X.X. XXXX AND ASSOCIATES, INC.
---------------------------------------------------------------
0000 Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000 o
FAX (000) 000-0000 o (000) 000-0000
March 25, 1997
XCL Ltd.
000 Xxx Xxxx Xxxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Xxxx Xxxx Block
Bohai Bay, China
00-000-000
Gentlemen:
At your request, we have made an estimate of the reserves and
future net revenue as of January 1, 1997, for certain interests
owned by XCL Ltd. (XCL) through a production sharing agreement
with the China National Oil & Gas Exploration and Development
Corporation. These are interests in oil properties located in
the Xxxx Xxxx Block, Bohai Bay, China. The estimated net
reserves, future net cash flow and discounted future net cash
flow are summarized by reserve category as follows:
Estimated Estimated
Net Reserves Future Net Cash Flow
_________________ ___________________________
Oil & Discounted
Condensate at 10%
(Barrels) Nondiscounted Per Year
___________ ____________ ____________
Total Proved Undeveloped 10,579,000 $142,860,000 $79,062,000
XCL is contractually obligated to spend $16.1 million on
exploration drilling within the Xxxx Xxxx Block, but outside the
area of proved reserves. This dollar amount has not been
included in the cash flow calculations, but has been recovered
through the cost oil provision of the agreement. The discounted
future net cash flow is not represented to be the fair market
value of these reserves, and the estimated reserves included in
this report have not been adjusted for risk.
The estimated future net cash flow is that revenue which will be
realized from the sale of the estimated net production after
deduction of royalties, direct operating costs and required
capital expenditures in accordance with the production sharing
agreement. Surface and well equipment salvage values and well
plugging and field abandonment costs have not been considered in
the cash flow projections. Future net cash flow as stated in
this report is before the deduction of federal income tax.
In the economic projections, prices, operating costs and
development costs remain constant for the projected life of each
lease, except that the operating costs have been reduced the last
two years to reflect an anticipated change in operating
practices.
Reserves have been estimated from volumetric calculations and
analogy with the performance of comparable xxxxx. The reserves
included in this study are estimates only and should not be
construed as exact quantities. Future conditions may affect
recovery of estimated reserves and cash flow, and all categories
of reserves may be subject to revision as more data become
available. The proved reserves included in this report conform
to the applicable definitions promulgated by the Securities and
Exchange Commission. Attachment 1, following this letter, sets
forth all reserve definitions incorporated in this study.
Extent and character of ownership, oil and gas prices, production
data, direct operating costs, capital expenditure estimates and
other data provided by XCL have been accepted as represented. No
independent well tests, property inspections or audits of
operating expenses were conducted by our staff in conjunction
with this study. We did not verify or determine the extent,
character, obligations, status or liabilities, if any, arising
from any current or possible future environmental liabilities
that might be applicable.
In order to estimate reserves, costs and future cash flows shown
in this report, we have relied in part on geological, engineering
and economic data furnished by our client. Although we have made
a best efforts attempt to acquire all pertinent data and to
analyze it carefully with methods accepted by the petroleum
industry, there is no guarantee that the volumes of oil or the
cash flow projected will be realized. The reserve and cash flow
projections presented in this report may require revision as
additional data become available.
If investments or business decisions are to be made in reliance
on these estimates by anyone other than our client, such person
with the approval of our client is invited to visit our offices
at his expense so that he can evaluate the assumptions made and
the completeness and extent of the data available on which our
estimates are based.
Any distribution or publication of this report or any part
thereof must include this letter in its entirety.
Yours very truly,
X.X. XXXX AND ASSOCIATES, INC.
/s/ Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxxx, PhD., P.E.
Executive Vice President
JHH:rrw
Attachment
A:\XCL.LTR
ATTACHMENT I
DEFINITIONS OF PROVED OIL AND GAS RESERVES1
Proved Oil and Gas Reserves
Proved oil and gas reserves are the estimated quantities of crude
oil, natural gas, and natural gas liquid 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.
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 (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.
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.
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 undrilled 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 xxxxx 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 xxxxx on undrilled acreage, or
from existing xxxxx 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 undrilled 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.
__________________________
1 Contained in Securities and Exchange Commission Regulation
S-X, Rule 4-10 (a)
X.X. Xxxx and Associates, Inc.
ATTACHMENT II
XCL CHINA, LTD.
