June 13, 2013

 

North American Energy Resources, Inc.

1535 Soniat Street

New Orleans, LA 70115

Attn: Mr. Alan Massara

 

  RE: Reserves & Economic Evaluation
    North American Energy Resources, Inc.
    FYE 2012 - SEC Pricing

 

Executive Summary

 

A reserves and economic evaluation has been performed on oil and gas assets of North American Energy Resources, Inc. ("NAER") as of May 1.2013. Well names, working and net revenue interests, and other well information are provided on the attached Exhibit A. Information used in the evaluation was provided by NAER and supplemented by data gathered from public sources. Summary results of this analysis are shown below and details are presented in accompanying exhibits.

 

This evaluation was performed using SEC standards and SEC Pricing, and includes one (1) Proved Developed Producing (PDP) property.

 

As presented in the accompanying economic projection, the net reserves and future net cash flow as of May 1, 2013 are as follows (Volumes in MBBLs and MMcf, Values in M$):

 

   Number of  Gross Reserves)  Net Reserves  Net  Net  NPV
Reserve Class  Properties  Oil (MBBL  Gas (MMCF)  Oil MBBL)  Gas (MMCF)  Capital (MS)  Cashflow (M$)  Disc 0 10% (MS)
PDP   1    0.00    139.95    0.00    8.61    0.00    3.25    2.12 
Total Proved   1    0.00    139.95    0.00    8.61    0.00    3.25    2.12 

 

Pricing

 

Per SEC rules as of January 1, 2010, the SEC pricing is calculated by averaging the first-of-the-month oil and gas pricing for the calendar year being evaluated. For May, 2012 through April, 2013 the average NYMEX price is 3.139 S/MMBTU for natural gas (Henry Hub). Price was held constant for the life of the well.

 

Pinnacle Energy Services, LLC

9420 Cedar Lake Ave. Oklahoma City, OK 73114

Ofc: 405-810-9151 Fax: 405-843-4700   www.PinnacleEnergy.com

 

 
 

 

 

Based on an evaluation of actual prices received by NAER, differentials to the SEC NYMEX prices were applied. The calculated gas price differential was -$0.86/MMBTU.

 

Interests

 

Interest information was provided by NAER for each property, indicating working and net revenue interests. These interests are shown in the attached Exhibit A.

 

Taxes

 

Oklahoma state severance tax is 7.095%.

 

Expenses

 

Gross operating expenses were estimated to be $ 1060 per month based on the latest 13 months of data provided by NAER.

 

Future plugging costs were assumed to be equal to salvage value.

 

Property Description and Reserve Estimates

 

The E.L. Miller 1 is a single dry-gas well producing from the Morrow formation. It has a very well-established 2.4% annual decline. Remaining reserves were determined by simple decline-curve analysis.

 

The assumptions, data, methods and procedures used were appropriate for the purpose served by the report in compliance with Item 1202(a)(8)(iv) of Regulation S-K. This method is appropriate for a well of this type. Although not likely, the ability of NAER to recover the estimated remaining reserves from this well could be hampered by mechanical failure, product price market conditions or change in governmental or geopolitical regulations.

 

Reserves

 

Remaining recoverable reserves are those quantities of petroleum that are anticipated to be commercially recovered from known accumulations from a given date forward. All reserve estimates involve some degree of uncertainty depending primarily 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 is conveyed by classifying reserves as Proved (highly certain) or Non-Proved (less certain). The estimated reserves and revenues shown in this report were determined for Proved Developed Producing (PDP), Proved Developed Non-Producing (PDNP), and Proven Undeveloped (PUD) reserve categories, as well as Probable (Prob) and Possible (Poss) Non-Proven reserve categories.

 

By definition, PDP generally refers to existing producing properties, while PDNP refers to the additional reserves from behind pipe (BP) intervals, activities to increase production or reserves from existing completions, or wells which have been tested and are awaiting sales. PUD refers to development drilling locations with definable reserves using offset well and reservoir parameters. For PNP and PUD, the activity or targeted zones must known to produce commercial hydrocarbons in quantifiable volumes and rates and reserves can be reasonably accurately estimated based on analogies and available geological and engineering information.

 

Pinnacle Energy Services, LLC

9420 Cedar Lake Ave. Oklahoma City, OK 73114

Ofc: 405-810-9151 Fax: 405-843-4700   www.PinnacleEnergy.com

 

 
 

 

Non-Proven Probable and Possible reserves appear to have engineering and geologic merit and have been determined to have over 50% (Probable) or less than 50% (Possible) likelihood to be commercially productive, but lack some aspect by definition to be considered proven, such as proximity to commercial production, production methods not proven for a certain geological or production application, or other geological or engineering deficiency.

