the date of the estimate. Actual future prices and costs fluctuate over time and may differ materially from those used in the present value estimate. In addition, discounted future net cash flows are estimated assuming royalties to the Minerals Management Service (“MMS”), royalty owners and other state and federal regulatory agencies with respect to our affected properties, will be paid or suspended for the life of the properties based upon oil and natural gas prices as of the date of the estimate. Since actual future prices fluctuate over time, royalties may be required to be paid for various portions of the life of the properties and suspended for other portions of the life of the properties.

The timing of both the production and expenses from the development and production of oil and natural gas properties will affect both the timing of actual future net cash flows from our proved reserves and their present value. In addition, the 10% discount factor that we use to calculate the net present value of future net cash flows for reporting purposes in accordance with the SEC’s rules may not necessarily be the most appropriate discount factor. The effective interest rate at various times and the risks associated with our business or the oil and natural gas industry, in general, will affect the appropriateness of the 10% discount factor in arriving at an accurate net present value of future net cash flows.

We are subject to complex government regulation that could adversely affect our operations.

Our activities are subject to complex and stringent environmental and other governmental laws and regulations. The exploration and production of oil and natural gas requires numerous permits, approvals and certificates from appropriate federal, state and local governmental agencies, including state and local agencies in California, whose regulations typically are more stringent than in other states or localities, as well as compliance with environmental protection legislation and other regulations. We remain subject to a varied and complex body of laws and regulations that both public officials and private individuals may seek to enforce. Existing laws and regulations are routinely revised or reinterpreted, and new laws and regulations may become applicable to us that could have a negative effect on our business and results of operations. We may be unable to obtain all necessary licenses, permits, approvals and certificates for proposed projects. Intricate and changing environmental and other regulatory requirements may necessitate substantial expenditures to obtain and maintain permits. If a

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project is unable to function as planned due to changing requirements or local opposition, it may create expensive delays, extended periods of non-operation or significant loss of value in a project.

Our business is subject to federal, state and local laws and regulations as interpreted by governmental agencies and other bodies, including those in California, vested with much authority relating to the exploration for, and the development, production and transportation of, oil and natural gas, as well as environmental and safety matters. Existing laws and regulations are routinely changed, and any changes could increase costs of compliance and costs of operating drilling equipment or significantly limit drilling activity.

Under certain circumstances, the MMS, may require that our operations on federal leases be suspended or terminated. These circumstances include our failure to pay royalties or our failure to comply with safety and environmental regulations. The requirements imposed by these laws and regulations are frequently changed and subject to new interpretations, and if such were to occur, could negatively impact our results of operations and cash flows.

Our business requires technical expertise, specialized knowledge and training and a high degree of management experience.

Our success is largely dependent on the skills, experience and efforts of our employees. The loss of the services of one or more members of our senior management or of numerous employees with critical skills could have a negative effect on our business, financial conditions and results of operations and future growth.

Our results are subject to commodity price fluctuations related to seasonal and market conditions and reservoir and production risks.

Our quarterly operating results have fluctuated in the past and could be negatively impacted in the future as a result of a number of factors, including:

The ultimate outcome of the legal proceedings relating to our activities cannot be predicted. Any adverse determination could have a material adverse effect on our financial condition, results of operations or cash flows.

Operation of our properties has generated various litigation matters arising out of the normal course of business. In connection with the transfer and assumption agreement, we entered into with Calpine in connection with the Acquisition, we assumed liability for the alleged royalty underpayment claims by Killan & Hurd and J.C. Martin, III involving certain leases in Webb County, Texas. We also generally assumed liabilities arising from our activities from and after July 7, 2005 for and defense of future litigation and claims involving Calpine’s domestic oil and natural gas reserves that we acquired in the Acquisition, other than certain litigation that Calpine and its subsidiaries retained by agreement. Calpine’s recent bankruptcy may effect these retained claims. A party to these lawsuits may look to us for satisfaction of these claims. The ultimate outcome of claims and litigation relating to our activities cannot presently be determined, nor can the liability that may potentially result from a negative outcome be reasonably estimated presently for every case. The liability we may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued with respect to such matters and, as a result, these matters may potentially be material to our financial condition, results of operations or cash flows.

