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EXHIBIT 99
RYDER SCOTT COMPANY
PETROLEUM CONSULTANTS
621 Seventeenth Street, Suite 1550, Denver, COLORADO 80293
Telephone (303) 623-9147
October 13, 2011
Synergy Resources Corporation
20203 Highway 60
Platteville, Colorado 80651
Gentlemen:
At your request, Ryder Scott Company, L.P. (Ryder Scott) has prepared an
estimate of the proved reserves, future production, and income attributable to
certain leasehold and royalty interests of Synergy Resources Corporation
(Synergy) as of August 31, 2011. The subject properties are located in the state
of placeStateColorado. The reserves and income data were estimated based on the
definitions and disclosure guidelines of the United States Securities and
Exchange Commission (SEC) contained in Title 17, Code of Federal Regulations,
Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in
the Federal Register (SEC regulations). Our third party study, completed on
October 13, 2011 and presented herein, was prepared for public disclosure by
Synergy in filings made with the SEC in accordance with the disclosure
requirements set forth in the SEC regulations. The properties evaluated 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 Synergy.
The estimated reserves and future net income amounts presented in this
report, as of August 31, 2011, 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.
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SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold and Royalty Interests of
Synergy Resources Corporation
As of August 31, 2011
-----------------------------------------------
Proved
-----------------------------------------------------
Developed
------------------------- Total
Producing Non-Producing Undeveloped Proved
---------- ------------- ------------ ---------
Net Remaining Reserves
Oil/Condensate - Barrels 613,180 170,641 1,285,884 2,069,705
Gas - MCF 4,497,734 1,080,333 8,683,091 14,261,158
Income Data, $
Future Gross Revenue $71,027,480 $18,819,100 $145,392,300 $235,238,880
Deductions 14,298,252 5,647,381 61,736,015 81,681,648
----------- ----------- ------------ ------------
Future Net Income
(FNI) $56,729,228 $13,171,719 $83,656,285 $153,557,232
Discounted FNI @ 10% $33,946,592 $ 6,995,878 $30,815,373 $ 71,757,843
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas
volumes are reported on an "as sold" basis expressed in thousands of cubic feet
(MCF) at the official temperature and pressure base of Colorado, which are
60(degree)F and 14.73 psia, respectively.
The estimates of reserves, future production and income attributable to
properties in this report were prepared using the economic software package
PHDWin Petroleum Economic evaluation Software, a copyrighted program of TRC
Consultants, L.C. 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 incorporate 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 71 percent and gas
reserves account for the remaining 29 percent of total future gross revenue from
proved reserves.
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The discounted future net income shown above was calculated using a
discount rate of 10 percent per annum compounded annually. Future net income was
discounted at four other discount rates which were also compounded annually.
These results are shown in summary form as follows.
Discounted Future Net Income
As of August 31, 2011
-------------------------------
Discount Rate Total
Percent Proved $
---------------- --------------
5 $100,095,569
8 $ 81,237,159
12 $ 64,028,274
15 $ 54,841,974
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 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 Proved 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.
Reserves are "estimated remaining quantities of oil and gas and related
substances anticipated to be economically producible, as of a given date, by
application of development projects to known accumulations." All reserve
estimates involve an assessment of the uncertainty relating the likelihood that
the actual remaining quantities recovered will be greater or less than the
estimated quantities determined as of the date the estimate is made. The
uncertainty depends chiefly on the amount of reliable geologic and engineering
data available at the time of the estimate and the interpretation of these data.
The relative degree of uncertainty may be conveyed by placing reserves into one
of two principal classifications, either proved or unproved. Unproved reserves
are less certain to be recovered than proved reserves, and may be further
sub-classified as probable and possible reserves to denote progressively
increasing uncertainty in their recoverability. At Synergy's request, this
report addresses only the proved reserves attributable to the properties
evaluated herein.
