[Letterhead of Netherland, Sewell & Associates, Inc.]
February 7, 2003
Mr. Mark S. Sexton
Evergreen Resources, Inc.
1401 Seventeenth Street, Suite 1200
Denver, Colorado 80202
Dear Mr. Sexton:
In accordance with your request, we have audited the estimates prepared by Evergreen Resources, Inc. (Evergreen), as of December 31, 2002, of the proved reserves and future revenue to the Evergreen interest in certain oil and gas properties located in the Raton Basin, Las Animas County, Colorado. These estimates are based on constant prices and costs and conforms to the guidelines of the Securities and Exchange Commission (SEC). The following table sets forth Evergreen's estimates of the proved reserves and future net revenue, as of December 31, 2002, for the audited properties.
| | Net Reserves | Future Net Revenue (M$) | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Category | Condensate Gas | | Present Worth at 10% | ||||||
| (MBBL) | (MMCF) | Total | |||||||
| Proved Developed | 0.0 | 795,873.8 | 2,392,294.6 | 1,190,556.0 | |||||
| Proved Undeveloped | 0.0 | 442,927.8 | 1,256,632.0 | 444,184.4 | |||||
| Total Proved (1) | 0.0 | 1,238,802.0 | 3,648,926.0 | ||||||
| 1,634,741.0 | |||||||||
Gas volumes are expressed in millions of standard cubic feet (MMCF) at the contract temperature and pressure bases. These properties have never produced commercial volumes of condensate.
When compared on a property-by-property basis, some of the estimates of Evergreen are greater and some are lesser than the estimates of Netherland, Sewell & Associates, Inc. However, in our opinion, Evergreen's estimates of proved oil and gas reserves and future revenue as shown herein and in certain computer printouts in our office are, in the aggregate, reasonable and have been prepared in accordance with generally accepted petroleum engineering and evaluation principles. These principles are set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserve Information promulgated by the Society of Petroleum Engineers. We are satisfied with the methods and procedures utilized by Evergreen in preparing the December 31, 2002 reserve and future revenue estimates, and we saw nothing of an unusual nature that would cause us to take exception with the estimates, in the aggregate, as prepared by Evergreen.
The estimated reserves and future revenue shown herein are for proved developed and proved undeveloped reserves. Evergreen's estimates do not include probable or possible reserves which may exist for these properties, nor do they include any consideration of undeveloped acreage beyond those tracts for which undeveloped reserves have been estimated.
The gas price used by Evergreen is based on a combination of the Oklahoma PEPL spot market price of $4.39 per MMBTU and the North-Texas Panhandle Northern (Mid 10) spot market price of $4.455 per MMBTU in effect for flow on December 31, 2002. This price is adjusted by lease for fuel usage, regional price differentials, and energy content and is held constant in accordance with SEC guidelines. Gas prices are also adjusted to reflect existing gas price hedging contracts in place through December 31, 2004.
Lease and well operating costs used by Evergreen are based on historical operating expense records. These costs include direct lease and field level costs of $1,156 per well per month and gathering and transportation fees totaling $0.45 per net MCF of gas. Overhead expenses above the field
level and headquarters general and administrative overhead expenses of Evergreen are not included. The lease and well operating costs were held constant throughout the lives of the properties in accordance with SEC guidelines. Evergreen's estimates of capital costs are included as required for workovers, new development wells, and production equipment.
It should be understood that our audit does not constitute a complete reserve study of Evergreen's oil and gas properties. Our audit consisted of a detailed review of major properties making up 100 percent of the present worth for the total proved reserves. In our audit, we accepted without independent verification the accuracy and completeness of the historical information and data furnished by Evergreen with respect to ownership interest, oil and gas production, well test data, oil and gas prices, operating and development costs, and any agreements relating to current and future operations of the properties and sales of production. However, if in the course of our evaluation something came to our attention which brought into question the validity or sufficiency of any such information or data, we did not rely on such information or data until we had satisfactorily resolved our questions relating thereto or had independently verified such information or data.
We are independent petroleum engineers, geologists, geophysicists, and petrophysicists with respect to Evergreen Resources, Inc. as provided in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserve Information promulgated by the Society of Petroleum Engineers. We do not own an interest in these properties and are not employed on a contingent basis.
Very truly yours, | ||||
/s/ FREDERIC D. SEWELL Frederic D. Sewell | ||||
