Item 1A. Risk Factors
Any investment in shares
of our Class A Common Stock involves a high degree of risk. You should carefully consider all of the information contained herein
including our financial statements and related notes thereto, before deciding whether to purchase shares of our Class A Common Stock.
However, such risks are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe
are not material, may also become important factors that adversely affect us. If any of the risks described herein materialize, our business,
financial condition and results of operations could be materially and adversely affected. In that case, you may lose all or part of your
investment.
Risks Related to our Conventional Natural Gas Business and the
Conventional Natural Gas Industry
We currently have few producing properties
and there is no assurance that we will be able to convert our pending exploration drilling to producing wells. If our assets are not commercially
productive of natural gas, any funds spent on exploration and production may be lost.
As of December 31, 2024, many
of our properties were not connected to midstream transportation, nor had we engaged service providers or contractors necessary for the
productive development of such assets. There is no assurance that we will be able to obtain the midstream transportation or services necessary
at economic costs, if at all. We are dependent on establishing sufficient reserves for additional cash flow and a return of our investment.
If our properties are not economic, all of the funds that we have invested, or will invest, will be lost.
The development of our estimated PUDs may
take longer and may require higher levels of capital expenditures than we currently anticipate. Therefore, our estimated PUDs may not
ultimately be developed or produced.
All of the reserves attributable
to our properties are undeveloped. Development of proved undeveloped reserves may take longer and require higher levels of capital expenditures
than we currently anticipate. Delays in the development of our reserves, increases in costs to drill and develop such reserves, or decreases
in commodity prices will reduce the value of our estimated PUDs and future net revenues estimated for such reserves and may result in
some projects becoming uneconomic. In addition, delays in the development of reserves could require us to reclassify our PUDs as unproved
reserves.
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While we have drilled and tested certain
exploration and development wells, we have no history of converting the exploration and development wells to producing natural gas wells
and there can be no assurance that we will successfully establish natural gas operations or profitably produce natural gas.
We have drilled and tested
certain exploration and development wells, but as of December 31, 2024, we had not successfully converted an exploration well or development
well to a producing natural gas well nor successfully produced hydrocarbons, or revenues from drilling operations. We achieved first production
of five drilled and tested wells in the Longanesi field in March 2025, following the installation of the temporary processing facility.
The permanent processing facility is expected to be constructed over the remainder of 2025 and early 2026 and commissioned in mid-2026.
Natural gas exploration and production has a high degree of risk. The future development of a significant portion of our properties will
require obtaining permits and may require additional financing. As a result, we are subject to all of the risks associated with establishing
new drilling operations and business enterprises, including, among others:
There is no assurance that
our drilling activities will result in the successful production of natural gas. Moreover, there is no assurance that even if we are able
to successfully produce natural gas that such production would be economical for commercial production. Natural gas production is dependent
upon a number of factors and significantly influenced by the technical skill of our operations personnel involved. The commercial viability
of our possible future production is also dependent upon a number of factors which are beyond our control, including the quality of our
natural gas, commodity prices, government policies and regulation, and environmental protection requirements. There is no certainty that
the expenditures that have been made and may be made in the future by us related to the acquisition and development of our properties
will result in commercially viable production and our past and future expenditures may be partially or entirely lost.
Since we are a development-stage company
with limited operating history and minimal revenue generation related to the production of natural gas assets, investors have a very limited
basis to evaluate our ability to operate profitably as an E&P business.
We are a development-stage
company. As of December 31, 2024 and December 31, 2023, we have not generated any revenue from our operations other than
from sales of electricity from two renewable gas assets that were purchased in July 2024. We face many of the risks commonly encountered
by other new businesses, including the lack of an established operating history, need for additional capital and personnel, and competition.
There is no assurance that our business will be successful or that we can ever operate profitably. We may not be able to effectively manage
the demands required, such that we may be unable to implement our business plan or achieve profitability.
Restrictions on drilling activities intended
to protect the environment and the ecosystem may adversely affect our ability to conduct drilling activities areas where we operate.
Natural gas operations in our
operating areas may be adversely affected by restrictions on drilling activities designed to protect the environment and the ecosystem.
Such restrictions could prohibit drilling in certain areas, require the implementation of expensive mitigation measures or could result
in limitations on our exploration and production activities that could have a material adverse impact on our ability to develop and produce
our reserves or find new reserves on our undeveloped lands and permits.
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In 2015, the Italian government
published the Law 208/2015 which prohibited research, prospection and exploitation in waters within a 12-mile limit of the Italian Peninsula.
Rockhopper Italia S.p.A., Rockhopper Mediterranean Ltd, and Rockhopper Exploration Plc (collectively, “Rockhopper”), was subsequently
denied an application for an offshore production concession which had been pending since 2008. Rockhopper filed a request for arbitration
to the International Center for the Settlement of the Investment Disputes (ICSID) against Italian Republic for the latter’s alleged
failure to fulfill the legislative and regulatory commitments made in relation to the investments in the Ombrina Mare oil and gas field
located off the Italian coast in the Adriatic Sea (ICSID Case no. ARB/17/14). On August 23, 2022 Italy was ordered to pay compensation
to Rockhopper for the breach of its obligations. The Italian Republic sought to annul the award, and the related proceeding is still pending
at ICSID for the decision of the “ad hoc Committee”. The Italian Republic also filed a request to continue the stay
of the enforcement of the award. On April 24, 2023 the “ad hoc Committee” issued a decision on the provisional stay of enforcement
of the award, providing that the provisional stay of enforcement is set to be lifted once Rockhopper puts in place relevant escrow arrangements.
