Document:

cnsv_ex10-1.htm

RESTRICTED USE APPRAISAL REPORT

 

 

 

OF

 

 

 

OIL EQUIPMENT ON LEASES

 

 

 

FOR

 

 

 

B & J OIL COMPANY, INC.

LOUIS JUDD

620 PLEASANT RUN CHURCH ROAD

CAMPBELLSVILLE, KY 42718

 

 

 

PREPARED BY

 

 

 

SEAN D. CURRY

103 NANCY STREET

GREENSBURG, KY 42743

  

  

  

TABLE OF CONTENTS

	
Letter to Mr. Louis Judd

	
Page 4

	  	  
	
Cost Approach

	
Pages 5-11

	  	  
	
Scope of Appraisal Page 12

	  
	  	  
	
Certification

	
Page 13

	  	  
	
Assumptions and Limiting Conditions

	
Pages 14-15

	  	  
	
Qualifications

	
Page 16

	  	  
	
Resume

	
Pages 17-18

	  	  
	
Exhibits (Invoices)

	
Pages 19-25

  

  

  

May 24, 2010

	
To:

	
Louis Judd

	  	
620 Pleasant Run Church Road

	  	
Campbellsville, KY 42718

Re: Restricted Use Appraisal Report

Dear Mr. Judd:

As requested, I have performed an appraisal report on the oil equipment contained in six leases being the following:

Block Production Fund LLP

Rodgers Production Fund LLP

Production Revenue Drilling Fund LLP

Energy Production Revenue Fund LLP

Block City Drilling Fund LLP

Green County Energy Fund LLP

Please be advised that all information contained in this appraisal report was given to me by yourself. There has been no physical inspection of the equipment, nor were pictures made. All values are under the assumption they are in working condition and the values used in the appraisal are the values of the equipment upon purchase. This appraisal is not performed to estimate the current market value, but determine the value when equipment was purchased.

On the basis of my work, I have concluded the value of all equipment on the date of purchase is:

$735,000.00

Seven hundred and thirty five thousand dollars

Sincerely,

/s/ Sean D. Curry

  

  

  

BLOCK PRODUCTION FUND LLP

	
Tubing - 6,800 feet at $3.50

	
$23,800.00

	  	  
	
Rods - 5,100 feet at $1.46

	
$7,446.00

	  	  
	
3 Pumping Units with Motors at $3,500.00 each

	
$10,500.00

	  	  
	
2 Tanks - 210 bbls

	
$10,000.00

	  	  
	
2 Tanks - 100 bbls

	
$6,500.00

	  	  
	
2 300 gallon separators

	
$1,250.00

	  	  
	
Flowlines - 2,000 feet at $.65

	
$1,300.00

	  	  
	
Electric Lines - 4,000 feet at $2.30

	
$12,500.00

	  	  
	
4 Control Panels at $500.00 each

	
$2,000.00

	  	  
	
3 Downhole Pumps at $1,250.00 each

	
$3,750.00

	  	  
	
3 Well Head Pumping Tees at $1,325.00

	
$3,975.00

	  	  
	  	  
	  	  
	
TOTAL VALUE

	
$83,021.00

	  	  
	  	  
	
ESTIMATED VALUE

	
$82,000.00

  

  

  

RODGERS PRODUCTION REVENUE FUND LLP

	
Tubing - 6,800 feet at $3.50

	
$23,800.00

	  	  
	
Rods - 6,800 feet at $1.46

	
$9,928.00

	  	  
	
4 Pumping Units with Motors at $3,500.00 each

	
$14,000.00

	  	  
	
4 Tanks - 210 bbls

	
$20,000.00

	  	  
	
2 Tanks - 100 bbls

	
$6,500.00

	  	  
	
Flowlines - 1,600 feet at $.65

	
$1,040.00

	  	  
	
Electric Lines - 1,600 feet at $2.30

	
$3,680.00

	  	  
	
4 Control Panels at $500.00 each

	
$2,000.00

	  	  
	
4 Downhole Pumps at $1,250.00 each

	
$5,000.00

	  	  
	
4 Well Head Pumping Tees at $1,325.00

	
$5,400.00

	  	  
	  	  
	  	  
	
TOTAL VALUE

	
$91,348.00

	  	  
	  	  
	
ESTIMATED VALUE

	
$91,000.00

  

  

  

