DeGolyer and MacNaughton 5001 Spring Valley Road Suite 800 East Dallas, Texas 75244

Transcription

1 DeGolyer and MacNaughton 51 Spring Valley Road Suite 8 East Dallas, Texas This CD-ROM contains digital representations of a DeGolyer and MacNaughton report The files on this CD-ROM are intended to be anifestations of certain data in the subject report and as such are subject to the sae conditions thereof The inforation and data contained on this CD-ROM ay be subject to isinterpretation; therefore, the signed and bound copy of this report should be considered the only authoritative source of such inforation

2 DEGOLYER AND 5 I SPRING VALLEY ROAD SUITE 8 EAST DALLAS, TEXAS APPRAISAL REPORT as of JUNE 3, 214 on CERTAIN PROPERTIES owned by

3 DEGOLYER AND TABLE of CONTENTS Page FOREWORD l Scope of Investigation 1 Authority 3 Source of Inforation 3 DEFINITION of RESERVES 4 ESTIMATION of RESERVES 1 VALUATION of RESERVES 13 SUMMARY and CONCLUSIONS 1 7 APPENDIX - Bound with Report

4 DEGOLYER AND 5 I SPRING VALLEY ROAD SUITE 8 EAST DALLAS, TEXAS APPRAISAL REPORT as of JUNE 3, 214 on CERTAIN PROPERTIES owned by FOREWORD Scope of Investigation This report is an appraisal, as of June 3, 214, of the extent and value of the proved, probable, and possible crude oil, natural gas liquids (), and natural gas reserves of certain properties in which Evolution Petroleu Corporation (Evolution) has represented that it owns an interest The reserves estiated in this report are in the Delhi field located priarily in Richland Parish, Louisiana, and Evolution-operated wells in the Giddings and Iola fields located in Texas The properties appraised include an overriding royalty interest in the Delhi Holt Bryant Unit that is convertible to a working interest after payout of certain operating expenses The overriding royalty interest is percent, and the additional interest to be gained after payout is a percent working interest with a percent net revenue interest, which is additive to the overriding royalty interest This unit is operated by Denbury Onshore LLC (Denbury) Estiates of reserves presented in this report have been prepared in copliance with the regulations proulgated by the United States Securities and Exchange Coission (SEC) These reserves definitions are discussed in detail in the Definition of Reserves section of this report Reserves estiated in this report are expressed as gross and net reserves reserves are defined as the total estiated petroleu reaining to be produced fro these properties after June 3, 214 reserves are defined as that portion of the gross reserves attributable to

5 2 DEGOLYER AND the interests owned by Evolution after deducting royalties and interests owned by others This report also presents values for proved, probable, and possible reserves using initial prices and costs provided by Evolution Future prices were estiated using guidelines established by the SEC and the Financial Accounting Standards Board (FASB) In general, a West Texas Interediate (WTI) price of $137 per barrel and a Henry Hub gas price of $41 per illion British theral units (MMBtu) was held constant for the lives of the properties A detailed explanation of the future price and cost assuptions is included in the Valuation of Reserves section of this report Values of proved, probable, and possible reserves are expressed in ters of future gross revenue, future net revenue, and present worth Future gross revenue is that revenue which will accrue to the appraised interests fro the production and sale of the estiated net reserves Future net revenue is calculated by deducting estiated production taxes, ad valore taxes, operating expenses, capital costs, abandonent costs, and net profits expenses fro the future gross revenue Operating expenses include field operating expenses, transportation expenses, copression charges, and an allocation of overhead that directly relates to production activities Future incoe tax expenses were not taken into account in the preparation of these estiates Present worth is defined as future net revenue discounted at a specified arbitrary discount rate copounded onthly over the expected period of realization In this report, present worth values using a discount rate of 1 percent are reported in detail and values using discount rates of 8, 12, 15, 18, 2, 25, and 3 percent are reported as totals Estiates of oil,, and gas reserves and future net revenue should be regarded only as estiates that ay change as further production history and additional inforation becoe available Not only are such reserves and revenue estiates based on that inforation which is currently available, but such estiates are also subject to the uncertainties inherent in the application of judgental factors in interpreting such inforation

6 3 DEGOLYER AND Authority This report was prepared at the request of Mr Daryl Mazzanti, Vice President - Operations, Evolution Source of Inforation Data used in the preparation of this report were obtained fro Evolution, fro reports filed with the appropriate regulatory agencies, and fro other public sources In the preparation of this report we have relied, without independent verification, upon inforation furnished by Evolution with respect to property interests being appraised, production fro such properties, current costs of operation and developent, current prices for production, agreeents relating to current and future operations and sale of production, and various other inforation and data that were accepted as represented It was not considered necessary to ake a field exaination of the physical condition and operation of the properties

7 4 DEGOLYER AND DEFINITION of RESERVES Petroleu reserves included in this report are classified by degree of proof as proved, probable, or possible Reserves classifications used in this report are in accordance with the reserves definitions of Rules 4-lO(a) (1)-(32) of Regulation S-X of the SEC Reserves are judged to be econoically producible in future years fro known reservoirs under existing econoic and operating conditions and assuing continuation of current regulatory practices using conventional production ethods and equipent In the analyses of production-decline curves, reserves were estiated only to the liit of econoic rates of production under existing econoic and operating conditions using prices and costs consistent with the effective date of this report, including consideration of changes in existing prices provided only by contractual arrangeents but not including escalations based upon future conditions The petroleu reserves are classified as follows: Proved oil and gas reserves Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estiated with reasonable certainty to be econoically producible-fro a given date forward, fro known reservoirs, and under existing econoic conditions, operating ethods, and governent regulations-prior to the tie at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterinistic or probabilistic ethods are used for the estiation The project to extract the hydrocarbons ust have coenced or the operator ust be reasonably certain that it will coence the project within a reasonable tie (i) The area of the reservoir considered as proved includes: (A) The area identified by drilling and liited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain econoically producible oil or gas on the basis of available geoscience and engineering data (ii) In the absence of data on fluid contacts, proved quantities in a reservoir are liited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience,