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. The proved
reserves included herein were estimated using deterministic methods. If
deterministic methods are used, the SEC has defined reasonable certainty for
proved reserves as a "high degree of confidence that the quantities will be
recovered."
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Proved reserve estimates will generally be revised only as additional
geologic or engineering data become available or as economic conditions change.
For proved reserves, the SEC states that "as changes due to increased
availability of geoscience (geological, geophysical, and geochemical),
engineering, and economic data are made to the estimated ultimate recovery (EUR)
with time, reasonably certain EUR is much more likely to increase or remain
constant than to decrease." Moreover, estimates of proved reserves may be
revised as a result of future operations, effects of regulation by governmental
agencies or geopolitical or economic risks. Therefore, the proved reserves
included in this report are estimates only and should not be construed as being
exact quantities, and if recovered, the revenues therefrom, and the actual costs
related thereto, could be more or less than the estimated amounts.
Synergy's operations may be subject to various levels of governmental
controls and regulations. These controls and regulations may include, but may
not be limited to, matters relating to land tenure and leasing, the legal rights
to produce hydrocarbons, drilling and production practices, environmental
protection, marketing and pricing policies, royalties, various taxes and levies
including income tax and are subject to change from time to time. Such changes
in governmental regulations and policies may cause volumes of proved reserves
actually recovered and amounts of proved income actually received to differ
significantly from the estimated quantities.
The estimates of proved reserves presented herein were based upon a
detailed study of the properties in which Synergy 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 liabilities to restore and clean up
damages, if any, caused by past operating practices.
Estimates of Reserves
The estimation of reserves involves two distinct determinations. The first
determination results in the estimation of the quantities of recoverable oil and
gas and the second determination results in the estimation of the uncertainty
associated with those estimated quantities in accordance with the definitions
set forth by the Securities and Exchange Commission's Regulations Part
210.4-10(a). The process of estimating the quantities of recoverable oil and gas
reserves relies on the use of certain generally accepted analytical procedures.
These analytical procedures fall into three broad categories or methods: (1)
performance-based methods; (2) volumetric-based methods; and (3) analogy. These
methods may be used singularly or in combination by the reserve evaluator in the
process of estimating the quantities of reserves. Reserve evaluators must select
the method or combination of methods which in their professional judgment is
most appropriate given the nature and amount of reliable geoscience and
engineering data available at the time of the estimate, the established or
anticipated performance characteristics of the reservoir being evaluated and the
stage of development or producing maturity of the property.
In many cases, the analysis of the available geoscience and engineering
data and the subsequent interpretation of this data may indicate a range of
possible outcomes in an estimate, irrespective of the method selected by the
evaluator. When a range in the quantity of reserves is identified, the evaluator
must determine the uncertainty associated with the incremental quantities of the
reserves. If the reserve quantities are estimated using the deterministic
incremental approach, the uncertainty for each discrete incremental quantity of
the reserves is addressed by the reserve category assigned by the evaluator.
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Therefore, it is the categorization of reserve quantities as proved, probable
and/or possible that addresses the inherent uncertainty in the estimated
quantities reported. For proved reserves, uncertainty is defined by the SEC as
reasonable certainty wherein the "quantities actually recovered are much more
likely than not to be achieved." The SEC states that "probable reserves are
those additional reserves that are less certain to be recovered than proved
reserves but which, together with proved reserves, are as likely as not to be
recovered." The SEC states that "possible reserves are those additional reserves
that are less certain to be recovered than probable reserves and the total
quantities ultimately recovered from a project have a low probability of
exceeding proved plus probable plus possible reserves." All quantities of
reserves within the same reserve category must meet the SEC definitions as noted
above.
Estimates of reserves quantities and their associated reserve categories
may be revised in the future as additional geoscience or engineering data become
available. Furthermore, estimates of reserves quantities and their associated
reserve categories may also be revised due to other factors such as changes in
economic conditions, results of future operations, effects of regulation by
governmental agencies or geopolitical or economic risks as previously noted
herein.
