Securities and Exchange Commission v. Nadel et al

Filing 1403

Verified MOTION for miscellaneous relief, specifically for Approval of Private Sale of Assets of Quest Energy Management Group, Inc. by Burton W. Wiand. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4)(Perez, Jared)

EXHIBIT 4

ASSET VALUATION
Quest EMG, Inc.

COMPLETED BY:

Jordan Taylor Buckingham
Petroleum Engineer
University of Texas at Austin
Cockrell School of Engineering
05/18/19

TABLE OF CONTENTS
SUMMARY ............................................................................................................................................................. 2
LEASE ANALYSIS ................................................................................................................................................ 3
DECLINE CURVE ANALYSIS ............................................................................................................................. 3
NET REVENUE ANALYSIS ................................................................................................................................. 9
OPERATIONS EXPENSE & PLUGGING LIABILITY .................................................................................... 10
OTHER ASSETS AND FINAL VALUATION ................................................................................................... 13
CLOSING COMMENTS ...................................................................................................................................... 15

1

SUMMARY

This document has been prepared to estimate the value of assets provided on an Exhibit “A” describing the assets
of Quest EMG, Inc., holding TX RRC Oil and Gas Operator Number 684615. The final valuation amounts on
this report were calculated using decline curve analysis on producing leases using historical production data from
the TX Railroad Commission (RRC), historical WTI oil and gas pricing, operations expense data from Quest
EMG, Inc., and known standard operation well costs in RRC District 7B.
Generally, production revenue estimates for the sale of oil and gas leases are projected as 36 months, 42 months,
or 48 months of net profit. After analysis, I estimate the total value of the assets of Quest EMG, Inc. described on
mentioned Exhibit “A” as the value described in Table 1 below. This is based on 48 months of net profit.

TABLE 1

QUEST EMG, INC ASSET VALUATION
Projected Value of Assets $

964,457.54

In summary, while there is promising production and revenue potential in these leases, they bring with them a
tremendous amount of operations expense and plugging liability due to the number of wells involved and the ratio
of producing wells to non-producing wells. The following pages will describe in detail how this valuation was
calculated. This report includes valuations of 36 months, 42 months, and 48 months. Generally, 48 months of net
profit is considered an excellent value for the seller.

2

LEASE ANALYSIS
The first step was to take all of the leases and pull production data on each from the Texas Railroad Commission
website. Upon evaluation of nineteen separate leases, I found that only five showed recent production data. Most
that showed previous production data showed no production numbers in the past five years. Table 2 below
provides the production status of each lease.
TABLE 2
LEASE NUMBER
00292
22957

LEASE NAME BY TX RRC

WELL NUMBERS

HENRY, MACK

3, 7, 13

MUSSELMAN CADDO UNIT 250, 251, 260, 271, 272, 273, 274, 280, 282, 290

PRODUCTION STATUS LAST PRODUCTION DATA NUMBER OF WELLS
PRODUCING

February-19

3

PRODUCING

February-19

10

25905

COLLIER, V.H.

1

PRODUCING

February-19

1

25964

V. H. "B"

1

PRODUCING

February-19

1

28136

KILGORE, E.P. K-100

2, 3, 7

PRODUCING

February-19

3

00222

KILGORE, E. P.

9, 10, 12, 13,16, 17, 20

NOT PRODUCING

January-13

7

25003

KILGORE, J. C. "A"

01AW, 1Q, 2Q, A1

NOT PRODUCING

November-06

4

18449

KILGORE "B"

2, 5, 9, W1

NOT PRODUCING

May-13

4

21979

SHULTS, HOLLIS "B"

10

NOT PRODUCING

August-12

1

26252

KILGORE, E.

6

NOT PRODUCING

NONE

1

26390

KILGORE, E. P. "F"

2, 3A

NOT PRODUCING

November-06

2

26581

ARMSTRONG, ROY

15

NOT PRODUCING

December-10

1

26589

KILGORE, J.C. "B"

1

NOT PRODUCING

NONE

1

26752

KILGORE "G"

1, 3, 4

NOT PRODUCING

NONE

3

27628

K & Y "A"

1

NOT PRODUCING

May-13

1

28567

K & Y -A-

2, 5

NOT PRODUCING

August-12

2

29782

SNYDER RANCH

1

NOT PRODUCING

August-11

1

017788

MUSSELMAN CADDO UNIT

281

NOT PRODUCING

May-07

1

241787

MUSSELMAN "29"

291J

NOT PRODUCING

April-08

1

After speaking with the asset management team and production superintendent, I found that the production was
coming from ten active wells in the five producing fields.