 

Accuracy of production forecasts generally depends on the amount of historical data production and pressure available and the majority the producing wells reviewed in this evaluation had sufficient historical data to forecast future production with confidence. Those with limited production or pressure data history were forecasted by reviewing analogy well and test data and applying this knowledge to the available well information.

 

Future Cashflow

 

Future cash flow being reported is after deducting state production taxes and ad valorem taxes, but prior to deducting federal income taxes. The future net cash flow has been discounted at an annual rate of 10 percent to determine its present worth. The present worth is shown to indicate the effect of time on the value of money and should not be construed as being the fair market value of the properties.

 

General

 

The reserves and values included in this report are estimates only and should not be construed as being exact quantities. The reserve estimates were arrived at by using accepted engineering practices and were primarily based on historical rate decline analysis for existing producers. As additional pressure and production performance data becomes available, reserve estimates may increase or decrease in the future. The revenue from such reserves and the actual costs related may be more or less than the estimated amounts. Because of governmental policies and uncertainties of supply and demand, the prices actually received for the reserves included in this report and the costs incurred in recovering such reserves may vary from the price and cost assumptions referenced. Therefore, in all cases, estimates of reserves may increase or decrease as a result of future operations.

 

In evaluating the information available for this analysis, items excluded from consideration were all matters as to which legal or accounting, rather than engineering interpretation, may be controlling. As in all aspects of oil and gas evaluation, there are uncertainties inherent in the interpretation of engineering data and such conclusions necessarily represent only informed professional judgments. The titles to the properties have not been examined nor has the actual degree or type of interest owned been independently confirmed. A field inspection of the properties is not usually considered necessary for the purpose of this report.

 

Pinnacle Energy Services, LLC

9420 Cedar Lake Ave. Oklahoma City, OK 73114

Ofc: 405-810-9151 Fax:405-843-4700   www.PinnacleEnergy.com

 

 
 

 

Information included in this report includes the graphical decline curves for individual wells, projected production and cash flow economic results, and miscellaneous individual well information. Additional information reviewed will be retained and is available for review at any time. Pinnacle Energy Services, L.L.C. can take no responsibility for the accuracy of the data used in the analysis, whether gathered from public sources or otherwise.

 

Pinnacle Energy Services, LLC  
   
/s/ Richard J. Morrow  

Richard J. Morrow, P.E.

Petroleum Engineer

 

 

Disclaimer: Pinnacle Energy Services, L.L.C. nor any of its subsidiaries, affiliates, officers, directors, shareholders, employees, consultants, advisors, agents, or representatives make any representation or warranty, express or implied, in connection with any of the information made available herein, including, but not limited to, the past, present or future value of the anticipated reserves, cash flows, income, costs, expense, liabilities and profits, if any, to be derived from the properties described herein. All statements, estimates, projections and implications as to future operations are based upon best judgments of Pinnacle Energy Services; however, there is no assurance that such statements, estimates, projections or implications will prove to be accurate. Accordingly, any company, or other party receiving such information will rely solely upon its own independent examination and assessment of said information. Neither Pinnacle Energy Services nor any of its subsidiaries, affiliates, officers, directors, shareholders, employees, consultants, advisors, agents, or representatives shall have any liability to any party receiving the information herein, nor to any affiliate, partner, member, officer, director, shareholder, employee, consultant, advisor, agent or representative of such party from any use of such information. The property description and other information attached hereto are for the sole, confidential use of the person to whom this copy has been made available. It may not be disseminated or reproduced in any matter whatsoever, whether in full or in part, without the prior written consent of Pinnacle Energy Services, L.L.C. This evaluation and all descriptions and other information attached hereto are for information purposes only and do not constitute an evaluation of or offer to sell or a solicitation of an offer to buy any securities.

 

Pinnacle Energy Services, LLC

9420 Cedar Lake Ave. Oklahoma City. OK 73114

Ofc: 405-810-9151 Fax: 405-843-4700   wvvw.PinnacleEnergy.com

 

 
 

  

North American Energy Resources, Inc. - Exhibit A

Texas County, OK

As Of 5-1-2013

 

Reserve Class  Well Name  Location  Operator  API Number  Working Interest (fraction)  Revenue Interest (fraction)
Proved Developed Producing (PDP)  E.L. Miller 1   Sec 5 1N-18ECM   Aexco Petroleum  35-139-20178   0.07500000    0.06152945 

 

 
 

 

 

Date: 06/13/2013 8:39:14AM ECONOMIC PROJECTION Case : MILLER E L 1
Partner : All Cases Type : LEASE CASE
Retrieval Code : 23500188965 North American Energy Resources Field : CAMRICK
Reserve Cat. : Proved Producing MILLER E L 1 Operator : AEXCO PETROLEUM INCORPORATED
Location : N 1.0/E 18.0/SEC 5.0 C NE SW Discount Rate : 10.00 Reservoir : MORROW
Archive Set : default As of : 05/01/2013 Co., State : TEXAS, OK
      API No. : 35139201780000

