Attached files
EXHIBIT
99.1
REPORT OF RYDER SCOTT COMPANY,
L.P.
Northern
Oil and Gas, Inc.
315
Manitoba Avenue – Suite 200
Wayzata,
Minnesota 55391
Gentlemen:
At your
request, we have prepared an estimate of the reserves, future production, and
income attributable to certain leasehold interests of Northern Oil and Gas, Inc.
as of December 31, 2009. The subject properties are located in the
States of Montana and North Dakota. The reserves and income data were
estimated based on 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 (SEC regulations). The proved net
reserves attributable to the properties that we evaluated account for 100
percent to the total proved net liquid hydrocarbon and total net gas
reserves. The results of our third party study, completed on February
23, 2010, are presented herein.
The
estimated reserves and future net income amounts presented in this report, as of
December 31, 2009 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 ending date of the period covered in
this report, determined as 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 significantly from the
prices required by SEC regulations; 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 below.
SEC PARAMETERS
Estimated Net Reserves and Income Data*
Certain Leasehold Interests of
Northern Oil and Gas, Inc.
As of December 31,
2009
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Proved
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Developed
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Total
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Producing
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Non-Producing
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Undeveloped
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Proved*
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Net Remaining Reserves
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Oil/Condensate
– Barrels
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1,647,031
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600,687
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3,567,862
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5,815,579
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Plant
Products – Barrels
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0
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0
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0
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0
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|||||||||
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Gas
– MMCF
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513
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214
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1,034
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1,761
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Income Data M$
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Future
Gross Revenue
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$79,213
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$28,985
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$171,258
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$279,456
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Deductions
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22,341
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9,858
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92,108
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124,308
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Future
Net Income (FNI)
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$56,872
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$19,126
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$79,150
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$155,149
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Discounted
FNI @ 10%
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37,785
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$12,795
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$37,233
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$87,812
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*From
Landmark Graphics Corporation’s “ARIES”.
Liquid
hydrocarbons are expressed in standard 42 gallon barrels. All gas
volumes are sales gas 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 various producing status categories are defined under the tab
"Reserve Definitions" in this report.
1
The
estimates of the reserves, future production, and income attributable to
properties in this report were prepared using the economic software package
Aries for Windows, a copyrighted program of Landmark Graphics. The
program was used solely at the request of Northern Oil and Gas,
Inc. 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 are comprised of the normal direct costs of operating the wells, ad
valorem taxes, recompletion costs and development costs. The future
net income is before the deduction of state and federal income taxes 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 98 percent and gas reserves
account for 2 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.
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Discounted Future Net Income
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As of December 31, 2009
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Discount Rate
Percent
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Total Proved
M$
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5
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$112,930
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15
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$71,353
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20
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$59,793
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25
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$51,253
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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 Regulation S-X Part 210.4-10 (a) as
clarified by subsequent Commission Staff Accounting Bulletins. The
definitions of proved reserves are included under the tab “Petroleum Reserves
Definitions” in this report. The reserves and income quantities
attributable to the different reserve classifications that are included herein
have not been adjusted to reflect the varying degrees of risk associated with
them and thus are not comparable.
Estimates
of Reserves
The reserves for the properties
included herein were estimated by performance methods or analogy. In
general, reserves attributable to producing wells and/or reservoirs were
estimated by performance methods such as decline curve analysis which utilized
extrapolations of historical production data. Reserves attributable
to non-producing and undeveloped reserves included herein were estimated by
analogy.
To estimate economically recoverable
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 demonstrated to
be economically producible based on existing economic conditions including the
prices and costs at which economic producibility from a reservoir is to be
determined as of the effective date of the report. Northern Oil and
Gas, Inc. has informed us that they have furnished us all of the accounts,
records, geological and engineering data, and reports and other data required
for this investigation. In preparing our forecast of future
production and income, we have relied upon data furnished by Northern Oil and
Gas, Inc. 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, production
taxes, recompletion and development costs, product prices
based on the SEC regulations, geological 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 supplied by Northern Oil and Gas, Inc.
2
The
reserves included in this report are estimates only and should not be construed
as being exact quantities. They may or may not be actually recovered,
and if recovered, the revenues therefrom and the actual costs related thereto
could be more or less than the estimated amounts. Moreover, estimates
of reserves may increase or decrease as a result of future
operations.
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Future
Production Rates
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Initial
production rates are based on the current producing rates for those wells now on
production. Test data and other related information were used to
estimate the anticipated initial production rates for those wells or locations
which are not currently producing. 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 to depletion of the reserves. If a decline trend has been
established, this trend was used as the basis for estimating future production
rates. For reserves not yet on production, sales were estimated to
commence at an anticipated date furnished by Northern Oil and Gas,
Inc.
The
future production rates from wells now on production may be more or less than
estimated because of changes in market demand or allowables set by regulatory
bodies. Wells or locations that are not currently producing may start
producing earlier or later than anticipated in our estimates.
Hydrocarbon
Prices
The hydrocarbon prices used herein are
based on the average prices during the 12-month period prior to the ending date
of the period covered in 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.
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 Northern Oil and
Gas, Inc. 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. When applicable 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. 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 Northern Oil and Gas, Inc. and are based on
authorizations for expenditure for the proposed work or actual costs for similar
projects. The estimated net cost of abandonment after salvage was
included for properties where abandonment costs net of salvage was
significant. The estimates of the zero net abandonment costs
furnished by Northern Oil and Gas, Inc. were accepted without independent
verification.
Because
of the direct relationship between volumes of proved undeveloped reserves and
development plans, we include in the proved undeveloped category only reserves
assigned to undeveloped locations that we have been assured will definitely be
drilled. Northern Oil and
Gas, Inc. has assured us of their intent and ability to proceed with the
development activities included in this report, and that they are not aware of
any legal, regulatory or political obstacles that would significantly alter
their plans.
Current
costs used by Northern Oil and Gas, Inc. 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 for over seventy years. Ryder Scott is
employee owned and maintains offices in Houston, Texas; Denver, Colorado; and
Calgary, Alberta, Canada. We have over 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 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.
Ryder Scott requires that staff
engineers and geoscientists have received professional accreditation, and are
maintaining in good standing, 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 prior to becoming an officer of the
Company.
We are independent petroleum engineers
with respect to Northern Oil and Gas, Inc.. Neither we nor any of any
of our employees have any 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 professional qualifications of the
undersigned, the technical person primarily responsible for reviewing and
approving the reserves information discussed in this report, are included as an
attachment to this letter.
Terms
of Usage
This report was prepared for the
exclusive use and sole benefit of Northern Oil and Gas, Inc. and may not be put
to other use without our prior written consent for such use. 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/ Richard J.
Marshall
Richard J. Marshall
P.E.
Vice President
Approved:
/s/ James L. Baird
James L.
Baird, P.E.
Senior
Vice President
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