Market conditions or transportation impediments may hinder our access to oil and natural gas markets or delay our production.

Market conditions, the unavailability of satisfactory oil and natural gas processing and transportation or the remote location of certain of our drilling operations may hinder our access to oil and natural gas markets or delay

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our production. The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for and supply of oil and natural gas and the proximity of reserves to pipelines or trucking and terminal facilities. In deepwater operations, the availability of a ready market depends on the proximity of and our ability to tie into existing production platforms owned or operated by others and the ability to negotiate commercially satisfactory arrangements with the owners or operators. We may be required to shut in natural gas wells or delay initial production for lack of a market or because of inadequacy or unavailability of natural gas pipeline or gathering system capacity. When that occurs, we are unable to realize revenue from those wells until the production can be tied to a gathering system. This can result in considerable delays from the initial discovery of a reservoir to the actual production of the oil and natural gas and realization of revenues.

Competition in the oil and natural gas industry is intense, and many of our competitors have resources that are greater than ours.

We operate in a highly competitive environment for acquiring prospects and productive properties, marketing oil and natural gas and securing equipment and trained personnel. Many of our competitors, major and large independent oil and natural gas companies, possess and employ financial, technical and personnel resources substantially greater than our resources. Those companies may be able to develop and acquire more prospects and productive properties than our financial or personnel resources permit. Our ability to acquire additional prospects and discover reserves in the future will depend on our ability to evaluate and select suitable properties and consummate transactions in a highly competitive environment. Also, there is substantial competition for capital available for investment in the oil and natural gas industry. Larger competitors may be better able to withstand sustained periods of unsuccessful drilling and absorb the burden of changes in laws and regulations more easily than we can, which would adversely affect our competitive position. We may not be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital.

Operating hazards, natural disasters or other interruptions of our operations could result in potential liabilities, which may not be fully covered by our insurance.

The oil and natural gas business involves certain operating hazards such as:

The occurrence of one of the above may result in injury, loss of life, suspension of operations, environmental damage and remediation and/or governmental investigations and penalties.

In addition, our operations in California are especially susceptible to damage from natural disasters such as earthquakes and fires and involve increased risks of personal injury, property damage and marketing interruptions. Any of these operating hazards could cause serious injuries, fatalities or property damage, which could expose us to liabilities. The payment of any of these liabilities could reduce, or even eliminate, the funds available for exploration, development, and acquisition, or could result in a loss of our properties. Our insurance policies provide limited coverage for losses or liabilities relating to pollution, with broader coverage for sudden and accidental occurrences. Our insurance might be inadequate to cover our liabilities. For example, we are not fully insured against earthquake risk in California because of high premium costs. Insurance covering

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earthquakes or other risks may not be available at premium levels that justify its purchase in the future, if at all. The insurance market in general and the energy insurance market in particular have been difficult markets over the past several years. Insurance costs are expected to continue to increase over the next few years and we may decrease coverage and retain more risk to mitigate future cost increases. If we incur substantial liability and the damages are not covered by insurance or are in excess of policy limits, or if we incur liability at a time when we are not able to obtain liability insurance, then our business, results of operations and financial condition could be materially adversely affected.

Environmental liabilities could adversely affect our financial condition.

The oil and natural gas business is subject to environmental hazards, such as oil spills, natural gas leaks and ruptures and discharges of petroleum products and hazardous substances, and historic disposal activities. These environmental hazards could expose us to material liabilities for property damages, personal injuries or other environmental harm, including costs of investigating and remediating contaminated properties. In addition, we also may be liable for environmental damages caused by the previous owners or operators of properties we have purchased or are currently operating. A variety of stringent federal, state and local laws and regulations govern the environmental aspects of our business and impose strict requirements for, among other things:

Any noncompliance with these laws and regulations could subject us to material administrative, civil or criminal penalties or other liabilities. Additionally, our compliance with these laws may, from time to time, result in increased costs to our operations or decreased production, and may affect our costs of acquisitions. We are unable to predict the ultimate cost of complying with these regulations.

