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Supplemental Reserve Information

12 Months Ended

Dec. 31, 2019

17. SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)

The Company’s net proved oil and natural gas reserves as of December 31, 2019, 2018, and 2017, have been estimated by Company personnel.

All estimates are in accordance generally accepted petroleum engineering and evaluation principles and definitions and with guidelines established by the Securities and Exchange Commission. All of the Company’s reserves are located in the United States of America and accounted for under one cost center.

Our policies and practices regarding internal control over the estimating of reserves are structured to objectively and accurately estimate our oil and natural gas reserve quantities and present values in compliance with the U.S. Securities and Exchange Commission (“SEC”) regulations and accounting principles generally accepted in the United States of America. We maintain an internal staff of petroleum engineers and geosciences professionals who work closely with the accounting and financial departments to insure the integrity, accuracy and timeliness of data used in the estimation process. The data used in our reserve estimation process is based on historical results for production, oil and natural gas prices received, lease operating expenses and development costs incurred, ownership interest and other required data. Historical oil and natural gas prices, lease operating expenses, and ownership interests are provided by and verified by the Company’s accounting department.

The Petroleum Engineer responsible for the supervision and preparation of the Company’s internally generated reserve report has a Bachelor of Science degree in Petroleum Engineering from a major university and has experience in preparing economic evaluations and reserve estimates. He meets the requirements regarding qualifications, objectivity and confidentiality set forth in the Standards Pertaining to the Engineering and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers.

The Company has established a written internal control procedure to verify that the data entered into our engineering evaluation software is complete and correct. These internal control procedures establish the source of the data both internally and externally, the personnel that will collect the data and testing of the data collected to ensure its accuracy.

The following reserve estimates were based on existing economic and operating conditions. Oil and natural gas prices for 2019, 2018, and 2017 were calculated using a 12-month average price, calculated as the un-weighted arithmetic average of the first-day-of-the month price for each month of each year. Operating costs, production and ad valorem taxes and future development costs were based on current costs with no escalation.

There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production and timing of development expenditures. The following reserve data represents estimates only and should not be construed as being exact. Moreover, the present values should not be construed as the current market value of the Company's oil and natural gas reserves or the costs that would be incurred to obtain equivalent reserves.

Changes in Estimated Quantities of Proved Oil and Gas Reserves (Unaudited):

Quantities of Proved Reserves:	Crude Oil Bbls			Natural Gas Mcf
Balance December 31, 2016		313,280			3,842,989
Sales of reserves in place		(80	)		(54,210	)
Acquired properties		24,800			3,589,330
Extensions and discoveries		630			310,000
Revisions of previous estimates *		21,392			104,975
Production		(51,082	)		(619,654	)
Balance December 31, 2017		308,940			7,173,430
Sales of reserves in place		—			—
Acquired properties		1,100			3,020
Extensions and discoveries		230			325,070
Revisions of previous estimates *		(5,634	)		222,642
Production		(43,136	)		(874,812	)
Balance December 31, 2018		261,500			6,849,350
Sales of reserves in place		(60	)		(27,530	)
Acquired properties		780			6,970
Extensions and discoveries		—			121,400
Revisions of previous estimates *		8,446			(1,514,053	)
Production		(41,919	)		(916,456	)
Balance December 31, 2019		228,747			4,519,681
		—			—
* May also include divestitures, not only changes in engineering.

Proved Developed Reserves:
Balance December 31, 2017		308,940			7,173,430
Balance December 31, 2018		261,500			6,849,350
Balance December 31, 2019		228,747			4,519,681

Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil and Natural Gas Reserves (Unaudited)

The Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil and Natural Gas Reserves ("Standardized Measures") does not purport to present the fair market value of a company's oil and gas properties. An estimate of such value should consider, among other factors, anticipated future prices of oil and natural gas, the probability of recoveries in excess of existing proved reserves, the value of probable reserves and acreage prospects, and perhaps different discount rates. It should be noted that estimates of reserve quantities, especially from new discoveries, are inherently imprecise and subject to substantial revision.

Reserve estimates were prepared in accordance with standard Security and Exchange Commission guidelines. The future net cash flow for 2019, 2018, and 2017, was computed using a 12-month average price, calculated as the un-weighted arithmetic average of the first-day-of-the month price for each month of the year. Lease operating costs, compression, dehydration, transportation, ad valorem taxes, severance taxes, and federal income taxes were deducted. Costs and prices were held constant and were not escalated over the life of the properties. No deduction has been made for interest. The annual discount of estimated future cash flows is defined, for use herein, as future cash flows discounted at 10% per year, over the expected period of realization.

Proved Developed Reserves were calculated based on Decline Curve Analysis on 34 operated wells and 57 non-operated wells. Materially insignificant operated and non-operated wells were excluded from the reserve estimate.

