GULF KEYSTONE PETROLEUM LTD

Transcription

1 GULF KEYSTONE PETROLEUM LTD ESTIMATED UNRISKED DISCOVERED AND UNDISCOVERED TOTAL PETROLEUM-INITIALLY-IN-PLACE ATTRIBUTABLE TO CERTAIN INTERESTS IN THE SHAIKAN LICENSE BLOCK KURDISTAN, IRAQ AS OF NOVEMBER 3, 2 Larry P. Connor, P.E. Victor F. Hein, P.E. TBPE License No TBPE License No Managing Senior Vice President Senior Petroleum Engineer Thomas M. Talley Texas Geologist License No Vice President RYDER SCOTT COMPANY PETROLEUM CONSULTANTS TBPE Firm Registration No. F-58

2 TABLE OF CONTENTS

3 6 GULF KEYSTONE PETROLEUM LTD TABLE OF CONTENTS EXECUTIVE SUMMARY CERTIFICATES OF QUALIFICATION PETROLEUM RESOURCE DEFINITIONS PETROLEUM-INITIALLY-IN-PLACE DISCUSSION MAPS TABLES PETROLEUM-INITIALLY-IN-PLACE PARAMETER DISTRIBUTIONS DST SUMMARY RESULTS RESERVOIR AND FLUID PROPERTIES EXTENDED WELL TEST APPENDIX SCHEMATIC OF SHARING OF THE OIL WELL LOG DATA SHEET LOGS CURRENT COMPLETION SCHEMATIC RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

4 EXECUTIVE SUMMARY

5 TBPE REGISTERED ENGINEERING FIRM F-58 FAX (73) LOUISIANA SUITE 38 HOUSTON, TEXAS TELEPHONE (73) January, 2 The Directors Gulf Keystone Petroleum Ltd. Milner House 8 Parliament Street PO Box 56 Hamilton HMFX Bermuda The Directors Strand Hanson Limited 26 Mount Row London WK 3SQ Gentlemen: At your request, we have prepared estimates for the gross Petroleum-Initially-In-Place (PIIP) volumes associated with the Shaikan License Block located in Northwest Kurdistan, Iraq as of November 3, 2. Gulf Keystone Petroleum Ltd. (Gulf Keystone) is the operator of this block. All volumes in this report are gross unrisked volumes estimated for the entire license block. They are presented at Gulf Keystone s request and are not intended to indicate either tangible or net assets. Gulf Keystone has an initial 75% working interest during the current appraisal period for the Shaikan License Block. However, inherent components of the PSC could result in a dilution of Gulf Keystone s working interest to approximately 5 percent. This reduction would reduce their associated net Petroleum-Initially-In-Place volumes. The Petroleum-Initially-In-Place Discussion and the Appendix sections of this report should be consulted for additional details. As requested, the hydrocarbon volumes for PIIP presented herein were estimated using the Petroleum Resources Management System (PRMS) approved and sponsored by the Society of Petroleum Engineers, World Petroleum Council, American Association of Petroleum Geologists and the Society of Petroleum Evaluation Engineers (SPE/WPC/AAPG/SPEE). Total Petroleum-Initially-In-Place is subdivided into classes called Discovered PIIP and Undiscovered PIIP. Although the discovery well in this block tested oil and gas volumes associated with multiple reservoirs from seven drill stem tests (DSTs) and two completion tests, the lack of well control and limited seismic data over a large area in the Shaikan License Block forced us to assign a large percentage of the estimated potential oil and gas volumes as undiscovered PIIP in accordance with the PRMS. Discovered Petroleum-Initially-In-Place is that quantity of petroleum which is estimated, as of a given date, to be contained in known accumulations prior to production. Undiscovered Petroleum- Initially-In-Place is that quantity of petroleum which is estimated, as of a given date, to be contained in accumulations yet to be discovered. 6, 5 4TH STREET, S.W. CALGARY, ALBERTA T2R J4 TEL (43) FAX (43) TH STREET, SUITE 55 DENVER, COLORADO TEL (33) FAX (33)