8 5 DEGOLYER AND engineering, or perforance data and reliable technology establishes a lower contact with reasonable certainty (iii) Where direct observation fro well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves ay be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or perforance data and reliable technology establish the higher contact with reasonable certainty (iv) Reserves which can be produced econoically through application of iproved recovery techniques (including, but not liited to, fluid injection) are included in the proved classification when: (A) Successful testing by a pilot project in an area of the reservoir with properties no ore favorable than in the reservoir as a whole, the operation of an installed progra in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or progra was based; and (B) The project has been approved for developent by all necessary parties and entities, including governental entities ( v) Existing econoic conditions include prices and costs at which econoic producibility fro a reservoir is to be deterined The price shall be the average price during the 12-onth period prior to the ending date of the period covered by the report, deterined as an unweighted arithetic average of the first-day-of-the-onth price for each onth within such period, unless prices are defined by contractual arrangeents, excluding escalations based upon future conditions Probable reserves - Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered

9 6 DEGOLYER AND (i) When deterinistic ethods are used, it is as likely as not that actual reaining quantities recovered will exceed the su of estiated proved plus probable reserves When probabilistic ethods are used, there should be at least a 5% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves estiates (ii) Probable reserves ay be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir continuity of structure or productivity does not eet the reasonable certainty criterion Probable reserves ay be assigned to areas that are structurally higher than the proved area if these areas are in counication with the proved reservoir (iii) Probable reserves estiates also include potential increental quantities associated with a greater percentage recovery of the hydrocarbons in place than assued for proved reserves (iv) See also guidelines in paragraphs (iv) and (vi) of the definition of possible reserves Possible reserves Possible reserves are those additional reserves that are less certain to be recovered than probable reserves (i) When deterinistic ethods are used, the total quantities ultiately recovered fro a project have a low probability of exceeding proved plus probable plus possible reserves When probabilistic ethods are used, there should be at least a 1% probability that the total quantities ultiately recovered will equal or exceed the proved plus probable plus possible reserves estiates (ii) Possible reserves ay be assigned to areas of a reservoir adjacent to probable reserves where data control and interpretations of available data are progressively less certain Frequently, this will be in areas where geoscience and

10 7 DEGOLYER AND engineering data are unable to define clearly the area and vertical liits of coercial production fro the reservoir by a defined project (iii) Possible reserves also include increental quantities associated with a greater percentage recovery of the hydrocarbons in place than the recovery quantities assued for probable reserves (iv) The proved plus probable and proved plus probable plus possible reserves estiates ust be based on reasonable alternative technical and coercial interpretations within the reservoir or subject project that are clearly docuented, including coparisons to results in successful siilar projects (v) Possible reserves ay be assigned where geoscience and engineering data identify directly adjacent portions of a reservoir within the sae accuulation that ay be separated fro proved areas by faults with displaceent less than foration thickness or other geological discontinuities and that have not been penetrated by a wellbore, and the registrant believes that such adjacent portions are in counication with the known (proved) reservoir Possible reserves ay be assigned to areas that are structurally higher or lower than the proved area if these areas are in counication with the proved reservoir (vi) Pursuant to paragraph (iii) of the proved oil and gas reserves definition, where direct observation has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves should be assigned in the structurally higher portions of the reservoir above the HKO only if the higher contact can be established with reasonable certainty through reliable technology Portions of the reservoir that do not eet this reasonable certainty criterion ay be assigned as probable and possible oil or gas based on reservoir fluid properties and pressure gradient interpretations

11 8 DEGOLYER AND Developed oil and gas reserves - Developed oil and gas reserves are reserves of any category that can be expected to be recovered: (i) Through existing wells with existing equipent and operating ethods or in which the cost of the required equipent is relatively inor copared to the cost of a new well; and (ii) Through installed extraction equipent and infrastructure operational at the tie of the reserves estiate if the extraction is by eans not involving a well Undeveloped oil and gas reserves - Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered fro new wells on undrilled acreage, or fro existing wells where a relatively ajor expenditure is required for recopletion (i) Reserves on undrilled acreage shall be liited to those directly offsetting developent spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of econoic producibility at greater distances (ii) Undrilled locations can be classified as having undeveloped reserves only if a developent plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circustances justify a longer tie (iii) Under no circustances shall estiates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other iproved recovery technique is conteplated, unless such techniques have been proved effective by actual projects in the sae reservoir or an analogous reservoir, as defined in [section (a) Definitions], or by other evidence using reliable technology establishing reasonable certainty The extent to which probable and possible reserves ultiately ay be recategorized as proved reserves is dependent upon

12 9 DEGOLYER AND future drilling, testing, and well perforance The degree of risk to be applied in evaluating probable and possible reserves is influenced by econoic and technological factors as well as the tie eleent Probable and possible reserves in this report have not been adjusted in consideration of these additional risks and therefore are not coparable with proved reserves

13 1 DEGOLYER AND ESTIMATION of RESERVES Estiates of reserves were prepared by the use of appropriate geologic, petroleu engineering, and evaluation principles and techniques that are in accordance with practices generally recognized by the petroleu industry as presented in the publication of the Society of Petroleu Engineers entitled "Standards Pertaining to the Estiating and Auditing of Oil and Gas Reserves Inforation (Revision as of February 19, 27)" The ethod or cobination of ethods used in the analysis of each reservoir was tepered by experience with siilar reservoirs, stage of developent, quality and copleteness of basic data, and production history The proved, probable, and possible reserves estiated for ost of the appraised interests are located in the Holt-Bryant reservoir This reservoir was originally discovered in 1944, produced under priary eans until unitized for water injection in 1953, and purchased by Denbury in 26 in order to initiate a carbon dioxide injection progra Average depth is 3,235 feet subsea, and the unit area is about 6,189 acres Denbury began carbon dioxide injection in 3 patterns in Noveber 29, and has since expanded to 15 patterns, which have seen production response to injection The voluetric ethod was used to estiate the original oil in place (OOIP) Structure aps were utilized to delineate each reservoir, and isopach aps were utilized to estiate reservoir volue Electrical logs, radioactivity logs, core analyses, and other available data were used to prepare these aps as well as to estiate representative values for porosity and water saturation Estiates of OOIP were prepared during unitization and later refined following waterflood operations Cuulative recovery prior to carbon dioxide injection was about 195 illion barrels Estiates of ultiate recovery to result fro carbon dioxide injection in the Holt-Bryant reservoir were obtained after applying recovery factors to a reaining oil in place of 223 illion barrels This recovery factor is based on consideration of the type of energy inherent in the reservoirs, analyses of the petroleu, the structural positions of the properties, and the production histories Oil production response to the carbon dioxide was observed in March 21 Based on the production response fro a nuber of producers, and noting the aount of carbon dioxide injection to date, the recovery of proved reserves was estiated to be about 13 percent of pattern-area OOIP, probable reserves about 4 percent of OOIP, and possible reserves about 2 percent of OOIP

