Exhibit 99.5
LAREDO PETROLEUM, INC.
SUMMARY REPORT
Estimated
Future Reserves and Income
Attributable to Certain
Leasehold and Royalty Interests
SEC Parameters
As of
December 31, 2019
| |
\s\ Val Rick Robinson |
|
| Val Rick Robinson, P.E. |
| TBPE License No. 105137 |
| Managing Senior Vice President |
[SEAL]
RYDER SCOTT COMPANY, L.P.
TBPE Firm Registration No. F-1580
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
 |
 |
|
|
| TBPE REGISTERED ENGINEERING FIRM F-1580 |
|
FAX (713) 651-0849 |
| 1100 LOUISIANA SUITE 4600 |
HOUSTON, TEXAS 77002-5294 |
TELEPHONE (713) 651-9191 |
January 3, 2020
Laredo Petroleum, Inc.
15 West 6th Street, Suite 900
Tulsa, Oklahoma 74119
Ladies and Gentlemen:
At your request, Ryder
Scott Company, L.P. (Ryder Scott) has prepared an estimate of the proved reserves, future production, and income attributable to
certain leasehold and royalty interests of Laredo Petroleum, Inc. (Laredo) as of December 31, 2019. The subject properties are
located in the state of Texas. The reserves and income data were estimated based on the definitions and disclosure guidelines of
the United States Securities and Exchange Commission (SEC) contained in Title 17, Code of Federal Regulations, Modernization of
Oil and Gas Reporting, Final Rule released January 14, 2009 in the Federal Register (SEC regulations). Our third party study, completed
on December 30, 2019 and presented herein, was prepared for public disclosure by Laredo in filings made with the SEC in accordance
with the disclosure requirements set forth in the SEC regulations.
The properties evaluated
by Ryder Scott represent 100 percent of the total net proved liquid hydrocarbon reserves and 100 percent of the total net proved
gas reserves of Laredo as of December 31, 2019.
The estimated reserves
and future net income amounts presented in this report, as of December 31, 2019 are related to hydrocarbon prices. The hydrocarbon
prices used in the preparation of this report are based on the average prices during the 12-month period prior to the “as
of date” of this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month
for each month within such period, unless prices were defined by contractual arrangements, as required by the SEC regulations.
Actual future prices may vary considerably from the prices required by SEC regulations. The recoverable reserves volumes and the
income attributable thereto have a direct relationship to the hydrocarbon prices actually received; therefore, volumes of reserves
actually recovered and the amounts of income actually received may differ significantly from the estimated quantities presented
in this report. The results of this study are summarized as follows.
| SUITE 800, 350 7TH AVENUE, S.W. |
CALGARY, ALBERTA T2P 3N9 |
TEL (403) 262-2799 |
FAX (403) 262-2790 |
| 633 17TH STREET, SUITE 1700 |
DENVER, COLORADO 80202 |
TEL (303) 339-8110 |
|
Laredo Petroleum, Inc.
January 3, 2020
Page 2
SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold and Royalty Interests
of
Laredo Petroleum, Inc.
| | |
Proved | |
| | |
Developed | | |
| | |
Total | |
| | |
Producing | | |
Undeveloped | | |
Proved | |
| Net Reserves | |
| | | |
| | | |
| | |
| Oil/Condensate – MBBL | |
| 52,711 | | |
| 25,928 | | |
| 78,639 | |
| Plant Products – MBBL | |
| 90,861 | | |
| 11,337 | | |
| 102,198 | |
| Gas – MMCF | |
| 600,334 | | |
| 74,903 | | |
| 675,237 | |
| MBOE | |
| 243,628 | | |
| 49,749 | | |
| 293,377 | |
| | |
| | | |
| | | |
| | |
| Income Data (M$) | |
| | | |
| | | |
| | |
| Future Gross Revenue | |
$ | 3,951,385 | | |
$ | 1,455,170 | | |
$ | 5,406,555 | |
| Deductions | |
| 1,472,897 | | |
| 841,649 | | |
| 2,314,546 | |
| Future Net Income (FNI) | |
$ | 2,478,488 | | |
$ | 613,521 | | |
$ | 3,092,009 | |
| | |
| | | |
| | | |
| | |
| Discounted FNI @ 10% | |
$ | 1,402,024 | | |
$ | 270,248 | | |
$ | 1,672,272 | |
Liquid hydrocarbons
are expressed in standard 42 U.S. gallon barrels and shown herein as thousands of barrels (MBBL). All gas volumes are reported
on an “as sold basis” expressed in millions of cubic feet (MMCF) at the official temperature and pressure bases of
the areas in which the gas reserves are located. The net reserves are also shown herein on an equivalent unit basis wherein natural
gas is converted to oil equivalent using a factor of 6,000 cubic feet of natural gas per one barrel of oil equivalent. MBOE means
thousand barrels of oil equivalent. In this report, the revenues, deductions, and income data are expressed as thousands of U.S.
dollars (M$).