6 Gulf Keystone Petroleum Ltd January, 2 Page 2 The results of this study are summarized below. We have provided three estimates for gross total, discovered and undiscovered PIIP: a low estimate, a best estimate, and a high estimate, which correspond to probabilities of P9, P5, and P, respectively. Unrisked volumes could represent a theoretical maximum if all the inherent geological risk were removed. As the geological model, reservoir continuity and other associated factors are defined and established, risk can be mitigated and confidence limits applied. Total Petroleum-Initially-In-Place - Oil (bbls) Gross (8/8ths) Volumes Excluding Risk 2 Estimated for the Shaikan License Block Kurdistan, Iraq As of November 3, 2 Reservoir Mean Low Estimate Best Estimate High Estimate Sarmord 596,727,46 2,257, ,45,86,43,686,892 Sargelu,55,8,286 79,477,7,393,694,37 2,359,285,58 Mus 565,598,234 68,9,88 422,422,576,4,329,47 Butmah,98,62, ,675,27 77,46,84 2,32,24,4 Upper Kurra Chine A 92,374,67 3,9,977 7,73,44 8,249,77 Upper Kurra Chine B 46,43,7 43,23,337,87,74 293,432,57 Upper Kurra Chine C 38,738,596 9,3,398 28,86,588 8,332,65 Grand Total 4,43,292,2,522,44,26 3,28,556,49 7,59,53,82 The total volumes above include both discovered and undiscovered PIIP. 2 Unrisked volumes could represent a theoretical maximum if all the inherent geological risk were removed. Total Petroleum-Initially-In-Place - Gas (MMcf) Gross (8/8ths) Volumes Excluding Risk 2 Estimated for the Shaikan License Block Kurdistan, Iraq As of November 3, 2 Reservoir Mean Low Estimate Best Estimate High Estimate Upper Kurra Chine A 96,52 3,854 74,556 89,824 Upper Kurra Chine B 629,264 79,9 474,368,272,384 Upper Kurra Chine C 66,884 38,676 8, ,75 Grand Total 892, , ,889,84,923 The total volumes above include both discovered and undiscovered PIIP. 2 Unrisked volumes could represent a theoretical maximum if all the inherent geological risk were removed. RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

7 Gulf Keystone Petroleum Ltd January, 2 Page 3 Discovered Petroleum-Initially-In-Place - Oil (bbls) Gross (8/8ths) Volumes Excluding Risk Estimated for the Shaikan License Block Kurdistan, Iraq As of November 3, 2 Reservoir Mean Low Estimate Best Estimate High Estimate Sargelu 722,474,444 45,27,3 67,453,23,4,22,488 Mus 57,664,776 85,934,95 45,69, ,885,943 Butmah 93,966,95 3,56,26 8,839,86 29,5,462 Upper Kurra Chine A 25,739,38 4,782,979 24,5,284 38,85,379 Upper Kurra Chine B 27,84,735 3,84,299 25,64,856 45,48,526 Grand Total,27,659, ,336,654,47,253,95,722,237,798 Unrisked volumes could represent a theoretical maximum if all the inherent geological risk were removed. Discovered Petroleum-Initially-In-Place - Gas (MMcf) Gross (8/8ths) Volumes Excluding Risk Estimated for the Shaikan License Block Kurdistan, Iraq As of November 3, 2 Reservoir Mean Low Estimate Best Estimate High Estimate Upper Kurra Chine A 26,95 5,2 25,4 4,57 Upper Kurra Chine B 9,75 56,95 7,387 98,657 Grand Total 46,62 7,972 32,5 239,84 Unrisked volumes could represent a theoretical maximum if all the inherent geological risk were removed. RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

8 Gulf Keystone Petroleum Ltd January, 2 Page 4 Undiscovered Petroleum-Initially-In-Place - Oil (bbls) Gross (8/8ths) Volumes Excluding Risk Estimated for the Shaikan License Block Kurdistan, Iraq As of November 3, 2 Reservoir Mean Low Estimate Best Estimate High Estimate Sarmord 596,727,46 2,257, ,45,86,43,686,892 Sargelu 782,633, ,259,76 723,24,4,255,263,92 Mus 47,933,458 82,74, ,73,9 896,443,528 Butmah 94,635,93 65,4,45 588,27,728 2,3,8,578 Upper Kurra Chine A 66,635,29 5,336,998 47,597,86 42,434,328 Upper Kurra Chine B 8,328,272 29,363,38 86,22,28 248,23,98 Upper Kurra Chine C 38,738,596 9,3,398 28,86,588 8,332,65 Grand Total 2,95,632, ,77,47 2,234,32,237 5,797,293,4 Unrisked volumes could represent a theoretical maximum if all the inherent geological risk were removed. Undiscovered Petroleum-Initially-In-Place - Gas (MMcf) Gross (8/8ths) Volumes Excluding Risk Estimated for the Shaikan License Block Kurdistan, Iraq As of November 3, 2 Reservoir Mean Low Estimate Best Estimate High Estimate Upper Kurra Chine A 69,65 5,833 49,442 48,667 Upper Kurra Chine B 59,549 22,58 366,98,73,727 Upper Kurra Chine C 66,884 38,676 8, ,75 Grand Total 746,48 76, ,388,575,9 Unrisked volumes could represent a theoretical maximum if all the inherent geological risk were removed. RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