14 11 DEGOLYER AND In addition, Evolution has noted that three additional reservoirs exist that could also be suitable for carbon dioxide injection These are identified as the Baughan, Beard, and May Libby reservoirs Estiated OOIP for these reservoirs is about 263 illion barrels After the pattern area that could be developed was estiated, recovery fro these reservoirs was estiated to be 416 illion barrels of probable reserves and 548 illion barrels of possible reserves These reserves have been classified as probable and possible undeveloped and are subject to Denbury expanding its flood progra to these reservoirs after Evolution backs into a working interest Additional probable and possible reserves are estiated for resuption of C2 injection into three patterns in the southwest area of the field, where Denbury has discontinued carbon dioxide injection, and two patterns in the townsite of Delhi Evolution has represented that processing of produced gas for will begin in 215 Estiates of proved reserves were based on installation of a plant to recover and ethane gas June 3, 214, were used in this report Data available fro wells drilled through Gas quantities estiated herein are expressed as wet gas and sales gas Wet gas is defined as the indigenous gas in the reservoir to be produced Sales gas is defined as that portion of the wet gas to be delivered into a gas pipeline for sale after separation, processing, fuel use, and flare gas reserves are reported as wet gas gas reserves are reported as sales gas Gas reserves are expressed at a teperature base of 6 degrees Fahrenheit ( F) and at the legal pressure base of the state in which the interest is located reserves are those attributed to the leasehold interests according to processing agreeents The estiated gross and net proved, probable, and possible reserves, as of June 3, 214, of the properties appraised are suarized as follows, expressed in thousands of barrels (Mbbl) and illions of cubic feet (MMcf):

15 12 DEGOLYER AND Reserves Reserves Wet Oil Gas Oil Gas (Mbbl) (MM cf) (Mbbl) (Mbbl) (MM cf) Proved Developed Producing 29, , Proved Developed Non producing Proved Undeveloped 1,78 39,838 2,668 2,247 Proved 4,38 4,778 1,526 2,279 Probable 28,27 3,762 7,42 1,735 Possible 8,98 8,912 2, ,426 2,97 1, Note: Probable and possible reserves have not been risk adjusted to ake the coparable to proved reserves

16 13 DEGOLYER AND VALUATION of RESERVES This report has been prepared using initial prices and costs specified by Evolution Future prices were estiated using guidelines established by the SEC and the FASB In this report, values for proved, probable, and possible reserves are based on projections of estiated future production and revenue with no risk adjustent applied to the probable reserves Probable and possible reserves involve substantially higher risks than proved reserves values for probable and possible reserves have not been adjusted to account for such risks; this adjustent would be necessary to ake probable and possible reserves values coparable with values for proved reserves The assuptions that were used for estiating future prices and costs are as follows: Oil An oil price differential for each property was calculated fro data provided by Evolution The price for each property was calculated by applying this differential to a WTI crude oil price of $137 per barrel and was held constant over the life of each property The WTI price of $137 is the 12-onth average price calculated as the unweighted arithetic average of the first-day-of-the-onth price for each onth within the 12-onth period prior to June 3, 214 The weighted average effective price attributable to the estiated proved reserves was $123 per barrel Evolution has represented that the prices were based on a 12-onth average price (reference price), calculated as the unweighted arithetic average of the first-day-of-the-onth price for each onth within the 12-onth period prior to the end of the reporting period, unless prices are defined by contractual arrangeents The volue-weighted average price attributable to the proved reserves was $4631 per barrel

17 14 DEGOLYER AND Natural Gas Evolution has represented that the natural gas prices were based on a reference price, calculated as the unweighted arithetic average of the first-day-of-the-onth price for each onth within the 12-onth period prior to the end of the reporting period, unless prices are defined by contractual arrangeents The gas prices were calculated for each property using differentials furnished by Evolution to the EIA Henry Hub reference price of $41 per MMBtu and held constant thereafter The volue-weighted average price attributable to the proved reserves was $3748 per thousand cubic feet (Md) Operating Expenses and Capital Costs Estiates of operating expenses and capital costs based on current costs were used for the lives of the properties with no increases in the future based on inflation Future expenditures are estiated to be uch higher than current levels due to the installation of a carbon dioxide injection progra, which began in Noveber 29 and is to be expanded through 223 Evolution is expected to pay $12 per Mcf of carbon dioxide, based on a rate of 1 percent of oil price plus transportation Recycled carbon dioxide is expected to cost 16 cents per Mcf carbon dioxide injection is expected to be 4,884 billion cubic feet (Bcf), and purchased carbon dioxide is expected to be 88 Bcf over the project life of the proved, probable, and possible reserves Operating expenses are based on expenditure inforation provided by Evolution Future capital costs were estiated using 214 values and were not adjusted for inflation No significant capital costs other than abandonent are expected after 227 One lease in Texas is subject to a net profits interest and Ad Valore taxes were based on current state tax rates The Delhi carbon dioxide flood has been qualified as a tertiary recovery project As such, no oil production taxes will be

