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Exhibit 99.1
February 23, 2010
Mr. Lee Christianson
Pyramid Oil Company
2008 21st Street
Bakersfield, CA 93302
Re: Estimated Proved Reserves and Future Net Income as of January 1, 2010
Attributable to Certain Mineral and Leasehold Interests of Pyramid
Oil Company
Dear Mr. Christianson:
Pursuant to your request, MHA Petroleum Consultants LLC (MHA) has estimated
the proved oil and gas reserves and future net income as of January 1, 2010
for the Pyramid Oil Company (Pyramid) properties located in the states of
California, New York and Texas. A summary of the results net to Pyramid's
interests (before income tax) is presented below.
Pyramid Oil Company
Consolidation (as of 1-1-2010)
Proved Developed Proved Total
Producing Non- Undeveloped Proved
(PDP) Producing (PUD)
(PDNP)
------------------------ ------------ ------
Oil Reserves, Thousand (M)
Barrels - Gross (8/8ths) 554.7 36.1 113.8 704.6
Net Revenue Interest 383.2 27.0 96.1 506.3
Gas Reserves, MMcf
Gross (8/8ths) 164.5 436.0 0.0 600.5
Net Revenue Interest 42.6 38.1 0.0 80.7
Future Revenue, M $ 22,656.5 1,828.7 5,691.5 30,176.7
Future Production
Taxes, M $ 482.8 47.6 122.1 652.5
Future Cost, M $
Production 11,652.4 615.0 512.5 12,779.9
Development 0.0 80.0 1,550.0 1,630.0
Future Net Cash Flows, M $
Undiscounted 10,521.3 1,086.1 3,506.9 15,114.4
Discounted at 10 percent 6,932.1 379.5 2,632.5 9,944.1
The attached report has been prepared in accordance with our understanding of
the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserve
Information as promulgated by the Societies of Petroleum Engineers and
Petroleum Evaluation Engineers, and in our opinion, it will conform to the
U.S. Securities and Exchange Commission (SEC) regulations and requirements.
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The reserves and economics indicated in this report are estimates only and
should not be considered as exact quantities. They represent our best
judgements, after having utilized generally accepted engineering and economic
procedures. Moreover, the net revenues indicated herein should not be
construed as fair market values.
All the information furnished by Pyramid was accepted without any attempt at
independent verification, except that such tests as we considered necessary
were made to check the veracity of the production data, operating costs and
engineering procedures. In evaluating the information at our disposal, we
have excluded from our consideration all legal and accounting matters, which
may be controlling.
All the basic engineering calculations and supporting data remain in our files
for future reference. MHA appreciates the opportunity to be of service to
Pyramid, and we trust that this report will adequately serve your needs.
Very truly yours,
/s/ Alan A. Burzlaff
----------------
Alan A. Burzlaff, P.E.
President MHA California
Professional Petroleum Engineer
Licensed by the California Board for
Professional Engineers and Land Surveyors
License No. 1386
Enclosure
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Pyramid Oil Company - Reserves Report and Economic Analysis
as of January 1, 2010
1. CERTIFICATION
This report presents the proved oil and gas reserves and net present values as
of January 1, 2010 for certain mineral interests and producing properties of
Pyramid Oil Company, Bakersfield, California (Pyramid). The Pyramid
properties are located in California, New York and Texas. The reserves in
this report are estimated using guidelines endorsed by the Society of
Petroleum Engineers (SPE) and Society of Petroleum Evaluation Engineers (SPEE)
and in our opinion, the reserve estimates conform to the United States
Securities and Exchange Commission (SEC) regulations and requirements. This
report was completed at the request of Pyramid and was prepared for the
exclusive use and sole benefit of Pyramid.
The estimated reserves and valuations presented in this report are based on
petroleum engineering work performed by MHA Petroleum Consultants LLC (MHA).
Pyramid furnished MHA all of the accounts, records and data required for this
evaluation. The ownership interest and other factual data provided to MHA by
Pyramid were accepted without independent verification (with the exception of
oil and gas production data which were independently verified through public
websites of the respective conservation departments of the states of
California, New York and Texas). MHA staff did not conduct site inspections
of the properties presented in this report.
The results of this report are certified as unbiased, reasonable assessments
of the oil and gas remaining to be produced as of January 1, 2010. MHA and
its employees do not have any interest in these properties. MHA's
compensation for this report is not contingent on the estimate of reserves or
future income attributable to these properties.
The accuracy of reserve evaluations is always subject to uncertainty. The
reserve estimates presented in this report are based on a reserve audit that
utilized a technical analysis of the available data using standard petroleum
engineering principles. However, the estimates must be accepted with the
understanding that further information and future reservoir performance, after
the date of the estimate, may justify their revision.
/s/ Alan A. Burzlaff
----------------
Alan A. Burzlaff, P.E.