The estimates of the
reserves, future production, and income attributable to properties in this report were prepared using the economic software package
ARIESTM Petroleum Economics and Reserves Software, a copyrighted program of Halliburton. The program was used at the
request of Laredo. Ryder Scott has found this program to be generally acceptable, but notes that certain summaries and calculations
may vary due to rounding and may not exactly match the sum of the properties being summarized. Furthermore, one line economic summaries
may vary slightly from the more detailed cash flow projections of the same properties, also due to rounding. The rounding differences
are not material.
The future gross revenue
is after the deduction of production taxes. The deductions incorporate the normal direct costs of operating the wells, ad valorem
taxes, recompletion costs, development costs, and certain abandonment costs net of salvage. Other costs include variable costs
associated with transportation and processing fees. The future net income is before the deduction of state and federal income taxes
and general administrative overhead, and has not been adjusted for outstanding loans that may exist nor does it include any adjustment
for cash on hand or undistributed income.
Liquid hydrocarbon
reserves account for approximately 94 percent and gas reserves account for the remaining 6 percent of total future gross revenue
from proved reserves.
The discounted future
net income shown above was calculated using a discount rate of 10 percent per annum compounded monthly. Future net income was discounted
at four other discount rates which were also compounded monthly. These results are shown in summary form as follows.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Laredo Petroleum, Inc.
January 3, 2020
Page 3
| | | |
Discounted Future Net Income (M$) | |
| | | |
As of December 31, 2019 | |
| Discount Rate | | |
Total | |
| Percent | | |
Proved | |
| 5 | | |
$ | 2,166,734 | |
| 9 | | |
$ | 1,751,574 | |
| 15 | | |
$ | 1,366,546 | |
| 20 | | |
$ | 1,158,291 | |
The results shown above
are presented for your information and should not be construed as our estimate of fair market value.
Reserves Included in This Report
The proved reserves
included herein conform to the definition as set forth in the Securities and Exchange Commission’s Regulations Part 210.4-10(a).
An abridged version of the SEC reserves definitions from 210.4-10(a) entitled “PETROLEUM RESERVES DEFINITIONS” is included
as an attachment to this report.
The various reserves
status categories are defined in the attachment entitled “PETROLEUM RESERVES STATUS DEFINITIONS AND GUIDELINES” in
this report.
No attempt was made
to quantify or otherwise account for any accumulated gas production imbalances that may exist. The proved gas volumes presented
herein do not include volumes of gas consumed in operations as reserves.
Reserves are “estimated
remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application
of development projects to known accumulations.” All reserves estimates involve an assessment of the uncertainty relating
the likelihood that the actual remaining quantities recovered will be greater or less than the estimated quantities determined
as of the date the estimate is made. The uncertainty depends chiefly on the amount of reliable geologic and engineering data available
at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing
reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered
than proved reserves and may be further sub-categorized as probable and possible reserves to denote progressively increasing uncertainty
in their recoverability. At Laredo’s request, this report addresses only the proved reserves attributable to the properties
evaluated herein.
Proved oil and gas
reserves are “those quantities of oil and gas which, by analysis of geoscience and engineering data, can be estimated with
reasonable certainty to be economically producible from a given date forward.” The proved reserves included herein were estimated
using deterministic methods. The SEC has defined reasonable certainty for proved reserves, when based on deterministic methods,
as a “high degree of confidence that the quantities will be recovered.”