18 15 DEGOLYER AND charged until a payout is achieved of investent and certain interest expenses by all revenue fro the project then revert to the noral 125-percent rate, which are held constant until average oil production per well drops below 25 barrels per day, and then reduced to 625 percent Changes are expected to occur in April 221 and August 236 Evolution has stated that no ad valore taxes are charged to the Louisiana royalty owners, so no such taxes were included until conversion to a working interest The estiated future revenue to be derived fro the production and sale of the net proved, probable, and possible reserves, as of June 3, 214, of the properties appraised is suarized as follows, expressed in thousands of dollars (M$): Proved Developed Proved Producing Undeveloped Proved Probable Possible Future, M$ 86, ,753 1,193, , , 731, M$ 52,462 25,948 78,41 78,236 2,663 Ad Valore, M$ 3,161 1,575 4,736 3,355 1,4 Profits, M$ (254) (254) Operating Expenses, M$ 279, , , ,228 6,455 Capital Costs, M$ 3,17 41,712 44,819 3,343 Abandonent Costs, M$ 1,335 1, Future, M$ 467,69 24,94 671, , ,572 Present Worth at 1 Percent, M$ 257,955 61, , ,93 2,148 Notes: 1 Future incoe tax expenses were not taken into account in the preparation of these estiates 2 Values for probable and possible reserves have not been risk adjusted to ake the coparable to values for proved reserves 3 One lease in Texas is subject to a net profits interest The developent of production and the resulting tiing of capital expenditures were based on a developent plan provided by Evolution The payout interests were estiated to be effective on October 1, 214 In our opinion, the inforation relating to estiated proved, probable, and possible reserves, estiated future net revenue fro proved reserves, and present worth of estiated future net revenue fro proved reserves of oil, condensate, natural gas liquids, and gas contained in this report has been prepared in accordance with Paragraphs , , , , , and (a), (b),

19 16 DEGOLYER AND and (e) of the Accounting Standards Update , Extractive Industries - Oil and Gas (Topic 932): Oil and Gas Reserve Estiation and Disclosures (January 21) of the Financial Accounting Standards Board and Rules 4-lO(a) (1)-(32) of Regulation S-X and Rules 32(b), 121, 122(a) (1), (2), (3), (4), (5), (8)(i), (ii), and (v)-(x), and 123(a) of Regulation S-K of the Securities and Exchange Coission; provided, however, that (i) future incoe tax expenses have not been taken into account in estiating the future net revenue and present worth values set forth herein, and (ii) estiates of the proved developed and proved undeveloped reserves are not presented at the beginning of the year To the extent the above-enuerated rules, regulations, and stateents require deterinations of an accounting or legal nature, we, as engineers, are necessarily unable to express an opinion as to whether the above-described inforation is in accordance therewith or sufficient therefor The appendix bound with this report includes (1) suary projections of proved, probable, and possible reserves and revenue by reserves classification, (2) tabulations of proved, probable, and possible reserves by field, reserves classification, and lease, (3) projections of proved, probable, and possible reserves and revenue by reserves classification and lease, and ( 4) suary projections of proved-plus-probable reserves

20 17 DEGOLYER AND SUMMARY and CONCLUSIONS Evolution has represented that it owns interests in certain properties in the Delhi field located in Richland Parish, Louisiana, and in the Giddings and Iola fields located in Texas The estiated net proved, probable, and possible reserves of the properties appraised, as of June 3, 214, are suarized and expressed in thousands of barrels (Mbbl) and illions of cubic feet (MMcf) as follows: Proved Reserves Oil Sales Gas (Mb bl) (Mb bl) (MM cf) Developed Producing 7, Developed Nonproducing Undeveloped 2,668 2,247 2,426 Proved 1,526 2,279 2,97 Probable 7,42 1,735 1,873 Possible 2, Note: Probable and possible reserves have not been risk adjusted to ake the coparable to proved reserves Estiated revenue attributable to the Evolution interests in the proved, probable, and possible reserves, as of June 3, 214, of the properties appraised under the aforeentioned assuptions concerning future prices and costs is suarized as follows, expressed in thousands of dollars (M$): Proved Developed Producing Proved Undeveloped Proved Probable Possible Future, M$ Future, M$ Present Worth at 1 Percent, M$ 86, ,69 257, ,753 24,94 61,791 1,193, , , , , ,93 266, ,572 2,148 Notes: 1 Future incoe tax expenses were not taken into account in the preparation of these estiates 2 Values for probable and possible reserves have not been risk adjusted to ake the coparable to values for proved reserves

21 18 DEGOLYER ANO While the oil and gas industry ay be subject to regulatory changes fro tie to tie that could affect an industry participant's ability to recover its oil and gas reserves, we are not aware of any such governental actions which would restrict the recovery of the June 3, 214, estiated oil and gas reserves The reserves estiated in this report can be produced under current regulatory guidelines DeGolyer and MacNaughton is an independent petroleu engineering consulting fir that has been providing petroleu consulting services throughout the world since 1936 DeGolyer and MacNaughton does not have any financial interest, including stock ownership, in Evolution Our fees were not contingent on the results of our evaluation This report has been prepared at the request of Evolution DeGolyer and MacNaughton has used all assuptions, procedures, data, and ethods that it considers necessary to prepare this report All gas quantities shown herein are expressed at a teperature base of 6 degrees Fahrenheit and at the legal pressure base of the state in which the interest is located Subitted, Texas Registered Engineering Finn SIGNED: August 13, 214 P~k~ /G Senior Vice President DeGolyer and MacNaughton