Similarly, our failure to obtain necessary government authorizations or the enactment of a legislative ban on exploration and production
could result in indirect expropriation of our investment and assets.
Drilling
for and producing natural gas is a high-risk and costly activity with many uncertainties. Our future financial position, cash flows and
results of operations depend on the success of our development and acquisition activities, which are subject to numerous risks beyond
our control, including the risk that drilling will not result in commercially viable natural gas production or that we will not recover
all or any portion of our investment in drilled wells.
Many
factors may curtail, delay or cancel our scheduled drilling projects, or the development schedule, including the following:
● supply chain disruptions or labor shortage impacts;
● equipment failures, accidents or other unexpected operational events;
● lack of available capacity on interconnecting transportation pipelines;
● issues related to compliance with environmental regulations;
● environmental hazards;
● declines in natural gas market prices;
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● limited availability of financing at acceptable terms;
● ongoing litigation or adverse court rulings;
● public opposition to our operations;
● title, surface access, coal mining and right of way issues; and
● limitations in the market for natural gas.
In
addition, we may become subject to additional laws or regulations issued by federal or state government bodies, which are subject to
influence resulting from frequent changes in political party control or changes to political priorities or policies. We may need to adapt
compliance strategies and operation to meet new regulatory requirements, which can be costly and time-consuming.
Any of these risks can cause
a delay in our development program, or result in substantial financial losses, personal injury or loss of life, damage to or destruction
of property, natural resources and equipment, pollution, environmental contamination or loss of wells and other regulatory penalties.
Adjustments to our planned development schedule or the development schedule of non-operated wells in which we have a working interest
could impact our future sales volume, operating revenues and expenses, per unit metrics and capital expenditures.
We are subject to risks associated with
the operation of our wells.
Our business is and will be
subject to all of the inherent hazards and risks normally incidental to drilling for, producing, transporting, storing, processing, gathering
and compressing natural gas, such as fires, explosions, slips, landslides, blowouts, and well cratering; pipe and other equipment and
system failures; delays imposed by, or resulting from, compliance with regulatory requirements; formations with abnormal or unexpected
pressures; shortages of, or delays in, obtaining equipment and qualified personnel; adverse weather conditions, such as freeze offs of
wells and pipelines due to cold weather; issues related to compliance with environmental regulations; environmental hazards, such as natural
gas leaks, pipeline and tank ruptures, encountering naturally occurring radioactive materials, and unauthorized releases of toxic gases
or other pollutants into the environment. We also may face various risks or threats in the future to the operation and security of our
or third parties’ facilities and infrastructure, such as processing plants, compressor stations and pipelines. Any of these risks
could result in substantial losses due to personal injury and/or loss of life, severe damage to and destruction of property, equipment
and natural resources, pollution or other environmental damage, loss of hydrocarbons, disruptions to our operations, regulatory investigations
and penalties, suspension of our operations, repair and remediation costs, and loss of sensitive confidential information. Moreover, in
the event that one or more of these hazards occur, there can be no assurance that a response will be adequate to limit or reduce damage.
Although we maintain property insurance, there can be no assurance that such coverage will be adequate or will cover any particular incident
in the event of a catastrophe or significant disruption of our business, or that we will be able to obtain sufficient insurance coverage
in the future.
We have limited control over the activities
on properties we do not operate.
Presently Società Padana
Energia (“Padana”) is the operator of the Longanesi field under a Unitized Operating Agreement and other companies in the
future may operate some of the properties in which we have an interest. We may also enter into a future joint venture with respect to
our properties. Except for mutually agreed governance provisions in the Unitized Operating Agreement, we have limited ability to influence
or control the operation or future development of the Longanesi field and potential future non-operated properties including any properties
that may be operated shared control joint ventures where we may share control with third parties, including compliance with environmental,
safety and other regulations or the amount of capital expenditures that we are required to fund with respect to them. The failure of an
operator of our wells or joint venture participant to adequately perform operations, an operator’s breach of the applicable agreements
or an operator’s failure to act in ways that are in our best interest could reduce our production and revenues. Our dependence on
the operator and other working interest owners, including a joint venture participant, for these projects and our limited ability to influence
or control the operation and future development of these properties could materially adversely affect the realization of our targeted
returns on capital in drilling or acquisition activities and lead to unexpected future costs.
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Our drilling locations are scheduled out
over many years, making them susceptible to uncertainties that could materially alter the occurrence or timing of when they are drilled,
if at all.
Our management team has specifically
identified and scheduled certain well locations as an estimation of our future multi-year drilling activities on our existing acreage.
These well locations (prospects) represent a significant part of our business strategy. Our ability to drill and develop these locations
depends on a number of uncertainties, including natural gas prices; the availability and cost of capital; drilling and production costs;
the availability of drilling services and equipment; drilling results; topography; gathering system and pipeline transportation costs
and constraints; regulatory approvals; and other factors. Because of these uncertain factors, we do not know if the drilling locations
we have identified will ever be drilled or if we will be able to produce natural gas from these or any other drilling locations.
The amount and timing of actual future natural
gas production is difficult to predict and may vary significantly from our estimates, which may reduce our earnings.
