2009 Evaluation Parameters Survey Committee Report

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2009 Evaluation Parameters Survey Committee Report

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1. 2009 Evaluation Parameters Survey Committee Report SPEE Annual Meeting Santa Fe, New Mexico 16 June 2009

2. Statement of Purpose This Survey is conducted annually by the Society of Petroleum Evaluation Engineers to obtain opinions from the evaluation community regarding a limited number of economic parameters used largely in the United States and Canada to evaluate oil and gas properties. The stated purpose of the Survey is to capture and analyze, at a single point in time, a set of chronically volatile economic parameters including, among other things, projections of future oil and gas prices, drilling and operating costs, and inflation. Opinions on the factors and methods used to calculate the present value of future cash flows are also reflected in the statistical data. When used with an appreciation for the purpose of the Survey and the source of the statistical results, we believe this information can be useful in preparing and using evaluations of oil and gas properties. Results can be particularly useful in comparing the relative thinking of different groups, such as producers, consultants, and bankers, and in appreciating how opinions have changed over time. Care should be taken in using the information in this report. The Survey covers only a few of the many considerations of importance in the evaluation of oil and gas properties. Those that are included represent opinions expressed by the individual participants in response to the questions asked. The questions may not be precisely stated and the analysis provided might not fully reveal the difference of opinion that may exist among the respondents. All respondents do not answer every question. Additionally, the responses are subject to change over time and may not be relevant to any period other than April – May 2007. Additionally, some questions had so few responses as to be statistically insignificant – we have noted these as best we can. The SPEE does not endorse the use of the Survey results, either in whole or in part, as a valuation guideline. Neither the Survey nor its contents are intended to dictate Fair Market Value parameters. Nevertheless, the popularity of the Survey shows that the Survey is relevant when used within the scope of its intended purpose. The Survey results in no way represent nor are they endorsed by preparers employer. Preparer’s employer expressly disclaims any responsibility for the preparation or use of this presentation. I showed this slide last year as my “get out of jail free” slide. But it’s still important.I showed this slide last year as my “get out of jail free” slide. But it’s still important.

3. Overview Survey Response Demographics Crude Oil & Natural Gas Pricing Cost Growth Projections Reserve Estimating Valuation

4. Respondent Information

5. 2009 & Historic Crude Oil Price Forecasts

6. Oil Price Forecast by Affiliation

7. 2009 & Historic Natural Gas Price Forecasts

8. Natural Gas Price Forecast by Affiliation

9. Use of Hedges

10. Cost Growth Generally lower than last year Drilling costs reported deflation Operating costs, CPI low inflation in early years All categories converge in 5-6 years

11. Probabilistic Methods

12. PRMS Correlation

13. Forecast Impact of New SEC Rules

14. Discount Rate Applied to Cash Flows (by affiliation)

15. Risk Adjusted Discount Rate Applied to Cash Flows (by application)

16. Average Reserve Adjustment Factors

17. Thank you!

18. Basis for Discount Rate

19. Borrowing Rate

20. “Profit” of “Value Creation” Component

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