PRODUCTION REVENUE DRILLING FUND LLP

	
Tubing - 13,600 feet at $3.50

	
$47,600.00

	  	  
	
Rods - 13,600 feet at $1.46

	
$19,856.00

	  	  
	
7 Pwnping Units with Motors at $3,500.00 each

	
$24,500.00

	  	  
	
4 Tanks - 210 bbls

	
$20,000.00

	  	  
	
4 Tanks - 100 bbls

	
$13,000.00

	  	  
	
Flowlines - 3,500 feet at $.65

	
$2,275.00

	  	  
	
Electric Lines - 4,000 feet at $2.30

	
$9,200.00

	  	  
	
8 Control Panels at $500 each

	
$4,000.00

	  	  
	
7 Downhole Pwnps at $1,250.00 each

	
$8,750.00

	  	  
	
7 Wellhead Pwnping Tees at $1,350.00 each

	
$9,450.00

	  	  
	  	  
	  	  
	
TOTAL VALUE

	
$158,631.00

	  	  
	  	  
	  	  
	
ESTIMATED VALUE

	
$158,000.00

  

  

  

ENERGY PRODUCTION REVENUE FUND LLP

	
Tubing - 11,900 feet at $3.50

	
$41,650.00

	  	  
	
Rods -10,200 feet at $1.46

	
$14,892.00

	  	  
	
6 Pumping Units with Motors at $3,500.00 each

	
$21,000.00

	  	  
	
6 Tanks - 210 bbls

	
$30,000.00

	  	  
	
Flowlines - 3,000 feet at $.65

	
$1,950.00

	  	  
	
Electric Lines - 3,500 feet at $2.30

	
$8,050.00

	  	  
	
7 Control Panels at $500.00 each

	
$3,500.00

	  	  
	
6 Downhole Pumps at $1,250.00

	
$7,500.00

	  	  
	
7 Wellhead Pumping Tees at $1,350.00 each

	
$9,400.00

	  	  
	
Casing 4 1/2 Injection Well- 1,550 feet at $5.25

	
$8,137.00

	  	  
	
Casing 4 1/2 #5 w/ Packer

	
$9,387.00

	  	  
	
Injection Well Pump-House with Valves, etc.

	
$12,750.00

	  	  
	  	  
	  	  
	
TOTAL VALUE

	
$168,216.00

	  	  
	  	  
	  	  
	
ESTIMATED VALUE

	
$168,000.00

  

  

  

BLOCK CITY DRILLING FUND LLP

	
Tubing - 9,500 feet at $3.50

	
$33,250.00

	  	  
	
Rods - 9,500 feet at $1.46

	
$13,870.00

	  	  
	
8 Pumping Units with Motors at $3,500.00 each

	
$28,000.00

	  	  
	
4 Tanks - 100 bbls

	
$13,000.00

	  	  
	
Flowlines - 4,300 feet at $.65

	
$2,795.00

	  	  
	
Electric Lines - 4,500 feet at $2.30

	
$10,350.00

	  	  
	
8 Control Panels at $500.00 each

	
$4,000.00

	  	  
	
8 Downhole Pumps at $1,250.00 each

	
$10,000.00

	  	  
	
8 Wellhead Pump Tees at $1,350.00

	
$10,800.00

	  	  
	  	  
	  	  
	
TOTAL VALUE

	
$126,065.00

	  	  
	  	  
	  	  
	
ESTIMATED VALUE

	
$126,000.00

  

  

  

GREEN COUNTY ENERGY FUND LLP

	
Tubing - 8,750 feet at $3.50

	
$30,625.00

	  	  
	
Rods - 8,750 feet at $1.46

	
$12,775.00

	  	  
	
5 Pumping Units with Motors at $3,500.00 each

	
 $17,500.00

	  	  
	
5 Tanks - 210 bbls

	
 $25,000.00

	  	  
	
Flowlines - 2,400 feet at $.65

	
 $1,560.00

	  	  
	
Electric Lines - 3,000 feet at $2.30

	
 $6,900.00

	  	  
	
5 Control Panels at $500.00 each

	
$2,500.00

	  	  
	
5 Downhole Pumps at $1,250.00 each

	
$6,250.00

	  	  
	
5 Wellhead Pumping Tees at $1,350.00 each

	
$6,750.00

	  	  
	  	  
	  	  
	