In addition, environmental laws may, in the future, cause a decrease in our production or cause an increase in our costs of production, development or exploration. Pollution and similar environmental risks generally are not fully insurable.

Some of our California properties have been in operation for a substantial length of time, and current or future local, state and federal environmental and other laws and regulations may require substantial expenditures to remediate the properties or to otherwise comply with these laws and regulations. A variety of existing laws, rules and guidelines govern activities that can be conducted on our properties and other existing or future laws, rules and guidelines could prohibit or limit our operations and our planned activities for properties.

Under our Purchase and Sale Agreement with Calpine, we are responsible for environmental claims prior to the Acquisition and we have no indemnification from Calpine related to those claims.

Our acquisition strategy could fail or present unanticipated problems for our business in the future, which could adversely affect our ability to make acquisitions or realize anticipated benefits of those acquisitions.

Our growth strategy includes acquiring oil and natural gas businesses and properties if favorable economics and strategic objectives can be served. We may not be able to identify suitable acquisition opportunities or finance and complete any particular acquisition successfully.

Furthermore, acquisitions involve a number of risks and challenges, including:

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Any of these factors could adversely affect our ability to achieve anticipated levels of cash flows from the acquired businesses or realize other anticipated benefits of those acquisitions.

We are vulnerable to risks associated with operating in the Gulf of Mexico.

Our operations and financial results could be significantly impacted by conditions in the Gulf of Mexico because we explore and produce extensively in that area. As a result of this activity, we are vulnerable to the risks associated with operating in the Gulf of Mexico, including those relating to:

Further, production of reserves from reservoirs in the Gulf of Mexico generally decline more rapidly than from fields in many other producing regions of the world. This results in recovery of a relatively higher percentage of reserves from properties in the Gulf of Mexico during the initial years of production, and as a result, our reserve replacement needs from new prospects may be greater there than for our operations elsewhere. Also, our revenues and return on capital will depend significantly on prices prevailing during these relatively short production periods.

Hedging transactions may limit our potential gains.

We entered into natural gas price hedging arrangements with respect to a significant portion of our expected production through 2009. Such transactions may limit our potential gains if oil and natural gas prices were to rise substantially over the price established by the hedge. In addition, such transactions may expose us to the risk of loss in certain circumstances, including instances in which our production is less than expected, there is a widening of price differentials between delivery points for our production and the delivery point assumed in the hedge arrangement, or the counterparties to our hedging agreements fail to perform under the contracts.

The historical financial results of the domestic oil and natural gas business of Calpine may not be representative of our results as a separate company.

The combined historical financial information included in this prospectus does not necessarily reflect what our financial position, results of operations and cash flows would have been had we been a separate, stand-alone entity during the periods presented. The costs and expenses reflect charges from Calpine for centralized corporate services and infrastructure costs. The allocations were determined based on Calpine’s methodologies. This combined historical financial information is not necessarily indicative of what our results of operations, financial position and cash flows will be in the future. We may experience significant changes in our cost structure, funding and operations as a result of our organization and separation from Calpine, including increased costs associated with reduced economies of scale and being a stand-alone company.

Failure to achieve and maintain effective internal control over financial reporting in accordance with the rules of the SEC could harm our business.

Under current rules of the SEC, we will be required to document and test our internal control over financial reporting so that our management can certify as to the effectiveness of our internal control over financial reporting and our independent registered public accounting firm can render an opinion on management’s

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assessment. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions, if any, or the impact of the same on our operations. The assessment of our internal control over financial reporting will require us to expend significant management and employee time and resources and incur significant additional expense.

We have begun the process of evaluating and documenting our internal control over financial reporting in order to test and determine any remediation actions that may be necessary and to fully implement the requirements relating to internal controls and all other aspects of related SEC rules and the Sarbanes Oxley Act of 2002. Management has begun the process of developing a stand-alone infrastructure and has determined that certain general computer controls, specifically system security and change control procedures associated with the Excalibur accounting system of the oil and natural gas businesses we acquired from Calpine, were ineffective for our use. We have begun a process of remediating the recognized areas of internal controls that need improvement and have launched corrective activities to meet required SEC and Sarbanes Oxley standards in the areas that were identified. Our efforts may not be successful and additional deficiencies or weaknesses in our controls and procedures may be identified.

