Attached files
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10-K - FORM 10-K - UNITED STATES LIME & MINERALS INC | d80419e10vk.htm |
EX-31.1 - EX-31.1 - UNITED STATES LIME & MINERALS INC | d80419exv31w1.htm |
EX-32.1 - EX-32.1 - UNITED STATES LIME & MINERALS INC | d80419exv32w1.htm |
EX-23.1 - EX-23.1 - UNITED STATES LIME & MINERALS INC | d80419exv23w1.htm |
EX-31.2 - EX-31.2 - UNITED STATES LIME & MINERALS INC | d80419exv31w2.htm |
EX-23.2 - EX-23.2 - UNITED STATES LIME & MINERALS INC | d80419exv23w2.htm |
EX-32.2 - EX-32.2 - UNITED STATES LIME & MINERALS INC | d80419exv32w2.htm |
EX-21.1 - EX-21.1 - UNITED STATES LIME & MINERALS INC | d80419exv21w1.htm |
EX-99.2 - EX-99.2 - UNITED STATES LIME & MINERALS INC | d80419exv99w2.htm |
EXHIBIT 99.1
REPORT OF
INDEPENDENT PETROLEUM ENGINEERS
DeGolyer and
MacNaughton
500I Spring Valley Road
Suite 800 East
Dallas, Texas 75244
500I Spring Valley Road
Suite 800 East
Dallas, Texas 75244
February 23, 2011
United States Lime & Minerals, Inc.
5429 LBJ Freeway Suite 230
5429 LBJ Freeway Suite 230
Dallas, Texas 75240
Gentlemen:
Pursuant to your request, we have prepared estimates of the
extent and value of the net proved crude oil, condensate,
natural gas liquids (NGL) and natural gas reserves, as of
December 31, 2010, of certain selected properties owned by
United States Lime & Minerals, Inc. (US Lime). This
evaluation was completed on February 23, 2011. US Lime has
represented that these properties account for 100 percent
on a million cubic feet net equivalent basis of US Limes
net proved reserves as of December 31, 2010. The net proved
reserves estimates prepared by us have been prepared in
accordance with the reserves definitions of
Rules 4-10(a)
(l)-(32) of
Regulation S-X
of the Securities and Exchange Commission (SEC) of the United
States.
Reserves included herein are expressed as net reserves. Gross
reserves are defined as the total estimated petroleum to be
produced from these properties after December 31, 2010. Net
reserves are defined as that portion of the gross reserves
attributable to the interests owned by US Lime after deducting
all interests owned by others.
Data used in this evaluation were obtained from reviews with US
Lime personnel, US Lime files, from records on file with the
appropriate regulatory agencies, and from public sources. In the
preparation of this report we have relied, without independent
verification, upon such information furnished by US Lime with
respect to 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.
Methodology
and Procedures
Estimates of reserves were prepared by the use of appropriate
geologic, petroleum engineering, and evaluation principals and
techniques that are in accordance with practices generally
recognized by the petroleum industry as presented in the
publication of the Society of Petroleum Engineers entitled
Standards Pertaining to the Estimating and Auditing of Oil
and Gas Reserves Information (Revision as of February 19,
2007). 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) and original oil in place (OOIP).
Structure 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 OGIP or OOIP.
Estimates of ultimate recovery were obtained after applying
recovery factors to OGIP or OOIP. 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 or to the limit of the production licenses as
appropriate.
Definition
of Reserves
Petroleum reserves estimated by us included in this report are
classified as proved. Only proved reserves have been evaluated
for this report. Reserves classifications used by us in this
report are in accordance with the reserves definitions of
Rules 4-10(a)
(l)-(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.
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 two drilled but
not completed wells 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 estimated using the typical yields
received after the gas began to be processed for NGL.
The development status shown herein represents the status
applicable on December 31, 2010. In the preparation of this
study, data available from wells drilled on the appraised
properties through December 31, 2010, were used in
estimating gross ultimate recovery. When applicable, gross
production estimated to December 31, 2010, was deducted
from gross ultimate recovery to arrive at the estimates of gross
reserves as of December 31, 2010. Production data through
November 2010 were available for most properties.
Our estimates of US Limes net proved reserves attributable
to the reviewed properties are based on the definitions of
proved reserves of the SEC and are as follows, expressed in
thousands of barrels (Mbbl) and millions of cubic feet (MMcf):
Net Reserves | ||||||||||||
Oil and |
||||||||||||
Condensate |
NGL |
Sales Gas |
||||||||||
(Mbbl) | (Mbbl) | (MMcf) | ||||||||||
Proved
|
||||||||||||
Developed Producing
|
513 | 1,043 | 10,593 | |||||||||
Developed Nonproducing
|
0 | 111 | 1,128 | |||||||||
Undeveloped
|
0 | 53 | 544 | |||||||||
Total Proved
|
513 | 1,207 | 12,265 |
Primary
Economic Assumptions
Revenue values in this report are expressed in terms of
estimated future gross revenue, future net revenue, and present
worth of future net revenue. These values are based on the
continuation of prices in effect on December 31, 2010.