Because the rate of production
from natural gas wells generally declines as reserves are depleted, our future success depends upon our ability to develop additional
reserves that are economic and our failure to do so may reduce our earnings. Our drilling and subsequent maintenance of wells can involve
significant risks, including those related to timing, cost overruns and operational efficiency, and these risks can be affected by the
availability of capital, leases, rigs, equipment and a qualified work force, as well as weather conditions, natural gas price volatility,
regulatory approvals, geology, equipment failure or accidents and other factors. Drilling for natural gas can be unprofitable, not only
due to dry wells, but also as a result of productive wells that perform below expectations or that do not produce sufficient revenues
to return a profit. Low natural gas prices may further limit the types of reserves that we can develop and produce economically.
Except to the extent that we
acquire additional properties containing proved reserves, conduct successful exploration and development activities or otherwise, our
proved reserves will decline as reserves are produced. Our future natural gas production, therefore, is highly dependent upon our level
of success in acquiring or finding additional reserves that are economically recoverable. We cannot be certain that we will be able to
find or acquire and develop additional reserves at an acceptable cost. Without continued successful development or acquisition activities,
together with efficient operation of existing wells, our reserves and production, together with associated revenues, will decline as a
result of our current reserves being depleted by production.
Unless we replace our reserves, our reserves
and production will naturally decline, which would adversely affect our business, financial condition and results of operations.
Unless we conduct successful
development or acquire properties containing proved reserves, our proved reserves will decline as those reserves are produced. Producing
natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and
other factors. Our natural gas reserves and production, and therefore our cash flows and income, are highly dependent on our success in
efficiently developing our current reserves and economically finding or acquiring additional recoverable reserves. We may not be able
to develop, find or acquire additional reserves to replace our current and future production at acceptable costs. If we are unable to
replace our current and future production, the value of our reserves will decrease, and our business, financial condition and results
of operations will be adversely affected.
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Our proved reserves are estimates that are
based on many assumptions that may prove to be inaccurate. Any significant change in these underlying assumptions will greatly affect
the quantities and present value of our reserves.
Reserve engineering is a subjective
process involving estimates of underground accumulations of natural gas and assumptions concerning future prices, production levels and
operating and development costs, some of which are beyond our control. These estimates and assumptions are inherently imprecise, and we
may adjust our estimates of proved reserves based on changes in these estimates or assumptions. As a result, estimated quantities of proved
reserves and projections of future production rates and the timing of development expenditures may prove to be inaccurate. Any significant
variance from our assumptions could greatly affect our estimates of reserves, the economically recoverable quantities of natural gas,
the classifications of reserves based on risk of recovery and estimates of future net cash flows. To the extent we experience a sustained
period of reduced commodity prices, there is a risk that a portion of our proved reserves could be deemed uneconomic and no longer be
classified as proved. Although we believe our estimates are reasonable, actual production, revenues and costs to develop reserves will
likely vary from our estimates and these variances could be material. Numerous changes over time to the assumptions on which our reserve
estimates are based, as described above, often result in the actual quantities of natural gas we ultimately recover being different from
our reserve estimates.
The standardized measure of discounted future
net cash flows from our proved reserves is not the same as the current market value of our estimated natural gas reserves.
You should not assume that
the standardized measure of discounted future net cash flows from our proved reserves is the current market value of our estimated natural
gas reserves. In accordance with SEC requirements, we based the discounted future net cash flows from our proved reserves on the twelve-month
unweighted arithmetic average of the first-day-of-the-month price for the preceding 12 months without giving effect to derivative
transactions. Actual future net cash flows from our reserves will be affected by factors such as the actual prices we receive for natural
gas, the amount, timing and cost of actual production and changes in governmental regulations or taxation. The timing of both our production
and our incurrence of expenses in connection with the development and production of natural gas properties will affect the timing and
amount of actual future net revenues from proved reserves, and thus their actual present value. In addition, the 10% discount factor we
use when calculating the standardized measure may not be the most appropriate discount factor based on interest rates in effect from time
to time and risks associated with our operations or the natural gas industry in general.
Natural gas prices are affected by a number
of factors beyond our control, including many of which that are unknown and cannot be anticipated, and we cannot predict with certainty
future potential movements in the price for these commodities.
Our primary business involves
the exploration, production and sale of natural gas. Consequently, our revenue, profitability, future rate of growth, liquidity and financial
position depend upon the market prices for natural gas in Italy.
The prices for natural gas
in Italy have historically been volatile and have been particularly volatile in recent years. We expect commodity price volatility
to continue or increase in the future due to rising macroeconomic uncertainty and geopolitical tensions.
Commodity prices are affected
by a number of factors beyond our control, which include:
● weather conditions and seasonal trends;
● global and regional supply of and demand for natural gas;
● new or continuing armed conflicts or hostilities, or acts of terrorism;
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● new and competing exploratory finds of natural gas;
● the effect of energy conservation efforts;
● the price, availability and consumer demand for alternative fuels;
● technological advances affecting energy consumption and production;
● the actions of the Organization of Petroleum Exporting Countries;
● the cost of exploring for, developing, producing and transporting natural gas;
● risks associated with drilling, completion and production operations; and
A prolonged
period of low natural gas prices may have an adverse effect on our revenue, profitability, future rate of growth, liquidity and financial
position.
Prolonged
low, and/or significant or extended declines in, natural gas prices may adversely affect our revenues, operating income, cash
flows, financial projections, and financial position, particularly if we are unable to control our development costs during periods of
lower natural gas prices. Declines in prices could also adversely affect our drilling activities and the amount of natural gas that we
can produce economically, which may result in our having to make significant downward adjustments to the value of our assets and could
cause us to incur non-cash impairment charges to earnings. Reductions in cash flows from lower commodity prices may require us to incur
debt or reduce our capital spending, which could reduce our production and our reserves, negatively affecting our future rate of growth.