Our ability to operate our business may suffer if we do not develop our own infrastructure quickly and cost-effectively, and the transitional services that Calpine has agreed to provide us may not be sufficient or available for our needs.

Immediately following the Acquisition, we used Calpine’s systems to support some of our operations, including certain aspects of legal, accounting and treasury functions, and wide-area computer networks. Following our separation from Calpine, we have assumed our operations, legal, accounting and treasury functions, and as of January 1, 2006, we will assume our information technology functions. Failure or significant downtime in Calpine’s or our own information technology systems could prevent us from billing our customers or performing other administrative services on a timely basis, and could harm our business.

Following our separation from Calpine in July 2005, Calpine agreed to provide some transition services to us for up to one year. For a description of these transition services, please read “Description of Separation from Calpine—Transition Services Agreement.” We may not be able to replace the transition services with a comparable quality of service or on terms and conditions as favorable as those we will receive from Calpine. Calpine’s bankruptcy may limit or eliminate Calpine’s ability to perform these services.

Calpine has wide discretion on which employees it will use to provide services to us. Consequently, the quality and quantity of the services we receive from Calpine may vary significantly from the services we received prior to the date of our separation from Calpine. Calpine’s bankruptcy may further limit Calpine’s ability to provide employees to perform the services.

We may have potential business conflicts of interest with Calpine with respect to our past and ongoing relationships, and we may not be able to resolve these conflicts on terms commensurate with those possible in arms’ length transactions.

Conflicts of interest may arise between Calpine and us in a number of areas relating to our past and ongoing relationship:

Our prior and continuing relationship with Calpine exposes us to risks attributable to Calpine’s businesses and credit worthiness.

We acquired a business that previously was integrated within Calpine and is subject to liabilities and risk for activities of businesses of Calpine other than the acquired business. In connection with our separation from Calpine, Calpine and certain of its subsidiaries have agreed to retain certain liabilities. Third parties may seek to

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hold us responsible for some or all of those retained liabilities. Under our purchase and sale agreement, Calpine and certain of its subsidiaries have agreed to indemnify us for these retained liabilities. For a description of the purchase and sale agreement, see “Description of Separation from Calpine—Purchase and Sale Agreement”.

Any claims made against us that are properly attributable to Calpine and certain of its subsidiaries will require us to exercise our rights under the indemnification provisions of the purchase and sale agreement to obtain payment from Calpine and certain of its subsidiaries, as the case may be. We are exposed to the risk that, in these circumstances and in light of the Calpine bankruptcy, any or all of Calpine and certain of its subsidiaries cannot or will not make the required payment. If this were to occur, our business and results of operations, financial position or cash flow could be adversely affected.

If we are unable to obtain governmental approvals arising from the Acquisition, we may not acquire all of Calpine’s domestic oil and gas business.

The consummation of the Acquisition required various approvals, filings and recordings with governmental entities to transfer existing contracts and arrangements as well as all of Calpine’s domestic oil and gas properties to us. In addition, all government issued permits and licenses that are important to our business, including permits issued by the City of Rio Vista and Counties of Sacramento, Solano and Contra Costa, California, may require reapplication or application by us and reissuance or issuance in our name. If we are unable to obtain a reissuance or issuance of any contract, license or permit being transferred, we have entered into a transition services agreement with Calpine pursuant to which, to the extent possible, we will receive the benefits of the contract, license or permit and will discharge the duties and bear the costs and risks under such contract, license or permit.

Agreements in connection with our separation from Calpine may be less favorable to us than if they had been negotiated with unaffiliated parties.