PROJECTED CASH FLOWS
XXXX XXXX CONCESSION 45 MM BBL CASE (CASE 1: PROVED ONLY - FLAT
PRICING)
1996 1997 1998 1999
---- ---- ---- ----
OIL PRICE ($BBL) 21.06 21.06 21.06 21.06
GROSS OIL VOLUME (MBBLS) - - 234 3,736
CONS IND & COMM TAX (MBBLS) - - 12 187
ROYALTY (MBBLS) - - - -
COST RECOVERY OIL (MBBLS) - - 140 2,242
OPERATING EXPENSES (M$) - - 1,315 10,734
OPERATING EXPENSE VOLUME (MBBLS) - - 62 510
INVESTMENT RECOVERY OIL (MBBLS) - - 78 1,732
EXPLORATION COSTS (M$) 80,452 - - -
EXPLORATION RECOVERY (MBBLS) 3,820 - - -
EXPLORATION RECOVERY ADJUSTMENT (180) - - -
EXPLORATION RECOVERY UTILIZED - - 78 1,732
EXPLORATION COST CARRYOVER (MBBLS) 3,640 3,640 3,562 1,830
DEVELOPMENT COSTS (M$) - 1,000 55,357 93,400
DEVELOPMENT RECOVERY (MBBLS) - 47 2,629 4,435
DEVELOPMENT RECOVERY UTILIZED - - - -
DEVELOPMENT COST CARRYOVER (MBBLS) - 47 2,676 7,111
TOTAL COST RECOVERY OIL (MBBLS) - - 78 1,732
REMAINDER OIL (MBBLS) - - 82 1,308
X FACTOR - - 0.95 0.887
CHINESE SHARE OIL (MBBLS) - - 4 147
ALLOCABLE REMAINDER OIL (MBBLS) - - 78 1,160
CONTRACTOR ALLOCABLE OIL-49% (MBBLS) - - 38 569
TOTAL CONTRACTOR OIL (MBBLS) - - 147 2,550
PROJECTED CASH FLOWS (CONT'D.)
2000 2001 2002 2003
---- ---- ---- ----
OIL PRICE ($BBL) 21.06 21.06 21.06 21.06
GROSS OIL VOLUME (MBBLS) 8,062 7,804 6,800 5,220
CONS IND & COMM TAX (MBBLS) 403 390 340 261
ROYALTY (MBBLS) 42 32 - -
COST RECOVERY OIL (MBBLS) 4,837 4,682 4,080 3,132
OPERATING EXPENSES (M$) 18,015 19,416 18,020 15,824
OPERATING EXPENSE VOLUME (MBBLS) 855 922 856 751
INVESTMENT RECOVERY OIL (MBBLS) 3,982 3,760 3,224 2,381
EXPLORATION COSTS (M$) - - - -
EXPLORATION RECOVERY (MBBLS) - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - -
EXPLORATION RECOVERY UTILIZED 1,830 - - -
EXPLORATION COST CARRYOVER (MBBLS) - - - -
DEVELOPMENT COSTS (M$) 17,200 - - -
DEVELOPMENT RECOVERY (MBBLS) 817 - - -
DEVELOPMENT RECOVERY UTILIZED 2,152 3,760 2,016 -
DEVELOPMENT COST CARRYOVER (MBBLS) 5,776 2,016 - -
TOTAL COST RECOVERY OIL (MBBLS) 3,982 3,760 2,016 -
REMAINDER OIL (MBBLS) 2,779 2,699 3,589 4,208
X FACTOR 0.830 0.883 0.845 0.868
CHINESE SHARE OIL (MBBLS) 473 452 557 554
ALLOCABLE REMAINDER OIL (MBBLS) 2,306 2,247 3,031 3,653
CONTRACTOR ALLOCABLE OIL-49% (MBBLS)1,130 1,101 1,485 1,790
TOTAL CONTRACTOR OIL (MBBLS) 4,434 3,395 2,892 2,158
PROJECTED CASH FLOWS (CONT'D.)
2004 2005 2006 2007
---- ---- ---- ----
OIL PRICE ($BBL) 21.06 21.06 21.06 21.06
GROSS OIL VOLUME (MBBLS) 3,826 2,733 1,983 1,441
CONS IND & COMM TAX (MBBLS) 191 191 137 99 72
ROYALTY (MBBLS) - - - -
COST RECOVERY OIL (MBBLS) 2,296 1,640 1,190 865
OPERATING EXPENSES (M$) 13,886 12,367 11,325 10,153
OPERATING EXPENSE VOLUME (MBBLS) 659 587 538 482
INVESTMENT RECOVERY OIL (MBBLS) 1,636 1,053 652 383
EXPLORATION COSTS (M$) - - - -
EXPLORATION RECOVERY (MBBLS) - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - -
EXPLORATION RECOVERY UTILIZED - - - -
EXPLORATION COST CARRYOVER (MBBLS) - - - -
DEVELOPMENT COSTS (M$) - - - -
DEVELOPMENT RECOVERY (MBBLS) - - - -
DEVELOPMENT RECOVERY UTILIZED - - - -
DEVELOPMENT COST CARRYOVER (MBBLS) - - - -
TOTAL COST RECOVERY OIL (MBBLS) - - - -
REMAINDER OIL (MBBLS) 2,975 2,009 1,346 887
X FACTOR 0.886 0.911 0.926 0.948
CHINESE SHARE OIL (MBBLS) 340 179 99 46
ALLOCABLE REMAINDER OIL (MBBLS) 2,636 1,830 1,247 840
CONTRACTOR ALLOCABLE OIL-49%(MBBLS)1,292 897 611 412
TOTAL CONTRACTOR OIL (MBBLS) 1,615 1,185 875 648
PROJECTED CASH FLOWS (CONT'D.)
