Attached files
file | filename |
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10-K - FORM 10-K - AMERICAN OIL & GAS INC | c97729e10vk.htm |
EX-31.2 - EXHIBIT 31.2 - AMERICAN OIL & GAS INC | c97729exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - AMERICAN OIL & GAS INC | c97729exv32w1.htm |
EX-32.2 - EXHIBIT 32.2 - AMERICAN OIL & GAS INC | c97729exv32w2.htm |
EX-31.1 - EXHIBIT 31.1 - AMERICAN OIL & GAS INC | c97729exv31w1.htm |
EX-21.(I) - EXHIBIT 21(I) - AMERICAN OIL & GAS INC | c97729exv21wxiy.htm |
EX-23.(I) - EXHIBIT 23.(I) - AMERICAN OIL & GAS INC | c97729exv23wxiy.htm |
EX-23.(II) - EXHIBIT 23.(II) - AMERICAN OIL & GAS INC | c97729exv23wxiiy.htm |
Exhibit 99.1
FAX (303) 623-4258 |
621 SEVENTEENTH STREET SUITE 1550 DENVER, COLORADO 80293 TELEPHONE (303) 623-9147
February 26, 2010
American Oil & Gas Inc.
1050 17th Street, Suite 2400
Denver, Colorado 80265
1050 17th Street, Suite 2400
Denver, Colorado 80265
Gentlemen:
At your request, we have prepared an estimate of the proved reserves, future production, and
income attributable to certain leasehold and royalty interests of American Oil & Gas Inc.
(American) as of December 31, 2009. The subject properties are located in the Rocky Mountain
region. 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 results of our third party study, completed on
February 25, 2010, are presented herein. The properties reviewed by Ryder Scott represent 100
percent of the total net proved liquid hydrocarbon reserves and 100 percent of the total net proved
gas reserves of American.
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 and Royalty Interests of
American Oil & Gas Inc.
As of December 31, 2009
Estimated Net Reserves and Income Data
Certain Leasehold and Royalty Interests of
American Oil & Gas Inc.
As of December 31, 2009
Proved | ||||||||||||||||
Developed | Total | |||||||||||||||
Producing | Non-Producing | Undeveloped | Proved | |||||||||||||
Net Remaining Reserves |
||||||||||||||||
Oil/Condensate Barrels |
55,598 | 8,820 | 83,092 | 147,510 | ||||||||||||
Gas MMCF |
500 | 146 | 311 | 957 | ||||||||||||
Income Data |
||||||||||||||||
Future Gross Revenue |
$ | 4,754,659 | $ | 996,566 | $ | 5,216,715 | $ | 10,967,941 | ||||||||
Production Taxes |
345,852 | 57,102 | 545,300 | 948,253 | ||||||||||||
Deductions |
2,053,975 | 555,757 | 2,857,468 | 5,467,200 | ||||||||||||
Future Net Income (FNI) |
$ | 2,354,832 | $ | 383,708 | $ | 1,813,947 | $ | 4,552,487 | ||||||||
Discounted FNI @ 10% |
$ | 1,541,216 | $ | 265,864 | $ | 677,938 | $ | 2,485,018 |
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas volumes are reported on
an as sold basis expressed in millions of cubic feet (MMCF) at the official temperature and
pressure bases of the areas
in which the gas reserves are located.
American Oil & Gas Inc.
February 26, 2010
Page 2
February 26, 2010
Page 2
The future gross revenue includes all product revenue. Production taxes are shown on a
separate line. The deductions comprise 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 general administrative overhead, 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 70 percent and gas
reserves account for the remaining 30 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.
Discounted Future Net Income | ||||
As of December 31, 2009 | ||||
Discount Rate | Total | |||
Percent | Proved $ | |||
5 |
$ | 3,284,435 | ||
8 |
$ | 2,766,013 | ||
12 |
$ | 2,243,248 | ||
15 |
$ | 1,937,884 |
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 Commissions Regulations Part 210.4-10 (a). An abridged version of the SEC reserves
definitions from 210.4-10(a) entitled Petroleum Reserves Definitions is included as an attachment
to this report.
The various reserve status categories are defined under the attachment entitled Petroleum
Reserves Definitions in this report. The developed non-producing reserves included herein consist
of the Shut-In and Behind Pipe categories.
No attempt was made to quantify or otherwise account for any accumulated gas production
imbalances that may exist. The gas volumes included herein do not attribute gas consumed in
operations as reserves.
While it may reasonably be anticipated that the future prices received for the sale of
production and the operating costs and other costs relating to such production may also increase or
decrease from existing levels, such changes were, in accordance with rules adopted by the SEC,
omitted from consideration in making this evaluation.