9 Gulf Keystone Petroleum Ltd January, 2 Page 5 For the total estimated gross unrisked Discovered Petroleum-Initially-In-Place volumes, liquid hydrocarbons represents approximately 98 percent of the low estimate (P9) volume, best estimate (P5) volume and high estimate (P) volume with gas representing the remaining 2 percent reported herein based on a barrel of oil equivalent. For the total estimated gross unrisked Undiscovered Petroleum-Initially-In-Place volumes, liquid hydrocarbons represents approximately 97 percent of the low estimate (P9) volume with gas representing the remaining 3 percent reported herein based on a barrel of oil equivalent. For the total estimated gross unrisked Undiscovered Petroleum-Initially-In-Place volumes, liquid hydrocarbons represents approximately 96 percent for both the best estimate (P5) volume and high estimate (P) volume with gas representing the remaining 4 percent reported herein based on a barrel of oil equivalent. Liquid hydrocarbons are expressed in standard 42 gallon barrels. Estimated volumes for natural gas were converted to oil equivalent using a factor of 6, cubic feet of natural gas per one barrel of oil equivalent. Data Supplied to Ryder Scott by Gulf Keystone Data supplied to us by Gulf Keystone included a variety of geological, geophysical and engineering data. Specifically, the interpreted 2D seismic, well logs and data for nearby wells, test data, pressure data, PVT reports, operations reports and reports prepared by third parties were among the data provided by Gulf Keystone that became the basis of our interpretation. Petroleum-Initially-In-Place Included in This Report Discovered Petroleum-Initially-In-Place is that quantity of petroleum which is estimated, as of a given date, to be contained in known accumulations prior to production. Undiscovered Petroleum- Initially-In-Place is that quantity of petroleum which is estimated, as of a given date, to be contained in accumulations yet to be discovered. Using the PRMS guidelines, the distinction in class is based upon available data and technical judgment by Ryder Scott. All volumes are classified as unrisked because the estimated total geological chance of success has not been incorporated into the probabilistic model. The unrisked discovered and undiscovered PIIP volumes included herein conform to the definitions approved by the SPE/WPC/AAPG/SPEE. The definitions for PIIP are included in the Petroleum Resource Definitions section of this report. No reserves or resources are included in this report. Because of the differences in uncertainty, caution should be exercised when aggregating quantities of petroleum from different classifications. The gross unrisked Discovered and Undiscovered Petroleum-Initially-In-Place estimates that are included herein are not comparable both by definition and degree of associated risk. Moreover, estimates of Petroleum-Initially-In-Place may increase or decrease as a result of future operations, effects of regulation by governmental agencies or geopolitical or economic risks. As a result, estimates for gross unrisked Discovered and Undiscovered Petroleum- Initially-In-Place have an intrinsic uncertainty. RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

10 Gulf Keystone Petroleum Ltd January, 2 Page 6 Estimates of Petroleum-Initially-In-Place The gross unrisked discovered and undiscovered PIIP volumes for the Skaikan License Block were determined by a probabilistic volumetric model. The details are discussed in the Petroleum- Initially-In-Place Discussion section of this report. A complete list of the variables used to estimate these volumes together with their associated probability distribution functions are presented in the Tables section of this report. The gross PIIP volumes included in this report are subject to a license agreement and Production Sharing Contract (PSC) which are summarized in the Petroleum-Initially-In-Place Discussion and Appendix sections of this report. Gulf Keystone is currently operating in an approved appraisal mode. An official declaration of a commercial discovery is anticipated to be announced during the first half of 22. The license is valid for 25 years after the declaration of a commercial discovery. The reported gross unrisked PIIP volumes are estimates only and should not be construed as being exact quantities. They may or may not be actually in place, and estimates of gross unrisked PIIP volumes and their associated probabilities may increase or decrease as a result of future operations or as data become available. The terms low, best and high have been used for consistency and are related to probabilities of P9, P5 and P, respectively. A detailed discussion of the definitions associated with the gross unrisked PIIP volumes can be found in the Petroleum Resource Definitions section of this report. The Shaikan License Block is expected to contain oil in multiple horizons (Sarmord, Sargelu, Mus and Butmah). The Upper Kurra Chine A, Upper Kurra Chine B, and Upper Kurra Chine C are expected to contain both oil and gas. A synopsis of the individual reservoirs is presented in the Petroleum-Initially-In-Place Discussion section of this report. Ryder Scott s estimated volumes for discovered and undiscovered PIIP are presented in the preceding tables. The volumes were estimated stochastically using the Crystal Ball tm software. A more complete explanation of the probabilistic model and the inherent uncertainties are contained in the Petroleum-Initially-In-Place Discussion section of this report. Petroleum-Initially-In-Place Discussion Using the results of available maps, seismic data interpretation, petrophysical data, test data, pressure data, PVT reports and other engineering data, we estimated the gross unrisked Discovered and Undiscovered PIIP volumes. Backup data for estimates of gross unrisked discovered and undiscovered PIIP are contained in the Maps, Tables and Appendix sections of this report. Detailed discussions are presented later in this report setting forth basic information relative to the license, well history, geology, engineering, petrophysical data and our conclusions. General The estimates for gross unrisked PIIP volumes presented herein are based upon a detailed study of the Shaikan License Block operated by Gulf Keystone; 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 economic analyses conducted on the assets. Gulf Keystone has informed us that they have furnished us all of the accounts, records, geological and engineering data, reports and other data required for this investigation. The factual data furnished by Gulf Keystone were RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

11 Gulf Keystone Petroleum Ltd January, 2 Page 7 accepted without independent verification. The estimates presented in this report are based on data available through November 2. Investors and underwriters should be aware that there are inherent uncertainties in the interpretation of engineering and geological data, and that Ryder Scott's conclusions represent only informed professional judgments based on the available information. These professional judgments may be subject to change in light of subsequent developments. The results presented herein are based on Monte Carlo simulation models. While these models rely on the experience of Ryder Scott Company personnel and the available data, are widely accepted within the industry and were developed with care, they may or may not represent the volumes ultimately associated with this block. Ryder Scott Company does not endorse or promote the involvement or investment in these properties. Ryder Scott Company makes no representation or warranty, expressed or implied, as to the accuracy or completeness of the results set forth in this report. Furthermore, Ryder Scott Company assumes no obligation or liability in connection with investments or financial decisions made on these properties. Gulf Keystone has assured us of their intent and ability to proceed with the development and that they are not aware of any political obstacles that would significantly alter their plans. 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 decisionmaking 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 Gulf Keystone Petroleum LTD. 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 Petroleum-Initially- In-Place for the properties that were reviewed. RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

12 Gulf Keystone Petroleum Ltd January, 2 Page 8 The professional qualifications of the undersigned, the technical persons primarily responsible for reviewing and approving the information discussed in this report, are included as an attachment to this letter. Terms of Usage This report was prepared for the exclusive internal use and sole benefit of Gulf Keystone Petroleum Ltd. The written consent of Ryder Scott Company must be obtained prior to publication of any content of this report, in whole or in part, in any financial statement, press release, electronic or printed presentation or other external document including oral communication. Consent will not be unreasonably withheld. We have provided Gulf Keystone with a digital version of the original signed copy of this report letter. In the event there are any differences between the digital version and the original signed report letter, the original signed report letter shall control and supersede the digital version. The data, work papers, and maps 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-58 Larry P. Connor, P.E. Texas P.E. License No Managing Senior Vice President Thomas M. Talley Texas Geologist License No Vice President Victor F. Hein, P.E. Texas P.E. License No Senior Petroleum Engineer RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

13 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. Larry Connor was the primary technical person responsible for preparing the estimate of the reserves and future production included in this report. Mr. Connor, an employee of Ryder Scott Company L.P. (Ryder Scott) since 98, is a Managing Senior Vice President and is responsible for coordinating and supervising staff and consulting engineers of the company in ongoing reservoir evaluation studies worldwide. Before joining Ryder Scott, Mr. Connor served in a number of engineering positions with Amoco Production Company. For more information regarding Mr. Connor s geographic and job specific experience, please refer to the Ryder Scott Company website at Mr. Connor earned a Bachelor of Science degree in Industrial Engineering from Texas A&M University in 977 and is a registered Professional Engineer in the State of Texas, and the Provinces of Alberta, British Columbia and Saskatchewan, Canada. He is also a member of the Society of Petroleum Engineers and the Society of Petroleum Evaluation Engineers. Currently Mr. Connor is serving as the Chairman of the Houston Chapter of the Society of Petroleum Evaluation Engineers. In addition to gaining experience and competency through prior work experience, the Texas Board of Professional Engineers requires a minimum of fifteen hours of continuing education annually, including at least one hour in the area of professional ethics, which Mr. Connor fulfills. As part of his 29 continuing education hours, Mr. Connor attended an internally presented 6 hours of formalized training as well as a day long public forum, 29 RSC Reserves Conference, relating to the definitions and disclosure guidelines contained in the United States Securities and Exchange Commission Title 7, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 4, 29 in the Federal Register. Mr. Connor attended an additional 2 hours of formalized in-house training as well as 8 hours of formalized external training during 29 covering such topics as the SPE/WPC/AAPG/SPEE Petroleum Resources Management System, reservoir engineering, geoscience and petroleum economics evaluation methods, procedures and software and ethics for consultants. Mr. Connor has served as course instructor for the formalized in-house training of PSA programming using PHDwin tm software and using Crystal Ball tm to analyze prospect evaluations. Based on his educational background, professional training and more than 32 years of practical experience in the estimation and evaluation of petroleum reserves, Mr. Connor has attained the professional qualifications as a Reserves Estimator and Reserves Auditor 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 9, 27. RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

14 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 M. Talley was the primary technical person responsible for overseeing the analysis of certain petrophysical, geophysical and geological data relating to the volumetric estimates in this report. Talley, an employee of Ryder Scott Company L.P. (Ryder Scott) since 2, is a Vice President responsible for coordinating and supervising staff and consulting geoscientists of the company in ongoing reservoir evaluation studies worldwide. Before joining Ryder Scott, Talley served in a number of geological/geophysical positions with Aminoil, American Petrofina and Enron Corp. For more information regarding Mr. Talley s geographic and job specific experience, please refer to the Ryder Scott Company website at Talley earned a Master of Science degree in Geology from Northeast Louisiana State University in 978, a Bachelor of Science degree from Northeast Louisiana State University in 975 and a Bachelor of Arts degree from Northeast Louisiana State University in 973. Talley received the W. A. Tarr Award for meritorious work in Earth Sciences from Sigma Gamma Epsilon in 976. Talley is a registered Professional Geoscientist in the State of Texas. He is also a member of American Association of Petroleum Geologists and the Houston Geologic Society. In addition to gaining experience and competency through prior work experience, the Texas Board of Professional Geologists/Geophysicists requires a minimum of fifteen hours of continuing education annually, including at least one hour in the area of professional ethics, which Talley fulfills.] As part of his 29 continuing education hours, Talley attended an internally presented 4 hours of formalized training as well as a day long public forum relating to the definitions and disclosure guidelines contained in the United States Securities and Exchange Commission Title 7, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 4, 29 in the Federal Register. Talley attended an additional 6 hours of formalized in-house training relating to probabilistic methodology. Based on his educational background, professional training and more than 3 years of practical experience in the estimation and evaluation of petroleum reserves, Talley has attained the professional qualifications as a Reserves Estimator and Reserves Auditor. RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

15 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. Victor Hein was the technical person responsible for the estimates of the reserves and future production reported herein. Mr. Hein, an employee of Ryder Scott Company L.P. (Ryder Scott) since 28, is a senior engineer and is responsible for coordinating and supervising ongoing reservoir evaluation studies worldwide. Before joining Ryder Scott, Mr. Hein served 29 years with various independent and major exploration and production companies starting with Chevron and has worked the last 8 years for consulting firms involved in reserve estimates. For more information regarding Mr. Hein s geographic and job specific experience, please refer to the Ryder Scott Company website at Mr. Hein earned a Bachelor of Science degree in Petroleum Engineering from the University of Tulsa in 973 and is a licensed Professional Engineer in the State of Texas. He is also a member of the Society of Petroleum Engineers. In addition to gaining experience and competency through prior work experience, the Texas Board of Professional Engineers requires a minimum of fifteen hours of continuing education annually, including at least one hour in the area of professional ethics, which Mr. Hein fulfills. Mr. Hein attended 26 hours of formalized in-house training covering topics such as the SPE/WPC/AAPG/SPEE Petroleum Resources Management System, SEC definitions, ethics and probabilistic analysis. Mr. Hein also attended 72 hours of formalized external training during 29 covering such topics as software training for petroleum economics, probabilistic analysis, and ethics for consultants. In addition, Mr. Hein has written and presented courses in evaluation of tight gas reservoirs and reserve definitions to over 4 industry professionals. Based on his educational background, professional training and 37 years of practical experience in the estimation and evaluation of petroleum reserves, Mr. Hein has attained the professional qualifications as a Reserves Estimator and Reserves Auditor 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 9, 27. RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

16 PETROLEUM RESOURCE DEFINITIONS

17 PETROLEUM RESOURCES CLASSIFICATION AND DEFINITIONS As Adapted From: 27 PETROLEUM RESOURCES MANAGEMENT SYSTEM (SPE-PRMS) Sponsored by: SOCIETY OF PETROLEUM ENGINEERS (SPE), WORLD PETROLEUM CONGRESS (WPC) AMERICAN ASSOCIATION OF PETROLEUM GEOLOGISTS (AAPG) AND SOCIETY OF PETROLEUM EVALUATION ENGINEERS (SPEE) PREAMBLE Reserve and resource classification systems are intended to allow the evaluator to follow the progression of changes in the exploration and production life cycle of a reservoir, field, or project that arise as a result of obtaining more technical information or as a result of a change in the economic status. Most systems incorporate terminology to describe the progression of a project from the delineation of an initial prospect, to the confirmation of the prospect through exploration drilling, onto the appraisal and development phase, and finally from initial production through depletion. These reserve and resource definitions thus provide the decision making framework to manage risk and uncertainty through the classification and categorization of the recoverable hydrocarbon volumes. The term resources is generally applied to all quantities of petroleum (recoverable and unrecoverable) naturally occurring on or within the Earth s crust, discovered and undiscovered, plus those quantities already produced. The term reserves is a subset of resources generally applied to the discovered quantities of petroleum anticipated to be commercially recoverable from known accumulations from a given date forward under defined conditions. All reserve and resource estimates involve some degree of uncertainty. 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. Estimates will generally be revised as additional geologic or engineering data becomes available or as economic conditions change. Estimation of reserves and resources is done under conditions of uncertainty. The method of estimation is called deterministic if a single best estimate of reserves and resources is made based on known geological, engineering, and economic data. The method of estimation is called probabilistic when the known geological, engineering, and economic data are used to generate a range of estimates and their associated probabilities. Because of the differences in uncertainty, caution should be exercised when aggregating quantities of petroleum from different reserves and/or resource classifications. Reserves and resources may be attributed to either natural energy or improved recovery methods. Improved recovery methods include all methods for supplementing natural energy or altering natural forces in the reservoir to increase ultimate recovery. Examples of such methods are pressure RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