DECLINE CURVE ANALYSIS
I pulled production data on each lease and completed a decline curve analysis on the five which showed
production data. The following charts show the production plot and plotted exponential decline curve of each of
the five producing properties.
3

Looking at the historical data on the HENRY, MACK (LEASE #00292), I found oil production, but no gas
production. I chose a starting point of September 2013 for the decline curve analysis. You can see on the chart
the likely trend for the production to continue 48 monthly periods into the future.

OIL PRODUCTION - HENRY, MACK (LEASE #00292)
700
600
500
400
300
200
100
Oct-18

Feb-17
Sep-21

May-18

Sep-16
May-21

Dec-17

Apr-16
Jan-21

Jul-17

Nov-15
Sep-20

Jun-15

Jan-15

Aug-14

Mar-14

Oct-13

May-13

Dec-12

Jul-12

Feb-12

Sep-11

Apr-11

Nov-10

Jun-10

Jan-10

Aug-09

Mar-09

Oct-08

May-08

Dec-07

Jul-07

Feb-07

Sep-06

Apr-06

0

OIL DECLINE HENRY, MACK (LEASE #00292)
600
500
400
300
200
100
Jan-23

Sep-22

May-22

Jan-22

May-20

Jan-20

Sep-19

May-19

Jan-19

Sep-18

May-18

Jan-18

Sep-17

May-17

Jan-17

Sep-16

May-16

Jan-16

Sep-15

May-15

Jan-15

Sep-14

May-14

Jan-14

Sep-13

0

Looking at the historical data on the MUSSELMAN CADDO UNIT (LEASE #22957), I found both oil and gas
production. I chose a starting point of September 2014 for the decline curve analysis on the oil and also September
2014 for the decline curve analysis on the gas. You can see on the charts the likely trend for the production to
continue 48 monthly periods into the future.

4

Feb-19

Oct-18

Jun-18

Feb-18

Oct-17

Jun-17

Feb-17

Oct-16

Jun-16

Feb-16

Oct-15

Jun-15

Feb-15

Oct-14

Jun-14

Feb-14

Oct-13

Jun-13

Feb-13

Oct-12

Jun-12

Feb-12

Oct-11

Jun-11

Feb-11

Oct-10

Jun-10

Feb-10

Oct-09

Jun-09

Feb-09

Oct-08

Jun-08

Feb-08

400

300

200

100

0
Apr-16

Nov-15

Jun-15

Jan-15

Aug-14

Mar-14

Oct-13

May-13

Dec-12

Jul-12

Feb-12

Sep-11

Apr-11

Nov-10

Jun-10

Jan-10

Aug-09

Mar-09

Oct-08

May-08

Dec-07

Jul-07

Feb-07

Sep-06

Apr-06

Nov-05

Jun-05

Jan-05

Sep-22

Oct-18

May-18

Jun-22
Dec-22

Jul-17
Dec-17

Mar-22

Feb-17

500

Dec-21

600
Sep-16

OIL DECLINE MUSSELMAN CADDO UNIT (LEASE #22957)

Sep-21

Jun-21

Mar-21

Dec-20

Sep-20

Jun-20

Mar-20

Dec-19

Sep-19

Jun-19

Mar-19

Dec-18

Sep-18

Jun-18

Mar-18

Dec-17

Sep-17

Jun-17

Mar-17

Dec-16

Sep-16

Jun-16

Mar-16

Dec-15

Sep-15

Jun-15

Mar-15

Dec-14

Sep-14

OIL PRODUCTION - MUSSELMAN CADDO UNIT (LEASE #22957)

1000
900
800
700
600
500
400
300
200
100
0

GAS PRODUCTION - MUSSELMAN CADDO UNIT (LEASE #22957)

12,000

10,000

8,000

6,000

4,000

2,000

0

5

GAS DECLINE MUSSELMAN CADDO UNIT (LEASE #22957)

Dec-22

Jun-22

Sep-22

Dec-21

Mar-22

Sep-21

Jun-21

Mar-21

Sep-20

Dec-20

Jun-20

Dec-19

Mar-20

Jun-19

Sep-19

Mar-19

Sep-18

Dec-18

Jun-18

Mar-18

Dec-17

Jun-17

Sep-17

Dec-16

Mar-17

Sep-16

Jun-16

Mar-16

Sep-15

Dec-15

Jun-15

Dec-14

Mar-15

Sep-14

10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0

Looking at the historical data on the COLLIER, V. H. (LEASE #25905), I found oil production, but no gas
production. I chose a starting point of April 2014 for the decline curve analysis. You can see on the chart the
likely trend for the production to continue 48 monthly periods into the future.