Proved reserves estimates
will generally be revised only as additional geologic or engineering data become available or as economic conditions change. For
proved reserves, the SEC states that “as changes due to increased availability of geoscience (geological, geophysical, and
geochemical), engineering, and economic data are made to the estimated ultimate recovery (EUR) with time, reasonably certain EUR
is much more likely to increase or remain constant than to decrease.” Moreover, estimates of proved reserves may be revised
as a result of future operations, effects of regulation by governmental agencies or geopolitical or economic risks. Therefore,
the proved reserves included in this report are estimates only and should not be construed as being exact quantities, and if recovered,
the revenues therefrom, and the actual costs related thereto, could be more or less than the estimated amounts.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Laredo Petroleum, Inc.
January 3, 2020
Page 4
Laredo’s operations
may be subject to various levels of governmental controls and regulations. These controls and regulations may include, but may
not be limited to, matters relating to land tenure and leasing, the legal rights to produce hydrocarbons, drilling and production
practices, environmental protection, marketing and pricing policies, royalties, various taxes and levies including income tax,
and are subject to change from time to time. Such changes in governmental regulations and policies may cause volumes of proved
reserves actually recovered and amounts of proved income actually received to differ significantly from the estimated quantities.
The estimates of proved
reserves presented herein were based upon a detailed study of the properties in which Laredo owns an interest; however, we have
not made any field examination of the properties. No consideration was given in this report to potential environmental liabilities
that may exist nor were any costs included for potential liabilities to restore and clean up damages, if any, caused by past operating
practices.
Estimates of Reserves
The estimation of reserves
involves two distinct determinations. The first determination results in the estimation of the quantities of recoverable oil and
gas and the second determination results in the estimation of the uncertainty associated with those estimated quantities in accordance
with the definitions set forth by the Securities and Exchange Commission’s Regulations Part 210.4-10(a). The process of estimating
the quantities of recoverable oil and gas reserves relies on the use of certain generally accepted analytical procedures. These
analytical procedures fall into three broad categories or methods: (1) performance-based methods, (2) volumetric-based methods
and (3) analogy. These methods may be used individually or in combination by the reserves evaluator in the process of estimating
the quantities of reserves. Reserves evaluators must select the method or combination of methods which in their professional judgment
is most appropriate given the nature and amount of reliable geoscience and engineering data available at the time of the estimate,
the established or anticipated performance characteristics of the reservoir being evaluated, and the stage of development or producing
maturity of the property.
In many cases, the
analysis of the available geoscience and engineering data and the subsequent interpretation of this data may indicate a range of
possible outcomes in an estimate, irrespective of the method selected by the evaluator. When a range in the quantity of reserves
is identified, the evaluator must determine the uncertainty associated with the incremental quantities of the reserves. If the
reserves quantities are estimated using the deterministic incremental approach, the uncertainty for each discrete incremental quantity
of the reserves is addressed by the reserves category assigned by the evaluator. Therefore, it is the categorization of reserves
quantities as proved, probable and/or possible that addresses the inherent uncertainty in the estimated quantities reported. For
proved reserves, uncertainty is defined by the SEC as reasonable certainty wherein the “quantities actually recovered are
much more likely to be achieved than not.” The SEC states that “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.”
The SEC states that “possible reserves are those additional reserves that are less certain to be recovered than probable
reserves and the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable
plus possible reserves.” All quantities of reserves within the same reserves category must meet the SEC definitions as noted
above.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Laredo Petroleum, Inc.
January 3, 2020
Page 5
Estimates of reserves
quantities and their associated reserves categories may be revised in the future as additional geoscience or engineering data become
available. Furthermore, estimates of reserves quantities and their associated reserves categories may also be revised due to other
factors such as changes in economic conditions, results of future operations, effects of regulation by governmental agencies or
geopolitical or economic risks as previously noted herein.
The proved reserves
for the properties included herein were estimated by performance methods, analogy, or a combination of methods. Approximately 94
percent of the proved producing reserves attributable to producing wells and/or reservoirs were estimated by performance methods
or a combination of methods. These performance methods include, but may not be limited to, decline curve analysis which utilized
extrapolations of historical production and pressure data available through December 2019 in those cases where such data were considered
to be definitive. The data utilized in this analysis were furnished to Ryder Scott by Laredo or obtained from public data sources
and were considered sufficient for the purpose thereof. The remaining 6 percent of the proved producing reserves were estimated
by analogy, or a combination of methods. These methods were used where there were inadequate historical performance data to establish
a definitive trend and where the use of production performance data as a basis for the reserves estimates was considered to be
inappropriate.
All of the proved undeveloped
reserves included herein were estimated by analogy, or a combination of methods. The data utilized from the analogues were considered
sufficient for the purpose thereof.