TOTAL VALUE

	
$109,860.00

	  	  
	  	  
	  	  
	
ESTIMATED VALUE

	
$110,000.00

  

  

  

VALUE OF ALL EQUIPMENT

	
BLOCK PRODUCTION FUND LLP

	
$82,000.00

	  	  
	
RODGERS PRODUCTION REVENUE FUND LLP

	
$91,000.00

	  	  
	
PRODUCTION REVENUE DRILLING FUND LLP

	
$158,000.00

	  	  
	
ENERGY PRODUCTION REVENUE FUND LLP

	
$168,000.00

	  	  
	
BLOCK CITY DRILLING FUND LLP

	
$126,000.00

	  	  
	
GREEN COUNTY ENERGY FUND LLP

	
$110,000.00

	  	  
	
TOTAL ESTIMATED VALUE

	
$735,000.00

  

  

  

SCOPE OF APPRAISAL

In preparing this appraisal, the appraiser did not inspect the subject site, nor the equipment and improvements. All information used in appraisal was obtained with conversations with Mr. Louis Judd, owner of the equipment. To determine value of equipment, invoices were used documenting the price of said equipment upon time of purchase. For any equipment with no invoice, a direct phone call to suppliers were made to determine value.

The only approach to value used is the Cost Approach. As stated earlier, the value indicated in this appraisal is not the true market value as of today. The value determined in this report is the value of the said equipment at time of purchase.

The appraiser performing appraisal has determined the value as a licensed real estate agent, licensed auctioneer, hours of classroom setting in appraising practices, and five years of lending experience with PBI Bank, Inc.

  

  

  

CERTIFICATION

I CERTIFY THAT, TO THE BEST OF KNOWLEDGE AND BELIEF:

	
  

	
1.

	
THE SATEMENTS OF FACT CONTAINED IN THIS REPORT ARE TRUE AND CORRECT.

	
  

	
2.

	
THE REPORTED ANALYSES, OPINIONS, AND CONCLUSIONS ARE LIMITED ONLY BY THE REPORTED ASSUMPTIONS AND LIMITING CONDITIONS, AND ARE PERSONAL, UNBIASED PROFESSIONAL ANALYSES, OPINIONS, AND CONCLUSIONS.

	
  

	
3.

	
I HAVE NO PRESENT INTEREST IN THE PROPERTY THAT IS THE SUBJECT OF THIS REPORT AND I HAVE NO PERSONAL INTEREST OR BIAS WITH RESPECT TO THE PARTIES INVOLVED.

	
  

	
4.

	
MY COMPENSATION IS NOT CONTINGENT UPON THE REPORTING OF A PREDETERMINED VALUE OR DIRECTION IN VALUE THAT FAVORS THE CAUSE OF THE CLIENT, THE AMOUNT OF THE VALUE ESTIMATE, THE ATTAINMENT OF A STIPULATED RESULT, OR THE OCCURRENCE OF A SUBSEQUENT EVENT.

	
  

	
5.

	
THIS APPRAISAL WAS NOT BASED ON A REQUESTED MINIMUM VALUATION, A SPECIFIC VALUATION, OR THE APPROVAL OF A LOAN.

	
  

	
6.

	
NO ONE PROVIDED SIGNIFICANT PROFESSIONAL ASSISTANCE TO THE PERSON SIGNING, OF THIS REPORT.

/s/ SEAN D. CURRY

  

  

  

ASSUMPTIONS AND LIMITING CONDITIONS

	
  

	
1.

	
NO RESPONSIBILITY IS ASSUMED FOR LEGAL OR TITLE CONSIDERATIONS. TITLE TO THE PROPERTY IS ASSUMED TO BE GOOD AND MARKETABLE UNLESS OTHERWISE STATED IN THIS REPORT.

	
  

	
2.

	
THE PROPERTY IS APPRAISED FREE AND CLEAR IF ANY OR ALL LIEN AND ENCUMBRANCES UNLESS OTHERWISE STATED IN THIS REPORT.

	
  

	
3.

	
RESPONSIBLE OWNERSHIP AND COMPETENT PROPERTY MANAGEMENT ARE ASSUMED UNLESS OTHERWISE STATED IN THIS REPORT.

	
  

	
4.

	
THE INFORMATION FURNISHED BY OTHERS IS BELIEVED TO BE RELIABLE. HOWEVER, NO WARRANTY IS GIVEN FOR ITS ACCURACY.