OIL PRODUCTION - COLLIER, V. H. (LEASE #25905)
140
120
100
80
60
40
20
Dec-18

Aug-18

Apr-18

Dec-17

Aug-17

Apr-17

Dec-16

Aug-16

Apr-16

Dec-15

Aug-15

Apr-15

Dec-14

Aug-14

Apr-14

Dec-13

Aug-13

Apr-13

Dec-12

Aug-12

Apr-12

Dec-11

Aug-11

Apr-11

Dec-10

Aug-10

Apr-10

Dec-09

Aug-09

Apr-09

Dec-08

0

6

OIL DECLINE COLLIER, V. H. (LEASE #25905)
120
100
80
60
40
20
Jan-23

Oct-22

Jul-22

Apr-22

Jan-22

Oct-21

Jul-21

Apr-21

Jan-21

Jul-20

Oct-20

Jan-20

Apr-20

Jul-19

Oct-19

Jan-19

Apr-19

Jul-18

Oct-18

Jan-18

Apr-18

Oct-17

Jul-17

Apr-17

Jan-17

Oct-16

Jul-16

Apr-16

Jan-16

Oct-15

Jul-15

Apr-15

Jan-15

Jul-14

Oct-14

Apr-14

0

Looking at the historical data on the COLLIER, V. H. "B" (LEASE #25964), I found oil production, but no gas
production. I chose a starting point of January 2014 for the decline curve analysis. You can see on the chart the
likely trend for the production to continue 48 monthly periods into the future.

OIL PRODUCTION - COLLIER, V. H. "B" (LEASE #25964)

Dec-18

Jul-18

Feb-18

Sep-17

Apr-17

Nov-16

Jun-16

Jan-16

Aug-15

Mar-15

Oct-14

May-14

Dec-13

Jul-13

Feb-13

Sep-12

Apr-12

Nov-11

Jun-11

Jan-11

Aug-10

Mar-10

Oct-09

May-09

Dec-08

Jul-08

Feb-08

Sep-07

Apr-07

Nov-06

Jun-06

200
180
160
140
120
100
80
60
40
20
0

7

OIL DECLINE COLLIER, V. H. "B" (LEASE #25964)
120
100
80
60
40
20
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Apr-18
Jul-18
Oct-18
Jan-19
Apr-19
Jul-19
Oct-19
Jan-20
Apr-20
Jul-20
Oct-20
Jan-21
Apr-21
Jul-21
Oct-21
Jan-22
Apr-22
Jul-22
Oct-22
Jan-23

0

Finally, looking at the historical data on the KILGORE, E.P. K-100 (LEASE #28136), I found oil production, but
no gas production. I chose a starting point of February 2014 for the decline curve analysis. You can see on the
chart the likely trend for the production to continue 48 monthly periods into the future.

OIL PRODUCTION - KILGORE, E.P. K-100 (LEASE #28136)
250
200
150
100
50
Nov-18

Jun-18

Jan-18

Aug-17

Mar-17

Oct-16

May-16

Dec-15

Jul-15

Feb-15

Sep-14

Apr-14

Nov-13

Jun-13

Jan-13

Aug-12

Mar-12

Oct-11

May-11

Dec-10

Jul-10

Feb-10

Sep-09

Apr-09

Nov-08

Jun-08

Jan-08

Aug-07

Mar-07

Oct-06

0

8

OIL DECLINE KILGORE, E.P. K-100 (LEASE #28136)
80
70

y = 7E+20e-0.001x

60
50
40
30
20
10

Feb-23

Nov-22

Aug-22

May-22

Feb-22

Nov-21

Aug-21

Feb-21

May-21

Aug-20

Nov-20

Feb-20

May-20

Aug-19

Nov-19

Feb-19

May-19

Aug-18

Nov-18

Feb-18

May-18

Aug-17

Nov-17

Feb-17

May-17

Aug-16

Nov-16

May-16

Feb-16

Nov-15

Aug-15

May-15

Feb-15

Nov-14

Aug-14

May-14

Feb-14

0

NET REVENUE ANALYSIS
With the decline curve analysis complete, I was able to extrapolate into the future to estimate potential net revenue
using net revenue interest after royalty interest payments but before operating expenses and liabilities were
factored in. Ownership interest was obtained from the Division of Interest provided by Transoil Marketing, LLC.
These numbers were calculated with a three-year average WTI oil price of $55.87/BBL and a three-year average
WTI gas price of $3.13/MCF. In addition, the start point of the decline was taken as the six-month average of the
last production on record September 2018-February 2019. From there, 36 month, 42 month, and 48 month
potential revenues were calculated using exponential decline constants derived from the data seen in the decline
curve analysis charts above. Table 3 below shows the revenues as described.
TABLE 3
36 MONTH NET REVENUE
LEASE NUMBER