To estimate economically
recoverable proved oil and gas reserves and related future net cash flows, we consider many factors and assumptions including,
but not limited to, the use of reservoir parameters derived from geological, geophysical and engineering data which cannot be measured
directly, economic criteria based on current costs and SEC pricing requirements, and forecasts of future production rates. Under
the SEC regulations 210.4-10(a)(22)(v) and (26), proved reserves must be anticipated to be economically producible from a given
date forward based on existing economic conditions including the prices and costs at which economic producibility from a reservoir
is to be determined. While it may reasonably be anticipated that the future prices received for the sale of production and the
operating costs and other costs relating to such production may increase or decrease from those under existing economic conditions,
such changes were, in accordance with rules adopted by the SEC, omitted from consideration in making this evaluation.
Laredo has informed
us that they have furnished us all of the material accounts, records, geological and engineering data, and reports and other data
required for this investigation. In preparing our forecast of future proved production and income, we have relied upon data furnished
by Laredo with respect to property interests owned, production and well tests from examined wells, normal direct costs of operating
the wells or leases, other costs such as transportation and/or processing fees, ad valorem and production taxes, recompletion and
development costs, development plans, abandonment costs after salvage, product prices based on the SEC regulations, adjustments
or differentials to product prices, geological structural and isochore maps, well logs, core analyses, and pressure measurements.
Ryder Scott reviewed such factual data for its reasonableness; however, we have not conducted an independent verification of the
data furnished by Laredo. We consider the factual data used in this report appropriate and sufficient for the purpose of preparing
the estimates of reserves and future net revenues herein.
In summary, we consider
the assumptions, data, methods and analytical procedures used in this report appropriate for the purpose hereof, and we have used
all such methods and procedures that we consider necessary and appropriate to prepare the estimates of reserves herein. The proved
reserves included herein were determined in conformance with the United States Securities and Exchange Commission (SEC) Modernization
of Oil and Gas Reporting; Final Rule, including all references to Regulation S-X and Regulation S-K, referred to herein collectively
as the “SEC Regulations.” In our opinion, the proved reserves presented in this report comply with the definitions,
guidelines and disclosure requirements as required by the SEC regulations.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Laredo Petroleum, Inc.
January 3, 2020
Page 6
Future Production Rates
For wells currently
on production, our forecasts of future production rates are based on historical performance data. If no production decline trend
has been established, future production rates were held constant, or adjusted for the effects of curtailment where appropriate,
until a decline in ability to produce was anticipated. An estimated rate of decline was then applied until depletion of the reserves.
If a decline trend has been established, this trend was used as the basis for estimating future production rates.
Test data and other
related information were used to estimate the anticipated initial production rates for those locations that are not currently producing.
For reserves not yet on production, sales were estimated to commence at an anticipated date furnished by Laredo. Locations that
are not currently producing may start producing earlier or later than anticipated in our estimates due to unforeseen factors causing
a change in the timing to initiate production. Such factors may include delays due to weather, the availability of rigs, the sequence
of drilling, completing and/or recompleting wells and/or constraints set by regulatory bodies.
The future production
rates from wells currently on production or locations that are not currently producing may be more or less than estimated because
of changes including, but not limited to, reservoir performance, operating conditions related to surface facilities, compression
and artificial lift, pipeline capacity and/or operating conditions, producing market demand and/or allowables or other constraints
set by regulatory bodies.
Hydrocarbon Prices
The hydrocarbon prices
used herein are based on SEC price parameters using the average prices during the 12-month period prior to the “as of date”
of this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each
month within such period, unless prices were defined by contractual arrangements. For hydrocarbon products sold under contract,
the contract prices, including fixed and determinable escalations, exclusive of inflation adjustments, were used until expiration
of the contract. Upon contract expiration, the prices were adjusted to the 12-month unweighted arithmetic average as previously
described.
Laredo furnished us
with the above mentioned average prices in effect on December 31, 2019. These initial SEC hydrocarbon prices were determined using
the 12-month average first-day-of-the-month benchmark prices appropriate to the geographic area where the hydrocarbons are sold.
These benchmark prices are prior to the adjustments for differentials as described herein. The table below summarizes the “benchmark
prices” and “price reference” used for the geographic area included in the report. In certain geographic areas,
the price reference and benchmark prices may be defined by contractual arrangements.
