PETROLEUM CONSULTANTS, INC.
7830 State Line Road o Suite 100 o Prairie Village, Kansas 66208
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Telephone: (913) 341-1465
Fax: (913) 341-1325
Reservoir Engineering Gas Contracts
Property Evaluation Gas Marketing
Regulatory Affairs Expert Witness
May 25, 2000
Mr. Dwight Brehm
Vice-President
Scope Operating Company
808 S. College, Ste. 300
McKinney, Texas 75069
Dear Mr. Brehm:
Attached is an updated evaluation on the Felts oil lease located in
Section 30-T34S-R17E, Montgomery County, Kansas. The appraised value is
estimated at $447,144.00. The effective date of this appraisal is April 11,
2000.
This appraisal is based on a working interest of 25% and a net revenue
of 18.75%, which is owned by Keystone Silver Mines, Inc. An oil price of $25.00
per barrel was used and the appraisal is on a non-escalated basis, where price
and the expenses were kept constant throughout the life of the property. The
economic life of the property is estimated to be 11 years.
The producing formation is the Red Fork Sandstone. This lease has
produced 20,000 barrels of oil. Combined primary and secondary operations should
recover an estimated 191,000 barrels of oil. Reservoir characteristics, such as
porosity and permeability, indicate that the formation will flood successfully.
The initial phase of secondary recovery would be a waterflood, followed by a
polymer augmented flood. It is anticipated that the polymer flood would plug the
thief zones and improve the areal and vertical sweep efficiency of the
reservoir. This would result in increased oil recovery that otherwise would not
be recovered.
If you have any questions please let me know.
Sincerely,
/s/ Ronald L. Cook
Ronald L. Cook, P.E.
[seal of Ronald L. Cook here]
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<TABLE>
PRODUCTION RATE FORECAST AND EVALUATION
Before Federal Income Tax Well Name: Felts
Operator: Keystone Silver Mines, Inc.
Project Name: Felts Field:
AS OF: April 11, 2000 Reservoir: Red Fork
Prepared By: Ron Cook Location: Section 30-T34S-R17E
County, State: Montgomery, Kansas
Comments: Proved Developed - Escalated case
<CAPTION>
Gross Production Net Production Price Price Gas Net Oil Net Net Oper Wpt Tax Net Oper Total
Year Gas Oil Gas Oil Gas Oil Revenue Revenue Revenue +Adv+Sev Expense Invest
Ending (Mmcf) (Mbbl) (Mmcf) (Mbbl) ($/M) ($/B) (M$) (M$) (M$) (M$) (M$) (M$)
------ ------ ------ ------ ------ ------ ------ --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Investment 0.000
12 0 0.00 30.000 0.00 5.625 0.000 25.00 0.00 140.63 140.63 12.656 9.750 0.000
12 1 0.00 36.000 0.00 6.750 0.000 25.00 0.00 168.75 168.75 15.187 12.000 0.000
12 2 0.00 36.000 0.00 6.750 0.000 25.00 0.00 168.75 168.75 15.187 12.000 0.000
12 3 0.00 30.000 0.00 5.625 0.000 25.00 0.00 140.63 140.63 12.656 11.000 0.000
12 4 0.00 15.000 0.00 2.813 0.000 25.00 0.00 70.31 70.31 6.328 9.000 0.000
12 5 0.00 12.000 0.00 2.250 0.000 25.00 0.00 56.25 56.25 5.063 9.000 0.000
12 6 0.00 9.600 0.00 1.800 0.000 25.00 0.00 45.00 45.00 4.050 9.000 0.000
12 7 0.00 7.700 0.00 1.444 0.000 25.00 0.00 36.09 36.09 3.248 9.000 0.000
12 8 0.00 6.100 0.00 1.144 0.000 25.00 0.00 28.59 28.59 2.573 9.000 0.000
12 9 0.00 5.000 0.00 0.938 0.000 25.00 0.00 23.44 23.44 2.109 9.000 0.000
12 10 0.00 4.000 0.00 0.750 0.000 25.00 0.00 18.75 18.75 1.687 9.000 0.000
------ ------- ------ ------ ------ ------ --------- --------- -------- -------- -------- --------
Total 0.00 191.400 0.00 35.887 25.00 0.00 897.19 897.19 80.747 107.750 0.000
Years: 11.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Initial Final Cash Cum Cash Disc Cash
------- ----- Year Flow Flow Flow@ 20%
Working Interest 25.00000 % 25.00000 % Ending (M$) (M$) (M$)
Gas Net Interest 0.00000 % 0.00000 % ------ -------- ------- -------
Oil Net Interest 18.75000 % 18.15000 % Init Inv 0.000
12 0 118.219 118.219 110.406
Discount Rate Net Present Value 12 1 141.563 259.781 112.712
------------- ----------------- 12 2 141.563 401.344 93.927
5 % 617.680 M$ 12 3 116.969 518.313 64.674
10 % 547.483 M$ 12 4 54.984 573.297 25.335
15 % 491.977 M$
25 % 410.265 M$ 12 5 42.188 615.484 16.199
12 6 31.950 647.434 10.223
Results Saved in File: Macintosh HD:Econ prog:Felts RES 12 7 23.845 671.280 6.358
12 8 17.020 688.300 3.782
12 9 12.328 700.628 2.283
12 10 8.063 708.691 1.244
------- -------- -------
Total 708.691 708.691 447.144
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Petroleum Consultants, Inc.
