EXHIBIT 99.2
(RYDER SCOTT COMPANY LETTERHEAD)
January 31, 2003
Energy Partners, Ltd.
201 St. Charles Avenue, Suite 3400
New Orleans, Louisiana 70170
Gentlemen:
At your request, we have prepared an estimate of the reserves, future
production, and income attributable to certain leasehold and royalty interests
of Energy Partners, Ltd. (EPL) as of December 31, 2002. The subject properties
are located in the federal waters offshore Louisiana and Texas. The income data
were estimated using the Securities and Exchange Commission (SEC) requirements
for future price and cost parameters.
The estimated reserves and future income amounts presented in this
report are related to hydrocarbon prices. Hydrocarbon prices in effect at
December 31, 2002 were used in the preparation of this report as required by SEC
rules; however, actual future prices may vary significantly from December 31,
2002 prices. Therefore, volumes of reserves actually recovered and amounts of
income actually received may differ significantly from the estimated quantities
presented in this report. The results of this study are summarized below.
SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold and Royalty Interests of
ENERGY PARTNERS, LTD.
As of December 31, 2002
------------------------------------------
<Table>
<Caption>
Proved
---------------------------------------------------------
Developed
--------------------------- Total
Producing Non-Producing Undeveloped Proved
------------ ------------- ------------ ------------
NET REMAINING RESERVES
Oil/Condensate -- Barrels 38,319 197,374 115,127 350,820
Gas--MMCF 18,376 22,049 27,991 68,416
INCOME DATA
Future Gross Revenue $ 88,175,171 $111,266,379 $133,110,087 $332,551,637
Deductions 8,499,131 18,233,308 31,934,094 58,666,533
------------ ------------ ------------ ------------
Future Net Income (FNI) $ 79,676,040 $ 93,033,071 $101,175,993 $273,885,104
Discounted FNI @ 10% $ 73,297,497 $ 73,584,841 $ 81,109,798 $227,992,136
</Table>
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas
volumes are sales gas expressed in millions of cubic feet (MMCF) at 14.73 psia
and 60 degrees Fahrenheit.
Energy Partners, Ltd.
January 31, 2003
Page 2
The deductions comprise the normal direct costs of operating the
wells, recompletion costs, development costs, and certain gas and condensate
processing fees which are shown as "other" deductions and certain abandonment
costs net of salvage. The future net income is before the deduction of state and
federal income taxes and general administrative overhead, and has not been
adjusted for outstanding loans that may exist nor does it include any
adjustment for cash on hand or undistributed income. No attempt was made to
quantify or otherwise account for any accumulated gas production imbalances that
may exist. Gas reserves account for approximately 97 percent and liquid
hydrocarbon reserves account for the remaining 3 percent of total future gross
revenue from proved reserves.
The discounted future net income shown on the previous page was
calculated using a discount rate of 10 percent per annum compounded monthly.
Future net income was discounted at four other discount rates which were also
compounded monthly. These results are shown below in summary form.
<Table>
<Caption>
Discounted Future Net Income
As of December 31, 2002
----------------------------
Discount Rate Total
Percent Proved
------------- -------------
8 $ 235,997,837
12 $ 220,460,378
15 $ 209,957,726
20 $ 194,279,695
</Table>
The results shown above are presented for your information and should
not be construed as our estimate of fair market value.
RESERVES INCLUDED IN THIS REPORT
The proved reserves included herein conform to the definition as set
forth in the Securities and Exchange Commission's Regulation S-X Part
210.4-10(a) as clarified by subsequent Commission Staff Accounting Bulletins.
The definitions of proved reserves are included under the section "Petroleum
Reserves Definitions" attached to this letter:
Because of the direct relationship between volumes of proved
undeveloped reserves and development plans, we include in the proved undeveloped
category only reserves assigned to undeveloped locations that we have been
assured will definitely be drilled.
The various reserve status categories are defined under the section
"Petroleum Reserves Definitions" attached to this report. The proved developed
non-producing reserves included herein are comprised of the shut-in and behind
pipe categories.
ESTIMATES OF RESERVES
In general, the proved producing reserves included herein were
estimated by performance methods which utilized various extrapolations of
historical production and pressure data available through December 2002;
however, certain of the producing reserves were estimated by the volumetric
Energy Partners, Ltd.
January 31, 2003
Page 3
method in those cases where there were inadequate historical performance data to
establish a definitive trend and where the use of production performance data as
a basis for the reserve estimates was considered to be inappropriate. The proved
non-producing and undeveloped reserves included herein were estimated by the
volumetric method which utilized all pertinent well and 3-D seismic data
available through December 2002.
The reserves included 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. Moreover, estimates of
reserves may increase or decrease as a result of future operations.