The proved reserves for the properties included herein were estimated by
performance methods or by analogy. Proved producing and proved shut in reserves
attributable to wells and/or reservoirs were estimated by the performance or
analogy method. These performance methods include decline curve analysis which
utilized extrapolations of historical production and pressure data available
through August, 2011 in about ninety-eight percent of those cases where such
data were considered to be definitive. In the remaining two percent of cases,
this data, while available, was not sufficient for extrapolation. In these
cases, the analogy method was used. The data utilized in this analysis were
supplied to Ryder Scott by Synergy or obtained from public data sources and were
considered sufficient for the purpose thereof.
One hundred percent of the proved behind pipe and undeveloped reserves
included herein were estimated by the analogy method. The analogy method
utilized pertinent well data supplied to Ryder Scott by Synergy or which we have
obtained from public data sources that were available through August, 2011.
To estimate economically recoverable proved 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 that 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 anticipated to be
economically producible from a given date forward based on existing economic
conditions including the prices and costs at which economic producibility from a
reservoir is to be determined. 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 increase or decrease from those
under existing economic conditions, such changes were, in accordance with rules
adopted by the SEC, omitted from consideration in making this evaluation.
Synergy has informed us that they have furnished us all of the material
accounts, records, geological and engineering data, and reports and other data
required for this investigation. In preparing our forecast of future proved
production and income, we have relied upon data furnished by Synergy with
respect to property interests owned, production and well tests from examined
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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, product prices based on the SEC regulations
and adjustments or differentials to product prices. Ryder Scott reviewed such
factual data for its reasonableness; however, we have not conducted an
independent verification of the data furnished by Synergy. We consider the
factual data used in this report appropriate and sufficient for the purpose of
preparing the estimates of reserves and future net revenues herein.
In summary, we consider the assumptions, data, methods and analytical
procedures used in this report appropriate for the purpose hereof, and we have
used all such methods and procedures that we consider necessary and appropriate
to prepare the estimates of reserves herein. The proved reserves included herein
were determined in conformance with the United States Securities and Exchange
Commission (SEC) Modernization of Oil and Gas Reporting; Final Rule, including
all references to Regulation S-X and Regulation S-K, referred to herein
collectively as the "SEC Regulations." In our opinion, the proved reserves
presented in this report comply with the definitions, guidelines and disclosure
requirements as required by the SEC regulations.
Future Production Rates
For wells currently on production, our forecasts of future production
rates are based on historical performance data. 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.
Offset analogies and other related information were used to estimate the
anticipated initial production rates for those wells or locations that are not
currently producing. For reserves not yet on production, sales were estimated to
commence at an anticipated date furnished by Synergy. Wells or locations that
are not currently producing may start producing earlier or later than
anticipated in our estimates due to unforeseen factors causing a change in the
timing to initiate production. Such factors may include delays due to weather,
the availability of rigs, the sequence of drilling, completing and/or
recompleting wells and/or constraints set by regulatory bodies.
The future production rates from wells currently on production or wells or
locations that are not currently producing may be more or less than estimated
because of changes including, but not limited to, reservoir performance,
operating conditions related to surface facilities, compression and artificial
lift, pipeline capacity and/or operating conditions, producing market demand
and/or allowables or other constraints set by regulatory bodies.
Hydrocarbon Prices
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.
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Ryder Scott determined the 1st day of the month unweighted arithmetic
average prices in effect on August 31, 2011. These initial SEC hydrocarbon
prices were determined using the 12-month average first-day-of-the-month
benchmark prices appropriate to the geographic area where the hydrocarbons are
sold. These benchmark prices are prior to the adjustments for differentials as
described herein. The table below summarizes the "price reference" and the
"average benchmark prices" used for the geographic area included in the report.
The product prices that were actually used to determine the future gross
revenue for each property reflect adjustments to the benchmark prices for
gravity, quality, local conditions, and/or distance from market, referred to
herein as "differentials." The differentials used in the preparation of this
report were estimated by Ryder Scott based on information furnished by Synergy.
