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OIL COMPANY I1C
November 21 2008
TO ALL EMPIRE PARTNERS
Re Schiumberger Reserve Report
Empire Well Plaquemines Parish LA
Gentlemen
Virgin utilizes Schlumberger-Holditch Reservoir Engineers for third-party calculation of
its reserve estimates They have just completed their reserve estimates for our well at
Empire The summary pages are enclosed for your information
To assist you in estimating the value of your interest will show you calculation for1% ownership interest On the first page first column you will see Proved UndevelopedReserves with Future Net Income at $74518734 This is the estimated reserves wenow have behind-pipe in our well that we will be producing in the near future If you
multiply your percentage times the future net income you will get your estimated future
net income In my example of 1% 1% $74518734 $745187.34 The bottom rowof numbers show the future net income estimate discounted to
present valueat 10%
The1% would be $455116.41
Please be advised that this is only an estimate of the reserves based on the information
assessed at this time and the actual production may turn out to be significantly less
Ii OL_Robert
iith
Presiden1
ki
909 Poydras Street Suite 2200 New Orleans Louisiana 70112 504-52569O9 504-529-2362 Fax
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Data Consulting Seivices
Division of Schlumborger Technology Corporation
1515 Poydras Street Suite 2700
ScklumhergerNew Orleans LA 70112Tel 504-592-5200
November 20 2008
Virgin Oil Company Inc
909 Poydras Street Suite 2200
New Orleans Louisiana 70112
Attention Mr Tony Smith
Dear Mr Smith
At therequest of Virgin Oil Company Inc Virgin Data COnSulting Services Division ofSchiumberger Technology Corporation DCS has prepared res erve and economjc evaluation of oiland gas interests in the Empire Field owned by Virgin and its investors and located onshore inLouisiana The reserve and
economic evaluation was prepared as of August 2008 The results of ourevaluation are summarized in the tables below
ESTIMATED GROSS RESERVES INCOMECERTAIN OIL GAS INTERESTS
ONSHORE LOUISIANAEVALUATED FOR VIRGIN OIL COMPANY INC
AS OF AUGUST 2008
ProvedProbable
Undeveloped Proved Undeveloped ProbableAll
Reserves ReservesReserves Reserves ReservesGross Reserves
OilMBbls 996.841 996.841 6.365 6.365 1003.206Gas MMscf 5915.743 5915.743 937.739 937.739 6853.481
Net Reserves
Oil -MBbls 747.631 747.63 4.774 4.774 752.405GasMMscf 4436.807 4436.807 703.304 703.304 5J40.111
Income Data M$Future Net Revenue 83391.805 83391.805 5257.311 5257.311 88649.1 17Deductions
Operating
Expenses 1015.000 1015.000 90.000 90.000 1105.000Severance Taxes 7083.059 7083059 127.576 127.576 7210.634Investment 775.000 775.000 750.000 750.000 1525.000Abandonment 0.000 500.000 0.000 0.000 500.000
Future Net Income 74518.734 74018.734 4289.735 4289.735 78308.46
Discounted FNI 10% 45511.641 45391.945 954.741 972.984 46364.930
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Data Consulting SeMcos
Division of Schiumberger Technology Corporation
SchiumbergerNovember 20 2008
Page
The Gross Reserves in the above table are to 100%working interest in the lee No deductions havebeen made for royalties and overriding royalties The Net Reserves and all Income
data in the abovetables are t o th e net interests that Virgin provided Appropriate deductions have been made for royaltiesand overriding royalties
The values shown in the tables above are from the economic summaries in EXhibit of thereport Thosevalues may not add up arithmetically due to rounding procedures in the computer software
program usedto prepare the economic projections Exhibit contains summaries by reservescategory Exhibit alsocontains individual
property economics In those cases where the tables above or in the Exhibit includeProved Probable and Possiblereserves the reserves and income
attributable t o t he various reservecategories have not been adjusted to reflect the varying degrees of risk associated with them and t he y a renot comparable
RESERVE CATEGORIES
This report includes proved undeveloped and probable reserves as of August 2008 By definition oiland gas reserves belong to one of thefollowing categories proved probable or possible These
categories are further divided intoa pp ro pr ia te r es er ve status
categories developed andundevelopedThe devekped reserve category is even further divided into the
appropriate r es er ve s ta tu s subcategories producing and nonproducing Nonproducing reserves include shut-in andbehind-pipereserves