A financial crisis or deterioration in general
economic, business or geopolitical conditions could materially adversely affect our operations and financial condition.
Concerns over global economic
conditions, stock market volatility, energy costs, geopolitical issues (including continued hostilities between Russia and Ukraine as
well as other conflicts, including in the Middle East), inflation and central bank interest rate increases in response thereto, the availability
and cost of credit, and slowing of global economic growth and fears of a recession have contributed and may continue to contribute to
increased economic uncertainty and diminished expectations for the global economy. Global economic conditions, geopolitical issues and
inflation have constrained global and domestic supply chains, which may in the future impact our ability to develop our reserves in accordance
with our drilling and completions schedule. Additionally, global economic conditions have a significant impact on commodity prices and
any stagnation or deterioration in global economic conditions could result in decreased demand and, thus, lower prices for natural gas.
Such uncertainty could also result in higher natural gas prices, which could potentially result in increased inflation worldwide and could
negatively impact demand for natural gas.
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Developments related to climate change may
expedite a transition away from the use of carbon-intensive sources for energy generation and products derived from certain fossil fuels,
which could have a material and adverse effect on us if we are not able to demonstrate that our products align with a low-carbon transition.
Governmental and regulatory
bodies, investors, consumers, industry participants and other stakeholders have been increasingly focused on combating the effects of
climate change. This focus, together with changes in consumer, industrial and commercial behavior, preferences and attitudes with respect
to the generation and consumption of energy, and the use of products manufactured with, or powered by, fossil fuels, has led to, and in
the long-term is anticipated to continue to result in, (i) the enactment of climate change-related regulations, policies and initiatives,
(ii) technological advances with respect to the generation, transmission, storage and consumption of energy, and (iii) increased
consumer, industrial and commercial demand for low-carbon energy sources and products manufactured with, or powered by, demonstrably low
carbon-intensive sources. This has in turn led to increased scrutiny over the carbon-intensity of various fossil fuels, including the
natural gas we intend to produce and sell. While the EU has identified natural gas as a critical bridging resource in its 2050 climate
neutrality pledge, there is no guarantee that perspective will be maintained and if we are not able to demonstrate that our products align
with a transition to a low-carbon economy, the demand and prices for our products could be negatively impacted depending on the pace of
such transition and potential future demands for low-carbon products. Such developments may also adversely impact, among other things,
the availability of third-party services and facilities that we rely on, which may increase our operational costs and adversely affect
our ability to successfully carry out our business strategy. Climate change-related developments may also impact the market prices of,
or our access to, raw materials such as energy and water and therefore result in increased costs to our business.
Further, there have been efforts
in recent years to influence the investment community, including investment advisors, insurance companies, and certain sovereign
wealth, pension and endowment funds and other groups, by promoting divestment of fossil fuel equities and pressuring lenders to limit
funding and insurance underwriters to limit coverages to companies engaged in the extraction of fossil fuel reserves. Financial institutions
may elect in the future to shift some or all of their investment into non-fossil fuel related sectors. There is also a risk that financial
institutions may be required to adopt policies that have the effect of reducing the funding provided to the fossil fuel sector. Certain
investment banks and asset managers based both domestically and internationally have announced that they are adopting climate change guidelines
for their banking and investing activities. Institutional lenders who provide financing to energy companies have also become more attentive
to sustainable lending practices, and some may elect not to provide traditional energy producers or companies that support such producers
with funding. Ultimately, the foregoing factors could make it more difficult to secure funding for exploration and production activities
or adversely impact the cost of capital for both us and our customers, and could thereby adversely affect the demand and price of our
securities. Limitation of investments in and financings for energy companies could also result in the restriction, delay or cancellation
of infrastructure projects and energy production activities.
Our operations have substantial capital
requirements, and we may not be able to obtain needed capital or financing on satisfactory terms, or at all.
Our business is capital intensive.
We make and expect to continue to make substantial capital expenditures for the development and acquisition of natural gas reserves, as
well as related infrastructure. If these projects are undertaken, they may not be completed on schedule, at the budgeted cost or at all.
To date, we have invested approximately and initial development of our properties. While we expect to be able to fund our future growth
primarily out of cash currently on AleAnna’s balance sheet, from cash flow from the Longanesi, Trava, and Gradizza developments,
and through recycling of cash flow from future developments, we have not generated any revenue from our principal business activities
to date and do not have available commitments from debt financing sources. While we are exploring Resource Backed Loan (“RBL”)
financing products with several financial institutions, there is no guarantee that such financing will be available to us. We believe
that the cash currently on AleAnna’s balance sheet is sufficient, at a minimum, to cover general and administrative expenses and
continue operating our revenue-producing assets through at least the end of the first quarter of 2026. Despite first production at Longanesi
being achieved in March 2025 and having adequate cash on hand to cover general and administrative expenses and maintain operations, we
may be required to curtail discretionary development efforts on Gradizza, Trava, renewable natural gas asset acquisitions, and other conventional
prospects. Lower-than-expected cash flow from or an interruption in operations of Longanesi, combined with delays in development of Gradizza,
Trava, renewable natural gas asset acquisitions, and other conventional prospects may lead to a deteriorated financial condition, erode
potential value due to delays in our discretionary developments, and adversely affect our results of operations.
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The actual amount and timing
of our future capital expenditures may differ materially from our estimates as a result of, among other things, natural gas prices, actual
drilling results, the availability of drilling rigs and other services and equipment, and regulatory, technological and competitive developments.