18 PETROLEUM RESOURCES CLASSIFICATION and DEFINITIONS Page 2 maintenance, cycling, waterflooding, thermal methods, chemical flooding, and the use of miscible and immiscible displacement fluids. Other improved recovery methods may be developed in the future as petroleum technology continues to evolve. Reserves and resources may be attributed to either conventional or unconventional petroleum accumulations under the SPE-PRMS. Petroleum accumulations are considered as either conventional or unconventional based on the nature of their in-place characteristics, extraction method applied, or degree of processing prior to sale. Examples of unconventional petroleum accumulations include coalbed or coalseam methane (CBM/CSM), basin-centered gas, shale gas, gas hydrates, natural bitumen and oil shale deposits. These unconventional accumulations may require specialized extraction technology and/or significant processing prior to sale. The SPE-PRMS acknowledges unconventional petroleum accumulations as reserves and resources regardless of their in-place characteristics, the extraction method applied, or the degree of processing required. Reserves and resources do not include quantities of petroleum being held in inventory and may be reduced for usage, processing losses and/or non-hydrocarbons that must be removed prior to sale. SPE-PRMS In March 27, the Society of Petroleum Engineers (SPE), World Petroleum Council (WPC), American Association of Petroleum Geologists (AAPG), and Society of Petroleum Evaluation Engineers (SPEE) jointly approved the Petroleum Resources Management System (SPE-PRMS). The SPE- PRMS consolidates, builds on, and replaces guidance previously contained in the 2 Petroleum Resources Classification and Definitions and the 2 Guidelines for the Evaluation of Petroleum Reserves and Resources publications. Reference should be made to the full SPE-PRMS for the complete definitions and guidelines as the following definitions, descriptions and explanations rely wholly or in part on excerpts from the SPE- PRMS document (passages excerpted in their entirety from the SPE-PRMS document are denoted in italics herein). For convenience, Table : Recoverable Resources Classes and Sub-Classes from the SPE-PRMS has been reproduced in full and included as an attachment to this document. The SPE-PRMS incorporates the petroleum initially-in-place as well as the recoverable and unrecoverable petroleum quantities into a common resource classification framework. Petroleum is defined as a naturally occurring mixture consisting of hydrocarbons in the gaseous, liquid, or solid phase. The SPE-PRMS defines the major resources classes: Production, Reserves, Contingent Resources, and Prospective Resources, as well as Unrecoverable petroleum. The basic classification scheme requires establishment of criteria for a petroleum discovery and thereafter the distinction between commercial (Reserves) and sub-commercial projects (Contingent Resources) in known accumulations. Under this classification scheme, estimated recoverable quantities from accumulations that have yet to be discovered are termed Prospective Resources. Further, the SPE-PRMS includes all types of petroleum whether currently considered conventional or unconventional. Figure shown at the end of this document is a graphical representation of the SPE, WPC, AAPG and SPEE resources classification system. The SPE-PRMS classifies reserves and resources according to project maturity and increasing chance of commerciality (vertical axis) and categorizes reserves and resources according to the range of uncertainty (horizontal axis) of the estimated quantities potentially recoverable from an accumulation by a project. The following definitions apply to the major subdivisions within the resources classification: RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

19 PETROLEUM RESOURCES CLASSIFICATION and DEFINITIONS Page 3 RESOURCES CLASSIFICATION (SPE-PRMS) Recoverable petroleum resources as described herein may be classified into one of three principal resource classifications: Prospective Resources, Contingent Resources, or Reserves. The distinction between Prospective and Contingent Resources depends on whether or not there exists one or more wells and other data indicating the potential for moveable hydrocarbons (e.g. the discovery status). Discovered petroleum resources may be classified as either Contingent Resources or as Reserves depending on the chance that if a project is implemented it will reach commercial producing status (e.g. chance of commerciality). The distinction between various classifications of Resources and Reserves relates to their discovery status and increasing chance of commerciality as described herein. The SPE-PRMS Section. and Appendix A define the following terms: TOTAL PETROLEUM-INITIALLY-IN-PLACE Total Petroleum-Initially-in-Place is that quantity of petroleum which is estimated to exist originally in naturally occurring accumulations. Total Petroleum-Initially-in-Place is, therefore, that quantity of petroleum which is estimated, as of a given date, to be contained in known accumulations, plus those quantities already produced therefrom, plus those estimated quantities in accumulations yet to be discovered. Total Petroleum-Initially-in-Place may be subdivided into Discovered Petroleum-Initially-in-Place and Undiscovered Petroleum-Initially-in-Place, with Discovered Petroleum-Initially-in-Place being limited to known accumulations. It is recognized that not all of the Petroleum-Initially-in-Place quantities may constitute potentially recoverable resources since the estimation of the proportion which may be recoverable can be subject to significant uncertainty and will change with variations in commercial circumstances, technological developments and data availability. Given the aforementioned constraints, a portion of the Petroleum-Initially-in-Place may need to be classified as Unrecoverable. DISCOVERED PETROLEUM-INITIALLY-IN-PLACE Discovered Petroleum-Initially-in-Place is that quantity of petroleum which is estimated, as of a given date, to be contained in known accumulations prior to production. Discovered Petroleum-Initially-in-Place may be subdivided into Commercial and Subcommercial categories, with the estimated potentially recoverable portion being classified as Reserves and Contingent Resources respectively, as defined below. KNOWN ACCUMULATION The SPE-PRMS defines an accumulation as an individual body of petroleum-in-place. For an accumulation to be considered as known, it must have been discovered. A discovery is defined as one petroleum accumulation or several petroleum accumulations collectively, which have been penetrated by one or several exploratory wells which have established through testing, sampling, and/or logging the existence of a significant quantity of potentially moveable hydrocarbons. The SPE- PRMS states in this context, significant implies that there is evidence of a sufficient quantity of petroleum to justify estimating the in-place volume demonstrated by the well(s) and for evaluating the potential for economic recovery. Known accumulations may contain Reserves and/or Contingent Resources. RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