FUTURE PRODUCTION RATES
Initial production rates are based on the current producing rates for
those wells now on production. Test data and other related information were used
to estimate the anticipated initial production rates for those wells or
locations that are not currently producing. If no production decline trend has
been established, future production rates were held constant until a decline in
ability to produce was anticipated. An estimated rate of decline was then
applied to depletion of the reserves. If a decline trend has been established,
this trend was used as the basis for estimating future production rates. For
reserves not yet on production, sales were estimated to commence at an
anticipated date furnished by EPL.
The future production rates from wells now on production may be more or
less than estimated because of changes in market demand or allowables set by
regulatory bodies. Wells or locations that are not currently producing may
start producing earlier or later than anticipated in our estimates of their
future production rates.
HYDROCARBON PRICES
EPL furnished us with hydrocarbon prices in effect at December 31, 2002
which take into account SEC and Financial Accounting Standards Board (FASB)
rules regarding current market prices.
In accordance with FASB Statement No. 69, December 31, 2002 market
prices were determined using the daily gas sales price or the daily oil price
("spot price") adjusted for gas gathering hub or oilfield and wellhead price
differences. EPL provided us with the December 31, 2002 daily prices per MMBTU
of gas at Henry Hub, Louisiana, and the daily oil and condensate prices per
barrel at the Cushing NYMEX Pricing Hub based on light sweet crude. The prices
as specified by EPL were used as the initial prices herein. The product prices
used for each property reflect adjustments to these initial prices for BTU
content, liquid gravity and quality, local conditions, and/or distance from
market. Certain additional gas, oil and condensate processing fees are included
in this report as costs and are shown as "other" deductions.
In accordance with SEC and FASB specifications, changes in market
prices subsequent to December 31, 2002 were not considered in this report. The
future prices used in this report do not account for the effects of derivative
instruments designated as price hedges of oil and gas quantities that may exist.
Energy Partners, Ltd.
January 31, 2003
Page 4
COSTS
Operating costs for the leases and wells in this report were based on
the operating expense reports of EPL and include only those costs directly
applicable to the leases or wells. The estimates of future operating costs
furnished by EPL for the leases and wells which are not currently producing were
accepted as reasonable. When applicable, the operating costs include a portion
of general and administrative costs allocated directly to the leases and wells
under terms of operating agreements. No deduction was made for indirect costs
such as indirect general administration and overhead expenses, loan repayments,
interest expenses, and exploration and development prepayments that are not
charged directly to the leases or wells.
Development costs were furnished to us by EPL and are based on
authorizations for expenditure for the proposed work or actual costs for similar
projects. Certain gas, oil and condensate processing fees are included in this
report as "other" deductions. The estimated net cost of abandonment after
salvage was included for these offshore properties where abandonment costs net
of salvage are significant. The estimates of net abandonment costs furnished by
EPL were accepted without independent verification.
Current costs were held constant throughout the life of the properties.
GENERAL
While it may reasonably be anticipated that the future prices received
for the sale of production and the operating costs and other costs relating to
such production may also increase or decrease from existing levels, such changes
were, in accordance with rules adopted by the SEC, omitted from consideration in
making this evaluation.
The estimates of reserves presented herein were based upon a detailed
study of the properties in which EPL owns an interest; however, we have not made
any field examination of the properties. No consideration was given in this
report to potential environmental liabilities that may exist nor were any costs
included for potential liability to restore and clean up damages, if any, caused
by past operating practices. EPL has informed us that they have furnished us all
of the accounts, records, geological and engineering data, and reports and other
data required for this investigation. The ownership interests, prices, and other
factual data furnished by EPL were accepted without independent verification.
The estimates presented in this report are based on data available through
December 2002.
EPL has assured us of their intent and ability to proceed with the
development activities included in this report, and that they are not aware of
any legal, regulatory or political obstacles that would significantly alter
their plans.
Neither we nor any of our employees have any interest in the subject
properties and neither the employment to make this study nor the compensation is
contingent on our estimates of reserves and future income for the subject
properties.
Energy Partners, Ltd.
January 31, 2003
Page 5
This report was prepared for the exclusive use and sole benefit of
Energy Partners, Ltd. The data, work papers, and maps used in this report are
available for examination by authorized parties in our offices. Please contact
us if we can be of further service.
Very truly yours,
RYDER SCOTT COMPANY, L.P.
/s/ JOHN E. HODGIN
John E. Hodgin, C.P.G.
Executive Vice President
JEH/pl
Approved:
/s/ RONALD HARRELL
- ------------------------------------
Ronald Harrell, P.E.
Chairman and Chief Executive Officer
PETROLEUM RESERVES DEFINITIONS
SECURITIES AND EXCHANGE COMMISSION
INTRODUCTION
Reserves are those quantities of petroleum which are anticipated to be
commercially recovered from known accumulations from a given date forward. All
reserve estimates involve some degree of uncertainty. The uncertainty depends
chiefly on the amount of reliable geologic and engineering data available at the
time of the estimate and the interpretation of these data. The relative degree
of uncertainty may be conveyed by placing reserves into one of two principal
classifications, either proved or unproved. Unproved reserves are less certain
to be recovered than proved reserves and may be further sub-classified as
probable and possible reserves to denote progressively increasing uncertainty in
their recoverability. It should be noted that Securities and Exchange Commission
Regulation S-K prohibits the disclosure of estimated quantities of probable or
possible reserves of oil and gas and any estimated value thereof in any
documents publicly filed with the Commission.