	
  

	
5.

	
ALL ENGINEERING IS ASSUMED TO BE CORRECT. ANY PLOT PLANS AND ILLUSTRATIVE MATERIAL IN THIS REPORT ARE INCLUDED ONLY TO ASSIST THE READER IN VISUALIZING THE PROPERTY.

	
  

	
6.

	
IT IS ASSUMED THAT THERE ARE NOT HIDDEN OR UNAPPARENT CONDITIONS OF THE PROPERTY, SUBSOIL, OR STRUCTURES THAT RENDER IT MORE OR LESS VALUABLE. NO RESPONSIBILITY IS ASSUMED FOR SUCH CONDITIONS OR FOR ARRANGING FOR ENGINEERING STUDIES THAT MAYBE REQUIRED TO DISCOVER THEM.

	
  

	
7.

	
IT IS ASSUMED THAT THERE IS FULL COMPLIANCE WITH ALL APPLICABLE FEDERAL, STATE, AND LOCAL ENVIRONMENTAL REGULATION AND LAWS UNLESS OTHERWISE STATED IN THIS REPORT.

	
  

	
8.

	
IT IS ASSUMED THAT ALL APPLICABLE ZONING AND USE REGULATIONS HAVE BEEN COMPLIED WITH, UNLESS A NONCONFORMITY HAS BEEN STATED, DEFINED, AND CONSIDERED IN THIS APPRAISAL REPORT.

	
  

	
9.

	
IT IS ASSUMED THAT ALL REQUIRED LICENSES, CERTIFICATES OF OCCUPANY, OR OTHER LEGISLATIVE OR ADMINISTRATIVE AUTHORITY FROM ANY LOCAL, STATE, OR NATIONAL GOVERNMENTAL OR PRIVATE ENTITY OR ORGANIZATION HAVE BEEN OR CAN BE OBTAINED OR RENEWED FOR ANY USE ON WHICH THE VALUE ESTIMATES CONTAINED IN THIS REPORT ARE BASED.

  

  

  

ASSUMPTIONS AND LIMITING CONDITIONS

	
  

	
10.

	
THE APPRAISER IS NOT QUALIFIED TO DETECT HAZARDOUS WAST AND/OR TOXIC MATERIALS. ANY COMMENT BY THE APPRAISER THAT MIGHT SUGGEST THE POSSIBILITY OF THE PRESENCE OF SUCH SUBSTANCES SHOULD NOT BE TAKEN AS CONFIRMATION OF THE PRESENCE OF HAZARDOUS WASTE AND/OR TOXIC MATERIALS. SUCH DETERMINATION WOULD REQUIRE INVESTIGATION BY A QUALIFIED EXPERT IN THE FIELD OF ENVIRONMENTAL ASSESSMENT. THE PRESENCE OF SUBSTANCES SUCH AS ASBESTOS, UREAFORMALDEHYDE FOAM INSUALTION, OR OTHER POTENTIALLY HAZARDOUS MATERIALS MAY AFFECT THE VALUE OF THE PROPERTY. THE APPRISER'S VALUE ESTIMATE IS PREDICATED ON THE ASSUMPTION THAT THERE IS NO SUCH MATERIAL ON OR IN THE PROPERTY THAT SOULD CAUSE A LOSS IN VALUE UNLESS OTERWISE STATED IN THIS REPORT. NO RESPONSIBILITY IS ASSUMED FOR ANY ENVIRONMENTAL CONDITIONS, OR FOR ANY EXPERTISE OR ENGINEERING KNOWLEDGE REQUIRED TO DISCOVER THEM. THE APPRAISER'S DESCRIPTIONS AND RESULTING COMMENTS ARE THE RESULT OF THE ROUTINE OBSERVATIONS MADE DURING THE APPRAISAL PROCESS.

	
  

	
11.

	
ALL PROPOSED MATERIALS ARE ASSUMED TO BE COMPLETED IN A GOOD WORMANLIKE MANNER IN ACCORDANCE WITH THE SUBMITTED PLANS AND SPECIFICATIONS.

	
  

	
12.