The product prices
which were actually used to determine the future gross revenue for each property reflect adjustments to the benchmark prices for
gravity, quality, local conditions, and/or distance from market, referred to herein as “differentials.” The differentials
used in the preparation of this report were furnished to us by Laredo.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Laredo Petroleum, Inc.
January 3, 2020
Page 7
In addition, the table
below summarizes the net volume weighted benchmark prices adjusted for differentials and referred to herein as the “average
realized prices.” The average realized prices shown in the table below were determined from the total future gross revenue
before production taxes and the total net reserves for the geographic area and presented in accordance with SEC disclosure requirements
for the geographic area included in the report.
| Geographic Area |
Product |
Price
Reference |
Average
Benchmark
Prices |
Average
Realized
Prices |
| North America |
|
|
|
|
| |
Oil/Condensate |
WTI Plains Pipeline |
$52.19/BBL |
$52.12/BBL |
| United States |
NGLs |
OPIS Composite(1) |
$21.14/BBL |
$12.21/BBL |
| |
Gas |
El Paso Permian |
$0.87/MMBTU |
$0.53/MCF |
| (1) | Price reflects composition of ethane, propane, butane, and pentane |
The effects of derivative
instruments designated as price hedges of oil and gas quantities are not reflected in our individual property evaluations.
Costs
Operating costs for
the leases and wells in this report were furnished by Laredo and are based on the operating expense reports of Laredo and include
only those costs directly applicable to the leases or wells. The operating costs include a portion of general and administrative
costs allocated directly to the leases and wells. For operated properties, the operating costs include an appropriate level of
corporate general administrative and overhead costs. The operating costs for non-operated properties include the COPAS overhead
costs that are allocated directly to the leases and wells under terms of operating agreements. The operating costs furnished to
us were accepted as factual data and reviewed by us for their reasonableness; however, we have not conducted an independent verification
of the operating cost data used by Laredo. No deduction was made for loan repayments, interest expenses, or exploration and development
prepayments that were not charged directly to the leases or wells.
Development costs were
furnished to us by Laredo and are based on authorizations for expenditure for the proposed work or actual costs for similar projects.
The development costs furnished to us were accepted as factual data and reviewed by us for their reasonableness; however, we have
not conducted an independent verification of these costs. The estimated net cost of abandonment after salvage was included for
properties where abandonment costs net of salvage were material. The estimates of the net abandonment costs furnished by Laredo
were accepted without independent verification.
The proved undeveloped
reserves in this report have been incorporated herein in accordance with Laredo’s plans to develop these reserves as of December
31, 2019. The implementation of Laredo’s development plans as presented to us and incorporated herein is subject to the approval
process adopted by Laredo’s management. As the result of our inquiries during the course of preparing this report, Laredo
has informed us that the development activities included herein have been subjected to and received the internal approvals required
by Laredo’s management at the appropriate local, regional and/or corporate level. In addition to the internal approvals as
noted, certain development activities may still be subject to specific partner AFE processes, Joint Operating Agreement (JOA) requirements
or other administrative approvals external to Laredo. Laredo has provided written documentation supporting their commitment to
proceed with the development activities as presented to us. Additionally, Laredo has informed us that they are not aware
of any legal, regulatory, or political obstacles that would significantly alter their plans. While these plans could change from
those under existing economic conditions as of December 31, 2019, such changes were, in accordance with rules adopted by the SEC,
omitted from consideration in making this evaluation.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Laredo Petroleum, Inc.
January 3, 2020
Page 8
Current costs used
by Laredo were held constant throughout the life of the properties.
Standards of Independence and Professional
Qualification
Ryder Scott is an independent
petroleum engineering consulting firm that has been providing petroleum consulting services throughout the world since 1937. Ryder
Scott is employee-owned and maintains offices in Houston, Texas; Denver, Colorado; and Calgary, Alberta, Canada. We have approximately
eighty engineers and geoscientists on our permanent staff. By virtue of the size of our firm and the large number of clients for
which we provide services, no single client or job represents a material portion of our annual revenue. We do not serve as officers
or directors of any privately-owned or publicly-traded oil and gas company and are separate and independent from the operating
and investment decision-making process of our clients. This allows us to bring the highest level of independence and objectivity
to each engagement for our services.