LEASE NAME

00292

HENRY, MACK

22957

OIL REVENUE GAS REVENUE TOTAL REVENUE OWNERSHIP NET REVENUE
$

433,233.88

$

MUSSELMAN CADDO UNIT $

652,483.46

$

704,473.40

$

433,233.88

$

1,356,956.86

74.640000% $

323,365.77

78.640647% $ 1,067,119.65

25905

COLLIER, V.H.

$

91,281.31

$

-

$

91,281.31

80.250000% $

73,253.25

25964

V. H. "B"

$

59,672.08

$

-

$

59,672.08

80.250000% $

47,886.84

28136

KILGORE, E.P. K-100

$

13,374.27

$

-

$

13,374.27

79.000000% $

10,565.68

$ 1,250,045.01

$

$

1,954,518.41

704,473.40

$ 1,522,191.20

9

42 MONTH NET REVENUE
LEASE NUMBER

LEASE NAME

00292

HENRY, MACK

22957

OIL VALUE

GAS VALUE

$

493,558.02

$

MUSSELMAN CADDO UNIT $

752,792.81

$

812,775.40

TOTAL REVENUE OWNERSHIP NET REVENUE
$

493,558.02

$

1,565,568.21

74.640000% $

368,391.70

78.640647% $ 1,231,172.97

25905

COLLIER, V.H.

$

105,125.64

$

-

$

105,125.64

80.250000% $

84,363.33

25964

V. H. "B"

$

67,686.98

$

-

$

67,686.98

80.250000% $

54,318.80

28136

KILGORE, E.P. K-100

$

14,485.95

$

-

$

14,485.95

79.000000% $

11,443.90

$ 1,433,649.39

$

$

2,246,424.79

812,775.40

$ 1,766,602.99

48 MONTH NET REVENUE
LEASE NUMBER

LEASE NAME

00292

HENRY, MACK

22957

OIL VALUE

GAS VALUE

$

550,922.12

$

MUSSELMAN CADDO UNIT $

850,835.22

$

918,629.84

TOTAL REVENUE OWNERSHIP NET REVENUE
$

550,922.12

$

1,769,465.06

74.640000% $

411,208.27

78.640647% $ 1,391,518.77

25905

COLLIER, V.H.

$

118,605.88

$

-

$

118,605.88

80.250000% $

95,181.22

25964

V. H. "B"

$

75,233.98

$

-

$

75,233.98

80.250000% $

60,375.27

28136

KILGORE, E.P. K-100

$

15,410.14

$

-

$

15,410.14

79.000000% $

12,174.01

$ 1,611,007.34

$

$

2,529,637.18

918,629.84

$ 1,989,323.05

These numbers obviously increase as you take them out from 36 to 42 to 48 months. This would be the collected
revenues before operations expense and liabilities are factored in.

OPERATIONS EXPENSE & PLUGGING LIABILITY
With the decline curve and revenue analysis complete, we now move on to the operations expense. There are
many factors that play into operations expense. I will note that if an operator with an active P-5 with the TX RRC
is involved in purchasing these wells, that can definitely make it more economic for purchase due to being able
to operate the wells in house. For this valuation, I am assuming that the purchaser would not be operating, and
the investment group would have to pay operations expenses at the going rate per well along with standard
expenses associated with electricity, water hauling, workover, routine maintenance, etc.
Standard operating rates on a per well basis in RRC District 7B at this well depth generally range from $150.00
to $300.00 per well per month. These are in place even on non-producers, because the paperwork and filings must
still be completed on wells and leases as required by the TX RRC. In this scenario, the cost of $200.00 per well
per month was utilized. Electricity and water hauling expenses were spread across the producing leases relative
10

to their number of producing wells at an average of $2,400 per month provided by the operator. I assumed one
workover per producing well in the 36-48 month period with each workover calculated at $5,000.00.
As for plugging liability, that is a rather large calculation due to the number of non-producing wells that come
along with these leases. The expense of plugging wells depends on the depth of fresh water and the number of
plugs required by the TX RRC. Generally in this depth range, plugging expense ranges from $7,500.00 to
$20,000.00 per well. The plugging liability in this scenario is calculated at $10,000 per well. Table 4 below reveals
the plugging liability and operations expense associated with the leases.
TABLE 4