	
POSSESSION OF THIS REPORT, OR A COPY THEREOF, DOES NOT CARRY WITH IT THE RIGHT OF PUBLICATION. IT MAY NOT BE USED FOR ANY PURPOSE BY ANY PERSON OTHER THAN THE PARTY TO WHOM IT IS ADDRESSED WITHOUT THE WRITTEN CONSENT OF THE APPRAISER, AND IN ANY EVENT, ONLY WITH PROPER WRITTEN QUALIFICATION AND ONLY IN ITS ENTIRETY.

	
  

	
13.

	
NEITHER ALL NOR ANY PART OF THE CONTENTS OF THIS REPORT (ESPECIALLY ANY CONCLUSIONS AS TO VALUE, THE IDENTITIY OF THE APPRAISER, OR THE FIRM WITH WHICH THE APPRAISER IS CONNECTED) SHALL BY DISSEMINATED TO THE PUBLIC THROUGH ADVERTISING, PUBLIC RELATION, NEWS SALES, OR OTHER MEDIA WITHOUT PRIOR WRITTEN CONSENT AND APPROVAL OF THE APPRAISER.

 

 

  

  

  

QUALIFICATIONS

	
NAME:

	
SEAN D. CURRY

	  	  
	
ADDRESS:

	
103 NANCY STREET

	  	
GREENSBURG. KY 42743

	  	  
	
TELEPHONE:

	
(270) 932-6466     (270) 405-1286

EXPERIENCE: Licensed real estate agent (Escrow), licensed auctioneer, classroom setting in appraisal course work through A-Pass Weikel, five years lending experience through PBI Bank:, Inc.

MEMBERSHIPS: Green County Rotary Club (Past President and Board Member), Leadership Green County (past President and Board Member), and Board Member of Green County Industrial Foundation.

EDUCATION: Graduate of Campbellsville University with Bachelor of Science in Organizational Management. Graduate of Kentucky Bankers Association General Banking School and Essentials of Consumer Lending School. Graduate of A-Pass Weikel Institute in classroom course work in real estate sales associate, auctioneer school, and appraisal coursework.cnsv_ex10-2.htm

AMERICAN ENERGY ADVISORS, INC.

June 21, 2010

Consolidation Services, Inc.

2300 W. Sahara Ave, Ste 800

Las Vegas, NV 89102

Attn: Mr. Gary Kucher, President

Re: Leland Energy Funds, Various counties, Kentucky; Fentress Co., Tennessee

A reserve analysis for the various working interests owned by Consolidation Services, Inc. (“CSI”) in the subject areas was performed. Projections of the reserves and future net revenue to the evaluated interests were based on economic parameters and operating conditions considered applicable as of April 1, 2010 This report has been prepared pursuant to the guidelines of the United States Securities and Exchange Commission ("SEC") by American Energy Advisors, Inc.

The effective date of the evaluation is: April 1, 2010.

Reserves and future revenue net to CSI’s interests in all various Funds are estimated to be as follows. Summaries by Fund follow the body of this report:

	
Consolidation Services, Inc.

Unescalated Pricing

	
Estimated

Net Reserves

	
Estimated

Future Net Revenue

	
Effective 4/1/2010

	
Net to various WI amd NRI

	
Reserve Category

	 	
Oil &

Condensate

(MBO)

	 	 	
Gas

(MMCF)

	 	 	
Not

Discounted

(M$)

	 	 	
Discounted

@ 10%

(M$)

	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	
Proved Developed Producing:

	 	 	83.270	 	 	 	0.000	 	 	 	2,684.990	 	 	 	1,222.010	 
	
Proved Non-Producing:

	 	 	30.290	 	 	 	1,041.690	 	 	 	2,220.280	 	 	 	669.330	 
	
Proved Undeveloped:

	 	 	34.110	 	 	 	0.000	 	 	 	737.730	 	 	 	163.610	 
	
Total Proved:

	 	 	147.670	 	 	 	1,041.690	 	 	 	5,643.000	 	 	 	2,054.950	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Probable:

	 	 	62.030	 	 	 	0.000	 	 	 	1,121.980	 	 	 	85.130	 
	
Total Not Proved:

	 	 	62.030	 	 	 	0.000	 	 	 	1,121.980	 	 	 	85.130	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Total All Reserve Categories:

	 	 	209.700	 	 	 	1,041.690	 	 	 	6,764.980	 	 	 	2,140.080	 

Oil reserves are expressed in barrels, one of which is equivalent to 42 United States gallons. Gas volumes are expressed in thousands of standard cubic feet ("Mcf") and are evaluated at the appropriate temperature and pressure base.