Ryder Scott actively
participates in industry-related professional societies and organizes an annual public forum focused on the subject of reserves
evaluations and SEC regulations. Many of our staff have authored or co-authored technical papers on the subject of reserves related
topics. We encourage our staff to maintain and enhance their professional skills by actively participating in ongoing continuing
education.
Prior to becoming an
officer of the Company, Ryder Scott requires that staff engineers and geoscientists have received professional accreditation in
the form of a registered or certified professional engineer’s license or a registered or certified professional geoscientist’s
license, or the equivalent thereof, from an appropriate governmental authority or a recognized self-regulating professional organization.
Regulating agencies require that, in order to maintain active status, a certain amount of continuing education hours be completed
annually, including an hour of ethics training. Ryder Scott fully supports this technical and ethics training with our internal
requirement mentioned above.
We are independent
petroleum engineers with respect to Laredo. Neither we nor any of our employees have any financial interest in the subject properties
and neither the employment to do this work nor the compensation is contingent on our estimates of reserves for the properties which
were reviewed.
The results of this
study, presented herein, are based on technical analysis conducted by teams of geoscientists and engineers from Ryder Scott. The
professional qualifications of the undersigned, the technical person primarily responsible for overseeing the evaluation of the
reserves information discussed in this report, are included as an attachment to this letter.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Laredo Petroleum, Inc.
January 3, 2020
Page 9
Terms
of Usage
The results of our
third party study, presented in report form herein, were prepared in accordance with the disclosure requirements set forth in the
SEC regulations and intended for public disclosure as an exhibit in filings made with the SEC by Laredo.
Laredo makes periodic
filings on Form 10-K with the SEC under the 1934 Exchange Act. Furthermore, Laredo has certain registration statements filed with
the SEC under the 1933 Securities Act into which any subsequently filed Form 10-K is incorporated by reference. We have consented
to the incorporation by reference in the registration statements on Form S-3 and Form S-8 of Laredo, of the references to our name,
as well as to the references to our third party report for Laredo, which appears in the December 31, 2019 annual report on Form
10-K of Laredo. Our written consent for such use is included as a separate exhibit to the filings made with the SEC by Laredo.
We have provided Laredo
with a digital version of the original signed copy of this report letter. In the event there are any differences between the digital
version included in filings made by Laredo and the original signed report letter, the original signed report letter shall control
and supersede the digital version.
The data and work papers
used in the preparation of this report are available for examination by authorized parties in our offices. Please contact us if
we can be of further service.
| |
Very truly yours, |
| |
|
| |
RYDER SCOTT COMPANY, L.P. |
| |
TBPE Firm Registration No.
F-1580 |
| |
|
| |
|
| |
\s\ Val Rick Robinson |
| |
|
| |
Val Rick Robinson, P.E. |
| |
TBPE License No. 105137 |
| |
Managing Senior Vice President |
[SEAL]
VRR (FWZ)/pl
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Professional Qualifications of Primary
Technical Engineer
The conclusions presented in this report
are the result of technical analysis conducted by teams of geoscientists and engineers from Ryder Scott Company, L.P. Mr. Val Rick
Robinson was the primary technical person responsible for the estimate of the reserves, future production and income presented
herein.
Mr. Robinson,
an employee of Ryder Scott Company, L.P. (Ryder Scott) since 2006, is a Managing Senior Vice President responsible for coordinating
and supervising staff and consulting engineers of the company in ongoing reservoir evaluation studies worldwide. Before joining
Ryder Scott, Mr. Robinson served in a number of engineering positions with ExxonMobil Corporation. For more information regarding
Mr. Robinson’s geographic and job specific experience, please refer to the Ryder Scott Company website at www.ryderscott.com.
Mr. Robinson earned a Bachelor of Science
degree in Chemical Engineering from Brigham Young University in 2003 and is a licensed Professional Engineer in the State of Texas.
He is also a member of the Society of Petroleum Engineers.
In addition to gaining experience and competency
through prior work experience, the Texas Board of Professional Engineers requires a minimum of fifteen hours of continuing education
annually, including at least one hour in the area of professional ethics, which Mr. Robinson fulfills. As part of his 2019 continuing
education hours, Mr. Robinson attended 32 hours of formalized training including the 2019 RSC Reserves Conference and various professional
society presentations covering such topics as the definitions and disclosure guidelines contained in the United States Securities
and Exchange Commission Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January
14, 2009 in the Federal Register, the SPE/WPC/AAPG/SPEE Petroleum Resources Management System, reservoir engineering, overviews
of the various productive basins of North America, computer software, and professional ethics.
