EXHIBIT 99.2
RYDER SCOTT COMPANY FAX (713) 651-0849
PETROLEUM CONSULTANTS
1100 LOUISANNA SUITE 3800 HOUSTON, TEXAS TELEPHONE (713) 651-9191
February 25, 2003
Rocky Mountain Gas, Inc.
1 East Alger Street, Suite 206
Sheridan, Wyoming 82801
Gentlemen:
At your request, we have prepared an estimate of the reserves, future
production, and income attributable to certain leasehold interests of Rocky
Mountain Gas, Inc. (RMG) as of December 31, 2002. The subject properties are
located in the Bobcat Field, Campbell County, Wyoming. The income data were
estimated using the Securities and Exchange Commission (SEC) requiresments 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;
howeve, actual future prices may vary significantly from December 31, 2002
prices. Therefore, volumes of reserves actually recovered and amounts of inocme
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 Inocme Data
Certain Leasehold Interests of
ROCKY MOUNTAIN GAS, INC.
Bobcat Field
As of December 31, 2002
-------------------------------------------------
Proved
-------------------------------------------
Developed Total
Producing Undeveloped Proved
----------- ----------- ------------
NET REMAINING RESERVES
----------------------
Gas - MMCF 490 96 586
INCOME DATA
-----------
Future Gross Revenue $1,394,130 $273,082 $1,667,212
Deductions 473,728 142,180 615,908
Future Net Income (FNI) $ 920,402 $130,902 $1,051,304
Discounted FNI @ 10% $ 793,481 $ 94,947 $ 888,428
All gas volumes are sales gas expressed in millions of cubic feet (MMCF) at
the official temperature and pressure bases of Wyoming, which are 60 degrees and
14.73 psia.
1100, 530-8TH AVENUE, S.W. CALGARY, ALBERTA T2P3S8
600 17TH STREET, SUITE 1610N DENVER, COLORADO 80202-5416
TEL (403) 262-2799 FAX (403) 262-2790
TEL (303) 623-9147 FAX (303) 623-4258
Rocky Mountain Gas, Inc.
February 25, 2003
Page 2
The future gross revenue is after the deduction of production taxes. The
deductions comprise the normal direct costs of operating the wells, ad valorem
taxes, completion costs, and development costs. 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 100 percent of
total future gross revenue from proved reserves.
The discounted future net income shown above 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 on each estimated projection of future production and
income presented in a later section of this report and in summary form below.
Discounted Future Net Income
As of December 31, 2002
---------------------------------
Discount Rate Total
Percent Proved
--------------- ----------------
5 $964,586
15 $821,264
20 $761,789
25 $708,917
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 definition of
proved reserves is included under the tab "Petroleum Reserves Definitions" in
this report.
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 tab "Petroleum
Reserves Definitions" in this report.
ESTIMATES OF RESERVES
Producing reserves were estimated based on performance analysis and
volumetric calculations. Undeveloped reserves were based on analogy to offset
wells. All of the reserves are based on primary recovery from coal seams.
The reserves included in this report are estimates only and should not be
construed as being exact quantities. They mayor 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.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Rocky Mountain Gas, Inc.
February 25, 2003
Page 3
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 had been
established, future production rates were inclined during the dewatering phase
or held constant, as appropriate, 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 had 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
RMG.
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
In accordance with FASB Statement No. 69, December 31, 2002 market prices
were determined using the daily gas sales price ("spot price") adjusted for gas
gathering hub and wellhead price differences (e.g. grade, transportation,
gravity, sulfur and BS&W) as appropriate. Also in accordance with SEC and FASB
specifications, changes in market prices subsequent to December 31, 2002 were
not considered in this report.
The December 31, 2002 gas price of $3.00 per MCF was used in this report,
which was based on a Henry Hub benchmark price of $4.75 per MMBTU, less a
historical differential of $1.75 per MMBTU, times 1000 BTU per cubic foot. This
December 31, 2002 gas price was held constant throughout the life of the
properties.
The effects of derivative instruments designated as price hedges of oil and
gas quantities were not considered or included in this report.
COSTS
Because the historical operating cost for the subject properties are still
affected by nonreoccurring start-up cost, operating costs for the leases and
wells in this report were estimated and provided by RMG. Operating costs were
based on the operating expense reports of RMG and include only those costs
directly applicable to the leases or wells. 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 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 RMG and are based on
authorizations for expenditure for the proposed work or actual costs for similar
projects. At the request of RMG, their estimate of zero abandonment costs after
salvage value for these onshore properties was used in this report. Ryder Scott
has not performed a detailed study of the abandonment costs or the salvage value
and makes no warranty for RMG's estimate.
Current costs were held constant throughout the life of the properties.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Rocky Mountain Gas, Inc.
February 25, 2003
Page 4
GENERAL
Table A presents a one line summary of proved reserve and income data for
each of the subject properties which are ranked according to their future net
income discounted at 10 percent per year. Table B presents a one line summary of
gross and net reserves and income data for each of the subject properties. Table
C presents a one line summary of initital basic data for each of the subject
properties. Tables 1 through 34 present our estimated projection of production
and income by years beginning january 1, 2003, by section and well.
While it may reasonably be anticipated that the future prices received for
the sale of production and the operating ocsts 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 RMG 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 oeprating pratices. RMG 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 RMG were accepted without independent verification.
The estimates presented in this report are based on data available through
December 2002.
RMG 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 no 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.
This report was prepared for the exclusive use and sole benefit of Rocky
Mountain Gas, inc. 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 futher service.
Very truly yours,
RYDER SCOTT COMPANY, L.P.
/s/ Joesph E. Blankenship, P.E.
Joseph E. Blankenship, P.E.
Senior Vice President
JEB/sw
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
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
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES DEFINITIONS
Page 2
(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
undri"ed 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 undri"ed 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.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES DEFINITIONS
Page 3
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)
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.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES DEFINITIONS
Page 4
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.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS