SEC Case, As of 1/1/2014 Total Proved Reserves Oil, MBO49.0Gas, MMCF723.2 Total Proved Value PW@ 0%, $$4,230,770PW@ 10%, $$2,422,100

Per your request an oil and gas reserve and economic appraisal has been performed for the properties owned by Aurora Energy Partners (Aurora) and listed on Exhibit A. The objective of this study is to estimate reserves and value for these properties as of January 1, 2014. The methodology, assumptions and results of the study are discussed below.

With the assumptions discussed below the reserves and value for the Aurora properties are estimated as:

This report is intended to serve as the Aurora Energy Partners report for the United States Securities and Exchange Commission (SEC) to cover the year of 2013.

 

It is estimated that the monthly net cashflow for January 2014 was $62,710. Net production for the month is estimated as 20.0 BOPD and 151 MCFD.

 

Data furnished or available for this analysis included well drilling reports, logs, test data, operating costs, and revenue statements. Production data was obtained from the Texas Railroad Commission records and was supplemented as needed by data from the Operators. Monthly prices received for the gas and oil produced were obtained from check summaries and from the State of Texas tax records as reported by DrillingInfo.com, a commercial oil and gas information service.

 

The properties evaluated are listed on the attached Exhibit A. No attempt was made as part of this evaluation to verify ownership of the interests through detailed title work. The interests are accepted as presented by Aurora. Aurora has confirmed they expect to receive revenue and pay costs based on the interests provided and shown on Exhibit A.

 

All estimated reserves contained in this report are expressed as gross and net reserves on all properties. Net reserves represent those reserves attributable to the appraised interest. Values for reserves are expressed in terms of future net revenue and present worth of future net revenue. Future net revenue is defined as revenue accruing to the appraised interests from production and sale of the estimated net reserves after deducting production taxes and operating expenses. Present worth (PW) is defined as the future net revenue discounted at a set discount rate compounded daily. All values are calculated as of January 1, 2014.

No plugging costs or salvage values were considered in this evaluation, nor was any consideration given to Federal income tax.

The properties evaluated for this analysis have proved developed reserves (PDP) and proved undeveloped reserves (PUD) as defined by the Society of Petroleum Engineers. The reserve guidelines as published by the SPE in March 1997 (attached) are being used for this analysis.

Production forecasts were made using methods appropriate for the individual property.

The resulting forecasts are shown on the attached production plots.

Cash flow for the individual well cases were calculated until the monthly cash flow becomes negative; i.e., costs exceed revenue and the well is not economic. The individual cases were summed to produce the total value.

Using SEC guidelines in place for 2013, the gas and oil prices for this analysis were set at the average price received on the “first-day-of-the-month” for 2013, adjusted for appropriate differentials. The “benchmark” prices are $96.78 per barrel and $3.67 per MMBTU, as estimated by Ryder Scott. For each well, or case, the actual monthly prices received during 2013 were compared to the prices used in the calculation of the benchmark. For each well differentials to the benchmark were estimated. These differentials were applied to the 2013 benchmark price and the resulting value was used for the future cashflow estimates. The resulting pricing is shown on Exhibit B. All prices were held constant per SEC guidelines.

Actual 2013 lease operating costs (LOE) for the properties were furnished for this review. The monthly costs were averaged for each well to determine a $/month/well operating cost. Non-reoccurring costs were omitted. Per SEC guidelines the operating costs are held constant for the life of the wells. Values used are shown on Exhibit B.

Drill and complete costs for the two PUD wells were based on estimates (AFE’s) provided by the operators for the McCauley 6#3 and the University 6#2.

The total proven value and reserves for the twenty-one PDP working interest wells and the three ORRI wells are summarized above. Expanding on the summary, the estimated value and reserves over the life of the wells are shown on Table 1 below.

Detailed cashflow sheets are attached, including summary analysis of the total reserves and individual well analysis. A listing of the reserves, costs, and value for each well, a one-liner, is also attached.

 

The value estimated in this report is based on the assumption that the properties are not adversely affected by the existence of any hazardous substances or detrimental environmental conditions. No field inspection was made of the properties as part of this review.

This study was performed using industry-accepted principles of engineering and evaluation that are predicated on established scientific concepts. However, the application of such principles involves extensive judgment and assumptions and is subject to changes in performance data, technical knowledge, economic conditions and statutory provisions. Consequently, reserve estimates and future value are furnished with the understanding that actual performance of the wells could vary from that predicted.