Our
cash flows from operations and access to capital are subject to a number of variables, including:
● our level of proved reserves and production;
● the level of hydrocarbons we are able to produce from existing wells;
● our access to, and the cost of accessing, end markets for our production;
● the prices at which our production is sold;
● our ability to acquire, locate and produce new reserves;
● the levels of our operating expenses; and
If
we are unable to obtain the capital necessary for our planned capital budget or our operations, we could be required to curtail our operations
and the development of our properties, which in turn could lead to a decline in our reserves and production, and could adversely
affect our business, results of operations and financial position.
Derivative transactions may limit our potential
gains and involve other risks.
To manage our exposure to price
risk, we may in the future enter into derivative arrangements, utilizing commodity derivatives with respect to a portion of our future
production. Such hedges are designed to lock in prices in order to limit volatility and increase the predictability of cash flow. These
transactions may be required to the extent we utilize RBL financing in the future and such limit our potential gains if natural gas prices
rise above the price established by the hedge, and we may be required to post cash collateral or letters of credit with our hedge counterparties
to the extent our liability under the derivative contract exceeds specified thresholds, which would negatively impact our liquidity. Derivative
transactions may expose us to the risk of financial loss in certain circumstances, including instances in which our production is less
than expected or an event materially impacts natural gas prices or the relationship between the hedged price index and the natural gas
sales price.
We cannot be certain that any
derivative transaction we may enter into will adequately protect us from declines in the prices of natural gas. Furthermore, where we
choose not to engage in derivative transactions in the future, we may be more adversely affected by changes in natural gas prices than
our competitors who engage in derivative transactions. Lower natural gas prices may also negatively impact our ability to enter into derivative
contracts at favorable prices.
Derivative transactions may
also expose us to a risk of financial loss if a counterparty fails to perform under a derivative contract or enters bankruptcy or encounters
some other similar proceeding or liquidity constraint. In this case, we may not be able to collect all or a significant portion of amounts
owed to us by the distressed entity or entities. During periods of falling commodity prices our hedge receivable positions increase, which
increases our exposure. If the creditworthiness of our counterparties deteriorates and results in their nonperformance, we could incur
a significant loss.
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Our business and prospects depend significantly
on our ability to build our brand and we may not succeed in continuing to establish, maintain, and strengthen our brand, and our brand
and reputation could be harmed by negative publicity regarding our company.
Our business and prospects
are dependent on our ability to develop, maintain, and strengthen our brand. Promoting and positioning our brand will depend significantly
on our ability to execute our business strategies and build market relationships. In addition, we expect that our ability to develop,
maintain, and strengthen our brand will also depend heavily on the success of our branding efforts. To promote our brand, we need to incur
increased expenses, such as the costs associated with attending trade conferences. Brand promotion activities may not yield increased
revenue, and even if they do, the increased revenue may not offset the expenses we incur in building and maintaining our brand and reputation.
If we fail to promote and maintain our brand successfully, or if we incur substantial expenses in an unsuccessful attempt to promote and
maintain our brand, we may fail to build a market presence and we may fail to be viewed as an attractive investment platform in which
case our business and financial condition may be adversely affected.
We also believe that the protection
of our trademark rights is an important factor in protecting our brand and maintaining goodwill. We may be unable to obtain trademark
protection for our technologies, logos, slogans and brands, and our existing trademark registrations and applications, and any trademarks
that may be used in the future, may not provide us with competitive advantages or distinguish us from those of our competitors. Further,
we may not timely or successfully register our trademarks. If we do not adequately protect our rights in our trademarks from infringement
and unauthorized use, any goodwill that we have developed in those trademarks could be lost or impaired, which could harm our brand and
our business.
Moreover, any negative publicity
relating to our employees, current or future partners, our technology, our natural gas, or customers who use our technology or natural
gas, or others associated with these parties may also tarnish our own reputation simply by association and may reduce the value of our
brand. Additionally, if safety or other incidents or defects in our natural gas pipeline occur or are perceived to have occurred, whether
or not such incidents or defects are our fault, we could be subject to adverse publicity, which could be particularly harmful to our business
given our limited operating history. Given the popularity of social media, any negative publicity about our products, whether true or
not, could quickly proliferate and harm customer and community perceptions and confidence in our brand. Other businesses, including our
competitors, may also be incentivized to fund negative campaigns against our company to damage our brand and reputation to further their
own purposes. Future customers of our products and services may have similar sensitivities and may be subject to similar public opinion
and perception risks. Damage to our brand and reputation may result in difficulty attracting and retaining investors, reduced demand for
our products and increased risk of losing market share to our competitors. Any efforts to restore the value of our brand and rebuild our
reputation may be costly and may not be successful, and our inability to develop and maintain a strong brand could have an adverse effect
on our business, prospects, financial condition, and operating results.
Cyber incidents targeting our digital work
environment or other technologies or energy infrastructure may adversely impact our operations.
The natural gas industry has
become increasingly dependent upon digital technologies, including information systems, infrastructure and cloud applications, and the
maintenance of our financial and other records has long been dependent upon such technologies. We may depend on this technology to record
and store data, estimate quantities of natural gas reserves, analyze and share operating data and communicate internally and externally.
Computers and mobile devices control nearly all of the natural gas distribution systems globally, which will be necessary to transport
our products to market.