President MHA California
Professional Petroleum Engineer
Licensed by the California Board for
Professional Engineers and Land Surveyors
License No. 1386
Signed: February 23, 2010
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2. SUMMARY
At Pyramid's request, MHA prepared an evaluation of the proved developed and
proved undeveloped reserves, future production and net income attributable to
certain Pyramid mineral interests as of January 1, 2010. The Pyramid oil-
producing leases are located in portions of Santa Barbara County and Kern
County, California. The natural gas-producing interests owned by Pyramid are
located in the Silver Lake field, Livingstone and Wyoming Counties, New York
and in the Franklin Ranch field, McMullen County, Texas. The table below
summarizes the results of this evaluation.
PROVED OIL AND GAS RESERVES
AS OF JANUARY 1,2010
PYRAMID OIL COMPANY
Summary of Interests
CONSOLIDATED SUMMARY - BEFORE INCOME TAX
Proved Developed Proved Total
Producing Non- Undeveloped Proved
(PDP) Producing (PUD)
(PDNP)
------------------------ ------------ ------
Oil Reserves, Thousand (M)
Barrels - Gross (8/8ths) 554.7 36.1 113.8 704.6
Net Revenue Interest 383.2 27.0 96.1 506.3
Gas Reserves, MMcf
Gross (8/8ths) 164.5 436.0 0.0 600.5
Net Revenue Interest 42.6 38.1 0.0 80.7
Future Revenue, M $ 22,656.5 1,828.7 5,691.5 30,176.7
Future Production
Taxes, M $ 482.8 47.6 122.1 652.5
Future Cost, M $
Production 11,652.4 615.0 512.5 12,779.9
Development 0.0 80.0 1,550.0 1,630.0
Future Net Cash Flows, M $
Undiscounted 10,521.3 1,086.1 3,506.9 15,114.4
Discounted at 10 percent 6,932.1 379.5 2,632.5 9,944.1
The proved developed reserves sub-categorized as proved developed producing
(PDP) are represented by the continued field operation of existing producing
oil and gas wells located on the Pyramid ownership properties. The PDP
reserves are expected to be recovered from completion intervals that are open
and producing at the time of the estimate. No capital costs are associated
with these reserves.
Reserves sub-categorized as proved developed non-producing (PDNP) include
shut-in and behind-pipe reserves. Shut-in reserves are expected to be
recovered from completion intervals which are open at the time of the estimate
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but which have not started producing or wells not capable of production for
mechanical reasons. The proved undeveloped reserves (PUD) in this report are
expected to be recovered from new wells on undrilled acreage.
Equipment salvage value and future abandonment costs were not included in this
analysis. The net income values presented in the above table and throughout
the report include deductions for severance taxes and ad valorem tax
assessments in the states of California and Texas, but do not consider local
taxes for the state of New York. All income and net present value amounts are
before any deductions for state and federal income taxes (BIT).
Summary sheets for the Proved Producing, Proved Non-Producing and Proved
Undeveloped reserves are presented in TABLES 1 through 4. These tables show
the gross and net revenue interest reserves, the before tax net cash flows
(undiscounted and discounted), and the estimated 2010 gross annual operating
costs. A reconciliation of the reserve estimates between last year and this
year, after accounting for calendar year 2009 production is shown by TABLE 5
for the oil-producing properties and by TABLE 6 for the gas-producing
properties.
TABLES 7 through 12 include the reserves and net cash flow consolidation
reports on a total Pyramid Oil Company basis for Total Proved, Total Proved
Developed, Total Proved Developed Producing, Proved Developed Producing
Company-Operated, Total Proved Non-Producing and Total Proved Undeveloped
reserves, respectively. The Total Proved summary reports by state
(California, New York and Texas) are presented by TABLES 13 through 15 and the
corresponding oil/gas production plots (8/8ths) are given in APPENDIX A. The
net cash flows in each report are presented for a variety of present value
discount factors. A net present value economic summary report is included in
APPENDIX B for each Pyramid property with positive net cash flow.
This report has been prepared in accordance with our understanding of the
Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserve
Information as promulgated by the SPE and the SPEE, and in our opinion, the
reserve estimates in this report will conform to the SEC regulations and
requirements.
3. RESERVES EVALUATION
3.1 Reserves Classification
Oil and gas reserves, as considered in this report, are classified a either
proved developed or proved undeveloped. Proved oil and gas reserves are the
estimated quantities of crude oil, natural gas and natural gas liquids which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in the future years from known reservoirs under existing economic
and operating conditions (i.e., prices and costs as of the date the estimate
is made). Proved developed oil and gas reserves are reserves that can be
expected to be recovered through existing wells with existing equipment and
operating methods (no major capital investment required). Proved developed
reserves may be sub-categorized as producing or non-producing. Proved
developed producing reserves are expected to be recovered from completion
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intervals that are open and producing at the time of the estimate. Reserves
sub-categorized as proved non-producing include shut-in and behind-pipe
reserves.