22 PROJECTION OF ESTIMATED PROVED PRODUCTION AND REVENUE AS OF JUNE 3, 214 GRAND TOTAL Jun 3 Wet Gas Co(lletions {bbl) {Mcf) C2 Purchase {Mcf) C2 {Mcf) {bbl) {bbl) Sales Gas {Mcf} ,268,757 54, ,345,145 2,3, ,581,341 2,89, ,585,61 2,893, ,642,348 2,954,248 34,811,79 52,788,921 43,112, 15 56,477,85 39,818,642 6,921,358 42,317,57 65,392,93 41,284,712 69,967, ,45 622,83 685, ,193 71,125 1,85 26, , , , , , , ,68 199, ,539,398 2,839, ,361,238 2,641, ,189,351 2,45, ,29,33 2,271, ,886,152 2,113,222 36,869,763 74,687,37 31,74,953 79,178,836 28,199,286 82,7,889 24,994,262 84,666,618 22,423, ,93, , ,549 58, ,475 5, , , ,33 178,85 137,32 166, , ,77 118, , ,744,423 1,955, ,618,543 1,815, ,52,38 1,686, ,398,619 1,571, ,295,458 1,456,74 2,39,219 88,144,256 18,33,75 89,526,27 16,334,547 9,93,89 14,453, ,514,817 13,62,94 93,27,93 463,24 429, ,84 371, ,5 19,52 134,7 11,66 125,676 94,42 117,339 87,927 19,918 81,483 12, ,23,763 1,354, ,118,973 1,26, ,43,288 1,176, ,462 1,91, ,191 1,15,836 11,89,881 93,71,91 1,555,59 94,38,95 9,322,129 95,326,41 8,36,39 95,757,781 6,775,644 96,454,72 319, , , , ,992 75,754 95,874 7,459 89,76 65,731 84,322 6,942 78,616 56,717 73,666 Cuulative Ultiate 36,221,392 37,496,346 3,816,88 3,281,796 4,38,272 4,778,142 7,726,532 6,448,855 47,764,84 47,226, ,525,151 1,642,844,89 18,1, ,741, ,527,77 2, 117,586,32 492,527,77 2, 117,586,32 9,56,948 1,19,396 1,526,344 2,98,81 2,614,78 18,67 292,785 2,278,688 2,96,863 Jun 3 Oil and Natural Gas Cond Liquids Gas ~/bbl} {$/bbl} {~/Mcf) Future Future {$) Future Future Gas {$) (~l Ad Valore ,612,11 63,931 63,746,72 5,179,256 7,119,249 7,51,458 7,22,247 7,52,925 71,744,827 7,683,375 9,138 5,766, ,413 69,466, ,871 78,374, ,355 78,483, ,669 8,181,871 32, ,61 168, ,99 325, , , , , ,945,977 7,384,7 64,11,384 6,867,1 59,446,31 6,368,541 55,96,481 5,93,493 51,219,9 5,489,84 724,33 77,54, ,485 71,652, ,665 66,443, ,14 61,584, ,181 57,255, , ,179 2,142,14 291,78 7,593,56 253,315 7,37, ,929 6,542, ,374,584 5,77,915 43,959,468 4,712,728 4,86,5 4,375,528 37,993,182 4,74,738 35,194,38 3,775,412 57,469 52,959, ,14 49,145, ,418 45,622, ,179 42,481,99 384,889 39,354,681 6,5,689 22,313 5,614, ,891 5,211, ,579 4,851, ,712 4,494,36 15, ,76,746 3,59,362 3,46,44 3,263,331 28,353,366 3,43,738 26,279,738 2,822,269 24,448,629 2,626, ,79 36,575, ,552 34,6, ,866 31,712,97 294,39 29,396, ,555 27,35,712 4,176,424 14,388 3,882,483 13,683 3,62, ,16 3,356, ,698 3,123,635 14,752 Jun Operating Capital Expenses Costs {$) {$) 972, 784, 14 97,251,782 14,266,27 8,31,49 1,77,5,41 15,561,831 9,834,288 1,79,87,21 1,68, ,644,865 1,92,834 1, 193,515,75 Present Worth at 1 O Percent Annual Cuulative {$) {$) 68,89,916 4,275,52 9,6,227 46,635 78,41,143 4,736, ,81 12,742,975 24,618,157-35,149 2,338,83 3,37,656-29,582 2,263,192 1,131,628-25,164 21,196,15 6,761,362-21,489 21,596,585 13,134,52 13,134,52 45,327,99 58,462,51 47,394,795 15,857,35 49,946, ,83,892 57,999,75 213,83,642 12,596,245 12,596,245 38,71,685 51,297,93 36,91,571 88,28,51 34,959, , 167,999 36,95,43 16,73,42 Month of Last :12/257 Interests {Percent} ~ Working ,481 2,777,669-15,72 19,713,689-13,42 18,918,517-11,48 18,91,8-9,711 17,46,73-8,56 16,792,853-6,649 16,225,184-5,381 15,654,18-4,298 15,123,796-3,192 14,678,764 55,716, ,52, ,49, ,1,633 39,665,28 358,675,841 36,21, ,886, ,78, ,964,981 29,96,57 457,871,38 27,111, ,982,332 24,577,637 59,559,969 22,338, ,898,324 2,27, ,925,85 32,118,26 192, 191,662 25,862, ,54,473 18,738, ,793,414 15,486,49 252,279,823 12,85, ,85,378 1,479, ,564,96 8,6, , 165,418 7,58, ,223,614 5,86, ,3,39 4,712,512 31,742,821 Present Worth Profile{ ) 8 Percent 362,937, Percent 284,74, Percent 241, 159, Percent 27,67,446 2 Percent 189,128, Percent 152, 76,22 3 Percent 126,247, ,243 14,279,363-1,398 13,873, ,483, ,52,61 12,641,5 17,977,48 569,93,33 16,117,92 586,21,25 14,486,416 6,57,666 12,873,95 613,381,616 5, 11,43, ,812,441 3,829,521 35,572,342 3,18,271 38,68,613 2,528, ,29,25 2,34, ,243,379 1,634, ,878,33 DEGOl:V~R -253, ,849,548 44,818,83 55,138,13-253, ,987,651 44,818,83 5, 624,812,441 1,285,375 47,16, ,972,966 1,335, ,972, ,878,33 4,867,94 319,745, ,745,397 TEXAS REGISTtRED ENGINEERING FIRM

