Attached files
| file | filename |
|---|---|
| 10-K - FORM 10-K - UNITED STATES LIME & MINERALS INC | d71309e10vk.htm |
| EX-23.2 - EX-23.2 - UNITED STATES LIME & MINERALS INC | d71309exv23w2.htm |
| EX-23.1 - EX-23.1 - UNITED STATES LIME & MINERALS INC | d71309exv23w1.htm |
| EX-31.2 - EX-31.2 - UNITED STATES LIME & MINERALS INC | d71309exv31w2.htm |
| EX-21.1 - EX-21.1 - UNITED STATES LIME & MINERALS INC | d71309exv21w1.htm |
| EX-32.2 - EX-32.2 - UNITED STATES LIME & MINERALS INC | d71309exv32w2.htm |
| EX-32.1 - EX-32.1 - UNITED STATES LIME & MINERALS INC | d71309exv32w1.htm |
| EX-31.1 - EX-31.1 - UNITED STATES LIME & MINERALS INC | d71309exv31w1.htm |
EXHIBIT 99.1
LETTER
REPORT AS OF DECEMBER 31, 2009 ON CERTAIN PROPERTIES OWNED BY
UNITED STATES LIME & MINERALS, INC.
UNITED STATES LIME & MINERALS, INC.
DeGolyer and
MacNaughton
5001 Spring Valley Road
Suite 800 East
Dallas, Texas 75244
January 22, 2010
5001 Spring Valley Road
Suite 800 East
Dallas, Texas 75244
January 22, 2010
United States Lime & Minerals, Inc.
5429 LBJ Freeway, Suite 230
Dallas, Texas 75240
Ladies and Gentlemen:
Pursuant to your request, we have prepared estimates of the
extent and value of the proved oil, condensate, natural gas
liquids (NGL), and natural gas reserves of certain properties
owned by United States Lime & Minerals, Inc. (US
Lime). The reserves estimated in this report are located in
Johnson County, Texas. The properties appraised consist of
working and royalty interests. These properties represent
100 percent of the proved reserves owned by US Lime.
Reserves estimated in this report are expressed as gross and net
reserves. Gross reserves are defined as the total estimated
petroleum to be produced from these properties after
December 31, 2009. Net reserves are defined as that portion
of the gross reserves attributable to the interests owned by US
Lime after deducting royalties and interests owned by others.
This report also presents values for proved reserves using
initial prices and costs provided by US Lime. Future prices were
estimated using guidelines established by the United States
Securities and Exchange Commission (SEC) and the Financial
Accounting Standards Board (FASB). A detailed explanation of the
future price and cost assumptions is included in the Valuation
of Reserves section of this report.
Values of proved reserves in this report are expressed in terms
of estimated future gross revenue, future net revenue, and
present worth. Future gross revenue is that revenue which will
accrue to the appraised interests from the production and sale
of the estimated net reserves. Future net revenue is calculated
by deducting estimated production taxes, ad valorem taxes,
operating expenses, and capital costs from the future gross
revenue. Operating expenses include field operating expenses,
compression charges, transportation charges and the estimated
expenses of direct supervision, but do not include that portion
of general administrative expenses sometimes allocated to
production. Future income tax expenses were not taken into
account in the preparation of these estimates. Present worth is
defined as future net revenue discounted at 10 percent per
annum over the expected period of realization.
Estimates of oil, condensate, NGL, and gas reserves and future
net revenue should be regarded only as estimates that may change
as further production history and additional information become
available. Not only are such reserves and revenue estimates
based on that information which is currently available, but such
estimates are also subject to the uncertainties inherent in the
application of judgmental factors in interpreting such
information.