The reserves and future revenue estimated in this report are for all known potential reserve categories.

Pursuant to applicable SEC rules, the future net revenue is discounted at an annual rate of ten percent to determine the discounted future net revenue. Revenue discounted at 10% is shown only 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.

  15635 Alton Pkwy., Ste. 295 ● Irvine, CA 92618 ● Ph: 949-242-3636 ● Fax: 949-242-3635 
Email: aeasal@aol.com

  

  

Consolidation Services, Inc. – Kentucky and Tennessee Fields

Reserve Analysis

Page 2

Cash flow projections include deductions for appropriate state and local production taxes, but do not include any credits or liabilities associated with federal or state income taxes.

All working and net revenue interests used were as presented by CSI.

Following is a summary of the evaluation criteria used for the reserve analysis:

Proved Developed Producing (PDP) – historical production for each of the wells in the subject areas was gathered where available from public data sources and from check stubs from historical oil sales. Actual production or historical sales data for most wells was available through May, 2010. Where adequate history was available, the projections were performed by history matching the existing data and extrapolating this historical data without volumetric limits. A “settled” average exponential decline rate of 3% per year was utilized for all oil wells. If historical data was not available, a 3% flat exponential decline “average type curve” based on other curves in the area was used.

In addition, the ultimate recoveries of each well were compared for reasonability to the estimated volumetric recoveries for undeveloped locations, and held to those expected recoveries if required.

Proved Developed Non-Producing (PDNP) – the shut-in oil wells in the Kentucky fields were each reviewed with the field operator for production potential, and if applicable, assigned reserves based on either extrapolation of historical data prior to being shut in, or the 3% flat decline curved described above under “PDP”. Capital expenditures necessary to resume production, if any, were provided by the field operator. If a capital expenditure was not necessary to place a well back on production, such as on the Cundiff lease where the current shut-in wells are waiting for salt water disposal well mechanical integrity testing, no costs were entered.

The shut in gas wells in Kentucky and Tennessee were not individually reviewed with the field operator. However, they were assigned reserves based on extrapolation of historical data prior to being shut in. If no such data existed, no reserves were assigned.

Each well is currently completed “open-hole”, and all are planned to be further completed by running 4 1⁄2” casing, cementing, and fractured, as is the procedure for thousands of completed wells in the same area.

Shut in gas well production from all gas wells was assumed to resume on July 1, 2011 based on information provided by CSI. CSI plans to produce the wells for up to a year and then finish the completions. An initial rate after final completion of 30 MCFD was utilized and considered an average rate for the area, which declines rapidly at first, and then produces an estimated 100,000 MCF at a nominal decline over a 40+ year period. The capital expenditure necessary to resume production (swab back on for $300 per well), and the completion cost of approximately $45,000 per well were provided by the field operator. A “settled” average exponential decline rate of 3% per year was utilized for all gas wells.

Proved Behind Pipe (PBP) – No behind-pipe reserves were assigned.

Proved Undeveloped (PUD) – PUD reserves were only assigned to one Kentucky oil lease located in the Gradyville Oilfield: Kenneth Block in the Block Production Fund. Most of the oil wells produce primarily from the Knox Dolomite at an average depth of 1,550’ to 1,650’. The Knox typically exists as three 10’ to 12’ thick dolomite benches separated by shale, with average reservoir characteristics of: 12% to 20% intercrystaline and vugular porosity, fracture permeability, 25% to 50% water saturation, and minimal gas. Oil gravity averages 46° API.

  

  

  

Consolidation Services, Inc. – Kentucky and Tennessee Fields

Reserve Analysis

Page 3

Wells are completed naturally and open-hole, and are sometimes treated with an acid wash. Initial production can be as high as 30 BOPD, but falls off rapidly and within 2 to 24 months settles at 0.75 to 1.5 BOPD. Production thereafter declines at a minimal 2% to 3% per year for 30+ years. Average estimated ultimate recovery ranges 5,000 BO to 10,000 BO depending on structural location and formation quality. According to the field operator, there may be minimal water drive.

There is occasional production from the Murfreesboro and Sunnybrook Formations in addition to the Knox Dolomite, but PUD reserves were not assigned for this potential.

