February 24, 1997
Mesa, Inc.
1400 Williams Square West
5205 N. O'Connor Blvd.
Irving, TX 75039-3746
Re: Greenhill Petroleum Corporation
Reserve and Net Revenue Forecast
As of December 31, 1996
SEC Price Case
Gentlemen:
At your request, we estimated the Proved Reserves and future net
revenue as of December 31, 1996 attributable to the Greenhill Petroleum
Corporation interests in properties located onshore and offshore Louisiana
and onshore Texas and New Mexico. In preparing these estimates, we employed
costs as instructed by Greenhill Petroleum Corporation; we employed prices
as of December 31, 1996 as shown in Table 1. These estimates are designated
as the SEC Price Case.
The results of these evaluations for the Proved Reserves as of December
31, 1996 are as follows:
Proved Proved Proved Proved
Producing Nonproducing Undeveloped Total
Reserves Reserves Reserves Reserves
-------------------------------------------
Net Oil, MBbls. 14,808 5,591 3,031 23,430
Net Sales Gas, MMcf 21,177 10,635 10,085 41,897
Future Net Revenues
Undiscounted, M$ 262,415 98,703 79,793 440,911
Discounted at 10%, M$ 188,253 58,872 53,134 300,259
<TABLE\>
Proved Reserves and future net revenue were estimated in accordance with
the provisions contained in Securities and Exchange Commission Regulation
S-X, Rule 4-10 as defined in Attachment 1 except that we have no judgment
regarding the instructed costs.
Future net revenues as used herein are defined as the total revenues
attributable to (1) the net working interests less royalties, severance and
ad valorem taxes, operating costs, and future capital expenditures and (2)
the net mineral interests, production payments, or overriding royalty
interests owned by Greenhill Petroleum Corporation. In the projections,
future net revenues were discounted at 10 percent per annum as requested.
Estimates of future net revenues and discounted future net revenues are
not intended to represent our opinion of the fair market values for the
estimated reserves.
We employed the lease and well operating costs, capital costs,
abandonment costs, and the scheduling thereof as provided by Greenhill
Petroleum Corporation. Required future capital expenditures, operating
costs, and state severance and ad valorem taxes were deducted from revenues
as appropriate for each individual property. For offshore and inland water
properties, future capital requirements for abandonment of the wells and
platforms were included. Abandonment costs were included for onshore
properties except in those cases where salvage values exceeded abandonment
costs. Investigations of environmental issues such as the costs, if any, of
restoring properties to satisfy environmental standards were beyond the
scope of this assignment.
The reserves reported herein were based on a detailed review of the
geological and engineering data and were estimated from decline curve
analyses, water-oil ratio trends, material balance calculations,
volumetric calculations, analogous methods, or a combination of these
methods. Reserve estimates from analogies and from volumetric calculations
are often less certain than reserve estimates based on well performance
obtained over a period during which a substantial portion of the reserves
was produced.
The evaluations presented in this report, with the exceptions of those
parameters specified by others, reflect our informed judgments based on
accepted standards of professional investigation but are subject
to those generally recognized uncertainties associated with interpretation
of geological, geophysical, and engineering information. Government
policies and market conditions different from those employed in
this study may cause the total quantity of oil or gas to be recovered,
actual production rates, prices received, or operating and capital costs to
vary from those presented in this report.
In conducting these evaluations we relied upon production histories,
accounting and cost data, and other financial, operating, engineering, and
geological data supplied by Greenhill Petroleum Corporation. To a lesser
extent, data existing in the Miller and Lents, Ltd. files and data obtained
from commercial services were used. We relied upon the Greenhill Petroleum
Corporation representation of the ownership interests. No independent
verifications of these interests were made by Miller and Lents, Ltd.
Very truly yours,
MILLER AND LENTS, LTD.
By /s/
-------------------------------
J. L. Powell
Vice President
JLP/hsd
TABLE 1
GREENHILL PETROLEUM CORPORATION
-------------------------------
Prices as of
December 31, 1996
Gas Price Gas Price Oil Price
Field ($/MMBtu) ($/Mcf) ($Bbl)
------------------------------------------------------------------
Eugene Island Block 208 3.750 4.129 25.13
Timbalier Bay 3.740 4.069 25.14
Grand Bay 3.516 3.829 25.45
Delta Farms 3.740 4.260 25.20
Bully Camp -- -- --
Rich Ranch 3.630 4.320 24.73
Bobcat Run 3.640 3.960 23.95
Linscomb 3.510 4.001 24.26
Lovington San Andres Unit 2.050 2.909 24.23
Lovington Paddock Unit 2.230 3.238 24.23
West Lovington Unit 2.660 4.365 24.23
Midway State Unit 2.650 3.975 24.78
West San Andres Unit 1.100 1.110 23.69
Emma Cowden 2.780 4.167 23.88
Emma San Andres Unit 2.780 4.167 23.88
ATTACHMENT 1
Proved Reserves Definitions
In Accordance With
Securities and Exchange Commission Regulation S-X
-------------------------------------------------
Proved Oil and Gas Reserves
---------------------------
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 future years from
known reservoirs under existing economic and operating conditions, i.e.,
prices and costs as of the date the estimate is made. Prices include
consideration of changes in existing prices provided only by contractual
arrangements but not on escalations based upon future conditions.
1. Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. The
area of a reservoir considered proved includes (a) that portion delineated
by drilling and defined by gas-oil and/or oil-water contacts, if any, and
(b) the immediately adjoining portions not yet drilled but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.
2. Reserves which can be produced economically through application
of improved recovery techniques (such as fluid injection) are included in
the proved classification when successful testing by a pilot project or the
operation of an installed program in the reservoirs provides support for the
engineering analysis on which the project or program was based.
3. Estimates of proved reserves do not include the following:
a. Oil that may become available from known reservoirs but is
classified separately as indicated additional reserves.
b. Crude oil, natural gas, and natural gas liquids, the
recovery of which is subject to reasonable doubt because of
uncertainty as to geology, reservoir characteristics, or
economic factors.
c. Crude oil, natural gas, and natural gas liquids, that may
occur in undrilled prospects.
d. Crude oil, natural gas, and natural gas liquids, that may
be recovered from oil shales, coal, gilsonite, and other
such sources.
Depending upon their status of development, proved reserves are
subdivided into proved developed reserves and proved undeveloped reserves.
Proved Developed Oil and Gas Reserves
-------------------------------------
Proved developed oil and gas reserves are reserves that can be expected
to be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery should
be included as proved developed reserves only after testing by a pilot
project or after the operation of an installed program has confirmed through
production response that increased recovery will be achieved.
Proved Undeveloped Oil and Gas Reserves
---------------------------------------
Proved undeveloped oil and gas reserves are reserves that are expected
to be recovered from new wells on undrilled acreage, or from existing wells
where a relatively major expenditure is required for recompletion. Reserves
on undrilled acreage shall be limited to those drilling units offsetting
productive units that are reasonably certain of production when drilled.
Proved reserves for other undrilled units can be claimed only where it can
be demonstrated with certainty that there is continuity of production from
the existing productive formation. Under no circumstances should estimates
for proved undeveloped reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual
tests in the area and in the same reservoir.