Data used in the preparation of this report were obtained from
US Lime, and from public sources. Additionally, this information
includes data supplied by Petroleum Information/Dwights LLC;
Copyright 2009 Petroleum Information/Dwights LLC. In the
preparation of this report we have relied, without independent
verification, upon information furnished by US Lime with respect
to its property interests, production from such properties,
current costs of operation and development, current prices for
production, agreements relating to current and future operations
and sale of production, and various other information and data
that were accepted as represented. A field examination of the
properties was not considered necessary for the purposes of this
report.
Definition
of Reserves
Petroleum reserves included in this report are classified as
proved. Only proved reserves have been evaluated for this
report. Reserves classifications used in this report are in
accordance with the reserves definitions of
Rules 4-10(a) (1)-(32) of Regulation S-X of the SEC.
Reserves are judged to be economically producible in future
years from known reservoirs under existing economic and
operating conditions and assuming continuation of current
regulatory practices using conventional production methods and
equipment. In the analyses of production-decline curves,
reserves were estimated only to the limit of economic rates of
production under existing economic and operating conditions
using prices and costs consistent with the effective date of
this report, including consideration of changes in existing
prices provided only by contractual arrangements but not
including escalations based upon future conditions. The
petroleum reserves are classified 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.
(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.
Developed oil and gas reserves — 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.
Undeveloped oil and gas reserves — 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 [section 210.4-10
(a) Definitions], or by other evidence using reliable
technology establishing reasonable certainty.
Methodology
and Procedures
Estimates of reserves were prepared by the use of geological and
engineering methods generally accepted by the petroleum
industry. The method or combination of methods used in the
analysis of each reservoir was tempered by experience with
similar reservoirs, stage of development, quality and
completeness of basic data, and production history.
When applicable, the volumetric method was used to estimate the
original gas in place (OGIP). Structure maps were prepared to
delineate each reservoir, and isopach maps were constructed to
estimate reservoir volume. Electrical logs, radioactivity logs,
core analyses, and other available data were used to prepare
these maps as well as to estimate representative values for
porosity and water saturation. When adequate data were available
and when circumstances justified, material-balance and other
engineering methods were used to estimate OGIP.
Estimates of ultimate recovery were obtained after applying
recovery factors to OGIP. These recovery factors were based on
consideration of the type of energy inherent in the reservoirs,
analyses of the petroleum, the structural positions of the
properties, and the production histories. When applicable,
material-balance and other engineering methods were used to
estimate recovery factors. An analysis of reservoir performance,
including production rate, reservoir pressure, and gas-oil ratio
behavior, was used in the estimation of reserves.
For depletion-type reservoirs or those whose performance
disclosed a reliable decline in producing-rate trends or other
diagnostic characteristics, reserves were estimated by the
application of appropriate decline curves or other performance
relationships. In the analyses of production-decline curves,
reserves were estimated only to the limits of economic
production based on current economic conditions.
In certain cases, when the previously named methods could not be
used, reserves were estimated by analogy with similar wells or
reservoirs for which more complete data were available.
The properties evaluated in this report produce from the Barnett
Shale. The Barnett Shale has low porosity and permeability. Gas
production from this depletion-drive reservoir is a function of
both the natural fractures and the hydraulically induced
fractures. The production-decline curves for the Barnett Shale
wells in Johnson County, Texas, were analyzed to determine the
shape and final decline of a typical well producing from this
reservoir in the various areas.
Proved developed producing reserves were estimated by
extrapolation of historical production trends using a hyperbolic
curve with a 6-percent exponential tail that was terminated at
an economic limit based on current economic conditions.
Proved undeveloped reserves were estimated for undrilled
locations by analogy using producing offset wells. Future rates
of production from these wells were estimated using the type
curve previously discussed.
Gas quantities estimated herein are expressed as wet gas and
sales gas. Wet gas is the indigenous gas in the reservoir to be
produced. Sales gas is defined as that portion of the wet gas to
be delivered into a gas pipeline for sale after separation,
processing, fuel use, and flare. Gross gas reserves are reported
as wet gas. The net gas reserves are
reported as sales gas. Gas quantities are expressed at a
temperature base of 60 degrees Fahrenheit (°F) and at a
pressure base of 14.65 pounds per square inch absolute (psia).