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. Moreover, estimates of reserves may increase or decrease as
a result of future operations, effects of regulation by governmental agencies or geopolitical
risks. As a result, the estimates of oil and gas reserves have an intrinsic uncertainty. The
reserves included in this report are therefore 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.
The estimates of reserves presented herein were based upon a detailed study of the properties
in which American owns an interest; however, we have not made any field examination of the
properties. No consideration
was given in this report to potential environmental liabilities that may exist nor were any
costs included for potential liability to restore and clean up damages, if any, caused by past
operating practices.
American Oil & Gas Inc.
February 26, 2010
Page 3
February 26, 2010
Page 3
Estimates of Reserves
The reserves for the properties included herein were estimated by performance methods or by
analogy to offset producing wells. In general, reserves attributable to producing wells and/or
reservoirs were estimated by performance methods such as decline curve analysis, material balance
and/or reservoir simulation which utilized extrapolations of historical production and pressure
data available through December 31, 2009 in those cases where such data were considered to be
definitive. In certain cases, producing reserves were estimated by the analogy method in those
cases where there were inadequate historical performance data to establish a definitive trend and
where the use of production performance data as a basis for the reserve estimates was considered to
be inappropriate. Reserves attributable to non-producing and undeveloped reserves included herein
were estimated by the analogy method which utilized all pertinent well data available through
December 31, 2009. Future drilling and completion results could result in an increase or decrease
in reserves.
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. American 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 American 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, ad valorem and production taxes, recompletion and
development costs, abandonment costs after salvage, product prices based on the SEC regulations,
geological structural and isochore 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 American.
Future Production Rates
Our forecasts of future production rates are based on historical performance from wells now on
production. Test data and other related information were used to estimate the anticipated initial
production rates for those wells or locations that 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 American.
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
As previously stated, the hydrocarbon prices used herein are based on SEC price parameters
using 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.
American Oil & Gas Inc.
February 26, 2010
Page 4
February 26, 2010
Page 4
In accordance with SEC regulations, the average prices during the 12-month period prior to the
ending date of the period covered in this report were $3.87 per MMBTU for natural gas delivered to
Henry Hub, Louisiana and $61.18 per barrel of West Texas Intermediate crude delivered to Cushing,
Oklahoma. Also in accordance with SEC and FASB specifications, changes in market prices subsequent
to December 31, 2009 were not considered in this report. Product prices which were actually used
reflect adjustments from these prices for quality, local conditions and other appropriate marketing
differentials.
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 are based on the operating expense
reports of American 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 American and are based on authorizations for
expenditure for the proposed work or actual costs for similar projects. Americans estimates of
zero abandonment costs after salvage value for onshore properties were used in this report. Ryder
Scott has not performed a detailed study of the abandonment costs or the salvage value and makes no
warranty for Americans estimate.
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. American 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 American 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
engineers license or a registered or certified professional geoscientists 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 American. Neither we nor 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.
American Oil & Gas Inc.
February 26, 2010
Page 5
February 26, 2010
Page 5
The professional qualifications of the undersigned, the technical person primarily responsible
for preparing the reserves information discussed in this report, are included as an attachment to
this letter.
1 Terms of Usage
This report was prepared for the exclusive use and sole benefit of American 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-158 |
Approved:
James L. Baird, P.E.
Senior Vice President
Professional Qualifications of Primary Technical Person
The conclusions presented in this report are the result of technical analysis conducted by teams of
geoscientists and engineers from Ryder Scott Company, L.P. Thomas E. Venglar was the primary
technical person responsible for overseeing the estimate of the future net reserves and income.
Mr. Venglar, an employee of Ryder Scott Company L.P. (Ryder Scott) beginning in 2006, is a Senior
Petroleum Engineer responsible for coordinating and supervising staff and consulting engineers of
the company in ongoing reservoir evaluation studies. Before joining Ryder Scott, Venglar served in
a number of engineering positions with Grynberg Petroleum Company and Anadarko Petroleum
Corporation. For more information regarding Mr. Venglars geographic and job specific experience,
please refer to the Ryder Scott Company website at www.ryderscott.com/Experience/Employees.
Venglar earned a Bachelor of Science degree in Petroleum Engineering from Texas A&M University in
1979 and is a registered Professional Engineer in the state of Colorado. He is also a member of
the Society of Petroleum Engineers.
Based on his educational background, professional training and more than 30 years of practical
experience in the estimation and evaluation of petroleum reserves, Venglar has attained the
professional qualifications as a Reserves Estimator and Reserves Auditor as set forth in Article
III of the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves
Information promulgated by the Society of Petroleum Engineers as of February 19, 2007.