36 MONTH EXPENSE
LEASE NUMBER

LEASE NAME

PLUGGING LIABILITY OPERATING EXPENSE ELECTRIC & WATER HAULING WORKOVER EXPENSE

00292

HENRY, MACK

$

30,000.00

$

21,600.00

$

25,920.00

$

15,000.00

22957

MUSSELMAN CADDO UNIT

$

100,000.00

$

72,000.00

$

25,920.00

$

15,000.00

25905

COLLIER, V.H.

$

10,000.00

$

7,200.00

$

8,640.00

$

5,000.00

25964

V. H. "B"

$

10,000.00

$

7,200.00

$

8,640.00

$

5,000.00

28136

KILGORE, E.P. K-100

$

30,000.00

$

21,600.00

$

17,280.00

$

10,000.00

00222

KILGORE, E. P.

$

70,000.00

$

50,400.00

$

-

$

-

25003

KILGORE, J. C. "A"

$

40,000.00

$

28,800.00

$

-

$

-

18449

KILGORE "B"

$

40,000.00

$

28,800.00

$

-

$

-

21979

SHULTS, HOLLIS "B"

$

10,000.00

$

7,200.00

$

-

$

-

26252

KILGORE, E.

$

10,000.00

$

7,200.00

$

-

$

-

26390

KILGORE, E. P. "F"

$

20,000.00

$

14,400.00

$

-

$

-

26581

ARMSTRONG, ROY

$

10,000.00

$

7,200.00

$

-

$

-

26589

KILGORE, J.C. "B"

$

10,000.00

$

7,200.00

$

-

$

-

26752

KILGORE "G"

$

30,000.00

$

21,600.00

$

-

$

-

27628

K & Y "A"

$

10,000.00

$

7,200.00

$

-

$

-

28567

K & Y -A-

$

20,000.00

$

14,400.00

$

-

$

-

29782

SNYDER RANCH

$

10,000.00

$

7,200.00

$

-

$

-

017788

MUSSELMAN CADDO UNIT

$

10,000.00

$

7,200.00

$

-

$

-

241787

MUSSELMAN "29"

$

10,000.00

$

7,200.00

$

-

$

-

$

480,000.00

$

345,600.00

$

86,400.00

$

50,000.00

11

42 MONTH EXPENSE
LEASE NUMBER

LEASE NAME

00292

HENRY, MACK

PLUGGING LIABILITY OPERATING EXPENSE ELECTRIC & WATER HAULING WORKOVER EXPENSE
$

30,000.00

$

25,200.00

$

30,240.00

$

15,000.00

22957

MUSSELMAN CADDO UNIT

$

100,000.00

$

84,000.00

$

30,240.00

$

15,000.00

25905

COLLIER, V.H.

$

10,000.00

$

8,400.00

$

10,080.00

$

5,000.00

25964

V. H. "B"

$

10,000.00

$

8,400.00

$

10,080.00

$

5,000.00

28136

KILGORE, E.P. K-100

$

30,000.00

$

25,200.00

$

20,160.00

$

10,000.00

00222

KILGORE, E. P.

$

70,000.00

$

58,800.00

$

-

$

-

25003

KILGORE, J. C. "A"

$

40,000.00

$

33,600.00

$

-

$

-

18449

KILGORE "B"

$

40,000.00

$

33,600.00

$

-

$

-

21979

SHULTS, HOLLIS "B"

$

10,000.00

$

8,400.00

$

-

$

-

26252

KILGORE, E.