23 2 PROJECTION OF ESTIMATED PROVED PRODUCTION AND REVENUE AS OF JUNE 3, 214 Reserve Category: DEVELOPED PRODUCING Wet Gas C2 C2 Purchase Jun 3 Co12letions (bbl} (Mcf} (Mcf) (Mcf) {bbl) {bbl) Sales Gas {Mcf) ,268,757 54,469 34,811,79 52,788, , ,274,52 51,662 31,989,392 55,85,68 64, ,267,893 48,91 28,832,664 58,767,336 62, ,179,19 46,557 25,886,59 61,713, ,14,98 44,438 24,58,573 63,19, , ,866,434 42,627 23,611,674 64,228, , ,72,167 4,75 22,128,599 65,13,19 456, ,589,893 39,135 2,448,881 66,169, , ,469,497 37,649 18,756,21 67,252,859 39, ,361,86 36,371 17,94,58 68,542, , ,255,126 34,994 15,324,875 69,476,6 333, ,16,19 33,86 13,59,634 7,614,323 38, ,72,292 32,699 11,841,959 71,77, , ,742 31,747 1,2,136 73,51,6 264, ,927 3,688 9,76,193 73,362, , ,616 29,776 8,8,847 73,778, , ,558 28,916 7,87,227 74,195,927 28, ,258 28,181 6,11,629 74,821,11 192, ,174 26,57 5,12,287 75,39,83 177, ,494 24,856 4,113,598 75,464, ,148 28,49, , ,667,916 1,355,11,325 7,343,472 1,91, ,641 6,649,183 28,519, ,752 29,96, ,92 345,317,99 1,635,531,21 7,858,224 Cuulative 7,726,532 6,448,855 Ultiate 37,686,84 7,388, ,317,99 1,635,531,21 Oil and Natural Gas Future Future Future Future Cond Liquids Gas Gas Jun 3 {$/bbl) {~/bbl) {~/Met} ,612,11 63,931 9,138 5,766, ,832,677 6,447 85,831 61,978, ,629,333 57,69 81,58 61,767, ,212,4 54,213 77,87 59,344, ,728,379 51,651 74,436 54,854, ,718,391 49,468 71,54 5,839, ,746,67 47,222 68,55 46,862, ,29,668 45,298 65,889 43,32, ,941,111 43,53 63,468 4,48, ,17,763 42, ,121, ,121,744 4,387 59,123 34,221, ,542,532 38,986 57, , ,158,875 37,683 55,343 29,251, ,26,89 36,564 53,773 27,117, ,914,55 35,321 52,16 25,1, ,33,248 34,254 5,5 23,118, ,294,499 33, ,376, ,739,324 32,389 47,851 19,819, ,173,362 29,114 45,714 18,248, ,791,659 27,419 44,232 16,863, ,445, ,27 1,255, ,56, ,637, ,89 348,148 53,21, ,82,657 1,76,16 1,63,447 86,762, 12 Operating Capital Present Worth at 1 O Percent Expenses Costs Annual Cuulative Jun 3 {$} ($} {$) 1,85 26,841 1,757 25,592 1,668 24,328 1,591 23,246 1,521 22,257 1,461 21,46 1,41 2,514 1,347 19,743 1,298 19,28 1,256 18, ,745 1,171 17,167 1,135 16,628 1,13 16,164 1,68 15,642 1,37 15,193 1,1 14, , , ,323 25,59 376,178 6,574 14,864 32, ,42 AdValore 32, ,61 28,49 259,48 25, ,138 24, ,854 22, ,148 21,78 212,437 1,426,794 19,127 5,39, ,151 4,982, ,22 4,617,61 136,56 4,256,16 125,992 3,934, ,587 3,636,716 17,896 3,37,588 1,128 3,16,927 92,425 2,872,9 85,563 2,655,53 79,226 2,46,913 73,558 2,267,185 67,271 2,95,353 62,18 47,227,267 2,947,389 5,234,96 213,634 52,462,173 3,161, , ,975 1,541,418 36,211,259 36,211,259 34,84,79 34,84, ,149 16,451,991 1,173,91 44,3,385 8,241,644 37,761,986 71,846, ,582 15,788, ,22 45,274, ,515,79 35,148,94 16,995, ,164 15,18,258 43,866, ,382,673 3,865, ,861, ,489 14,91,44 39,67,55 29,53,223 25,27, , 132, ,481 14,719,399 35,867, ,92,597 2,681,97 183,813, ,72 14,389,662 3,84,94 275,76,691 16,123,23 199' 936, ,42 13,971,776 23,786, ,546,85 11,238,41 211,174,96-11,48 13,456,718 21,45,31 32,997, 16 9,174,84 22,349,746-9,711 12,957,141 19,4,147 34,397,37 7,51, ,86, ,56 12,417,646 17,413,4 357,81,77 6,12, ,962, ,649 11,9,442 15,68, ,491,479 4,974, ,937, ,381 11,38,417 14, 121, ,612,97 4,55,76 242,993, ,298 1,897,224 12,744,989 4,357,959 3,313, ,36, ,192 1,59,686 11,289, ,647,616 2,656, ,963,443 Month of Last : 12/257 Interests {Percent) _!2filL Working Present Worth Profile {~l 8 Percent 285,281, Percent 234,881,44 15 Percent 26,411, Percent 183,57,636 2 Percent 17,65, Percent 144,482,29 3 Percent 124,675, ,243 1,163,532 9,994, ,642, 19 2,129,38 251,92, ,398 9,811,979 8,829,163 43,471,353 1,72, , 795, ,472,33 7,812,49 438,283,42 1,363, , 159, ,11,49 6,812, ,95,988 1,76,61 255,236, ,746,134 5, 5,99,85 451,5, , ,81, , ,969,721 3,16,539 5, 451,5, ,81,468 3,44,134 1,285,375 16,63,38 467,69,173 1,873, ,954, , ,373,855 3,16,539 1,335, ,69, ,954,613 DEGOLYER ~ TEXAS REGISTERED ENGINEERING FIRM

