Attached files
Exhibit 99.01
 James E. Smith & Associates, Inc. |
| Petroleum Engineers & Geologists |
February 1, 2012
Pegasi Energy Resources Corp.
P O Box 2033
Tyler, TX 75710-2033
Attn: Mike Neufeld
Subject: Evaluation of Oil & Gas Reserves for Pegasi Energy Resources Corp. Working Interests in wells/properties in Cass & Marion Counties, Texas
Mr. Neufeld:
Pursuant to your request, James E. Smith & Associates, Inc. (JES) has prepared estimates of the oil & gas reserves attributable to the working interests of Pegasi Energy Resources Corp.
(PERC) in wells/properties in Cass & Marion Counties, Texas. This report has been prepared for the purpose of providing PERC with Securities and Exchange Commission (SEC) compliant reserves estimates for their filing of their annual 10-K reports.
A summary of the Proved Net Reserves and Future Net Cashflow are as follows:
|
NET OIL RESERVES
(MBBLS)
|
NET GAS RESERVES
(MMCF)
|
NET RESERVES
(Barrel-Oil-Equivalent)
(MBOE)
|
FUTURE NET
CASHFLOW
(M$)
|
CASHFLOW
DISC. (10%)
(M$)
|
|
|
PROVED PRODUCING
|
9.473
|
352.819
|
68.276
|
999.883
|
863.789
|
|
PROVED NON-PRODUCING
|
42.612
|
411.191
|
111.144
|
3281.941
|
1914.899
|
|
PROVED BEHIND PIPE
|
280.896
|
8357.710
|
1673.848
|
35043.848
|
8595.262
|
|
PROVED UNDEVELOPED
|
115.173
|
5744.294
|
1072.555
|
17748.928
|
12389.619
|
|
TOTAL PROVED
|
448.154
|
14866.014
|
2925.823
|
57074.600
|
23763.569
|
“As Of Date” is December 31, 2011. Reserves are classified according to Petroleum Reserve Definitions SEC Reg 210.4-10 (a) (2-4). The discounted cashflow is calculated using a discount rate of 10% per year. Future net cashflow includes deductions for operating expenses, production and ad valorem taxes, compression and transportation, and future capital costs. The cashflow does not include federal taxes or well plugging costs and liabilities.
Net oil is expressed in thousands of barrels and net gas is expressed in millions of standard cubic feet of gas. Net barrel-oil-equivalent is calculated using 6000 scf/bbl. Cashflows are expressed in thousands of dollars.
Oil & gas prices are non-escalated: $92.10/bbl & $3.62/mcf. Oil & gas prices are calculated from 12mo averaged 2011 monthly contract oil & gas prices, per SEC requirements. The 2012 Orion gas contract is the same as the 2011 contract: 99% of NGPL TXOK (1% fuel) less $0.16/mcf transportation, $0.05/mcf gathering & $0.08/mcf treating fees. Additionally, TR Rodessa gathering and compression charges are assessed at 8% plus $0.20/mmbtu, ($0.20/mmbtu translates to an approximate average of $0.22/mcf). Additionally, there is a $0.000667/mcf regulatory fee which is applied to the gas price. The 2012 Sunoco oil contract price (as of July 1, 2011) is East TX Sweet (Col. 13) as posted on Sunoco Monthly Oil Price Bulletin plus Argus P+ Product Code less transportation charge ($1.00/bbl). The oil price for the study was determined by removing the $1.35/bbl transportation charge for Jan-11 thru Jun-11 prices and $1.00/bbl transportation charge for Jul-11 thru Dec-11 prices, calculating the average base price (with the Argus P+ Product Code), and then re-applying the new transportation charge of $1.00/bbl.
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Operating costs are non-escalated and based on 12 months of operating expenses provided by PERC, and averaged by well, (does not included ad valorem tax, saltwater disposal, site compressors (scheduled separately), workovers, or other non-reoccurring costs). Saltwater disposal costs provided by PERC: $0.45/bbl.
Capital costs for undeveloped wells and workovers were based on AFEs prepared by JES. Scheduling for timing for capital expenditures was provided by PERC.
Working interest and net revenue interest decimals were provided by PERC: 80.00% W.I., 60.80% N.R.I. (Huntington), 80.00% W.I., 63.466672% N.R.I. (Bramlett), 80.00% W.I., 55.952% N.R.I. (Ralph), 80.00% W.I., 55.957448% N.R.I. (Harris), 80.00% W.I., 62.356722% N.R.I. (Childers), 80.00% W.I., 59.88088% N.R.I. (Davis), 25.00% W.I., 18.75% N.R.I. (Norbord), 48.00% W.I., 36.00% N.R.I. (Haggard A), 32.00% W.I., 24.00% N.R.I. (Haggard B – Norbord area shallow wells), 80.00% W.I., 56.00% N.R.I. (Bulldog), 47.00% W.I., 35.25% N.R.I. (Haggard B – Jefferson area deep wells), 80.00% W.I., 56.00% N.R.I. (Tract 8), 80.00% W.I., 56.00% N.R.I. (Hazlewood), 80.00% W.I., 56.00% N.R.I. (Massenton), 40.00% W.I., 30.00% N.R.I. (E. Linden), and 40.00% W.I., 30.00% N.R.I. (Kildare)..
Forecast production profiles are based on decline curve analysis and cumulative production vs time curve analysis profiles, and supported by area well test & production data, and volumetric analysis.
Copies of the full report (dated February 1, 2012) with maps, detailed discussion, individual well economic reports & summaries, and supporting data/documentation are located and available for review at the offices of PERC and JES.
This report has been prepared by myself or under my direct supervision. The economic evaluation was developed using established and accepted industry practices and procedures, meets current SEC rules and guidelines, and is based on historical operational and financial data, production & test data, and ownership information obtained from public information sources, well operations & testing or furnished by PERC. James E. Smith and Associates (JES), as a consulting engineering firm, has planned and supervised the drilling and completion of the ten PERC wells to date in the project. Additionally, JES has been the contract operator of the wells. JES also conducted the research that produced most of the background, and historical well and production data. Therefore, JES has knowledge of and/or has confirmed validity of the data used in developing this study. JES has no equity position in this project, but it is anticipated that JES will continue as the drilling, completion and operating manager of the project. In this respect, JES will benefit from this proposed project.
The reserves presented are estimates, are forward looking and are expected to change as additional performance data becomes available. Governmental policies, energy market conditions and international forces may affect supply and demand factors, resulting in pricing and market changes. Additionally, future product prices and operating costs are based on assumed escalation rates; actual results are expected to change depending on unpredictable and unforeseen market and operating conditions.
JES believes the information presented in this report is an accurate and reasonable economic evaluation of the working interests of PERC in wells/prospects in Marion & Cass Counties, Texas. JES, its officers or employees, make no expressed or implied representation or warranty and assume no liability concerning the present or future value of the anticipated income, costs or profits, if any, to be derived from the properties.
Prepared by:
James E. Smith, P.E., S.P.E., S.P.E.E.
State of Texas No 24174
Date: February 1, 2012
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