$

10,000.00

$

8,400.00

$

-

$

-

26390

KILGORE, E. P. "F"

$

20,000.00

$

16,800.00

$

-

$

-

26581

ARMSTRONG, ROY

$

10,000.00

$

8,400.00

$

-

$

-

26589

KILGORE, J.C. "B"

$

10,000.00

$

8,400.00

$

-

$

-

26752

KILGORE "G"

$

30,000.00

$

25,200.00

$

-

$

-

27628

K & Y "A"

$

10,000.00

$

8,400.00

$

-

$

-

28567

K & Y -A-

$

20,000.00

$

16,800.00

$

-

$

-

29782

SNYDER RANCH

$

10,000.00

$

8,400.00

$

-

$

-

017788

MUSSELMAN CADDO UNIT

$

10,000.00

$

8,400.00

$

-

$

-

241787

MUSSELMAN "29"

$

10,000.00

$

8,400.00

$

-

$

-

$

480,000.00

$

403,200.00

$

100,800.00

$

50,000.00

48 MONTH EXPENSE
LEASE NUMBER

LEASE NAME

PLUGGING LIABILITY OPERATING EXPENSE ELECTRIC & WATER HAULING WORKOVER EXPENSE

00292

HENRY, MACK

$

30,000.00

$

28,800.00

$

34,560.00

$

15,000.00

22957

MUSSELMAN CADDO UNIT

$

100,000.00

$

96,000.00

$

34,560.00

$

15,000.00

25905

COLLIER, V.H.

$

10,000.00

$

9,600.00

$

11,520.00

$

5,000.00

25964

V. H. "B"

$

10,000.00

$

9,600.00

$

11,520.00

$

5,000.00

28136

KILGORE, E.P. K-100

$

30,000.00

$

28,800.00

$

23,040.00

$

10,000.00

00222

KILGORE, E. P.

$

70,000.00

$

67,200.00

$

-

$

-

25003

KILGORE, J. C. "A"

$

40,000.00

$

38,400.00

$

-

$

-

18449

KILGORE "B"

$

40,000.00

$

38,400.00

$

-

$

-

21979

SHULTS, HOLLIS "B"

$

10,000.00

$

9,600.00

$

-

$

-

26252

KILGORE, E.

$

10,000.00

$

9,600.00

$

-

$

-

26390

KILGORE, E. P. "F"

$

20,000.00

$

19,200.00

$

-

$

-

26581

ARMSTRONG, ROY

$

10,000.00

$

9,600.00

$

-

$

-

26589

KILGORE, J.C. "B"

$

10,000.00

$

9,600.00

$

-

$

-

26752

KILGORE "G"

$

30,000.00

$

28,800.00

$

-

$

-

27628

K & Y "A"

$

10,000.00

$

9,600.00

$

-

$

-

28567

K & Y -A-

$

20,000.00

$

19,200.00

$

-

$

-

29782

SNYDER RANCH

$

10,000.00

$

9,600.00

$

-

$

-

017788

MUSSELMAN CADDO UNIT

$

10,000.00

$

9,600.00

$

-

$

-

241787

MUSSELMAN "29"

$

10,000.00

$

9,600.00

$

-

$

-

$

480,000.00

$

460,800.00

$

115,200.00

$

50,000.00

These expenses will be deducted from the previously stated revenues calculated from the net revenue interest in
the final valuation.
12

OTHER ASSETS AND FINAL VALUATION
Now that the operations expense and plugging liability have been covered, it is time to tie it all together with a
valuation. Also on the Exhibit “A” is a list of remaining assets that will be transferred with the leases. I am a
petroleum engineer, not an equipment specialist, but I have been around this equipment and seen it sold and
purchased. I have not seen this exact equipment, but from its age and use in the oilfield, I can imagine the shape
it is in. I am including a $100,000 valuation for all of this equipment combined in the final valuation. This is
spread across all leases. If a second opinion was to be had on something in this report, I would recommend starting
with a full valuation of the equipment on the list that will be transferred with the lease.
That being said, all of the valuations and operations expenses from above added together gives you the final
valuation data shown in Table 5 below.
TABLE 5

36 MONTH FINAL VALUE
LEASE NUMBER

LEASE NAME

WELL NUMBERS

00292

HENRY, MACK

3, 7, 13

22957

MUSSELMAN CADDO UNIT 250, 251, 260, 271, 272, 273, 274, 280, 282, 290

NET REVENUE EQUIPMENT VALUE
$

TOTAL EXPENSE

FINAL VALUE

323,365.77

$

5,263.16

$

92,520.00

$

236,108.93

$ 1,067,119.65

$

5,263.16

$

212,920.00

$

859,462.81

25905

COLLIER, V.H.

1

$

73,253.25

$

5,263.16

$

30,840.00

$

47,676.41

25964

V. H. "B"

1

$

47,886.84

$

5,263.16

$

30,840.00

$

22,310.00

28136

KILGORE, E.P. K-100

2, 3, 7

$

10,565.68

$

5,263.16

$

78,880.00

$

(63,051.17)

00222

KILGORE, E. P.