Future gross revenue is defined as that revenue to be realized
from the production and sale of the estimated net reserves.
Future net revenue is calculated by deducting estimated
production taxes, ad valorem taxes, operating, gathering,
processing expenses, and capital costs from the future gross
revenue. Present worth of future net revenue is calculated by
discounting the future net revenue at the arbitrary rate of
10 percent per year compounded monthly over the expected
period of realization.
Revenue values in this report were estimated using the initial
prices and expenses provided by US Lime. Future prices were
estimated using guidelines established by the SEC and the
Financial Accounting Standards Board (FASB). The prices used in
this report are based on SEC guidelines. The assumptions used
for estimating future prices and expenses are as follows:
NGL,
Oil, and Condensate Prices
NGL prices were calculated for each property using the
differentials to a West Texas Intermediate price of $79.43 per
barrel and were held constant for the lives of the properties.
The weighted average price over the lives of the properties was
$38.71 per barrel. Oil and condensate price differentials for
each property were based on information provided by US Lime. Oil
and condensate prices were calculated using these
differentials to a West Texas Intermediate (WTI) Cushing price
of $79.43 per barrel and held constant thereafter. The WTI
Cushing price of $79.43 is the reference 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 the end of the reporting period. The weighted
average condensate price of the proved reserves over the lives
of the properties was $79.74 per barrel.
Natural
Gas Prices
Gas prices were calculated for each property using the
calculated differentials to a Henry Hub price of $4.38 per
million British thermal units. No escalation was applied to
prices. The Henry Hub price of $4.38 is the reference 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 the end of the reporting period. The weighted
average of the proved reserves price over the lives of the
properties was $4,519 per thousand cubic feet.
Operating
Expenses and Capital Costs
Operating expenses and capital costs, based on information
provided by US Lime, were used in estimating future costs
required to operate the properties. In certain cases, future
costs, either higher or lower than existing costs, may have been
used because of anticipated changes in operating conditions.
These costs were not escalated for inflation.
The estimated future revenue and expenditures attributable to
the production and sale of US Limes net proved reserves of
the properties appraised, as of December 31, 2010, is
summarized in thousands of dollars (M$) as follows:
Proved | ||||||||||||||||
Developed |
Developed |
Total |
||||||||||||||
Producing | Nonproducing | Undeveloped | Proved | |||||||||||||
Future Gross Revenue, M$
|
88,169 | 9,466 | 4,563 | 102,198 | ||||||||||||
Production Taxes, M$
|
4,032 | 421 | 201 | 4,654 | ||||||||||||
Ad Valorem Taxes, M$
|
1,483 | 148 | 69 | 1,700 | ||||||||||||
Operating Expenses, M$
|
21,430 | 1,931 | 935 | 24,296 | ||||||||||||
Investment, M$
|
0 | 470 | 246 | 716 | ||||||||||||
Abandonment Costs, M$
|
31 | 5 | 4 | 40 | ||||||||||||
Future Net Revenue*, M$
|
61,193 | 6,491 | 3,108 | 70,792 | ||||||||||||
Present Worth at 10 Percent*, M$
|
31,997 | 3,380 | 1,623 | 37,000 |
* | Future income taxes have not been taken into account in the preparation of these estimates. |
Estimates of natural 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.
While the oil and gas industry may be subject to regulatory
changes from time to time that could affect an industry
participants ability to recover its oil and gas reserves,
we are not aware of any such governmental actions which would
restrict the recovery of the December 31, 2010, estimated
oil and gas volumes. The reserves estimated in this report can
be produced under current regulatory guidelines.
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)
(l)-(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, we, as engineers, are necessarily unable to express an
opinion as to whether the above-described information is in
accordance therewith or sufficient therefor.
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. DeGolyer and
MacNaughton has used all assumptions, data, procedures, and
methods that it considers necessary and appropriate to prepare
this report.
Submitted,
DeGoyer and MacNaughton
Texas Registered Engineering Firm F-716
Texas Registered Engineering Firm F-716
Paul J. Szatkowski, P.E. Senior Vice President DeGoyer and MacNaughton |
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 letter report
addressed to US Lime dated February 23, 2011, 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 the
American Association of Petroleum Geologists; and that I have in
excess of 36 years of experience in oil and gas reservoir
studies and reserves evaluations.
Paul J. Szatkowski, P.E. Senior Vice President DeGoyer and MacNaughton |