October 24th, 2005
Re: AFE and Cash Call Letter, Petrogen Tiller Ranch #1
Petrogen wishes to advise that it intends to commence drilling activities on the Tiller Ranch #1 commencing on or about October 24th, 2005.
On October 14th, 2005, Petrogen entered into a drilling rig contract with Nopolitas Drilling LP. Subsequently, Petrogen commenced location preparations for the Tiller Ranch #1 well (the "Well"), which has now been completed. Concurrent with the above, Petrogen has received the necessary Drilling Permit (Permit No: 608216 and API No: 42-249-32487) from the Railroad Commission of Texas and the Water Board letter from the Texas Commission on Environmental Quality (TCEQ) to drill this Well. High-quality and industry-proven service providers and vendors to support the drilling activity on the Tiller Ranch #1 have been secured. The attached AFE details the expected costs to drill and complete its Well.
AFE Approval:
Please find the latest Authorization for Expenditure (AFE) for the Tiller Ranch #1 for your approval. Upon approval, please fax a copy of the signed AFE form to the attention of the Executive Assistant to the President, Petrogen, and return the original signed copy with your check by post to:
Petrogen, Inc.
Suite 322, 2000 S. Dairy Ashford
Houston, Texas, 77077
Total Dry Hole AFE estimated costs are: $509,830.00
Total Completion AFE estimated costs are: $188,500.00
Due to the imminent spudding of the well early this week, Petrogen would like your approval of the AFE as soon as possible. Of course, such concurrence is for the approval of Dry Hole Costs only, at this time. Your approval of Completion Costs will come at Casing Point (as per industry standards). These are best estimates and Petrogen will continue best efforts to reduce costs as much as possible without endangering the operations and quality.
Accepted: Alexander Long Date
Cash Call:
In accordance with the Participation Agreement and considering the proximity of the Spud Date, Petrogen, Inc. cash calls Alexander Long for:
2.00% of Alexander Long's paying interest share of the Dry Hole AFE Estimate:
$10,196.60
This letter shall also serve as an invoice or cash call to Alexander Long for its 2.00% share of estimated dry hole costs as per our Participation Agreement. By our calculation, this means it needs to pay $10,196.60 by check as described above, or into Petrogen, Inc.'s Operations Account, described below. Since the well will spud in less than two days, please deposit this amount in Petrogen, Inc.'s Operations Account on or before October 28, 2005. Please indicate your preferred mode of payment to the executive assistant to the president.
Yours truly,
S. Sam Sen
President
Petrogen
Authorization for Expenditure
Petrogen Tiller Ranch #1, 2005
Jim Wells County, Texas
October 21st, 2005
Intangibles | Dry Hole | Completion | Total AFE |
| | | | |
| Well Control Insurance & Liability | $3,000 | | $3,000 |
| | | | |
Location Preparation | | | |
| Location & Road Construction | $77,000 | | $77,000 |
| Location & Road Damages | $3,000 | | $3,000 |
| | | | |
Drilling Operations | | | |
| Rig Mob/De-Mob | $60,000 | | $60,000 |
| Rig Drilling ($9600/day) | $124,800 | | $124,800 |
| Rig Fuel | $13,000 | | $13,000 |
| Bit & Reamers | $12,000 | | $12,000 |
| | | | |
Mud Logging Services | | | |
| Mud Logging and Geological Services | $10,000 | | $10,000 |
| | | | |
Logging Services | | | |
| Open Hole Logging | $25,000 | | $25,000 |
| Cased Hole Logging, SWC & Perforating | $5,000 | $7,000 | $12,000 |
| | | | |
Completion Rig | | | |
| Rig Well Completion | | $10,000 | $10,000 |
| | | | |
Drilling & Mud Chemicals | | | |
| Drilling & Mud Chemicals | $20,000 | $4,500 | $24,500 |
| | | | |
Cementing Services | | | |
| Surface Casing | $10,000 | | $10,000 |
| Production Casing | | $25,000 | $25,000 |
| | | | |
Trucking | | | |
| Truck Usage, etc | $5,000 | $5,000 | $10,000 |
| | | | |
Other Expenses | | | |
| Roustabouts Services | $5,000 | $15,000 | $20,000 |
| Water | $10,000 | | $10,000 |
| Plugging Expense | $15,000 | | $15,000 |
| Loc Restoration/Pad Construction | $7,000 | | $7,000 |
| Misc. Labour & Services | $15,000 | $5,000 | $20,000 |
| Rentals (Surface & Downhole) | $10,000 | $2,000 | $12,000 |
| | | | |
Testing | | | |
| Four Point/Production | | $3,000 | $3,000 |
| | | | |
Supervision | | | |
| Supervision Drilling, Eng., Geol. | $15,000 | $3,000 | $18,000 |
| | | | |
Contingency | | | |
| Contingency | $44,780 | | $44,780 |
| | | | |
Total Intangibles: | $489,580 | $79,500 | $569,080 |
Tangibles | Dry Hole | Completion | Total AFE |
| | | |
Conductor | $5,000 | | $5,000 |
Surface Casing - 8 5/8", 24#, 1000' | $14,250 | | $14,250 |
Production Casing - 4 1/2",10.5#, J 55 @ 6000' | | $36,000 | $36,000 |
Tubing - 6000' | | $17,000 | $17,000 |
Packer and Hangers | | $5,000 | $5,000 |
Wellhead | $1,000 | $10,000 | $11,000 |
Heater, Treater & Separator | | $15,000 | $15,000 |
Dehydration | | $4,000 | $4,000 |
Tanks, Catwalk & Stairs | | $10,000 | $10,000 |
Flow Meter | | $5,000 | $5,000 |
Nipples, Valves & Fittings | | $5,000 | $5,000 |
Flowline/Line Pipe | | $2,000 | $2,000 |
| | | |
Total Tangibles: | $20,250 | $109,000 | $129,250 |
| | | |
| | | |
Total Dryhole Cost | $509,380 | | $509,380 |
Total Completion Cost | | $188,500 | $188,500 |
Total Completed Well Cost | | | $698,330 |
| | | |
| | | |
TOTAL WELL COST | | | $698,330 |
Non-Operator Dry Well Cost | | | $10,196.60 |