Although Calpine has no ownership interest in us following the Acquisition, we were a subsidiary of Calpine at the time the purchase and sale agreement, transfer and assumption agreement, transition services agreement and other related agreements were negotiated and executed. If these agreements were negotiated with unaffiliated third parties, they might be more favorable to us. The allocation of assets and liabilities between Calpine and us may not reflect the allocation that would have been reached by two unaffiliated parties.

The ongoing SEC informal inquiry relating to the downward revision of the estimate of continuing proved reserves, while owned by Calpine, could have a material adverse effect on the presentation of our predecessor financial statements.

In April 2005, the staff of the Division of Enforcement of the SEC commenced an informal inquiry into the facts and circumstances relating to the downward revision of the estimate of continuing proved natural gas reserves at December 31, 2004, while the domestic oil and natural gas properties were owned by Calpine. Calpine has advised us that it is fully cooperating with this informal inquiry which also involved two other non-oil and natural gas related matters, and we have separately agreed with Calpine that we will also fully cooperate. Calpine has advised us that it has not had any further response or inquiry from the SEC staff in regard to this matter since July 2005 and that the ultimate outcome of this inquiry cannot presently be determined. However, it is possible that the staff of the SEC could conclude that the estimate of continuing proved reserves as of December 31, 2004, as revised, requires further downward revision, which could have a material adverse effect on the presentation of our predecessor financial statements.

Risk Related to this Offering and Our Common Stock

There has been no public market for our common stock and our stock price may fluctuate significantly.

There is currently no public market for our common stock, and an active trading market may not develop or be sustained after this offering. The market price of our common stock could fluctuate significantly as a result of:

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Future sales of our common stock may cause our stock price to decline.

Sales of substantial amounts of our common stock in the public market, including sales under this prospectus, or the perception that these sales may occur, could cause the market price of our common stock to decline, which could impair our ability to raise capital through the sale of additional common or preferred stock.

Stock sales and purchases by institutional investors or stockholders with significant holdings could have significant influence over our stock volatility and our corresponding ability to raise capital through debt or equity offerings.

Because institutional investors have the ability to trade in large volumes of shares of our common stock, the price of our common stock could be subject to significant volatility, which could adversely affect the market price for our common stock as well as limit our ability to raise capital or issue additional equity in the future.

You may experience dilution of your ownership interests because of the future issuance of additional shares of our common and preferred stock.

We may in the future issue our previously authorized and unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders and purchasers of common stock offered hereby. We are currently authorized to issue an aggregate of 155,000,000 shares of capital stock consisting of 150,000,000 shares of common stock and 5,000,000 shares of preferred stock with preferences and rights as determined by our Board of Directors. As of September 30, 2005, 50,556,900 shares of common stock were outstanding, including 271,000 shares of restricted stock issued to certain employees and directors that vest on the day following the effective date of the registration statement to which this prospectus is a part, and 285,900 shares of restricted stock that vest over a three-year period. Pursuant to our 2005 Long-Term Incentive Plan, we have reserved 3,000,000 shares of our common stock for issuance as restricted stock, stock options and/or other equity based grants to employees and directors. Of the reserved shares, 1,233,333 may be awarded as restricted stock and 1,766,667 may be awarded as stock options and/or other equity based grants and includes 675,550 options of common stock issued to certain employees and directors. The potential issuance of such additional shares of common stock may create downward pressure on the trading price of our common stock. We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with the hiring of personnel, future acquisitions, future private placements of our securities for capital raising purposes, or for other business purposes.

Provisions under Delaware law, our certificate of incorporation and bylaws could delay or prevent a change in control of our company, which could adversely affect the price of our common stock.

The existence of some provisions under Delaware law, our certificate of incorporation and bylaws could delay or prevent a change in control of the Company, which could adversely affect the price of our common

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stock. Delaware law imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. Our certificate of incorporation and bylaws prohibit our stockholders from taking action by written consent absent approval by all members of our Board of Directors. Further, our stockholders will not have the power to call a special meeting of stockholders.

We may be a United States real property holding corporation, in which case non-U.S. investors may be subject to U.S. federal income tax (including withholding tax) on gains realized on disposition of our shares, and U.S. investors selling our shares may be required to certify as to their status in order to avoid withholding.