24 PROJECTION OF ESTIMATED PROVED PRODUCTION AND REVENUE AS OF JUNE 3, Reserve Category: UNDEVELOPED Wet Gas C2 C2 Purchase Jun 3 Co(lletions {bbl) {Mcf) {Mcf) {Mcf) {bbl) {bbl) Sales Gas {Mcf} ,643 1,951,696 11,122, ,242 18, ,448 2,841,823 1,985,978 2,154,22 82, ,411 2,846,896 16,43,917 3,678,683 17, ,25 2,99,81 16,74,139 6,947, , ,964 2,796,528 13,258,89 1,458, , ,71 2,6,279 9,576,354 14,75, , ,458 2,41,914 7,75,45 15,91, , ,536 2,234,282 6,238,241 17,413, , ,346 2,76,851 5,329,136 18,387, , ,297 1,92,699 4,984,344 18,667, , ,434 1,782,3 4,74,116 18,911, , ,16 1,653,933 4,492,588 19,159, , ,877 1,539,68 4,252,989 19,463,811 17, ,531 1,426,16 3,986,747 19,665,253 1, ,147 1,324,984 3,729,34 19,922,966 94, ,415 1,231,557 3,467,832 2,184,168 89, ,3 1,148,165 3,211,5 2,55,3 84, ,288 1,64,971 2,934,22 2,717,978 79, ,697 99,98 2,662,46 2,989,954 74,844 8,171,859 36,752,67 135,857, ,833,565 2,163,476 1,96,141 3,86,155 11,352, ,221,257 54,644 1,78, 39,838, ,29, ,54,822 2,668,12 Cuulative Ultiate 1,78, 39,838, ,29, ,54,822 Oil and Natural Gas Future Future Future Future Cond Liquids Gas Gas Jun 3 ~/bbl} {$/bbl} {~/Mcf) {$) {$) ,913,395 5,118,89 455,582 7,487, ,489,916 7,453, ,363 16,66, ,7,847 7,466, ,548 19,139, ,16,448 7,631, ,233 25,327, ,227,586 7,334,62 652,79 26,214, ,363,714 6,819,878 66,98 24,79, ,236,642 6,323, ,776 23,122, ,155,37 5,859, ,546 21,536, ,22,137 5,447,71 484,797 2,134, ,252,84 5,37, ,346 18,738, ,416,936 4,673, ,971 17,56, ,647,175 4,337, ,75 16,371, ,966,292 4,38, ,46 15,363, ,279,83 3,74,91 332,873 14,352, ,673,498 3,475,18 39,29 13,457, ,111,941 3,23,83 287,48 12,629, ,614,42 3,11, ,15 11,893, ,16,376 2,793, ,595 11,148, ,656,97 2,599,19 231,323 1,487, ,338,955 96,391,575 8,578, ,39, ,628,798 8,94,24 72,398 6,443, ,967,753 14,485,815 9,299, ,752,955 Operating Capital Present Worth at 1 O Percent Expenses Costs Annual Cuulative Jun 3 {$) {$) {$) {$) 11,58 118,842 16, ,44 16,54 173, ,87 177, ,7 17, , , , ,85 125, ,49 117, ,463 18,31 116,955 1,489 18,59 93,267 1,711 86,824 93,754 8,415 86,833 74,717 8,681 69,449 74,991 64,747 69,914 6,55 64,848 55,882 6,343 2,72,491 2,237,9 174,33 187,921 2,246,524 2,425,821 (~l Ad Valore 14,15 3,184 24,7 67,334 24,434 77,715 28,953 13,71 2,817 16, ,22 1,951 2,22,77 94,164 2,54,865 87,79 1,924, ,794,529 76,321 1,68,81 71,34 1,574,665 66,683 1,481,35 62,584 1,387,379 58,468 1,34,334 54,825 1,227,43 51,457 1,159,24 48,458 1,89,774 45,427 1,28,282 42,734 21,582,649 1,328,131 4,365, ,1 25,947,97 1,575, ,76,739-23,76,739-23,76,739-21,488,545-21,488, ,886,92 2,133,755 1,297,65-21,779, ,699-2,548, ,474,27 9,74,48 2,12,649-19,658,485 1,761,667-18,787, ,15,892 6,761,362 6,79,74-13,578,781 4,93,665-14,693, ,686,181 18,329,2 4,75,419 11,634,747-3,58, ,58,27 19,849,149 24,599,568 11,437,163 8,378, ,324,27 18,65,374 43,249,942 9,739,581 18,117, ,946,741 15,879,49 59,128,991 7,5,531 25,618,58 4,634,29 14,76,15 73,889,6 6,311,569 31,93,77 4,448,932 13,678,668 87,567,674 5,294,716 37,224, ,375,27 12,492,657 1,6,331 4,377,229 41,62, ,324,742 11,43, ,49,853 3,625,76 45,227, ,273,61 1,456, ,946,999 3,2,49 48,23, ,226,572 9,593, ,54,365 2,493,441 5,723, ,169,78 8,737,869 14,278,234 2,55,719 52,779,378 Month of Last :8/244 Interests {Percent} ~ Working Present Worth Profile{ ) 8 Percent 77,656,19 12 Percent 49,192, Percent 34,747, Percent 24,99,81 2 Percent 18,523, Percent 8,278,173 3 Percent 1,571, ,115,831 7,982,96 148,261,14 1,7,213 54,479,591 4,61,86 7,288, ,549,897 1,45,34 55,884,931 4,11,377 6,674, ,224,264 1,164,813 57,49, ,951,561 6,61, ,285, ,528 58,7, ,895,366 5,521,2 173,86, ,563 58,796,835 87,879,827 41,712, ,86,648 58,796,835 24,733,969 31,97,145 24,93,793 2,993,949 61,79, ,613,796 41,712,264 24,93,793 61,79,784 DEGOl:V~R TEXAS REGISTtRED ENGINEERING FIRM

25 4 THIS PAGE LEFT BLANK INTENTIONALLY

26 LEASE TOTALS RESERVES AND REVENUE

27 DATA ON ESTIMATED PROVED RESERVES AS OF JUNE 3, 214 Field Reserve Category Gas wet Gas Ultiate Reserves Ultiate Reserves {bbl) {Met) {Met) Suary by Reserve Category Liquids Sales Gas Reserves Reserves {bbl) {Met) DELHI DEVELOPED PRODUCING 36,999,999 29,867,7 UNDEVELOPED 1,78, 1,78, 39,838,222 39,838,222 TOTAL DELHI 47,77,999 39,945,7 39,838,222 39,838,222 GIDDINGS DEVELOPED PRODUCING 467, ,822, ,92 TOTAL GIDDINGS 467,914 35,127 6,822, ,92 lqla_ DEVELOPED PRODUCING 218,891 58, ,15 TOTALIOLA 218,891 58, ,15 GRAND TOTAL 47,764,84 4,38,272 47,226,997 4,778,142 7,798,428 4,914,644 2,425,821 12,713,72 2,425,821 57, ,42 57, ,42 34,266 34,266 12,85,32 2,96,863 DEGOLYf;;~ TEXAS REGISTERED ENGINEERING FIRM