The reserve categories used in this report conform t o th e definitions Deterministic Method approvedby the Society of Petroleum Engineers Inc Board ofDirectors March 1997 The definitions ofproved probable and possible reserves are presented in Exhibit of this report
RESERVE ESTIMATES
The reserves that DCS estimated or audited were estimatedusing generally accepted petroleum
engineering practices These reserves estimated by performanceanalysis material balance andvolumetric calculations
Reserve estimates are strictly technical judgme nts Theaccuracy of any reserve estimate is function ofthe
quality of data available and of engineering and geological interpretation The reserve estimatesprepared by or audited by DCS and presented in this
report are believed reasonable however they areestimates only and should be acepted with theunderstanding that reservoir performance
subsequent tothe date of the estimate may justify their revision
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Data Consulting Services
Division of Schiumberger Technology Corporation
Schhinthorger
November20 2008
Page
PRICING AND ESCALATION PARAMETERS
All oil and gas product prices price differentials operating expenses capital Investments abandonmentcosts and escalation parameters were provided by Virgin prior to preparation of this
report The pricesdifferentials expenses investments abandonmentcosts and escalation parameters are listed below
gas price of $7.000 per MMscf was used for the life of the project Gasprices werenot escalated
Oil An oil price of $70.00 per Bbl was used for the life of the project Oil prices were notescalated
Monthly Lease Operating Expense Monthly lease operating Costs were based on estimatesmade by Virgin The lease operating costs were not escalated
Capital Investments The capital investments were based on estimates made by Virgin For
purposesof this
reportthe
capital investments for Drilling and Completing the well havebeen excluded The capital investments were not escalated
Abandonment Costs The abandonment costs were based on estimates made by Virgin Thecapital investments were not escalated
Severance Tax Louisiana Severance taxes were included
OWNERSHIP
The leasehold interests were provided by Virgin No attempt was made by the undersigned to verify thetitle or
ownershipevaluated
GENERAL
All data used i n t hi s study were obtained from Virgin the operator of the welt public industryinformation sources or the non-confidential files of DCS field inspection of the properties was notmade in connection with the
preparation of this report Abandonment costs were included in this reportbut other potential environmental liabilities a tt en da nt t o
ownership and/or operation of the propertieswere not included in this report
In evaluating the information at our disposal r ela te d t o this report we have excluded from ourconsideration all matters which require legal or
accounting interpretation or any interpretation otherthan those of an engineering or geological nature In assessing the conclusions expressed in this reportpertaining to all aspects of oil and gas evaluations especially pertaining to reserve evaluations t he re a reuncertainties inherent in the
interpretation of engineering data and such conclusionsrepresent only
informed professional judgments
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Data Consulting Services
Division of Schiumberger Technology Corporation
Schlumberger
November 20 2008
Page
Data and worksheets used in thepreparation of this evaluation will be maintained in our files in NewOrleans and will be available for inspection by anyone having proper authorization by Virgin
This report was prepared solely for the use of theparty to whom it is addressed and
any disclosure made
bysaid
partyof this
report and/or the contents thereofshafl be solely theresponsibility of said party andshall in no way constitute any representation of any kind whatsoever of the
Undersigned with respect tothe matters being addressed
Should you need further assistance in this matter please contact the following DCSemployee who cananswer your questions
James HubbardPrincipal Petroleum Engineer New Orleans
We appreciate the opportunity to serve you and look forward to doing business with you in the future
Verytruly yours
DATA CONSULTING SERVICESDIVISION OF SCHLUMBERGERTECHNOLOGy CORPORATION
James Hubbard P.13
Principal Petroleum Engineer
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Virgin Oil
Well Hookup
State Lease 18165
Empire
Est Start Date____________
Est Comp Date 2nd Qtr 2009