Based on his educational background, professional
training and more than 16 years of practical experience in the estimation and evaluation of petroleum reserves, Mr. Robinson has
attained the professional qualifications as a Reserves Estimator set forth in Article III of the “Standards Pertaining to
the Estimating and Auditing of Oil and Gas Reserves Information” promulgated by the Society of Petroleum Engineers as of
February 19, 2007.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES DEFINITIONS
As Adapted From:
RULE 4-10(a) of REGULATION S-X PART 210
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION (SEC)
PREAMBLE
On January 14, 2009,
the United States Securities and Exchange Commission (SEC) published the “Modernization of Oil and Gas Reporting; Final Rule”
in the Federal Register of National Archives and Records Administration (NARA). The “Modernization of Oil and Gas Reporting;
Final Rule” includes revisions and additions to the definition section in Rule 4-10 of Regulation S-X, revisions and additions
to the oil and gas reporting requirements in Regulation S-K, and amends and codifies Industry Guide 2 in Regulation S-K. The “Modernization
of Oil and Gas Reporting; Final Rule”, including all references to Regulation S-X and Regulation S-K, shall be referred to
herein collectively as the “SEC regulations”. The SEC regulations take effect for all filings made with the United
States Securities and Exchange Commission as of December 31, 2009, or after January 1, 2010. Reference should be made to the full
text under Title 17, Code of Federal Regulations, Regulation S-X Part 210, Rule 4-10(a) for the complete definitions (direct passages
excerpted in part or wholly from the aforementioned SEC document are denoted in italics herein).
Reserves are estimated
remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application
of development projects to known accumulations. All reserve estimates involve an assessment of the uncertainty relating the
likelihood that the actual remaining quantities recovered will be greater or less than the estimated quantities determined as of
the date the estimate is made. The uncertainty depends chiefly on the amount of reliable geologic and engineering data available
at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing
reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered
than proved reserves and may be further sub-classified as probable and possible reserves to denote progressively increasing uncertainty
in their recoverability. Under the SEC regulations as of December 31, 2009, or after January 1, 2010, a company may optionally
disclose estimated quantities of probable or possible oil and gas reserves in documents publicly filed with the SEC. The SEC regulations
continue to prohibit disclosure of estimates of oil and gas resources other than reserves and any estimated values of such resources
in any document publicly filed with the SEC unless such information is required to be disclosed in the document by foreign or state
law as noted in §229.1202 Instruction to Item 1202.
Reserves estimates
will generally be revised only as additional geologic or engineering data become available or as economic conditions change.
Reserves may be attributed
to either natural energy or improved recovery methods. Improved recovery methods include all methods for supplementing natural
energy or altering natural forces in the reservoir to increase ultimate recovery. Examples of such methods are pressure maintenance,
natural gas cycling, waterflooding, thermal methods, chemical flooding, and the use of miscible and immiscible displacement fluids.
Other improved recovery methods may be developed in the future as petroleum technology continues to evolve.
Reserves may be attributed
to either conventional or unconventional petroleum accumulations. Petroleum accumulations are considered as either conventional
or unconventional based on the nature of their in-place characteristics, extraction method applied, or degree of processing prior
to sale. Examples of unconventional petroleum accumulations include coalbed or coalseam methane (CBM/CSM), basin-centered gas,
shale gas, gas hydrates, natural bitumen and oil shale deposits. These unconventional accumulations may require specialized extraction
technology and/or significant processing prior to sale.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES DEFINITIONS
Page 2
Reserves do not include
quantities of petroleum being held in inventory.
Because of the differences
in uncertainty, caution should be exercised when aggregating quantities of petroleum from different reserves categories.
RESERVES (SEC DEFINITIONS)
Securities and Exchange
Commission Regulation S-X §210.4-10(a)(26) defines reserves as follows:
Reserves. Reserves are
estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date,
by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation
that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and
gas or related substances to market, and all permits and financing required to implement the project.
Note to paragraph (a)(26): Reserves
should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated
and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation
by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir, or negative test results). Such areas
may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).