In addition, the table below summarizes the net volume weighted benchmark
prices adjusted for differentials and referred to herein as the "average
realized prices." The average realized prices shown in the table below were
determined from the total future gross revenue before production taxes and the
total net reserves for the geographic area and presented in accordance with SEC
disclosure requirements for each of the geographic areas included in the report.
------------------------------------------------------------------------------
Average Average
Price Benchmark Realized
Geographic Area Product Reference Prices Prices
------------------------------------------------------------------------------
North America
------------------------------------------------------------------------------
Colorado Oil/Condensate WTI Cushing $93.25/BBL $84.90/BBL
------------------------------------------------------------------------------
Gas Henry Hub $4.15/MMBTU $ 5.07/MCF
-------------------------------------------------------------------------------
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 Synergy 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. 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. The operating costs furnished by Synergy were reviewed by us for
their reasonableness using information supplied by Synergy for this purpose. 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 Synergy and are based on
authorizations for expenditure for the proposed work or actual costs for similar
projects. The development costs furnished by Synergy were reviewed by us for
their reasonableness using information supplied by Synergy for this purpose.
Synergy's estimates of zero abandonment costs after salvage value for all
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
Synergy's estimate.
The proved non-producing and undeveloped reserves in this report have been
incorporated herein in accordance with Synergy's plans to develop these reserves
as of August 31, 2011. The implementation of Synergy's development plans as
presented to us and incorporated herein is subject to the approval process
adopted by Synergy's management. As the result of our inquires during the course
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of preparing this report, Synergy has informed us that the development
activities included herein have been subjected to and received the internal
approvals required by Synergy's management at the appropriate local, regional
and/or corporate level. In addition to the internal approvals as noted, certain
development activities may still be subject to specific partner AFE processes,
Joint Operating Agreement (JOA) requirements or other administrative approvals
external to Synergy. Additionally, Synergy has informed us that they are not
aware of any legal, regulatory, political or economic obstacles that would
significantly alter their plans.
Current costs used by Synergy were held constant throughout the life of
the properties.
Standards of placeCityIndependence 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 privately owned or 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.
Prior to becoming an officer of the Company, Ryder Scott requires that
staff engineers and geoscientists have received professional accreditation in
the form of 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.
We are independent petroleum engineers with respect to Synergy. 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.
The results of this study, presented herein, are based on technical
analysis conducted by teams of geoscientists and engineers from Ryder Scott. 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.
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Terms of Usage
The results of our third party study, presented in report form herein,
were prepared in accordance with the disclosure requirements set forth in the
SEC regulations and intended for public disclosure as an exhibit in filings made
with the SEC by Synergy.
Synergy makes periodic filings on Form 10-K with the SEC under the 1934
Exchange Act. Furthermore, Synergy has certain registration statements filed
with the SEC under the 1933 Securities Act into which any subsequently filed
Form 10-K is incorporated by reference. We have consented to the incorporation
by reference in the registration statements on Form S-3 of Synergy of the
references to our name as well as to the references to our third party report
for Synergy, which appears in the August 31, 2011 annual report on Form 10-K of
Synergy. Our written consent for such use is included as a separate exhibit to
the filings made with the SEC by Synergy.
We have provided Synergy with a digital version of the original signed
copy of this report letter. In the event there are any differences between the
digital version included in filings made by Synergy and the original signed
report letter, the original signed report letter shall control and supersede the
digital version.
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/ Thomas E. Venglar
Thomas E. Venglar, P.E.
Colorado License No. 28846
Senior Petroleum Engineer
[SEAL]
Approved:
/s/ James L. Baird
James L. Baird, P.E.
Managing Senior Vice President
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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. Venglar's 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
PlaceNameTexas PlaceNameA&M PlaceTypeUniversity in 1979 and is a registered
Professional Engineer in the state of placeStateColorado. 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.
