EXHIBIT 99.2
MIKE PIPPIN LLC
Professional Petroleum Engineer - NM License #6626
3104 N. Sullivan, Farmington, NM 87401
505-327-4573 - mike@pippinllc.com
DIVERSIFIED RESOURCES, INC.
Reserve Estimate and Financial Forecast
All PDP & PUD Wells
San Juan County, NM
11/7/14
ASSIGNMENT:
1. Determine the present worth and remaining proved developed reserves (PDP)
in the existing recently acquired oil wells in San Juan County.
2. Identify proved undeveloped reserves (PUD) and their present worth of this
recently acquired acreage.
METHOD:
1. I gathered the necessary data on the 54 existing oil wells from
Dwight's Energy Production Data. I then utilized Petroleum Engineering
software, "Power Tools", by IHS Energy to assign a decline curve and
production forecast for each producing well. The decline curves and
their forecasts were then added together to obtain the total remaining
PDP reserves and their present worth. The assumptions necessary to run
the economics were made with Jubal Terry and are listed below.
2. Using offset production from both Diversified operated and outside
operated oil wells and Diversified's acreage, Jubal Terry and I
determined the location for each Proved Undeveloped well. Each PUD
well was assigned a production forecast and ultimate recovery based on
nearby production and the Gallup Structure Map. The initial production
rate and ultimate recovery for each PUD well was risked by 0.75. All
74 PUD wells were then added together to obtain the total PUD reserves
and their total present worth.
RESULTS:
1. The PDP results are presented on a production curve, which indicates
the total historical production (from 1970) on these 54 existing oil
wells along with the total field forecast (Exhibit #1). The forecast
is also presented in tabular form along with the economics in the
Annual Cash Flow Report (Exhibit #2). Fifteen of these wells had so
little production that they could not be included in this report.
Obviously, a portion of these 15 wells will be returned to economic
production while others may need to be plugged and abandoned. The
estimated total gross forecast of future reserves for the 54 existing
PDP oil wells is 251,486 BO with a present worth at 5% of $5,400,517.
It was assumed that each well would be plugged when production
declined to below 0.3 BOPD or became uneconomical. No gas sales were
assigned to these wells.
2. Jubal Terry and I have identified 74 Proved Undeveloped locations. The
total forecast decline curve for the risked (75%) proved undeveloped
drilling locations can be seen on Exhibit #3. The forecast is also
presented in tabular form along with the economics in the Annual Cash
Flow Report, Exhibit #4. The estimated total gross forecast of future
reserves for the 74 PUD oil wells is 3,298,488 BO with a present worth
at 5% of $94,731,824.
Summary of Estimated Reserves and Calculated Present Worth Before Federal Tax
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NET PRESENT VALUE THOUSAND
NUMBER GROSS OIL NET OIL OF US DOLLARS DISCOUNATYED @
RESERVE NUMBER OF WELLS RESERVES RESERVES ---------------------------------
CATEGORY OF WELLS DRILLED (BBLS) (BBLS) 1% 5% 10% 15%
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PROVED
DEVELOPED 54 54 251,486 188,614 6,849 $5,401 $4,284 $3,561
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RISKED
PROVED
UNDEVELOPED 74 0 3,298,488 2,473,866 $125,521 $94,732 $72,011 $57,487
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TOTAL 128 54 3,549,974 2,662,480 $132,370 $100,133 $76,295 $61,048
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ASSUMPTIONS
1. Net Price of oil- $70/bbl.
2. Oil price escalator is 3% per year.
3. No gas sales.
4. Effective date is 1/1/15.
5. Operating expenses are $800/mo/well.
6. Expense escalator is 3% per year.
7. WI / NRI is 100% / 75%
8. State Tax (NM): severance is 7.09% & Ad Valorem is 2%
9. The risk factor on all PUD reserves and economics is 0.75
10. Drilling, Completion, & Facilities costs are $425,000.
11. Economics & production for each well ends at its economic limit or
when oil production falls below 0.3 BOPD.
12. No salvage value or P&A costs was included in the economics.
13. No equipping costs for existing wells was included in the economics.
14. All PUD wells start production on 1/1/15.
If you have any questions or changes, please contact me at 505-327-4573 or
e-mail at mike@pippinllc.com.