OPERATING EXPENSES & CAPITAL COSTS
It is the opinion of Haas Engineering that, in most cases, the lease operating costs used in this evaluation represent the average of recent historical monthly operating costs. In cases where historical costs were not available or deemed to be unreliable, operating costs were estimated based on knowledge of analogous wells producing under similar conditions. The lease operating expenses in this report represent field level operating costs and do not include COPAS charges.
It is the opinion of Haas Engineering that capital costs were estimated using recent historical information reported for analogous expenditures. Where recent historical information was not available, Authority for Expenditure (“AFE”) documents, or supplemental documentation was provided by the operator and used to estimate capital costs. AFE and supplemental documents provided by the operator have been checked for reasonableness. It should also be understood that abandonment costs have been included by Reserve Category, as individual cases, as well as at the well level. The abandonment costs used are Fleur De Lis’ estimates of the costs to abandon the wells and production facilities, net of salvage value, and have been reviewed for reasonableness. It should also be understood that the individual abandonment cases contain no volumes, only investments, and as such have negative FNI and NPV.
Operating expenses for the period of January 1, 2020 through December 31, 2020 was generally used in this evaluation. Operating expenses, capital costs, and abandonment costs were not escalated in this evaluation.
DISCLAIMERS
In this unqualified audit of KNR-EIGF Resource’s Reserves, Haas Engineering noted some variances from our internal estimations including forecast differences, price adjustments, taxes, recoveries, and operating expenses. However, these differences, in aggregate, did not exceed the 10 percent tolerance of auditing standards.
It should also be clear that abandonment costs have been included by Reserve Category, as individual cases, as well as at the well level. The abandonment costs used are Fleur De Lis’ estimates of the costs to abandon the wells and production facilities, net of salvage value, and have been reviewed for reasonableness. It should also be understood that the individual abandonment cases contain no volumes, only investments, and as such have negative FNI and NPV.
The Proved Reserves presented in this report are estimates only and should not be construed as being exact quantities. They may or may not be actually recovered; and, if recovered, the revenues therefrom and the actual costs related thereto could be more or less than the estimated amounts. Because of governmental policies and uncertainties of supply and demand, the product prices and the costs incurred in recovering these Reserves may vary from the price and cost assumptions in this report. Because these estimates are based on existing governmental regulations, changes could affect the ability to recover these Reserves. In any case, quantities of Reserves may increase or decrease as a result of future operations.
Reserves estimates for individual properties included in this report are only valid when considered within the context of the overall report and should not be considered independently. The future net income and net present value estimates contained in this report do not represent an estimate of fair market value.
All information pertaining to the operating expenses, prices, and the interests of KNR-EIGF Resources in the properties appraised has been accepted as represented. It was not considered necessary to make a field examination of the appraised properties. Data used in performing this appraisal were obtained from Fleur De Lis, public sources, and our own files. Supporting work papers pertinent to the appraisal are retained in our files and are available to you or designated parties at your convenience.
It was beyond the scope of this Haas Engineering report to evaluate the potential environmental liability costs from the operation and abandonment of these properties. In addition, no evaluation was made to determine the degree of operator compliance with current environmental rules, regulations, and reporting requirements. Therefore, no estimate of the potential economic liability, if any, from environmental concerns is included in the forecasts presented herein.
The technical person primarily responsible for conducting this Audit meets the requirements regarding qualifications, independence, objectivity, and confidentiality, as defined by the SPE Standards. Michael A. Link, a Licensed Professional Engineer in the State of Texas, has been practicing consulting petroleum engineering at Haas Engineering since 2015 and has over 20 years of industry experience.
Fleur De Lis Energy, LLC | September 9, 2021| Page 3 of 5