2008 2009 2010 2011
---- ---- ---- ----
OIL PRICE ($BBL) 21.06 21.06 21.06 21.06
GROSS OIL VOLUME (MBBLS) 1,048 764 556 406
CONS IND & COMM TAX (MBBLS) 52 38 28 20
ROYALTY (MBBLS) - - - -
COST RECOVERY OIL (MBBLS) 629 458 334 244
OPERATING EXPENSES (M$) 9,244 8,534 5,468 5,016
OPERATING EXPENSE VOLUME (MBBLS) 439 405 260 238
INVESTMENT RECOVERY OIL (MBBLS) 190 53 74 5
EXPLORATION COSTS (M$) - - - -
EXPLORATION RECOVERY (MBBLS) - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - -
EXPLORATION RECOVERY UTILIZED - - - -
EXPLORATION COST CARRYOVER (MBBLS) - - - -
DEVELOPMENT COSTS (M$) - - - -
DEVELOPMENT RECOVERY (MBBLS) - - - -
DEVELOPMENT RECOVERY UTILIZED - - - -
DEVELOPMENT COST CARRYOVER (MBBLS) - - - -
TOTAL COST RECOVERY OIL (MBBLS) - - - -
REMAINDER OIL (MBBLS) 557 321 269 148
X FACTOR 0.95 0.95 0.95 0.95
CHINESE SHARE OIL (MBBLS) 28 16 13 7
ALLOCABLE REMAINDER OIL (MBBLS) 529 305 255 140
CONTRACTOR ALLOCABLE OIL-49% (MBBLS) 259 149 125 69
TOTAL CONTRACTOR OIL (MBBLS) 474 348 252 185
PROJECTED CASH FLOWS (CONT'D.)
2012 2013 2014 2015 TOTALS
---- ---- ---- ---- -----
OIL PRICE ($BBL) 21.06 21.06 21.06 21.06
GROSS OIL VOLUME (MBBLS) - - - - 44,613
CONS IND & COMM TAX (MBBLS) - - - - 2,231
ROYALTY (MBBLS) - - - - 75
COST RECOVERY OIL (MBBLS) - - - - 26,768
OPERATING EXPENSES (M$) - - - - 159,317
OPERATING EXPENSE VOLUME (MBBLS) - - - - 7,565
INVESTMENT RECOVERY OIL (MBBLS) - - - - 19,203
EXPLORATION COSTS (M$) - - - - 80,452
EXPLORATION RECOVERY (MBBLS) - - - - 3,820
EXPLORATION RECOVERY ADJUSTMENT - - - - (180)
EXPLORATION RECOVERY UTILIZED - - - - 3,640
EXPLORATION COST CARRYOVER (MBBLS) - - - - 9,033
DEVELOPMENT COSTS (M$) - - - - 166,957
DEVELOPMENT RECOVERY (MBBLS) - - - - 7,928
DEVELOPMENT RECOVERY UTILIZED - - - - 7,928
DEVELOPMENT COST CARRYOVER (MBBLS) - - - - 17,626
TOTAL COST RECOVERY OIL (MBBLS) - - - - 11,568
REMAINDER OIL (MBBLS) - - - - 23,175
X FACTOR 0.95 0.95 0.95 0.95 -
CHINESE SHARE OIL (MBBLS) - - - - 2,916
ALLOCABLE REMAINDER OIL (MBBLS) - - - - 20,259
CONTRACTOR ALLOCABLE OIL-49% (MBBLS) - - - - 9,927
TOTAL CONTRACTOR OIL (MBBLS) - - - - 21,158
FOREIGN CONTRACTOR CASH FLOW (M$)
1996 1997 1998 1999
---- ---- ---- ----
COST RECOVERY REVENUES - - 2,286 41,734
ALLOCABLE REVENUES - - 803 11,975
EXPLORATION EXPENSE (80,452) - - -
SUBSEQUENT DEVELOPMENT EXPENSE - (490) (27,125)(45,766)
OPERATING EXPENSE - - (644) (5,260)
------- ---- ------- ------
NET CASH FLOW (80,452) (490) (24,680) 2,683
======= ==== ======= ======
FOREIGN CONTRACTOR CASH FLOW (M$) (CONT'D.)