Energy assets might be specific
targets of cyber or other security or physical threats, and the continuing armed conflict between Russia and Ukraine and associated economic
sanctions on Russia may have increased the likelihood of such threats. We can provide no assurance that we will not suffer such attacks
in the future. Deliberate attacks on, or unintentional events affecting, our digital work environment or other technologies and infrastructure,
the systems or infrastructure of third parties or the cloud could lead to corruption or loss of our proprietary data and potentially sensitive
data, delays in production or delivery of natural gas, difficulty in completing and settling transactions, challenges in maintaining our
books and records, communication interruptions, environmental damage, personal injury, property damage, other operational disruptions
and third-party liability. Further, as cyber incidents continue to evolve and cyber attackers become more sophisticated, we may be required
to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate any vulnerability
to cyber incidents. The cost to remedy an unintended dissemination of sensitive information or data may be significant. Furthermore, the
continuing and evolving threat of cyber-attacks has resulted in increased regulatory focus on prevention. To the extent we face increased
regulatory requirements, we may be required to expend significant additional resources to meet such requirements.
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The unavailability or high cost of additional
drilling rigs, completion services, equipment, supplies, personnel, and oilfield services could adversely affect our ability to execute
our exploration and development plans within our budget and on a timely basis.
The demand for qualified and
experienced field personnel to drill wells and conduct field operations, geologists, geophysicists, engineers, and other professionals
in the natural gas industry can fluctuate significantly, often in correlation with natural gas and oil prices, causing periodic shortages
or higher costs. We cannot predict whether these conditions will exist in the future and, if so, what their timing and duration will be.
Such shortages could delay or cause us to incur significant expenditures that are not provided for in our capital budget, which could
materially adversely affect our business, results of operations, cash flows and financial position.
The loss of key personnel could adversely
affect our ability to execute our strategic, operational and financial plans.
Our operations are dependent
upon key management and technical personnel, and one or more of these individuals could leave our employment. The unexpected loss of the
services of one or more of these individuals could have a detrimental effect on us. In addition, the success of our operations will depend,
in part, on our ability to identify, attract, develop and retain experienced personnel. There is competition within our industry for experienced
technical personnel and certain other professionals, which could increase the costs associated with identifying, attracting and retaining
such personnel. If we cannot identify, attract, develop and retain our technical and professional personnel or attract additional experienced
technical and professional personnel, our ability to compete in our industry could be harmed.
We will depend on state-owned midstream
providers for midstream services, and our failure to obtain and maintain access to the necessary infrastructure to successfully deliver
natural gas to market on acceptable terms may adversely affect our earnings, cash flows and results of operations.
Our delivery of natural gas
depends upon the availability, proximity and capacity of pipelines, other transportation facilities and gathering and facilities that
are state-owned. To the extent these services are delayed or unavailable, we would be unable to realize revenue from wells served by such
state-owned infrastructure until suitable arrangements are made to market our production. Access to midstream assets may be unavailable
due to market conditions, regulatory constraints or mechanical or other reasons. Further, changes in the Italian Transmission Operator’s
Network may have an adverse effect on us. In addition, due to regulatory and economic constraints, construction of new pipelines and building
of such infrastructure may occur more slowly. A lack of access to needed infrastructure, or an extended interruption of access to or service
from state-owned pipelines and facilities for any reason, including vandalism, terroristic acts, sabotage or cyber-attacks on such pipelines
and facilities or service interruptions due to gas quality, could result in adverse consequences to us, such as delays in producing and
selling our natural gas.
Unexpected increases in fees related to
transportation facilities and providers may negatively impact our financial position or projections.
A significant increase in transportation
fees and fuel prices may adversely affect our transportation costs and business. Transportation providers (rail and truck) in some circumstances
have limited ability to provide additional resources in times of peak demand. Moreover, the ability of our transportation providers to
maintain a staff of qualified personnel is critical to the success of our business. Regulatory requirements and an improvement in the
economy could require us to pay higher transportation fees as our transportation providers seek to pass on additional labor costs associated
with attracting and retaining personnel.
Risks Related to our Renewable Natural Gas
Business and the Renewable Natural Gas Industry
Failure to protect our intellectual property,
inability to enforce our intellectual property rights or loss of our intellectual property rights through costly litigation or administrative
proceedings, could adversely affect our ability to compete and our business.
Our success depends in large
part on our ability to protect proprietary intellectual property rights for commercially important trade secrets and know-how related
to our business including our proprietary seismic imaging and interpretation techniques and our renewable natural gas acquisition pipeline
and our ability to defend and enforce intellectual property rights and preserve confidentiality. We must also operate without infringing,
misappropriating, or violating the valid and enforceable patents and other intellectual property rights of third parties. We rely on various
intellectual property rights, including trade secrets, as well as confidentiality provisions and contractual arrangements, and other forms
of statutory protection to protect our proprietary rights. We will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary trade secrets, know-how, and technologies are covered by valid and enforceable patents
or are effectively maintained as trade secrets. If we do not protect and enforce our intellectual property rights adequately and successfully,
our competitive position may suffer, which could have a material adverse effect on our business, prospects, financial condition, and operating
results.
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Our strategic success and financial results
depend on our ability to identify, acquire, develop and operate renewable natural gas plants.
Our renewable natural gas
business strategy includes growth primarily through the acquisition and expansion of existing renewable natural gas plants. In particular,
we intend to develop and grow our renewable natural gas business through the acquisition of operational anaerobic digesters and their
conversion to biomethane plants. This strategy depends on our ability to successfully identify and evaluate acquisition opportunities
and complete acquisitions on favorable terms. However, we cannot assure you that we will be able to successfully identify new opportunities
or consummate the acquisition of existing renewable natural gas plants, on favorable terms or at all. In
addition, we will compete with other companies and private equity sponsors for these opportunities, which may increase our costs or cause
us to refrain from making acquisitions at all. If we are unable to successfully identify and consummate future project opportunities
or acquisitions of existing plants it will impede our ability to execute our growth strategy.
Our
ability to acquire, develop and operate renewable natural gas plants, is subject to various risks, including:
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Any
of these factors could prevent us from acquiring, developing, or operating plants, or otherwise adversely affect our business, financial
condition and results of operations.
Acquiring
existing plants involves numerous risks.
The
acquisition of existing renewable natural gas plants involves numerous risks, many of which may be indiscoverable through the due diligence
process, including exposure to previously existing liabilities and unanticipated costs associated with the pre-acquisition period; difficulty
in integrating the acquired plants into our existing business; and, if the plants are in new markets, the risks of entering markets where
we have limited experience, less knowledge of differences in market terms for gas rights agreements and off-take arrangements. While
we perform due diligence on prospective acquisitions, we may not be able to discover all potential operational deficiencies in such plants.
A failure to achieve the financial returns we expect when we acquire renewable natural gas plants could have a material adverse effect
on our ability to implement our growth strategy and, ultimately, our business, financial condition, and results of operations. Risks
related to acquiring existing plants, include:
● the purchase price we pay could significantly deplete our cash reserves;
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Revenue
from any renewable natural gas plants we complete may be adversely affected if there is a decline in public acceptance or support of
renewable energy, or regulatory agencies, local communities, or other third parties delay, prevent, or increase the cost of constructing
and operating our plants.
Certain
persons, associations and groups could oppose renewable energy plants in general or our plants specifically, citing, for example, misuse
of water resources, landscape degradation, land use, food scarcity or price increase and harm to the environment. Moreover, regulation
may restrict the development of renewable energy plants in certain areas. Biogas production activities (both conventional natural gas
and renewable natural gas) are subject to several environmental laws and regulations. The main environmental legislation governing environmental
matters for our renewable natural gas developments is the Consolidated Environmental Act issued by Legislative Decree 152/2006.
We
are also subject to authorization and permitting procedures which are outlined in Legislative Decree No. 28/2011, which offers three
main pathways to permitting:
2. Simplified Authorization Procedure (S.A.P.): Applicable to:
● New plants with a production capacity under 500 standard cubic meters/hour.
● Converting existing power plants to biomethane production.
● Expanding existing renewable natural gas plants within certain limits.
3. Sole Authorization (S.A.): Required for projects outside the scope of S.A.P.
For
S.A., applications are submitted to regional authorities, followed by a service conference involving relevant public bodies. The process
typically concludes within 90 days, unless extended for assessments or document reviews. Under S.A.P., applications go to municipalities,
with a decision required within 30 days; otherwise, approval is automatic. Recent legislative updates, like Law No. 95 of
July 26, 2023, simplify authorization for biomethane projects, focusing on plants up to 500 smc/h, to facilitate faster connection
to the national grid. These changes aim to streamline renewable natural gas development across Italy while ensuring environmental compliance.
Thus, in order to develop a
renewable energy project, we are typically required to obtain, among other things, environmental impact permits or other authorizations
and building permits, which in turn require environmental impact studies to be undertaken and public hearings and comment periods to be
held during which any person, association or group may oppose a project. Any such opposition may be taken into account by government officials
responsible for granting the relevant permits, which could result in the permits being delayed or not being granted or being granted solely
on the condition that we carry out certain corrective measures to the proposed project. Opposition to our plants’ requests for permits
or successful challenges or appeals to permits issued for our plants could adversely affect our operating plans.
As a result, we cannot guarantee
that the renewable energy plants we currently plan to develop or, to the extent applicable, are developing, will ultimately be authorized
or accepted by the local authorities or the local population. For example, the local population could oppose the construction of a renewable
energy plant or infrastructure at the local government level, which could in turn lead to the imposition of more restrictive requirements.
This type of negative response may lead to legal, public relations or other challenges that could impede our ability to meet our construction
targets, achieve commercial operations for a project on schedule, address the changing needs of our plants over time or generate revenues.
If a significant portion of
the local population were to mobilize against a renewable energy plant, it may become difficult, or impossible, for us to obtain or retain
the required building permits and authorizations. Moreover, such challenges could result in the cancellation or modification of existing
authorizations including, adoption of additional mitigation requirements or even, in extreme cases, the dismantling of existing renewable
energy plants.
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Authorization for the use,
construction, and operation of systems and associated transmission facilities on state and local lands will also require the assessment
and evaluation of private rights-of-way, and other easements; environmental, agricultural, cultural, recreational, and aesthetic impacts;
and the likely mitigation of adverse effects to these and other resources and uses. The inability to obtain the required permits and other
state and local approvals, and any excessive delays in obtaining such permits and approvals due, for example, to litigation or third-party
appeals, could potentially prevent us from successfully constructing and operating such plants in a timely manner and could result in
the potential forfeiture of any deposit we have made with respect to a given project. Moreover, project approvals subject to project modifications
and conditions, including mitigation requirements and costs, could affect the financial success of a given project. Changing regulatory
requirements and the discovery of unknown site conditions could also adversely affect the financial success of a given project.
A decrease in acceptance of
renewable energy plants by local populations, an increase in the number of legal challenges, or an unfavorable outcome of such legal challenges
could adversely affect our business, financial condition and results of operations. We may also be subject to labor unavailability due
to multiple simultaneous plants in a geographic region. If we are unable to grow and manage the capacity that we expect from our plants
in our anticipated timeframes, it could adversely affect our business, financial condition and results of operations.