Drilling locations were identified by spotting wells on 5-acre spacing, which is typical in the Gradyville Field, within the Block lease outline on a structure map above an identified structural production limit. To create a representative projection for the reserves “assigned” to each development location identified, an analog curve was created by time normalization of well histories for wells that were drilled in 2007 to 2009 in the Gradyville Field that currently produce from the Knox Dolomite. In addition, a comparison of the analog projection was made to a volumetric estimate of recovery from the Knox assuming recovery factors of 5% to 10% of original oil in place.

Following is the analog curve used for development wells:

Initial Oil rate = 600 BOPM

Declines to 180 BOPM in 60 days

Initial Hyperbolic decline after 60 days, d = 99.9%/yr.

Hyperbolic exponent, b = 2.2

Settled exponential decline (end limit) = 3%.

Without economic parameters applied the analog projection results in an ultimate recovery of approximately 9,500 BO.

The estimated cost to drill and complete a Block well is $105,000. CSI plans to drill one well per month beginning October, 2010, except that no wells are drilled from December to February due to winter weather conditions.

Probable Undeveloped (PROB) – Additional Gradyville Field Knox development locations were identified as offsets to existing producing wells in other drilling funds, but using lease base maps without a structure map and therefore without knowledge of structural location. These locations (and numerous others) are already “staked” and planned for drilling by CSI.

The same development analog described above that was used for PUD locations was utilized for PROB locations.

The estimated cost to drill and complete a Block or Posey lease well is $105,000. All other lease wells are estimated to each cost $150,000. CSI plans to drill one well per month beginning April, 2011, except that no wells are ever drilled from December to February due to winter weather conditions.

Product Prices: SEC regulations require future revenues for oil and gas properties to be projected on the basis of product prices averaged over the 12 month period prior to the effective date of the report without escalation or reduction.

Gas Pricing – The NYMEX Henry Hub gas price on the April 1, 2010 effective date was $4.09/Mcf.

Gas Price differential – The gas price differential to NYMEX Henry Hub for these areas ranged as follows: a discount of $.90/Mcf for the Gernt leases in Tennessee, a bonus of

  

  

  

Consolidation Services, Inc. – Kentucky and Tennessee Fields

Reserve Analysis

Page 4

$0.43/Mcf for the DeWees lease in Kentucky, and a discount of $0.36/Mcf for all other gas wells in Tennessee and Kentucky.

Oil Pricing – The NYMEX published oil price for light, sweet crude on the April 1, 2010 effective date was $70.62/BO.

Oil Price differential - The oil price differential to NYMEX for these areas ranged as follows: a 1.4% discount for Downey, Cundiff, and Whittle leases, and a 2.7% discount for all other oil leases.

Taxes: Kentucky and Tennessee’s severance tax is 4.5% of revenue from oil and gas. These tax rates were utilized for the report. There are no county ad valorem taxes.

Operating Costs:

Monthly well operating cost: Average lease operating costs were provided by the operator of the Kentucky fields. These were allocated, where applicable, to individual producing wells by monthly producing rate. Average operating cost was determined to range $275 to $350/month per well.

An average operating cost of $175/mo per well was provided for the gas wells.

Oil Sales transportation cost: The oil purchaser transports oil from the various Gradyville Field leases approximately 160 miles to the closest refinery, and the trucking cost is $7.50/BO. This cost is allocated to both royatly and working interest owners, and was applied to all oil wells.

Gas Sales transportation cost: The cost to compress and sell gas into the existing gas lines ranges from $.10/MCF to $.30/MCF depending on gas volume.

Equipment Value: No value was placed on well equipment.

Abandonment: The assumption was made that equipment salvage would pay for well abandonment.

Report Qualifications

THE ESTIMATED FUTURE REVENUES AND PRESENT VALUE OF THESE

REVENUES ARE NOT REPRESENTED AS MARKET VALUE.

Actual individual lease performance may vary from the projections, particularly in comparison to the total composite production from all properties.

American Energy Advisors, Inc. is completely independent of CSI and any of its officers or key personnel. Neither I nor anyone closely associated with me or American Energy Advisors, Inc. have any relationship with, or ownership of, CSI Interests that would impair such independence.

American Energy Advisors, Inc. was paid on an hourly basis for its services by CSI.

If you require additional information or assistance, please do not hesitate to call.

Sincerely:

/s/ Stephen A. Lieberman, P.E.

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