The Company emphasizes that reserve estimates are inherently imprecise. Accordingly, the estimates are expected to change as more current information becomes available. It is reasonably possible that, because of changes in market conditions or the inherent imprecision of these reserve estimates, that the estimates of future cash inflows, future gross revenues, the amount of oil and natural gas reserves, the remaining estimated lives of the oil and natural gas properties, or any combination of the above may be increased or reduced in the near term. If reduced, the carrying amount of capitalized oil and gas properties may be reduced materially in the near term.

	Year Ended December 31,
	2019			2018			2017
Future production revenue	$	22,235,000		$	35,572,000		$	33,992,000
Future development costs		—			—			—
Future production costs		(9,167,000	)		(17,830,000	)		(18,700,000	)
Future net cash flow before Federal income taxes		13,068,000			17,742,000			15,292,000
Future income taxes		(1,960,000	)		(2,661,000	)		(3,211,000	)
Future net cash flows		11,108,000			15,081,000			12,081,000
Effect of 10% annual discounting		(5,010,000	)		(4,030,000	)		(2,287,000	)
Standardized measure of discounted cash flows	$	6,098,000		$	11,051,000		$	9,794,000

Changes in the standardized measure of discounted future net cash flows:

	Year Ended December 31,
	2019			2018			2017
Beginning of the year	$	11,051,000		$	9,794,000		$	6,023,000
Sales of oil and gas, net of production costs		(1,950,000	)		(3,194,000	)		(2,318,000	)
Net changes in prices and production costs		(3,558,000	)		2,171,000			721,000
Extensions, discoveries, additions less related costs		17,000			475,000			211,000
Development costs incurred		68,000			181,000			415,000
Net changes in future development cost		—			—			—
Revisions of previous quantity estimates		203,000			284,000			698,000
Net change in purchase and sales of minerals in place		20,000			33,000			3,103,000
Accretion of discount		1,105,000			979,000			602,000
Net change in income taxes		(276,000	)		(103,000	)		(250,000	)
Other		(582,000	)		431,000			589,000
End of year	$	6,098,000		$	11,051,000		$	9,794,000

SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 2019, 2018, AND 2017

SCHEDULE I I

		Balance		Costs & Expenses		Deductions		Ending Balance
Allowance for doubtful accounts

December 31, 2019	$	15,000	$	—	$	—	$	15,000

December 31, 2018	$	15,000	$	—	$	—	$	15,000

December 31, 2017	$	15,000	$	—	$	—	$	15,000

					SCHEDULE III

SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION

Initial Cost to Corporation					Total Cost
Description		Encumbrances	Land	Buildings	Subsequent to Acquisition

Two story multi-tenant garden office building with sub-grade parking garage located in Dallas, Texas		(b)	$ 688,000	$ 1,298,000	$ 282,000

Gross amounts at which carried at close of year

Land	Buildings	Total	Accumulated Depreciation	Life on which Depreciation Calculated	Date Acquired

$ 688,000	$1,580,000	$ 2,268,000	$ 992,000	(a)	12/27/2004



Notes to Schedule III

(a) See Footnote 2 to the Financial Statements outlining depreciation methods and lives.

(b) None

(c) The reconciliation for investments in real estate and accumulated depreciation for the years ended December 31, 2019 are as follows

		Investments in Real Estate		Accumulated Depreciation
Balance, December 31, 2005	$	1,986,000	$	49,000
Acquisitions		210,000
Depreciation expense				71,000
Balance, December 31, 2006		2,196,000		120,000
Acquisitions		34,000
Depreciation expense				84,000
Balance, December 31, 2007		2,230,000		204,000
Acquisitions		38,000
Depreciation expense				96,000
Balance, December 31, 2008		2,268,000		300,000
Acquisitions
Depreciation expense				100,000
Balance, December 31, 2009		2,268,000		400,000
Acquisitions
Depreciation expense				101,000
Balance, December 31, 2010		2,268,000		501,000
Acquisitions
Depreciation expense				100,000
Balance, December 31, 2011		2,268,000		601,000
Acquisitions
Depreciation expense				51,000
Balance, December 31, 2012		2,268,000		652,000
Acquisitions
Depreciation expense				52,000
Balance, December 31, 2013		2,268,000		704,000
Acquisitions
Depreciation expense				52,000
Balance, December 31, 2014		2,268,000		756,000
Acquisitions
Depreciation expense				47,000
Balance, December 31, 2015		2,268,000		803,000
Acquisitions
Depreciation expense				47,000
Balance, December 31, 2016		2,268,000		850,000
Acquisitions
Depreciation expense				47,000
Balance, December 31, 2017		2,268,000		897,000
Acquisitions
Depreciation expense				48,000
Balance, December 31, 2018		2,268,000		945,000
Acquisitions
Depreciation expense				47,000
Balance, December 31, 2019	$	2,268,000	$	992,000