Condensate reserves estimated herein are those to be recovered
by conventional lease separation. NGL reserves were estimating
using the typical yields received after the gas began to be
processed for NGL.
In the preparation of this study, as of December 31, 2009,
gross production estimated through December 31, 2009, was
deducted from gross ultimate recovery to arrive at the estimates
of gross reserves. This required that the production rates be
estimated for up to 1 month, since production data from
certain properties were available only through November 2009.
Data available from wells drilled through December 31,
2009, were used in this report.
The following table presents estimates of proved reserves, as of
December 31, 2009, of the properties appraised, expressed
in thousands of barrels (Mbbl) or millions of cubic feet (MMcf):
|
Gross |
Net |
|||||||||||
| Reserves | Reserves | |||||||||||
|
Wet Gas |
Liquids |
Sales Gas |
||||||||||
| (MMcf) | (Mbbl) | (MMcf) | ||||||||||
|
Proved
|
||||||||||||
|
Developed Producing
|
35,850 | 1,202 | 8,801 | |||||||||
|
Developed Nonproducing
|
403 | 15 | 111 | |||||||||
|
Undeveloped
|
15,480 | 613 | 4,403 | |||||||||
|
Total Proved
|
51,733 | 1,830 | 13,315 | |||||||||
Valuation
of Reserves
Revenue values in this report have been prepared using prices
specified by the SEC and expenditure information provided by US
Lime. Future prices were estimated using guidelines established
by the SEC and the FASB. The following assumptions were used for
estimating future prices and costs:
NGL
and Natural Gas Prices
NGL and natural gas prices were estimated for each property
using the differentials that were calculated from revenues
received by US Lime in 2009. The prices were calculated using
these differentials to a posted West Texas Intermediate (WTI)
price of $61.04 per barrel and a Henry Hub price of $3.86
per million British thermal units (MMBtu). The WTI price of
$61.04 is the
12-month
average price calculated as the unweighted arithmetic average of
the
first-day-of-the-month
price for each month within the
12-month
period prior to December 31, 2009, and were held constant
for the lives of the properties. The Henry Hub gas price of
$3.86 per MMBtu is the
12-month
average price, calculated as the unweighted arithmetic average
of the
first-day-of-the-month
price for each month within the
12-month
period prior to December 31, 2009. The weighted average
prices over the lives of the properties was $23.20 per barrel of
NGL and $4.035 per thousand cubic feet of gas.
Operating
Expenses and Capital Costs
Operating expenses and capital costs were based on information
provided by US Lime and were used in estimating future costs
required to operate the properties. In certain cases, future
costs, either higher or lower than current costs, may have been
used because of anticipated changes in operating conditions.
The estimated future revenue to be derived from the production
and sale of the proved reserves, as of December 31, 2009,
of the properties appraised, expressed in thousands of dollars
(M$) is summarized as follows:
| Proved | ||||||||||||||||
|
Developed |
Developed |
Total |
||||||||||||||
| Producing | Nonproducing | Undeveloped | Proved | |||||||||||||
|
Future Gross Revenue, M$
|
63,335 | 805 | 32,047 | 96,187 | ||||||||||||
|
Production Taxes, M$
|
3,529 | 53 | 1,241 | 4,823 | ||||||||||||
|
Ad Valorem Taxes, M$
|
1,464 | 19 | 770 | 2,253 | ||||||||||||
|
Operating Expenses, M$
|
13,114 | 215 | 5,368 | 18,697 | ||||||||||||
|
Investment, M$
|
0 | 21 | 2,073 | 2,094 | ||||||||||||
|
Abandonment Costs, M$
|
126 | 5 | 37 | 168 | ||||||||||||
|
Future Net Revenue*, M$
|
45,102 | 492 | 22,558 | 68,152 | ||||||||||||
|
Present Worth at 10 Percent*, M$
|
21,916 | 280 | 10,187 | 32,383 | ||||||||||||
| * | Future income taxes have not been taken into account in the preparation of these estimates. |
Timing of capital expenditures and the resulting development of
production were based on a development plan provided by US Lime.
