American Energy Production Inc.
P.O. Box 1406
Mineral Wells, Texas 76068
940-452-0698
September 22, 2010
United States Securities and Exchange Commission
Attention: Mr. John Cannarella
Division of Corporate Finance
100 F Street, N.E.
Washington, D.C. 20549
Dear Mr. Cannarella:
In response to the Commission’s correspondence to American Energy Production, Inc. (the “Company”) dated July 22, 2010, please find below our response to the following comment:
Engineering Comments
Reserve Quantity Information, Page F-31
4.
In 2008, the American Energy Production, Inc. (the “Company”) Revised Reserve Report projected that the estimated production by county would be as follows:
2009 PROJECTED
| | OIL | | | GAS | |
| | BBL | | | MCF | |
Comanche Co., TX | | | 558 | | | | 136,059 | |
Eastland Co., TX | | | 449 | | | | 0 | |
Fisher Co., TX | | | 2,412 | | | | 0 | |
Guadalupe Co., TX | | | 1,188 | | | | 0 | |
Palo Pinto Co., TX | | | 7,070 | | | | 204,703 | |
Parker Co., TX | | | 0 | | | | 22,793 | |
Medina Co., TX | | | 7,812 | | | | 0 | |
TOTAL | | | 19,489 | | | | 363,555 | |
The Company’s actual production for 2009 as reported in the 2009 reserve report indicated the following:
2009 ACTUAL
| | OIL | | | GAS | |
| | BBL | | | MCF | |
| | | | | | |
Comanche Co., TX | | | 0 | | | | 0 | |
Eastland Co., TX | | | 53 | | | | 0 | |
Fisher Co., TX | | | 1,383 | | | | 0 | |
Guadalupe Co., TX | | | 239 | | | | 0 | |
Palo Pinto Co., TX | | | 2,677 | | | | 78,456 | |
Parker Co., TX | | | 0 | | | | 24,172 | |
Medina Co., TX | | | 9,098 | | | | 0 | |
TOTAL | | | 13,450 | | | | 102,628 | |
In mid 2008 and through the end of 2008, the price of natural gas declined to below $3.00 per MCF and the price of oil declined to approximately $30.00 per barrel. In the subsequent months, the price of oil increased while the price of natural gas remained relatively flat with the pricing described above (and remains the same through today). The Company’s plan was to build reserves in both oil and natural gas and we had made a large commitment to developing our reserves in the Fort Worth Basin in Texas where the Barnett Shale was being developed. The Barnett Shale is generally considered a gas formation and the relatively low price of gas was and continues to make it difficult to meet the projected time table to develop and produce the reserves on our leases. As a result, the ten developmental wells that were planned to be drilled in Comanche County, Texas had to be delayed. Of the four wells in Palo Pinto, Texas that were to be drilled or recompleted in the Barnett Shale, two were completed much later then expected and two had to be postponed. Additionally, there were also three wells that were planned in Palo Pinto County, Texas to develop the Marble Falls formation that were not drilled. Finally, production in the Texas counties of Eastland, Fisher and Guadalupe have remained down due to the low price of natural gas not generating the necessary amount of revenue to keep the wells optimally maintained and producing.
Hopefully, the above information sufficiently responds to the Commissions comment as related to our reserve report information.