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March 21, 2012

 

Greg Franklin

Osage Energy Corporation

100 Park Avenue. Suite 1040

Oklahoma City, OK 73102

 

Dear Mr. Franklin:

 

As requested we have prepared an economic and reserve appraisal report of Proved
Developed Producing (PDP-Water Flood) & Proved Behind Pipe (BP) reserves to the
interests of Osage Energy Corporation in Hopper-Osage Lease (Twin Creek Field),
Osage County, Oklahoma. A summary based on Unescalated pricing case effective
December 31, 2011 is as follows:

 

EFFECTIVE
DATE   RESERVE
TYPE  NET BBLS   NET MCF   FUTURE NET
REVENUE ($)   DISCOUNTED
FNR ($)@10%  12-31-2011   Proved producing
(PDP)
(Water flood)   46,196    -0-    1,775,876    837,736  12-31-2011  
Proved Behind
Pipe (BP)   66,997    200,980    5,616,240    4,034,002  TOTAL      113,193 
  200,980    7,392,116    4,871,738  

 

EVALUATION METHODOLOGY

 

GENERAL:

 

Detailed results of our evaluation for new wells is presented in the form of a
summary report with One Line Well Information showing Gross/Net Oil & Gas
Production, Future Cash Flow, Lease Operating Expenses, Production taxes,
Discounted Cash Flow at 10%. Individual lease/well economic sheets provide
detail economics, remaining reserves, production curves and also the location of
the lease/well and other pertinent data.

 

This report has been prepared on a Before Income Tax basis and does not give
consideration to salvage value, depletion or taxes other than those specifically
mentioned. Also no encumbrances against or debits owed on the properties have
been considered. All ownership interests, Lease Operating Expenses and product
pricing have been furnished by Osage Energy Corporation.

 

 

 

  

ENGINEERING:

 

Oil and gas reserves were estimated by use of production performance curves and
material balance calculations where applicable. If insufficient production
history available to evaluate by curves, estimates were made by using analogous,
nearby producing reservoirs, and/or volumetric calculations. Verbal production
information provided by Osage Energy Corporation is used in the evaluation.
Perforated interval and proposed BP zone interval is marked on the logs where
available and log calculations were made. Drainage areas were estimated based on
the well density in the sections where wells are completed. BHP data is gathered
from offset wells producing from similar reservoir. For all the Behind Reserves,
we have assumed a production start date and estimated work over costs. Reserves
estimated in this report are very subjective and should be revised up/down based
on all the information including any production history after completion. All
methods used to project reserves are industry accepted petroleum reservoir
evaluation methods.

 

OIL, GAS PRICING AND LEASE OPERATING EXPENSES:

 

An Oil Price of $90.00/BBL, Gas Price of $2.75/MCF and current Lease Operating
Expenses are used in this report. Prices and Lease Operating Expenses are not
escalated.

 

Every effort was made to forecast the best possible estimate of future
producible oil and gas reserves. However, the accuracy of any reserve estimate
is a function of the quality of available data and of judgment. While reserve
estimates presented in this report arc believed to be reasonable, they should be
accepted with the understanding that future operations or subsequent reservoir
performance or more accurate data received subsequent to the preparation of this
report may justify a revision of these estimates either upward or downward.

 

All descriptions, information and other materials ("DATA") included in this
report arc solely for convenience purposes and any reliance on or use of such
data is at your own risk and you should conduct your own due diligence. The
Reddy Petroleum Company and its associates make no warranties or
representations, express or implied, as to the accuracy or correctness of data
presented in this report or to the quality or quantity of the hydrocarbon
reserves attributed to the Behind Pipe and Incremental Reserves, or the ability
of any property to produce hydrocarbons.

 

We appreciate the opportunity of preparing this evaluation and, if you have any
questions or need additional information, please advice.

 

Respectfully submitted.

 

REDDY PETROLEUM COMPANY

 

By: [sig.jpg]     Raja P. Reddy     Petroleum Consultant     Petroleum Engineer