In our opinion, the information relating to estimated proved
reserves, estimated future net revenue from proved reserves, and
present worth of estimated future net revenue from proved
reserves of oil, condensate, natural gas liquids, and gas
contained in this report has been prepared in accordance with
Paragraphs 932-235-50-4,
932-235-50-6,
932-235-50-7,
932-235-50-9,
932-235-50-30,
and
932-235-50-31(a),
(b), and (e) of the Accounting Standards Update
932-235-50,
Extractive Industries — Oil and Gas (Topic 932):
Oil and Gas Reserve Estimation and Disclosures (January
2010) of the Financial Accounting Standards Board and
Rules 4-10(a) (1)-(32) of Regulation S-X and
Rules 302(b), 1201, 1202(a) (1), (2), (3), (4), (8), and
1203(a) of Regulation S-K of the Securities and Exchange
Commission; provided, however, future income tax expenses have
not been taken into account in estimating the future net revenue
and present worth values set forth herein.
To the extent the above-enumerated rules, regulations, and
statements require determinations of an accounting or legal
nature or information beyond the scope of our report, we are
necessarily unable to express an opinion as to whether the
above-described information is in accordance therewith or
sufficient therefor.
While the oil and gas industry may be subject to regulatory
changes from time to time that could affect an industry
participant’s ability to recover its oil and gas reserves,
we are not aware of any such governmental actions which would
restrict the recovery of the January 1, 2010, estimated oil
and gas volumes. The reserves estimated in this report can be
produced under current regulatory guidelines.
DeGolyer and MacNaughton is an independent petroleum engineering
consulting firm that has been providing petroleum consulting
services throughout the world for over 70 years. DeGolyer
and MacNaughton does not have any financial interest, including
stock ownership, in US Lime. Our fees were not contingent on the
results of our evaluation. This letter report has been prepared
at the request of US Lime and should not be used for purposes
other than those for which it is intended. DeGolyer and
MacNaughton has used all procedures and methods that it
considers necessary to prepare this report.
Gas reserves in this report are expressed at a temperature base
of 60 °F and a pressure base of 14.65 psia.
Submitted,
/s/ DeGolyer and MacNaughton
Texas Registered Engineering Firm F-716
CERTIFICATE
of QUALIFICATION
I, Paul J. Szatkowski, Petroleum Engineer with DeGolyer
and MacNaughton, 5001 Spring Valley Road, Suite 800 East,
Dallas, Texas 75244, U.S.A., hereby certify:
1. That I am a Senior Vice President with DeGolyer and
MacNaughton, which company did prepare the report entitled
“Letter Report as of December 31, 2009 on Certain
Properties owned by United States Lime & Minerals,
Inc.” dated January 22, 2010, and that I, as
Senior Vice President, was responsible for the preparation of
this report.
2. That I attended Texas A&M University, and that I
graduated with a Bachelor of Science degree in Petroleum
Engineering in the year 1974; that I am a Registered
Professional Engineer in the State of Texas; that I am a member
of the International Society of Petroleum Engineers; and that I
have in excess of thirty-five (35) years of experience in
oil and gas reservoir studies and evaluations.
3. That DeGolyer and MacNaughton or its officers have no
direct or indirect interest, nor do they expect to receive any
direct or indirect interest in any properties or securities of
United States Lime & Minerals, Inc. or affiliate
thereof.
/s/ Paul
J. Szatkowski
Paul J. Szatkowski, P.E.
Senior Vice President
DeGolyer and MacNaughton
SIGNED: January 22, 2010