9, 10, 12, 13,16, 17, 20

$

-

$

5,263.16

$

120,400.00

$

(115,136.84)

25003

KILGORE, J. C. "A"

01AW, 1Q, 2Q, A1

$

-

$

5,263.16

$

68,800.00

$

(63,536.84)

18449

KILGORE "B"

2, 5, 9, W1

$

-

$

5,263.16

$

68,800.00

$

(63,536.84)

21979

SHULTS, HOLLIS "B"

10

$

-

$

5,263.16

$

17,200.00

$

(11,936.84)

26252

KILGORE, E.

6

$

-

$

5,263.16

$

17,200.00

$

(11,936.84)

26390

KILGORE, E. P. "F"

2, 3A

$

-

$

5,263.16

$

34,400.00

$

(29,136.84)

26581

ARMSTRONG, ROY

15

$

-

$

5,263.16

$

17,200.00

$

(11,936.84)

26589

KILGORE, J.C. "B"

1

$

-

$

5,263.16

$

17,200.00

$

(11,936.84)

26752

KILGORE "G"

1, 3, 4

$

-

$

5,263.16

$

51,600.00

$

(46,336.84)

27628

K & Y "A"

1

$

-

$

5,263.16

$

17,200.00

$

(11,936.84)

28567

K & Y -A-

2, 5

$

-

$

5,263.16

$

34,400.00

$

(29,136.84)

29782

SNYDER RANCH

1

$

-

$

5,263.16

$

17,200.00

$

(11,936.84)

017788

MUSSELMAN CADDO UNIT

281

$

-

$

5,263.16

$

17,200.00

$

(11,936.84)

241787

MUSSELMAN "29"

291J

$

-

$

5,263.16

$

17,200.00

$

(11,936.84)

$

100,000.00

$

962,000.00

$

660,191.20

$ 1,522,191.20

13

42 MONTH FINAL VALUE
LEASE NUMBER

LEASE NAME

WELL NUMBERS

00292

HENRY, MACK

3, 7, 13

22957

MUSSELMAN CADDO UNIT 250, 251, 260, 271, 272, 273, 274, 280, 282, 290

NET REVENUE EQUIPMENT VALUE
$

TOTAL EXPENSE

FINAL VALUE

368,391.70

$

5,263.16

$

100,440.00

$

273,214.86

$ 1,231,172.97

$

5,263.16

$

229,240.00

$

1,007,196.13

25905

COLLIER, V.H.

1

$

84,363.33

$

5,263.16

$

33,480.00

$

56,146.48

25964

V. H. "B"

1

$

54,318.80

$

5,263.16

$

33,480.00

$

26,101.96

28136

KILGORE, E.P. K-100

2, 3, 7

$

11,443.90

$

5,263.16

$

85,360.00

$

(68,652.94)

00222

KILGORE, E. P.

9, 10, 12, 13,16, 17, 20

$

-

$

5,263.16

$

128,800.00

$

(123,536.84)

25003

KILGORE, J. C. "A"

01AW, 1Q, 2Q, A1

$

-

$

5,263.16

$

73,600.00

$

(68,336.84)

18449

KILGORE "B"

2, 5, 9, W1

$

-

$

5,263.16

$

73,600.00

$

(68,336.84)

21979

SHULTS, HOLLIS "B"

10

$

-

$

5,263.16

$

18,400.00

$

(13,136.84)

26252

KILGORE, E.

6

$

-

$

5,263.16

$

18,400.00

$

(13,136.84)

26390

KILGORE, E. P. "F"

2, 3A

$

-

$

5,263.16

$

36,800.00

$

(31,536.84)

26581

ARMSTRONG, ROY

15

$

-

$

5,263.16

$

18,400.00

$

(13,136.84)

26589

KILGORE, J.C. "B"

1

$

-

$

5,263.16

$

18,400.00

$

(13,136.84)

26752

KILGORE "G"

1, 3, 4

$

-

$

5,263.16

$

55,200.00

$

(49,936.84)

27628

K & Y "A"

1

$

-

$

5,263.16

$

18,400.00

$

(13,136.84)

28567

K & Y -A-

2, 5

$

-

$

5,263.16

$

36,800.00

$

(31,536.84)

29782

SNYDER RANCH

1

$

-

$

5,263.16

$

18,400.00

$

(13,136.84)

017788

MUSSELMAN CADDO UNIT

281

$

-

$

5,263.16

$

18,400.00

$

(13,136.84)

241787

MUSSELMAN "29"