 

Est. Cum Oil (Mbbl) : 0.61  
Est. Cum Gas (MMcf) : 1,208.74  
Est. Cum Water (Mbbl) : 0.00  

 

      Oil  Gas  Oil  Gas  Oil  Gas  Oil & Gas  Misc.  Costs  Taxes  Invest.  NonDisc.CF  Cum
      Gross  Gross  Net  Net  Price  Price  Rev. Net  Rev. Net  Net  Net  Net  Annual  Disc.CF
Year     (Mbbl)  (MMcf)  (Mbbl)  (MMcf)  ($/bbl)  ($/Mcf)  (M$)  (M$)  (M$)  (M$)  (M$)  (M$)  (M$)
 2013         0.00    7.13    0.00    0.44    0.00    2.28    1.00    0.00    0.64    0.07    0.00    0.29    0.28 
 2014         0.00    10.41    0.00    0.64    0.00    2.28    1.46    0.00    0.95    0.10    0.00    0.40    0.64 
 2015         0.00    10.16    0.00    0.63    0.00    2.28    1.42    0.00    0.95    0.10    0.00    0.37    0.94 
 2016         0.00    9.94    0.00    0.61    0.00    2.28    1.39    0.00    0.95    0.10    0.00    0.34    1.20 
 2017         0.00    9.68    0.00    0.60    0.00    2.28    1.36    0.00    0.95    0.10    0.00    0.31    1.40 
 2018         0.00    9.45    0.00    0.58    0.00    2.28    1.32    0.00    0.95    0.09    0.00    0.28    1.57 
 2019         0.00    9.22    0.00    0.57    0.00    2.28    1.29    0.00    0.95    0.09    0.00    0.25    1.71 
 2020         0.00    9.02    0.00    0.56    0.00    2.28    1.27    0.00    0.95    0.09    0.00    0.22    1.82 
 2021         0.00    8.78    0.00    0.54    0.00    2.28    1.23    0.00    0.95    0.09    0.00    0.19    1.91 
 2022         0.00    8.57    0.00    0.53    0.00    2.28    1.20    0.00    0.95    0.09    0.00    0.16    1.98 
 2023         0.00    8.37    0.00    0.51    0.00    2.28    1.17    0.00    0.95    0.08    0.00    0.14    2.03 
 2024         0.00    8.19    0.00    0.50    0.00    2.28    1.15    0.00    0.95    0.08    0.00    0.11    2.07 
 2025         0.00    7.97    0.00    0.49    0.00    2.28    1.12    0.00    0.95    0.08    0.00    0.08    2.09 
 2026         0.00    7.78    0.00    0.48    0.00    2.28    1.09    0.00    0.95    0.08    0.00    0.06    2.11 
 2027         0.00    7.59    0.00    0.47    0.00    2.28    1.06    0.00    0.95    0.08    0.00    0.04    2.12 
                                                                         
 Rem.         0.00    7.69    0.00    0.47    0.00    2.28    1.08    0.00    0.99    0.08    0.00    0.01    0.00 
 Total     15.7    0.00    139.95    0.00    8.61    0.00    2.28    19.63    0.00    14.98    1.39    0.00    3.25    2.12 
 Ult.         0.61    1,348.69                                                        

  

        Eco. Indicators              
Major Phase : Gas     Return on Investment (disc) :  0.000 Present Wmorth Profile (M$)  
Initial Rate : 893.11 Mcf/month   Return on Investment (undisc) :  0.000 PW 5.00% : 2.58 PW 20.00% : 1.56
Abandonment : 609.84 Mcf/month   Years to Payout : 0.00 PW 8.00% : 2.29 PW 30.00% : 1.24
Initial Decline : 2.400 %/year b = 0.00 Internal Rate of Return (%) : 0.00 PW 10.00% : 2.12 PW 40.00% : 1.04
Initial Ratio : 0.000 bbl/Mcf             PW  50.00% : 0.90
Abandon Ratio : 0.000 bbl/Mcf             PW  60.00% : 0.80
Abandon Day : 01/13/2029        

  

   Initial  1st Rev  2nd Rev
Working Interest :   0.07500000    0.00000000    0.00000000 
Revenue Interest :   0.06152945    0.00000000    0.00000000 
Rev. Date :               

 

 
 

  

Case Name: MILLER E L 1 Location: N 1.0/E 18.0/SEC 5.0 C NE SW
Oper: AEXCO PETROLEUM INCORPORATED County, State: TEXAS,OK
Field: CAMRICK  

 

 

Hist Gas Cum: 1,206.95 MMcf Proj Oil Cum: 0.61 Mbbl
Gas Rem: 139.95 MMcf Oil Rem: 0.00 Mbbl
Gas EUR: 1,348.69 MMcf   0.61 Mbbl