28 DATA ON ESTIMATED REVENUE FROM PROVED RESERVES AS OF JUNE 3, Field Reserve Category Future & Ad Valore Operating Capital Abandonent Profits Expenses Costs Costs {$} {$} {$} {$} {$} Suary by Reserve Category Future Present Worth At 1 O Percent {$} ($} DELHI DEVELOPED PRODUCING 797,834,872 55,13,35 274,582,711 3,16,539 1,197,125 UNDEVELOPED 386, 752,955 27,523,12 112,613,796 41,712,264 TOTAL DELHI 1, 184,587,827 82,536,47 387,196,57 44,818,83 1,197,125 GIDDINGS DEVELOPED PRODUCING 5,477, ,982 49,779 3,11,685 1, TOTAL GIDDINGS 5,477, ,982 49,779 3,11,685 1, lqla_ DEVELOPED PRODUCING 3,449,935 2,112 1,689,459 38,25 TOTAL IOLA 3,449,935 2,112 1,689,459 38,25 GRAND TOTAL 1,193,515,75-253,982 83,146, ,987,651 44,818,83 1,335, ,935, ,285,87 24,93,793 61,79, ,838, ,76,654 1,611, ,671 1,611, ,671 1,522, ,72 1,522, ,72 671,972, , 745,397 TEXAS REGISTtRED ENGINEERING FIRM

29 DATA ON ESTIMATED PROVED RESERVES AS OF JUNE 3, 214 Field Reserve Category Lease Initial Initial working Gas Wet Gas Interest Interest Ultiate Reserves Ultiate Reserves (!L (!L_ (bbl} (Met) (Met) Liquids Reserves Suary by Lease Sales Gas Reserves (Met) DELHI DE~ELQPED PBQDUClt::IG DELHI UNIT PDP ,999,999 29,867,7 TOTAL DEVELOPED PRODUCING 36,999,999 29,867,7 UNDEVELOPED DELHI PAT , 636 DELHI PAT ,284, 1,284, DELHI PAT ,23, 2,23, DELHI PAT ,987, 1,987, DELHI PAT ,592, 1,592, DELHI PAT ,376, 2,376, DELHI PLANT ,838,222 39,838,222 TOTAL UNDEVELOPED 1,78, 1,78, 39,838,222 39,838,222 TOTAL DELHI 47,77,999 39,945,7 39,838,222 39,838,222 GIDDINGS DE~ELQPED PBQDUCll"lG MORGAN-KOVAR UNIT ,585 14, ,678 57,124 PHILIP DL 1H ,329 2,499 6,69, ,796 TOTAL DEVELOPED PRODUCING 467,914 35,127 6,822, ,92 TOTAL GIDDINGS 467,914 35,127 6,822, ,92 IOLA DEVELOPED PRODUCING SELECTED LANDS UNIT # ,891 58, ,15 TOTAL DEVELOPED PRODUCING 218,891 58, ,15 TOTALIOLA 218,891 58, ,15 GRAND TOTAL 47,764,84 4,38,272 47,226,997 4,778,142 7,798,428 7,798, , , , ,52 421,477 2,425,821 4,914,644 2,425,821 12,713,72 2,425,821 11,632 7,863 46,62 473,179 57, ,42 57, ,42 34,266 34,266 34,266 12,85,32 2,96,863 DEGOLYf,;_~ TEXAS REGISTERED ENGINEERING FIRM

30 DATA ON ESTIMATED REVENUE FROM PROVED RESERVES AS OF JUNE 3, 214 Field Reserve Category Lease Future & Ad Valore Operating Capital Abandonent Profits Expenses Costs Costs {$) {$) {$) {$) {$} {$) DELHI C!EVELQPEC! PBQC!UClfllG DELHI UNIT PDP 797,834,872 55,13,35 274,582,711 3,16,539 1,197,125 TOTAL DEVELOPED PRODUCING 797,834,872 55,13,35 274,582,711 3,16,539 1,197,125 UNDEVELOPED DELHI PAT8-4 17,226,382 1,712,4 8,255,482 2,141,657 DELHI PAT ,777,791 3,44,957 11,77,21 2,149,438 DELHI PAT ,669,376 5,781,794 19,268,36 12,21,675 DELHI PAT ,818,96 4,47,266 15,635,531 3,656,977 DELHI PAT ,12,13 3,53,879 14,1,81 3,771,91 DELHI PAT ,355,168 5,369,439 17,992,184 4,134,391 DELHI PLANT 113,785,22 3,316,727 25,754,461 13,647,225 TOTAL UNDEVELOPED 386,752,955 27,523,12 112,613,796 41,712,264 TOTAL DELHI 1, 184,587,827 82,536,47 387' 196,57 44,818,83 1,197,125 GIDDINGS C!EVELQPEC! PBQC!UCl~G MORGAN-KOVAR UNIT 1 1,281, ,982 93,414 68,12 5, PHILIP DL 1H 4,195, ,365 2,421,565 5, TOTAL DEVELOPED PRODUCING 5,477, ,982 49,779 3,11,685 1, TOTAL GIDDINGS 5,477, ,982 49,779 3,11,685 1, IOLA DEVELOPED PRODUCING SELECTED LANDS UNIT #2 1 3,449,935 2,112 1,689,459 38,25 TOTAL DEVELOPED PRODUCING 3,449,935 2,112 1,689,459 38,25 TOTAL IOLA 3,449,935 2,112 1,689,459 38,25 GRAND TOTAL 1, 193,515,75-253,982 83,146, ,987,651 44,818,83 1,335,375 Suary by Lease Future Present Worth At 1 O Percent {$) 463,935, ,285,87 463,935, ,285,87 5,117,23 951,636 17,516,375 4,581,16 22,48,871 1,915,2 3, ,87,718 21,816,269 6,988,55 36,859,154 11,75,483 71,66,789 26,471,28 24,93,793 61,79, ,838, ,76,654 23,93 16,97 1, ,574 1,611, ,671 1,611, ,671 1,522, ,72 1,522, ,72 1,522, ,72 671,972, , 7 45,397 TEXAS REGISTtRED ENGINEERING FIRM