20 PETROLEUM RESOURCES CLASSIFICATION and DEFINITIONS Page 4 RESERVES Reserves are defined as those quantities of petroleum which are anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves must further satisfy the following criteria: they must be discovered, recoverable, commercial, and remaining (as of the evaluation date) based on the development project(s) applied. Reserves are categorized in accordance with the level of certainty associated with the estimates (horizontal axis shown in Figure ) and may be further sub-classified based on project maturity and/or characterized by development and production status (Refer to Figure 2 at the end of this document). Reference should be made to the full SPE-PRMS for the complete definitions and guidelines. CONTINGENT RESOURCES Contingent Resources are those quantities of petroleum which are estimated, as of a given date, to be potentially recoverable from known accumulations, but the applied project(s) are not yet considered mature enough for commercial development due to one or more contingencies. Contingent Resources may include, for example, projects for which there is currently no viable market, or where commercial recovery is dependent on the development of new technology, or where evaluation of the accumulation is insufficient to assess commerciality. Contingent Resources are categorized according to the range of technical uncertainty associated with the estimates (horizontal axis shown in Figure ) may be further sub-classified based on project maturity and/or characterized by their economic status (Refer to Figure 2 at the end of this document). Reference should be made to the full SPE-PRMS for the complete definitions and guidelines. UNDISCOVERED PETROLEUM-INITIALLY-IN-PLACE Undiscovered Petroleum-Initially-in-Place is that quantity of petroleum which is estimated, as of a given date, to be contained in accumulations yet to be discovered. The estimated potentially recoverable portion of Undiscovered Petroleum-Initially-in-Place is classified as Prospective Resources, as defined below. PROSPECTIVE RESOURCES Prospective Resources are those quantities of petroleum which are estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future projects. Prospective Resources have both an associated chance of discovery and a chance of development. Prospective Resources are categorized in accordance with the level of certainty associated with recoverable estimates assuming their discovery and development and may be further sub-classified based on project maturity (Refer to Figure 2 at the end of this document). Reference should be made to the full SPE-PRMS for the complete definitions and guidelines. UNRECOVERABLE Unrecoverable is a term that refers to that portion of Discovered or Undiscovered Petroleum Initially-in-Place quantities which is estimated, as of a given date, not to be recoverable by future development projects. A portion of these quantities may become recoverable in the future as commercial circumstances change or technological developments occur; the remaining portion may never be recovered due to physical/chemical constraints represented by subsurface interaction of fluids and reservoir rocks. RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

21 PETROLEUM RESOURCES CLASSIFICATION and DEFINITIONS Page 5 ADDITIONAL TERMS USED IN RESOURCES CLASSIFICATION (SPE-PRMS) CHANCE OF COMMERCIALITY The SPE-PRMS Section 2., Table and Appendix A define the following terms relating to commerciality: The Chance of Commerciality, as denoted in the SPE-PRMS and as shown in Figure, is the chance that the project will be developed and reach commercial producing status. The chance of commerciality is determined by the probability of a discrete event occurring. In the context of the SPE-PRMS, the discrete event is comprised of one of several conditions, as noted below, which impact the project s commercial viability. The commercial viability of a development project is dependent on a forecast of the conditions that will exist during the time period encompassed by the project s activities. Commerciality is not solely determined based on the economic status of a project which refers to the situation where the income from an operation exceeds the expenses involved in, or attributable to, that operation. Conditions as noted in the SPE-PRMS include technological, economic, legal, environmental, social, and governmental factors. While economic factors can be summarized as forecast costs and product prices, the underlying influences include, but are not limited to, market conditions, transportation and processing infrastructure, fiscal terms and taxes. A development project may include one or many wells and associated production and processing facilities. One project may develop many reservoirs, or many projects may be applied to one reservoir. An accumulation or potential accumulation may be subject to several separate and distinct projects that are at different stages of exploration or development. Thus, an accumulation may have recoverable quantities in several resource classes simultaneously. COMMERCIALITY APPLIED TO RESERVES Commerciality as applied to Reserves must be based upon all of the following criteria: Evidence to support a reasonable timetable for development. A reasonable assessment of the future economics of such development projects meeting defined investment and operating criteria. A reasonable expectation that there will be a market for all or at least the expected sales quantities of production required to justify development. Evidence that the necessary production and transportation facilities are available or can be made available. Evidence that legal, contractual, environmental and other social and economic concerns will allow for the actual implementation of the recovery project being evaluated. High confidence in the commercial producibility of the reservoir. To be included in a Reserves class, a project must be sufficiently defined to establish its commercial viability. There must be a reasonable expectation that all required internal and external approvals will be forthcoming. In general, quantities should not be classified as Reserves unless there is evidence of firm intention that the accumulation will be developed and placed on production within a reasonable time frame. In certain circumstances, reserves may be assigned even though development may not occur for some time. A reasonable time frame for the initiation of development depends on the specific circumstances and varies according to the scope of the project. The SPE-PRMS recommends five years as a benchmark, but notes that a longer time frame could be applied where, for example, RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

