HUGOTON ROYALTY TRUST - FORM 10-K - EX-99.1

Attached files

file	filename
10-K - HUGOTON ROYALTY TRUST	v175077_10k.htm
EX-31 - HUGOTON ROYALTY TRUST	v175077_ex31.htm
EX-32 - HUGOTON ROYALTY TRUST	v175077_ex32.htm
EX-23.1 - HUGOTON ROYALTY TRUST	v175077_ex23-1.htm
EX-23.2 - HUGOTON ROYALTY TRUST	v175077_ex23-2.htm

EXHIBIT 99.1

February 17, 2010

XTO Energy Inc.

810 Houston Street, Suite 2000

Fort Worth, TX 76102

Re: Underlying Properties (100%)

Relating to the Hugoton Royalty Trust

As of December 31, 2009 - SEC Pricing Case

Gentlemen:

At your request, Miller and Lents, Ltd. (MLL) estimated the proved reserves and future net revenues as of December 31, 2009, attributable to the XTO Energy Inc. (XTO) interest in certain oil and gas properties prior to inclusion in the Hugoton Royalty Trust, i.e., Underlying Properties (100%). The properties consist of approximately 1,672 leases and 1,821 wells located in Kansas, Oklahoma, and Wyoming. The aggregate results of MLL’s evaluations are as follows:

	Net Reserves		Future Net Revenues
Reserves Category	Oil and Condensate, MBbls.	Gas, MMcf	Undiscounted, M$	Discounted at 10% Per Year, M$
Kansas
Proved Developed Producing	293.4	22,096.3	54,410.3	32,037.9
Proved Nonproducing	0.0	417.5	982.8	454.8
Proved Undeveloped	99.2	2,068.8	6,086.2	3,019.1
Subtotal	392.6	24,582.6	61,479.3	35,511.8
Oklahoma
Proved Developed Producing	2,145.1	184,934.7	453,579.6	250,968.7
Proved Nonproducing	31.8	2,434.7	6,324.8	2,644.6
Proved Undeveloped	333.9	25,629.7	30,951.7	-1,405.3
Subtotal	2,510.8	212,999.1	490,856.1	252,208.0
Wyoming
Proved Developed Producing	90.0	73,981.0	94,697.9	57,584.9
Proved Undeveloped	11.7	11,682.3	4,862.4	-4,583.5
Subtotal	101.7	85,663.3	99,560.3	53,001.4
Total Underlying Properties (100%)
Proved Developed Producing	2,528.5	281,012.0	602,687.9	340,591.5
Proved Nonproducing	31.8	2,852.3	7,307.6	3,099.4
Proved Undeveloped	444.8	39,380.7	41,900.3	-2,969.7
TOTAL	3,005.1	323,245.0	651,895.8	340,721.2

XTO Energy Inc.	February 17, 2010
	Page 2

MLL performed evaluations, which are designated as the SEC Pricing Case, using price and expense premises specified by XTO and described in detail on Attachment 1.

Proved reserves and future net revenues were estimated in accordance with the provisions contained in Securities and Exchange Commission Regulation S-X, Rule 4-10(a). The Securities and Exchange Commission definition of proved reserves is shown on Attachment 2. Gas volumes for each property are stated at the pressure and temperature bases appropriate for the sales contract or state regulatory authority; therefore, some of the aggregated totals may be stated at a mixed pressure base. No provisions for the possible consequences, if any, of product sales imbalances were included in our projections since MLL received no relevant data. Estimates of future net revenues and discounted future net revenues are not intended and should not be interpreted to represent fair market values for the estimated reserves. In MLL’s projections, future costs of abandoning facilities and wells were assumed to be offset by salvage values. Estimated costs, if any, for restoration of producing properties to satisfy environmental standards are beyond the scope of this assignment.

Following Attachment 2 is a list of exhibits that include annual projections of future production and net revenues for each state and reserves category. Also included in the exhibits are one-line summaries for the total royalty trust and for each state showing the proved reserves and future net revenues for the individual properties. Projections of individual property future production and net revenues are included in separate volumes to this report. These exhibits and volumes should not be relied upon independently of this narrative.

The proved developed producing reserves and production forecasts were estimated by production decline extrapolations, water-oil ratio trends, P/Z declines, or in a few cases, by volumetric calculations. For some properties with insufficient performance history to establish trends, MLL estimated future production by analogy with other properties with similar characteristics. The past performance trends of many properties were influenced by production curtailments, workovers, waterfloods, and/or infill drilling. Actual future production may require that MLL estimated trends be significantly altered.

The estimated proved developed nonproducing reserves can be produced from existing well bores but require capital costs for recompletions or for pipeline connections. These proved developed nonproducing reserves estimates were based on analogies with other wells that commercially produce from the same formation in the same field. The timing of initial production was provided to MLL by XTO. When actual production history is available for these nonproducing reserves, MLL’s reserves estimates may be significantly revised.

XTO Energy Inc.	February 17, 2010
	Page 3

The estimated proved undeveloped reserves require significant capital expenditures, such as for planned drilling and completion costs. The proved undeveloped reserves estimates for infill wells are based on analogies to similar infill wells in the same field and/or the production histories of offset wells in the same field. As actual results of the planned drilling become available, MLL’s reserves estimates may be significantly revised.

Reserves estimates from volumetric calculations and from analogies are often less certain than reserves estimates based on well performance obtained over a period during which a substantial portion of the reserves was produced.

The data employed in MLL’s estimations of proved reserves and future net revenues were provided by XTO. The current expenses for each lease were obtained from operating statements provided by XTO except for certain leases where XTO deducted items considered by XTO to be nonrecurring expenditures. No overhead was included for those properties operated by XTO. For some properties, such as large waterfloods, XTO assumed a decline in operating costs due to depleting production that was derived by forecasting a decrease in the property well count. For some gas properties, XTO assumed operating costs would be split between a variable component and a fixed component. The variable component was a constant cost per thousand cubic fee of gas production and the fixed component was a constant cost per well completion. Also, for some properties that XTO operates, operating expenses were reduced due to contractual payments received from non-operators that were greater than the non-operated working interest portion of the expenses. None of the data provided to MLL by XTO, including, but not limited to, graphical representations and tabulations of past production performance, well tests and pressures, ownership interests, prices, and operating costs, were verified by us as such was not within the scope of MLL’s assignment.

The evaluations presented in this report, with the exceptions of those parameters specified by others, reflect MLL’s informed judgments based on accepted standards of professional investigation but are subject to those generally recognized uncertainties associated with interpretation of geological, geophysical, and engineering information. Government policies and market conditions different from those employed in this study may cause the total quantity of oil or gas to be recovered, actual production rates, prices received, or operating and capital costs to vary from those presented in this report. Minor precision inconsistencies in subtotals may exist in the report due to truncation or rounding of aggregate values.

Miller and Lents, Ltd. is an independent oil and gas consulting firm. No director, officer, or key employee of Miller and Lents, Ltd. has any financial ownership in XTO Energy Inc. or any related company. MLL’s compensation for the required investigations and preparation of this report is not contingent on the results obtained and reported, and we have not performed other work that would affect our objectivity. Preparation of this report was supervised by an officer of Miller and Lents, Ltd., who is a professionally qualified and licensed Professional Engineer in the State of Texas with more than 25 years of relevant experience in the estimation, assessment, and evaluation of oil and gas reserves.

XTO Energy Inc.	February 17, 2010
	Page 4

MLL’s work papers and data are in our files and available for review upon request. If you have any questions regarding the above, or if we can be of further assistance, please call.