A non-U.S. holder of our common stock will generally be subject to U.S. federal income tax on gains realized on a sale or other disposition of our common stock if the Company is or has been a U.S. real property holding corporation at any time within the five-year period preceding the disposition or the non-U.S. holder’s holding period, whichever period is shorter. Generally, we will be a United States real property holding corporation if the fair market value of our United States real property interests, as defined in the Internal Revenue Code of 1986, as amended, and applicable regulations, equals or exceeds 50.0% of the aggregate fair market value of our worldwide real property interests and other assets used or held for use in a trade or business.

Because it is unclear whether certain of the Company’s assets should be characterized as interests in United States real property for United States federal income tax purposes, and the value of the Company’s interests in United States real property, relative to the Company’s other assets, is also uncertain, the Company may be a United States real property holding corporation. Moreover, because the relative values and composition of the Company’s assets (including assets that may be characterized as interests in United States real property for United States federal income tax purposes) is not within the control of the Company and is likely to change over time, even if the Company is not currently a United States real property holding corporation, there can be no assurance that the Company will not be a United States real property holding corporation at some point in time in the future.

Certain non-U.S. holders of our common stock may be eligible for an exception to the foregoing general rule if our common stock is regularly traded on an established securities market during the calendar year in which the sale or disposition occurs. However, we do not believe that our common stock will be considered to be regularly traded on an established securities market immediately after this offering, and cannot offer any assurance that our common stock will be so traded at any point in time in the future.

If we are or have been a United States real property holding corporation during the relevant time period, and our common stock is not considered to be regularly traded on an established securities market during the calendar year in which a sale or disposition occurs, the buyer or other transferee of our common stock will generally be required to withhold tax at the rate of 10% on the sales price or other amount realized, unless the transferor furnishes an affidavit certifying that it is not a foreign person in the manner and form specified in applicable Treasury regulations.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Various statements, other than statements of historical fact, included in this prospectus, are forward-looking statements. In some cases, you can identify a forward-looking statement by terminology such as “may”, “could”, “should”, “expect”, “plan”, “project”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “pursue”, “target” or “continue”, the negative of such terms or other comparable terminology.

The forward-looking statements contained in this prospectus are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this prospectus are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors listed in the “Risk Factors” section and elsewhere in this prospectus. All forward-looking statements speak only as of the date of this prospectus. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us, or persons acting on our behalf. The risks, contingencies and uncertainties relate to, among other matters, the following:

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USE OF PROCEEDS

We will not receive any of the proceeds from the sale of the shares of common stock offered by this prospectus. Any proceeds from the sale of the shares by this prospectus will be received by the selling stockholders.

DIVIDEND POLICY

We do not expect to declare or pay any cash or other dividends in the foreseeable future on our common stock, as we intend to use cash flow generated by operations to expand our business. Our credit facilities restrict our ability to pay cash dividends on our common stock, and we may also enter into credit agreements or other borrowing arrangements in the future that restrict our ability to declare or pay cash dividends on our common stock. As discussed below in “Capitalization”, our Board of Directors has the authority to issue preferred stock and to fix dividend rights that may have preference to common shares.

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CAPITALIZATION

Our company was formed in June 2005. We began active oil and natural gas operations in July 2005 following our acquisition of the domestic oil and natural gas business of Calpine. The funding for the Acquisition was through a private placement of 45,312,500 shares of our common stock to qualified institutional buyers, and non-U.S. persons in transactions exempt from registration under the Securities Act. We also used borrowings of $325 million under our credit facilities to complete the Acquisition. Additionally, we sold 4,687,500 shares of our common stock in an exempt transaction to fulfill the over-allotment option we granted to our underwriter. The net proceeds from the exercise of the over-allotment option (after paying transaction fees) were $70 million. A significant portion of these proceeds were used to repay $60 million of debt under our new revolving credit facility in July 2005, and the remaining amount was used for unspecified operating costs of our oil and natural gas properties and general and administrative costs of our oil and natural gas operations. Following the closing of our Acquisition and our receipt of these additional proceeds, we increased our development and acquisition activities.