22 PETROLEUM RESOURCES CLASSIFICATION and DEFINITIONS Page 6 development of economic projects are deferred at the option of the producer for, among other things, market-related reasons, or to meet contractual or strategic objectives. For a project to be included in a Reserves class there must be a high confidence in the commercial producibility of the reservoir as supported by actual production or formation tests. In certain cases, Reserves may be assigned on the basis of well logs and/or core analysis that indicate that the subject reservoir is hydrocarbon-bearing and is analogous to reservoirs in the same area that are producing or have demonstrated the ability to produce on formation tests. COMMERCIALITY APPLIED TO CONTINGENT RESOURCES Estimated recoverable quantities from known accumulations that are not yet considered mature enough for commercial development as denoted by meeting all of the aforementioned conditions should be classified as Contingent Resources. Based on assumptions regarding future conditions and their impact on economic viability, projects currently classified as Contingent Resources may be broadly divided into two groups: Marginal Contingent Resources are those quantities associated with technically feasible projects that are either currently economic or projected to be economic under reasonably forecasted improvements in commercial conditions but are not committed for development because of one or more contingencies. Sub-Marginal Contingent Resources are those quantities associated with discoveries for which analysis indicates that technically feasible development projects would not be economic and/or other contingencies would not be satisfied under current or reasonable forecasted improvements in commercial conditions. These projects nonetheless should be retained in the inventory of discovered resources pending unforeseen major changes in commercial conditions. Those discovered in-place volumes for which a feasible development project cannot be defined using current or reasonably forecast improvements in technology are classified as Unrecoverable. RYDER SCOTT COMPANY PETROLEUM CONSULTANTS

23 PETROLEUM RESOURCES CLASSIFICATION and DEFINITIONS Page 7 RESOURCES CATEGORIZATION (SPE-PRMS) All estimates of the quantities of petroleum potentially recoverable from an accumulation classified as having Prospective or Contingent Resources or Reserves involve uncertainty. The relative degree of uncertainty may be conveyed by placing the estimated quantities into one of several categories as described herein. The SPE-PRMS Section 2.2 and Appendix A define the following terms: RANGE OF UNCERTAINTY The Range of Uncertainty, as denoted in the SPE-PRMS and as shown in Figure, reflects a range of estimated quantities potentially recoverable from an accumulation by a project. Evaluators may assess recoverable quantities and categorize results by uncertainty using the deterministic incremental (risk-based) approach, the deterministic scenario (cumulative) approach, or probabilistic methods. DETERMINISTIC METHODS (SPE-PRMS) RESERVES For reserves, the range of uncertainty can be reflected as discrete incremental quantities termed Proved, Probable and Possible or expressed in cumulative terms as P (Proved), 2P (Proved plus Probable), and 3P (Proved plus Probable plus Possible), respectively. CONTINGENT RESOURCES For Contingent Resources, the range of uncertainty is generally expressed in deterministic scenario (cumulative) terms as C, 2C, 3C, respectively or in terms of probability using probabilistic methods. While the SPE-PRMS categorization scheme does not specifically prohibit the use of discrete incremental quantities for Contingent Resources, the SPE-PRMS does not denote the terms to be applied to these discrete incremental quantities. PROSPECTIVE RESOURCES For Prospective Resources, the range of uncertainty is generally expressed in deterministic scenario (cumulative) terms as low, best and high estimates or in terms of probability using probabilistic methods. As in the case of Contingent Resources, the SPE-PRMS categorization scheme does not specifically denote terms to be applied to discrete incremental quantities for Prospective Resources. INCREMENTAL TERMS FOR CONTINGENT AND PROSPECTIVE RESOURCES (RYDER SCOTT) Should evaluators choose to characterize the range of uncertainty for Contingent Resources or Prospective Resources in discrete incremental quantities, they should denote such quantities as such and provide sufficient detail in their report to allow an independent evaluator or auditor to clearly understand the basis for estimation and categorization of the recoverable quantities. For reports prepared by Ryder Scott Company (Ryder Scott), the range of uncertainty for discrete incremental quantities of Contingent Resources shall be termed C Incremental (Ci), 2C Incremental (2Ci) and 3C Incremental (3Ci) and in the case of Prospective Resources shall be termed Low Estimate Incremental (LEi), Best Estimate Incremental (BEi) and High Estimate Incremental (HEi) where (i) denotes a specific incremental quantity. RYDER SCOTT COMPANY PETROLEUM CONSULTANTS