2000 2001 2002 2003
---- ---- ---- ----
COST RECOVERY REVENUES 69,575 48,320 29,631 7,754
ALLOCABLE REVENUES 23,801 23,190 31,282 37,701
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT EXPENSE (8,428) - - -
OPERATING EXPENSE (8,827)(9,514) (8,830) (7,754)
------ ------ ------ -----
NET CASH FLOW 76,121 61,995 52,082 37,701
====== ====== ====== ======
FOREIGN CONTRACTOR CASH FLOW (M$)(CONT'D.)
2004 2005 2006 2007
---- ---- ---- ----
COST RECOVERY REVENUES 6,804 6,060 5,549 4,975
ALLOCABLE REVENUES 27,199 18,887 12,870 8,673
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - -
OPERATING EXPENSE (6,804)(6,060) (5,549) (4,975)
------ ------ ------ -----
NET CASH FLOW 27,199 18,887 12,870 8,673
====== ====== ====== =====
FOREIGN CONTRACTOR CASH FLOW (M$)(CONT'D.)
2008 2009 2010 2011
---- ---- ---- ----
COST RECOVERY REVENUES 4,530 4,182 2,679 2,458
ALLOCABLE REVENUES 5,457 3,143 2,633 1,446
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - -
OPERATING EXPENSE (4,530)(4,182) (2,679) (2,458)
----- ----- ----- -----
NET CASH FLOW 5,457 3,143 2,633 1,446
===== ===== ===== =====
FOREIGN CONTRACTOR CASH FLOW (M$)(CONT'D.)
2012 2013 2014 2015 TOTALS
---- ---- ---- ---- ------
COST RECOVERY REVENUES - - - - 236,535
ALLOCABLE REVENUES - - - - 209,060
EXPLORATION EXPENSE - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - (81,809)
OPERATING EXPENSE - - - - (78,065)
---- --- ---- ---- -------
NET CASH FLOW - - - - 285,721
==== === ===== ===== =======
CASH FLOW TO EACH PARTNER (M$) (50% INTEREST)
1996 1997 1998 1999
---- ---- ---- ----
TOTAL OIL REVENUES - - 1,545 26,854
EXPLORATION EXPENSE (40,226) - - -
SUBSEQUENT DEVELOPMENT EXPENSE - (245) (13,562)(22,883)
OPERATING EXPENSE - - (322) (2,630)
------ ---- ------ ------
NET CASH FLOW (40,226) (245) (12,340) 1,341
====== === ====== =====
CASH FLOW TO EACH PARTNER (M$) (50% INTEREST)(CONT'D.)
2000 2001 2002 2003
---- ---- ---- ----
TOTAL OIL REVENUES 46,688 35,755 30,456 22,727
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT EXPENSE (4,214) - - -
OPERATING EXPENSE (4,414)(4,757) (4,415) (3,877)
------ ------ ------ ------
NET CASH FLOW 38,061 30,998 26,041 18,850
====== ====== ====== ======
CASH FLOW TO EACH PARTNER (M$) (50% INTEREST) (CONT'D.)
2004 2005 2006 2007
---- ---- ---- ----
TOTAL OIL REVENUES 17,002 12,474 9,209 6,824
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - -
OPERATING EXPENSE (3,402)(3,030) (2,775) (2,487)
------ ----- ----- -----
NET CASH FLOW 13,600 9,444 6,435 4,337
====== ===== ===== =====
CASH FLOW TO EACH PARTNER (M$) (50% INTEREST) (CONT'D.)
2008 2009 2010 2011
---- ---- ---- ----
TOTAL OIL REVENUES 4,993 3,662 2,656 1,952
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - -
OPERATING EXPENSE (2,265)(2,091) (1,340) (1,229)
----- ----- ----- -----
NET CASH FLOW 2,729 1,571 1,316 723
===== ===== ===== =====
CASH FLOW TO EACH PARTNER (M$) (50% INTEREST) (CONT'D.)
2012 2013 2014 2015 TOTALS
---- ---- ---- ---- ------
TOTAL OIL REVENUES - - - - 222,797
EXPLORATION EXPENSE - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - (40,904)
OPERATING EXPENSE - - - - (39,033)
---- ---- ---- ---- --------
NET CASH FLOW - - - - 142,860
==== ==== ===== ===== =======
INTERNAL RATE OF RETURN 121%
NET PRESENT VALUES @ 10% AS OF 1-1-1997 79,062