Description
Mobilization Costs
Transportation
Communications Permanent Temporary
Permitting Regulatory
Inspection Costs
Construction Servits
Engineering Consulting Services
Shallow Hazard Site Survey
Insurance Bonds
lE Instrumentation/Electrical/SCADA
Construction Overhead
lntanaibles total
Total
7000
1900
250
4250
21000
96000
15900
9000
25600
6000
8000
194900
Estimated Tangibles Expenses
Description
Site Preparation
Surface Production Equipment
SCADA Electrical Equipment
Gulf South Meter Station
ATMOS Energy Flowline Hot Tap
Pipe/Pipe Support/Fittings/ValvesHook-Up
Supplies Chemicals
Pipeline Labor Materials
Gas Sales Hot tap and meter skid
Total
93000
205200
42000
66000
35000
50000
7500
6000
35000
539700
Estimated Construction Days
Prepared By Earl Landrv
25
SI
Date 19-Jan-09
Project
Location
Field
AFE
Estimated Intangibles Expenses
Tangibles total
Contingencies 20% 146900
Grand Total 881500
Reviewed By Brennan Disher
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II
October 28 2008
MEMO TO PARTNERS
Re Virgin Offshore USA Inc S.L 18165 Sidetrack Empire ProspectPlaquemines Parish Louisiana
Ladies and Gentlemen
The following is brief summary of the results obtained in the drilling of the above
referenced well have tried to provide daily updates throughout last week as weencountered the objective Sands have attached an annotated LWD 100 true
vertical depth log over these objective Sands Each of objective sands came in as
mapped expected and are productive with the exception of the Sand which showedresidual
gas saturations probabjy as result of cross fault drainage
The subject well reached its planned total depth of 11860 MD 9537 TVD October22 2008 5/8 production casing has been successfully run to total depth and cemented
in place We are currently laying down drill pipe and will release the drilling rig over the
course of the next few days completion procedure is currently being planned
designed and will be implemented with work-over completion rig much more costeffective and efficient method Current plans are to dually complete the well i.e two
tubing strings in the well bore with primary completion in each string producing
simultaneously andselective
completionin
each string which allows for immediateproduction of an up-hole zone immediately upon the depletion of the primary completion
Once this procedure has been finalized and costs estimated we will immediately forward
same to you Included in these costs will be the installation of production facility
including tank battery for the storing of oil and gas line less than 100 yards to our
gas market Obviously we intend to expedite the completion first production of the
well Our goal is to have the well on-line within 90 days
As stated above we intend to dually complete the well to maximize cash flow and
expedite depletion of the reserves t o a id the present worth profiles on the reserves While
more costly on the front-end it is tremendous boost to economics My current thoughtson this dual are as follows
Long String
Primary Completion K-6 Sand Estimated rate .75MMCFGD 25BCPDSelective Completion K-5 Sand Lwr Estimated rate .75MMCFGD 75BCPD
Short String
Primary Completion K-5 Sand Upr Estimated rate 25OBOPDSelective Completion K-2B Sand Estimated rate 25OBOPD
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Consequently our initial rate would be estimated to be .75MMCFGD 375B0PD At currentpricing and after lease operating expenses initial monthly net cash flow from the well is estimated tobe $750000.00 This would provide an extraordinary rate of return on Our investment Please keepin mind that these rates are my estimates and are subject to change upward or downward as we testthe zones do believe them to be reasonable estimates based on my knowledge of the offset
productionin the Empire Field and interpretation of the well logs Upon depletion of the Primary
and Selective Completions in both strings the well would be worked-over to capture reserves in the
K-2A and possible reserves in the K-i Sand
My current estimates of reserves are as followsProved 3.5 BCFG 500 MBO
Possible 1.0 BCFG 400 MBO
The Proved reserves would yield estimated future net revenue under current pricing of
approximately $3 8MM undiscounted and before lease operating expenses These future revenueswould provide nice multiple on the investment Obviously the reservoir engineers will have the
final say on reserves but feel these estimates are reasonable
Sincerely
Charlie Roberts
Exploration Manager
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