We may not be fully reimbursed for a portion
of our renewable natural gas construction costs or may only receive payment on a delayed basis.
Under a recently implemented
Italian renewable natural gas subsidy regime, we expect to be reimbursed for a portion of our capital expenditures related to our renewable
natural gas development facilities. Such capital expenditure reimbursements are expected to reduce the amount of equity capital required
as we grow our renewable natural gas asset portfolio. We expect to continue incurring significant acquisition and construction costs related
to our renewable natural gas business. If policy is altered and such capital expenditure reimbursement subsidies are not available
to us, if the timing of such reimbursements is delayed beyond our expectations, or if such expenditures are not reimbursable as we expect,
it could significantly affect our cash flows and our development plan.
A prolonged environment of reduced demand
for renewable natural gas or renewable electricity could have a material adverse effect on our long-term business prospects, financial
condition and results of operations.
Long-term renewable natural
gas and renewable electricity prices may fluctuate substantially due to factors outside of our control. The price of electricity can vary
significantly for many reasons.
Demand can vary significantly
for many reasons, including increases and decreases in generation capacity in our markets; changes in power transmission or fuel transportation
capacity constraints or inefficiencies; power supply disruptions; weather conditions; seasonal fluctuations; changes in the demand for
power or in patterns of power usage, including the potential development of demand-side management tools and practices; development of
new fuels or new technologies for the production of power; and governmental regulations. Further, the amount of power consumed by the
electric utility industry is affected primarily by the overall demand for electricity, environmental and other governmental regulations
and the price and availability of fuels such as nuclear, coal, natural gas and oil, as well as sources of renewable energy. Slow growth
or a long-term reduction in overall demand for energy could have a material adverse effect on our business strategy and could, in turn,
have a material adverse effect on our business, financial condition and results of operations.
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A policy revision with respect to the Italian
government sponsored renewable natural gas floor price and renewable natural gas capital expenditure reimbursements could have a material
adverse effect on our long-term business prospects, financial condition and results of operations.
A decline in prices for certain
fuels or reduced Italian governmental incentives for renewable energy sources, or renewable natural gas specifically, could also make
renewable natural gas less cost-competitive on an overall basis. If the price of alternative energy sources falls, including crude oil,
any revenues that we generate from renewable natural gas could decline and we may be unable to produce products that are a commercially
viable alternative to alternative energy sources. Further, throughout the central and southern EU (but primarily focused in Italy and
Germany), member states’ interest in creating new sources of renewable energy has supported the construction of nearly 10,000 AD’s
over the past 15 years. However, the Italian government’s financial incentives and subsidies supporting these activities are
set to expire in January 2025 absent additional government action, and are expected to be replaced by attractive biomethane incentives.
Such incentives are designed to bring biomethane into the national pipeline transmission system in order to deliver the gas to higher
efficiency, utility-scale, natural gas power generation stations. In order to continue biogas operations, the farms are forced to seek
a new use for the product, which will be dominated by conversion to biomethane. To support this conversion, the Italian government has
implemented a government-backed biomethane floor price through the end of 2039 of €124 per MWh, equivalent to $37.60 per (103ft3).
If pricing of alternative energy sources becomes more favorable or the Italian government revises its energy policy to suspend or halt
financial support of renewable natural gas, our business, financial condition and results of operations will be adversely affected.
We will face competition on the prices we
receive for our renewable electricity and for rights to manage or develop renewable natural gas plants.
We will face competition from
both conventional and renewable energy companies in connection with the prices that we can obtain for the renewable electricity we sell
during the interim period before we complete the conversion of existing plants from electricity generation to renewable natural gas production
and that we produce and sell into energy markets at market prices. The prices that these energy companies can offer are dependent on a
variety of factors, including their fuel sources, transmission costs, capacity factor, technological advances and their operations and
management. If these companies are able to offer their energy at lower prices, this will reduce the prices we are able to obtain in these
markets, which could have a material adverse effect on our results of operations. Our competitors may also offer energy solutions at prices
below cost, devote significant resources to competing with us or attempt to recruit our key personnel, any of which could improve their
competitive positions. In addition, the technologies that we use may be rendered obsolete or uneconomic by technological advances, more
efficient and cost-effective processes or entirely different approaches developed by one or more of our competitors or others. Moreover,
if the demand for renewable energy increases, new companies may enter the market, and the influx of added competition could pose an increased
risk to us.
In the renewable natural gas
industry, we believe our primary competitors will be other renewable natural gas companies with existing plants and farm owners that either
operate their own renewable natural gas plants or may do so in the future. Increased competition for such plants, equipment, and suppliers,
may increase the price we pay for the acquisition costs for existing plants or the amount we have to pay farm owners in the form of equity
interests or feedstock supply contracts, which may have a material adverse effect on our results of operations. We may also find ourselves
competing more frequently with farm owners to the extent they decide to develop their own renewable natural gas plants, which would also
reduce the number of opportunities for us to develop new renewable natural gas plants. While we anticipate receiving the subsidized floor
price for our renewable natural gas, we may also compete with other renewable natural gas developers for production off-take agreements
with existing and potential buyers of renewable natural gas.
Our renewable energy plants may not produce
expected levels of output, and the amount of renewable natural gas actually produced at each of our plants will vary over time and, when
a farm closes, eventually decline.
Farms contain organic material