EXHIBIT 3
August 14, 1996
Evergreen Resources, Inc.
1000 Writer Square
1512 Larimer Street
Denver, Colorado 80202
Gentlemen:
We have reviewed and compiled the estimates, prepared by Evergreen
Resources, Inc. ("Evergreen"), and Resource Services, International, Inc.
(RSII), of the extent and value of the proved reserves of natural gas for
certain interests in properties currently owned and for additional properties
to be acquired by Evergreen as of August 1, 1996. The interests to be
acquired are for properties located in the Spanish Peaks Unit, Raton Basin,
Las Animas, Colorado. All interests to be acquired are for additional
interests in properties which are currently owned by Evergreen. The remaining
properties, which are currently owned by Evergreen, are located in the Rosa
Unit, Rio Arriba, New Mexico. This appraisal presents the value of
Evergreen's interests in these properties with the additional acquired
interests.
Evergreen's estimates of proved reserves, future net revenue, and
present value of net proved reserves summarized in this report are intended
to be submitted to the Securities and Exchange Commission ("SEC"). The
reserve estimates are prepared according to applicable SEC rules and
utilize conventional and generally accepted engineering methods.
Our review of Evergreen's reserve estimates is based upon a study of
Evergreen's properties. During this investigation, we consulted with the
officers and employees of Evergreen and were given access to such accounts,
records, geological and engineering reports, and other data as were desired
for examination. We previously have prepared studies of oil and gas
properties in areas where Evergreen's properties are located. Property
interests currently owned, interests to be acquired, production from such
properties, current prices for production, agreements relating to current and
future operations and sale of production, gas tax credit sales agreements,
and various other information and data were furnished to RSII by Evergreen
and are accepted as factual without independent verification of such facts.
We did not make a field examination of the operations or physical condition
of the appraised properties.
Natural gas reserves included in this report are classified as proved
and are judged to be economically producible in future years from known
reservoirs under existing economic and operating conditions, assuming
continuation of the current regulatory practices, and using conventional
production methods and equipment.
Definitions of proved reserves used in this evaluation are those set
forth in Rule 4-10(a) of Regulation S-X, as adopted by the SEC:
Evergreen Resources, Inc.
August 14, 1996
Page 2
"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.
"(I) Reserves are considered proved if economic producibility is
supported by either actual production or conclusive formation tests. 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.
"(ii) 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 reservoir, provides support
for the engineering analysis on which the project or program was based.
"(iii) 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; and (D) crude oil, natural gas, and
natural gas liquids, that may be recovered from oil shales, gilsonite and
other such sources.
"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.
Evergreen Resources, Inc.
August 14, 1996
Page 3
"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."
Estimated net proved reserves of natural gas as of August 1, 1996 for
interests which will be owned by Evergreen after the acquisition of the
additional interests are:
Natural Gas, MMCF
Total Proved Developed Producing Reserves
Spanish Peaks Unit 48,276.220
Rosa Unit 4,867.670
Total Proved Developed Non-Producing Reserves
Behind Pipe 3,553.840
Total Proved Developed Non-Producing Reserves 18,570.020
Total Proved Undeveloped Reserves 52,761.070
TOTAL PROVED RESERVES 128,028.820
Natural gas volumes are expressed at standard conditions of temperature
and pressure applicable in the area the gas is purchased.
Value of net proved reserves is expressed in terms of estimated future
net revenue and present value of future net revenue. Future net revenue is
calculated by deducting estimated operating expenses, future development
costs, and severance and ad valorem taxes from the future gross revenue.
Present value of future net revenue is calculated by discounting the
future net revenue at the arbitrary rate of 10 percent per year compounded
monthly over the expected period of realization. Present value, as expressed
herein, should not be construed as fair market value since no consideration
has been given to many factors which influence the prices at which petroleum
properties are traded, such as taxes on operating profits, allowance for
return on the investment, and normal risks incident to the oil business.
Evergreen hedges natural gas prices, and as a result, natural gas prices
included in this appraisal reflect Evergreen's expected prices as of August
1, 1996. Gas prices used in the Raton Basin are based on existing gas sales
contracts. Current average operating costs are used to estimate future costs
required to operate the properties.
Evergreen Resources, Inc.
August 14, 1996
Page 4
Estimated future net revenue and net present value of future net revenue
from proved natural gas reserves, as of August 1, 1996, for total interests
which will be owned by Evergreen after the acquisition of the additional
reserves are:
10% Disc.
Future Net Future Net
Revenue Revenue
$ $
Total Proved Developed Producing Reserves
Spanish Peaks Unit 56,267,380 25,409,060
Rosa Unit 4,361,545 2,021,099
Total Proved Developed Non-Producing Reserves
Behind Pipe 3,570,826 941,265
Total Proved Developed Non-Producing Reserves 19,766,640 6,855,611
Total Proved Undeveloped Reserves 53,865,040 15,987,290
TOTAL PROVED RESERVES 137,831,431 51,214,325
The production rates presented in this appraisal reflect actual field
and sales conditions which require Evergreen to restrict the production rates
of individual wells. As of August 1, 1996, the gas gathering system which
collects natural gas in the Spanish Peaks Unit is operating at full capacity,
and as a result, well head pressures are higher than required for optimal
production. Further, the high well head pressures restrict flow of water into
the well, lengthening the de-watering period.
All of the appraised interests are for coal gas reserves located in the
Spanish Peaks Unit, Raton Basin, Las Animas Colorado and the Rosa Unit
located in Rio Arriba, New Mexico. Projection of coalbed methane gas reserves
is generally more complicated than projection of conventional hydrocarbon
reservoirs due to complex reservoir properties and the de-watering process
required to develop producible natural gas reservoirs. Therefore, reserve
estimates and gas production rates for coalbed methane wells are modified
frequently as gas and water production data becomes available.
The producing wells in the Spanish Peaks Unit are completed in the
Vermejo and Raton coal intervals. Most of the wells are currently completed
only in the Vermejo interval but contain the Raton Coal section above the
producing Vermejo Coal zone. Gas reserves in the Raton Coal interval in the
currently drilled wells are classified as Proved Developed Non-Producing
(Behind Pipe), due to relatively small expenditures required to complete the
Raton Coal in the existing well bore.
Certain Spanish Peaks Unit wells are candidates for refracturing. The
production rates of these wells are expected to increase to the level
reflected in the projections. These projections are based on high rates
observed after successful refracture operations performed on the Taylor #44-1
and Taylor #12-8 wells.
Evergreen Resources, Inc.
August 14, 1996
Page 5
The estimates of reserves, future net revenue, and net present value are
determined according to our understanding of applicable regulations of the
Securities and Exchange Commission. These estimates have not been filed with
any other federal authority or agency.
Resource Services International, Inc. and its principals are unrelated
to Evergreen, its officers, shareholders, and properties evaluated in this
report. We do not own a direct or indirect financial interest in Evergreen or
its properties.
Submitted,
RESOURCE SERVICES INTERNATIONAL, INC.