291J

$

-

$

5,263.16

$

18,400.00

$

(13,136.84)

$

100,000.00

$

1,034,000.00

$

815,690.70

$ 1,749,690.70

48 MONTH FINAL VALUE
LEASE NUMBER

LEASE NAME

WELL NUMBERS

00292

HENRY, MACK

3, 7, 13

22957

MUSSELMAN CADDO UNIT 250, 251, 260, 271, 272, 273, 274, 280, 282, 290

NET REVENUE EQUIPMENT VALUE
$

TOTAL EXPENSE

FINAL VALUE

411,208.27

$

5,263.16

$

108,360.00

$

308,111.43

$ 1,391,518.77

$

5,263.16

$

245,560.00

$

1,151,221.93

25905

COLLIER, V.H.

1

$

95,181.22

$

5,263.16

$

36,120.00

$

64,324.38

25964

V. H. "B"

1

$

60,375.27

$

5,263.16

$

36,120.00

$

29,518.43

28136

KILGORE, E.P. K-100

2, 3, 7

$

12,174.01

$

5,263.16

$

91,840.00

$

(74,402.83)

00222

KILGORE, E. P.

9, 10, 12, 13,16, 17, 20

$

-

$

5,263.16

$

137,200.00

$

(131,936.84)

25003

KILGORE, J. C. "A"

01AW, 1Q, 2Q, A1

$

-

$

5,263.16

$

78,400.00

$

(73,136.84)

18449

KILGORE "B"

2, 5, 9, W1

$

-

$

5,263.16

$

78,400.00

$

(73,136.84)

21979

SHULTS, HOLLIS "B"

10

$

-

$

5,263.16

$

19,600.00

$

(14,336.84)

26252

KILGORE, E.

6

$

-

$

5,263.16

$

19,600.00

$

(14,336.84)

26390

KILGORE, E. P. "F"

2, 3A

$

-

$

5,263.16

$

39,200.00

$

(33,936.84)

26581

ARMSTRONG, ROY

15

$

-

$

5,263.16

$

19,600.00

$

(14,336.84)

26589

KILGORE, J.C. "B"

1

$

-

$

5,263.16

$

19,600.00

$

(14,336.84)

26752

KILGORE "G"

1, 3, 4

$

-

$

5,263.16

$

58,800.00

$

(53,536.84)

27628

K & Y "A"

1

$

-

$

5,263.16

$

19,600.00

$

(14,336.84)

28567

K & Y -A-

2, 5

$

-

$

5,263.16

$

39,200.00

$

(33,936.84)

29782

SNYDER RANCH

1

$

-

$

5,263.16

$

19,600.00

$

(14,336.84)

017788

MUSSELMAN CADDO UNIT

281

$

-

$

5,263.16

$

19,600.00

$

(14,336.84)

241787

MUSSELMAN "29"

291J

$

-

$

5,263.16

$

19,600.00

$

(14,336.84)

$

100,000.00

$

1,106,000.00

$

964,457.54

$ 1,970,457.54

14

CLOSING COMMENTS
In closing, I would like to make a few points about the details of the final valuation. There are a few obvious
factors, including the volatility of oil and gas pricing. The oil and gas dollar amounts used were a three-year
average WTI oil price of $55.87/BBL and a three-year average WTI gas price of $3.13/MCF stretching from June
15, 2016 to May 15, 2019. If these values are high or low, it could drastically affect the valuation. In addition, if
these wells were purchased by an active operator with P-5 with the TX RRC, the operations expenses associated
with this valuation could be reduced by absorbing the additional wells into an already competent staff. Also, the
workover numbers could be drastically different in reality with the age of these wells and no additional expenses
were calculated for unforeseen incidents that could create more expense down the road. I have also not calculated
any potential upside for stimulating wells or bringing old non-producing leases back online.
With all of this being said, we know the oil and gas space is a volatile world full of ups and downs and certain
uncertainty. With an optimistic view, I’d say that this will be a long-term winner by whoever purchases it. Best
case scenario would be to have an existing operating company in the mix to reduce the overhead expense of the
lease and utilize revenues over time to reduce plugging liability without feeling the hit as hard as it shows up here
on paper.
And finally, this is just my opinion as a petroleum engineer. This exact data given to several other engineers and
valuation experts could yield entirely different results depending on the parameters chosen and calculations made.
Thank you for reading.
Regards,

Jordan Taylor Buckingham
Petroleum Engineer
University of Texas at Austin
Cockrell School of Engineering

15