We have reserved a total of 3,000,000 shares of our common stock for issuance to employees pursuant to our 2005 Long-Term Incentive plan, including the 556,900 shares discussed herein. See “Management—Executive Compensation—Description of the 2005 Long-Term Incentive Plan” for a description of the various vesting and conversion rights under this plan.

The Board of Directors has the authority to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rates, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of that series, which may be superior to those of the common stock, without further vote or action by the stockholders. The issuance of shares of the preferred stock by our Board of Directors as described above may adversely affect the rights of the holders of common stock. For example, preferred stock issued by us may rank prior to the common stock as to dividend rights, liquidation preference or both may have full or limited voting rights, and may be convertible into shares of common stock. Accordingly, the issuance of shares of preferred stock may discourage bids for our common stock or may otherwise adversely affect the market price of our common stock. As of the date of this prospectus, no preferred was stock outstanding.

The following table sets forth our cash and capitalization as of September 30, 2005 which reflects our private placement offering in July 2005, the borrowings under our credit facilities, the Acquisition and the application of the net proceeds. You should refer to “Managements Discussion and Analysis of Financial Condition and Results of Operations” and the annual and interim unaudited combined financial statements and related notes thereto included elsewhere in this prospectus in evaluating the material presented below.

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INSTITUTIONAL TRADING AND RELATED STOCKHOLDER MATTERS

Institutional Trading

Prior to the date of this prospectus, there has been no public market for our common stock. However, certain qualified institutional buyers of our common stock in our exempt sale of common stock, which closed in July 2005, have traded our common stock on the PORTAL^® Market, which facilitates the listing of unregistered securities to be resold under Rule 144A of the Securities Act among qualified institutional buyers. After the date of this prospectus, these qualified institutional buyers may continue to trade in our common stock on The PORTAL^® Market. The last trade of our common stock report on The PORTAL^® Market of which we are aware was reported on December 30, 2005 at a price of $18.00 per share.

We have received approval to list our common stock on The Nasdaq National Market under the symbol “ROSE.” The aforementioned price of $18.00 per share may not be indicative of the prices at which our stock will be quoted on The Nasdaq National Market.

Holders of Our Stock

At the close of business on December 20, 2005, there were approximately 112 stockholders of record and approximately 803 beneficial owners of our common stock.

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SELECTED HISTORICAL CONSOLIDATED/COMBINED FINANCIAL DATA

The following data, as it relates to each of the fiscal years 2002 through 2004, has been derived from the annual combined financial statements, including the combined balance sheets at December 31, 2004 and 2003 and the related combined statements of operations and of cash flows for the three years ended December 31, 2004 and notes thereto appearing elsewhere herein. The data for each of the fiscal years 2000 and 2001, and the balance sheet data as of December 31, 2002, has been derived from the books and records of the domestic oil and natural gas properties of Calpine (our predecessor in interest for such properties). The data for the nine months ended September 30, 2004 (predecessor), the six month periods ended June 30, 2005 (predecessor) and the three months ended September 30, 2005 (successor) has been derived from the unaudited consolidated/combined financial statements also appearing herein and which, in the opinion of management, include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the unaudited interim periods. You should read the following selected historical consolidated/combined financial data in connection with “Capitalization”, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and the audited combined financial statements and related notes included elsewhere in this prospectus. This historical financial data was derived from financial data of Calpine when we were not a stand-alone business. Additionally, the historical financial data reflects successful efforts accounting for oil and natural gas properties for the predecessor periods described above and the full cost method of accounting for oil and natural gas properties effective July 1, 2005 for the three months ended September 30, 2005, the successor period, described below and herein this prospectus. In addition, the Company adopted the intrinsic value method of accounting for stock options as outlined in Accounting Practice Bulletin No. 25, “Stock Issued to Employees”, effective July 1, 2005. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The summary combined historical results are not necessarily indicative of results to be expected in future periods.

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SELECTED HISTORICAL CONSOLIDATED/COMBINED FINANCIAL DATA (continued):