PROVED RESERVES (SEC DEFINITIONS)
Securities and Exchange
Commission Regulation S-X §210.4-10(a)(22) defines proved oil and gas reserves 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 estimated
with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing
economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right
to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic
methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably
certain that it will commence the project within a reasonable time.
(i) The area of the reservoir
considered as proved includes:
(A) The area identified by drilling
and limited 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 economically producible
oil or gas on the basis of available geoscience and engineering data.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES DEFINITIONS
Page 3
(ii) In the absence of data
on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration
unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.
(iii) Where direct observation
from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved
oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance
data and reliable technology establish the higher contact with reasonable certainty.
(iv) Reserves which can be
produced economically through application of improved recovery techniques (including, but not limited 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 more favorable than in the reservoir as a whole, the operation of
an installed program 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 program was based; and
(B) The project has been approved
for development by all necessary parties and entities, including governmental entities.
(v) Existing economic conditions
include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price
during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic
average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements,
excluding escalations based upon future conditions.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES STATUS DEFINITIONS
AND GUIDELINES
As Adapted From:
RULE 4-10(a) of REGULATION S-X PART 210
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION (SEC)
and
2018 PETROLEUM RESOURCES MANAGEMENT
SYSTEM (SPE-PRMS)
Sponsored and Approved by:
SOCIETY OF PETROLEUM ENGINEERS (SPE)
WORLD PETROLEUM COUNCIL (WPC)
AMERICAN ASSOCIATION OF PETROLEUM GEOLOGISTS
(AAPG)
SOCIETY OF PETROLEUM EVALUATION ENGINEERS
(SPEE)
SOCIETY OF EXPLORATION GEOPHYSICISTS
(SEG)
SOCIETY OF PETROPHYSICISTS AND WELL
LOG ANALYSTS (SPWLA)
EUROPEAN ASSOCIATION OF GEOSCIENTISTS
& ENGINEERS (EAGE)
Reserves status categories
define the development and producing status of wells and reservoirs. Reference should be made to Title 17, Code of Federal Regulations,
Regulation S-X Part 210, Rule 4-10(a) and the SPE-PRMS as the following reserves status definitions are based on excerpts from
the original documents (direct passages excerpted from the aforementioned SEC and SPE-PRMS documents are denoted in italics herein).
DEVELOPED RESERVES (SEC DEFINITIONS)
Securities and Exchange
Commission Regulation S-X §210.4-10(a)(6) defines developed oil and gas reserves as follows:
Developed oil and gas reserves
are reserves of any category that can be expected to be recovered:
(i) Through existing wells with
existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost
of a new well; and
(ii) Through
installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means
not involving a well.
Developed Producing (SPE-PRMS Definitions)
While not a requirement
for disclosure under the SEC regulations, developed oil and gas reserves may be further sub-classified according to the guidance
contained in the SPE-PRMS as Producing or Non-Producing.
Developed Producing
Reserves
Developed Producing Reserves
are expected quantities to be recovered from completion intervals that are open and producing at the effective date of the estimate.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES STATUS DEFINITIONS AND
GUIDELINES
Page 2
Improved recovery reserves
are considered producing only after the improved recovery project is in operation.
Developed
Non-Producing
Developed Non-Producing Reserves
include shut-in and behind-pipe Reserves.
Shut-In
Shut-in Reserves are expected
to be recovered from:
| (1) | completion intervals that are open at the time of the estimate but which have not yet started
producing; |
| (2) | wells which were shut-in for market conditions or pipeline connections; or |
| (3) | wells not capable of production for mechanical reasons. |
Behind-Pipe
Behind-pipe Reserves are expected
to be recovered from zones in existing wells that will require additional completion work or future re-completion before start
of production with minor cost to access these reserves.
In all cases, production can
be initiated or restored with relatively low expenditure compared to the cost of drilling a new well.
UNDEVELOPED RESERVES (SEC DEFINITIONS)
Securities and Exchange
Commission Regulation S-X §210.4-10(a)(31) defines undeveloped oil and gas reserves as follows:
Undeveloped oil and gas reserves
are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where
a relatively major expenditure is required for recompletion.
(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.
(ii) Undrilled locations can
be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to
be drilled within five years, unless the specific circumstances, justify a longer time.
(iii) Under no circumstances
shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved
recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir
or an analogous reservoir, as defined in paragraph (a)(2) of this section, or by other evidence using reliable technology establishing
reasonable certainty.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