Reserves estimates will generally be revised as additional geologic or
engineering data become available or as economic conditions change. Reserves do
not include quantities of petroleum being held in inventory, and may be reduced
for usage or processing losses if required for financial reporting.
Reserves may be attributed to either natural energy or improved
recovery methods. Improved recovery methods include all methods for
supplementing natural energy or altering natural forces in the reservoir to
increase ultimate recovery. Examples of such methods are pressure maintenance,
cycling, waterflooding, thermal methods, chemical flooding, and the use of
miscible and immiscible displacement fluids. Other improved recovery methods may
be developed in the future as petroleum technology continues to evolve.
PROVED RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X Rule 4-10 paragraph
(a) defines proved reserves as follows:
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) 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.
PETROLEUM RESERVES DEFINITIONS
Page 2
(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, coal, 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.
PROVED UNDEVELOPED 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.
Certain Staff Accounting Bulletins published subsequent to the
promulgation of Regulation S-X have dealt with matters relating to the
application of financial accounting and disclosure rules for oil and gas
producing activities. In particular, the following interpretations extracted
from Staff Accounting Bulletins set forth the Commission staff's view on
specific questions pertaining to proved oil and gas reserves.
Economic producibility of estimated proved reserves can be supported to
the satisfaction of the Office of Engineering if geological and engineering data
demonstrate with reasonable certainty that those reserves can be recovered in
future years under existing economic and operating conditions. The relative
importance of the many pieces of geological and engineering data which should be
evaluated when classifying reserves cannot be identified in advance. In certain
instances, proved reserves may be assigned to reservoirs on the basis of a
combination of electrical and other type logs and core analyses which indicate
the reservoirs are analogous to similar reservoirs in the same field which are
producing or have demonstrated the ability to produce on a formation test.
(extracted from SAB-35)
PETROLEUM RESERVES DEFINITIONS
Page 3
In determining whether "proved undeveloped reserves" encompass acreage
on which fluid injection (or other improved recovery technique) is contemplated,
is it appropriate to distinguish between (i) fluid injection used for pressure
maintenance during the early life of a field and (ii) fluid injection used to
effect secondary recovery when a field is in the late stages of depletion? ...
The Office of Engineering believes that the distinction identified in the above
question may be appropriate in a few limited circumstances, such as in the case
of certain fields in the North Sea. The staff will review estimates of proved
reserves attributable to fluid injection in the light of the strength of the
evidence presented by the registrant in support of a contention that enhanced
recovery will be achieved. (extracted from SAB-35)
Companies should report reserves of natural gas liquids which are net
to their leasehold interest, i.e., that portion recovered in a processing plant
and allocated to the leasehold interest. It may be appropriate in the case of
natural gas liquids not clearly attributable to leasehold interests ownership to
follow instruction (b) of Item 2(b)(3) of Regulation S-K and report such
reserves separately and describe the nature of the ownership. (extracted from
SAB-35)
The staff believes that since coalbed methane gas can be recovered from
coal in its natural and original location, it should be included in proved
reserves, provided that it complies in all other respects with the definition of
proved oil and gas reserves as specified in Rule 4-10(a)(2) including the
requirement that methane production be economical at current prices, costs, (net
of the tax credit) and existing operating conditions. (extracted from SAB-85)
Statements in Staff Accounting Bulletins are not rules or
interpretations of the Commission nor are they published as bearing the
Commission's official approval; they represent interpretations and practices
followed by the Division of Corporation Finance and the Office of the Chief
Accountant in administering the disclosure requirements of the Federal
securities laws.
SUB-CATEGORIZATION OF DEVELOPED RESERVES (SPE/WPC DEFINITIONS)
In accordance with guidelines adopted by the Society of Petroleum
Engineers (SPE) and the World Petroleum Congress (WPC), developed reserves may
be sub-categorized as producing or non-producing.
PRODUCING. Reserves sub-categorized as producing are expected to be recovered
from completion intervals which are open and producing at the time of the
estimate. Improved recovery reserves are considered producing only after the
improved recovery project is in operation.
NON-PRODUCING. Reserves sub-categorized as non-producing include shut-in and
behind pipe reserves. Shut-in reserves are expected to be recovered from (1)
completion intervals which are open at the time of the estimate but which have
not started producing, (2) wells which were shut-in awaiting pipeline
connections or as a result of a market interruption, or (3) wells not capable of
production for mechanical reasons. Behind pipe reserves are expected to be
recovered from zones in existing wells, which will require additional completion
work or future recompletion prior to the start of production.