Proved undeveloped oil and gas reserves are reserves that are expected to be
recovered from new wells on undrilled acreage, from deepening existing wells
to a different reservoir, or from existing wells where a relatively major
expenditure is required for new equipment and/or re-completion. Undrilled
locations are classified as having undeveloped reserves if a development plan
has been adopted indicating that they are scheduled to be drilled within five
years.
3.2 Reserve Estimates
3.2.1 Proved Developed Reserves
The PDP production (reserves) forecast for each Pyramid-operated lease is
based on historical production data provided by Pyramid or obtained from
public records through December 2009. The Pyramid leases were evaluated using
a decline curve analysis technique to determine the forecast of future oil and
gas production. For all leases, an exponential decline curve was found to
provide a good match to the historical production trend. This decline curve
method is particularly valid over the first few years of the forecast and this
is generally within the economic life span of the leases. There was no
additional information available to MHA with which to make any volumetric
checks of the assigned gas reserves. The New York state gas wells are
operated by Big Tree, LLC.
3.2.2 Proved Developed Non-Producing Reserves
Proved developed non-producing (PDNP) reserves are assigned to the Media
intervals in the Santa Fe 14 and Santa Fe 15 wells in California, and also to
the Sligo zone in the Pan Am Franklin No. 1 in McMullen County, TX (Pyramid
provided well log, seismic data and gas production test information for the
Pan Am Franklin No. 1 well). The Pan Am Franklin No. 1 is shut-in with 4500
psi pressure at the surface, and production is pending a connection to the
sales line. The decline curve plots and forecast trends for the proved
developed reserves are included in APPENDIX C (Note: the reserves for each
property shown in APPENDIX C are based on decline curve analysis parameters
and at this point are independent of economic constraints).
3.2.3 Proved Undeveloped Reserves
Two new wells are planned to be drilled in year 2010 in California. The
Anderson No. 10 location is a step-out to the east offsetting the producing
well Anderson No. 8 in the Carneros Creek field, and targets the Point of
Rocks zone. A horizontal well is proposed to be drilled in the Chanac pool
within the CLI lease at Mountain View field. One additional new well on the
Anderson lease, located one spacing down-dip, is scheduled for March 2012.
The production forecast plot for the proved undeveloped reserves is presented
in APPENDIX C.
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3.3 Cash Flow Projections
Production streams were determined as indicated above and they are consistent
with operating schemes currently being employed by Pyramid. Working interests
(W.I.) And net revenue interests (N.R.I.) By lease were furnished by Pyramid.
Pyramid also furnished all the production and operating cost data. For the
PDP California oil reserves, estimated future annual operating costs for each
lease was based on the historical FY2009 operating costs incurred or paid by
Pyramid (through December 2009). Operating costs for the New York gas
properties were calculated from January - December 2009 expenses. In some
cases adjustments were made to exclude non-recurring costs from the
calculation of the projected monthly operating costs. Overhead expenses are
excluded in the economic analyses beyond those directly attributable to the
respective properties included in the operating costs provided by Pyramid.
Cash flows net to Pyramid's interests are presented by TABLES 7 through 15 for
proved reserves. The cash flow projections, per SEC guidelines, are made
with constant oil and gas prices, as well as constant operating costs.
Product prices are a 12-month average (arithmetic) of prices during the year
2009. For the New York properties and unless otherwise noted, heating values
were assumed to be 1,000 MBTU per MCF.
No additional capital costs are required for Pyramid to recover the PDP
reserves. A small capital investment is required for the PDNP reserves. The
estimated capital investments required to develop the PUD reserves are
provided by Pyramid.
This reserves evaluation indicated that some of the leases presently have no
economical recoverable reserves on an SEC basis (i.e. negative future net cash
flow). These leases are unprofitable under the economic parameters used
herein and therefore, may be generating negative cash flow to Pyramid in its
current operating environment. The future negative cash flows and
accompanying oil or gas production from the leases in question have not been
projected in this report.
4. REPORT QUALIFICATIONS
The reserves and economics indicated in this report are estimates only and
should not be considered as exact quantities. They represent our best
judgements, after having utilized generally accepted engineering, geologic and
economic procedures. Moreover, the net revenues indicated herein should not
be construed as fair market values.
All the information furnished by Pyramid was accepted without any attempt at
independent verification, except that such tests as we considered necessary
were made to check the veracity of the production data, operating costs and
engineering procedures. In evaluating the information at our disposal, we
have excluded from our consideration all legal and/or accounting matters,
which may be controlling.
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5. STATEMENT OF RISK
The accuracy of reserve evaluations is always subject to uncertainty. The
magnitude of this uncertainty is generally proportional to the quantity and
quality of data available for analysis. As reservoirs mature and new
information becomes available, revisions may be required which may increase or
decrease the previous reserve assignments. The reserves contained in this
report are based on a reserve audit, which utilized a technical analysis of
the available data using accepted petroleum engineering principles. However,
they must be accepted with the understanding that further information and
future reservoir performance after the date of the estimate may justify their
revision.