SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report SEPTEMBER 29, 1998
THE AMERICAN ENERGY GROUP, LTD.
(Exact name of registrant as specified in its charter)
NEVADA 0-26402 87-0448843
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
P.O. BOX 489, SIMONTON, TEXAS 77476
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 346-2652
(Former name or former address, if changed since last report.)
The American Energy Group, Ltd. Form 8-K/A Page 1
<PAGE>
FORM 8-K
THE AMERICAN ENERGY GROUP, LTD.
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
Not Applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Not Applicable.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT:
Not Applicable.
ITEM 5. OTHER EVENTS.
As reported previously, the Company's wholly owned subsidiary,
HYCARBEX-AMERICAN ENERGY, INC., engaged in drilling operations on its Jacobabad
Concession in the Middle Indus Basin in Central Pakistan from March 15,1998
through the end of May, 1998, when further drilling and testing of this initial
well was suspended after drilling to approximately 8,250 feet. The exploratory
well, called the Kharnhak No. 1, is not presently classified as a commercial
discovery by the Government of Pakistan and the Company has not applied for such
"discovery" status with the Government of Pakistan due to the uncertainty as to
the well's commercial viability. Upon the suspension of operations, the Company
commissioned a preliminary geological analysis and independent reserve study
from Martin Petroleum and Associates of Calgary, Alberta, Canada, a firm with
experience in such evaluations within Pakistan. Based upon its investigation and
analysis, Martin Petroleum & Associates has generated a report to Company's
management, a copy of which is attached hereto, wherein the Probable Recoverable
Reserves attributable to the Pakistan Concession are estimated. The definition
of Probable Recoverable Reserves is contained within the Report. It must be
emphasized that the natural gas reserves estimated herein are not classified by
Martin Petroleum & Associates as "Proven" (as defined in the Report) and thus
the prospects for the recovery of hydrocarbons from the Concession remain in an
unproved status until further operations are performed by the Company. The
estimates and projections contained within the Report are forward-looking and
there is no guarantee that the estimated reserves will be recovered or will even
be found to exist in the magnitudes identified in the Report. Further, there are
considerable risks involved with the evaluation of the reserves underlying this
Concession, and the potential recovery of hydrocarbons therefrom, including
economic and geological risks, product pricing variations
The American Energy Group, Ltd. Form 8-K Page 2
<PAGE>
FORM 8-K
THE AMERICAN ENERGY GROUP, LTD.
ITEM 5. OTHER EVENTS. (Continued)
and changes in governmental policies. Additionally, while the Company has
obtained approval from the Government of Pakistan to renew and extend its
Exploration License for one year from May 29, 1998, and is contemplating the
drilling of a second exploration well in December of 1998, there is likewise a
risk of acreage forfeiture under the terms of the Exploration License should the
Company fail to perform in accordance with the terms of the Exploration License.
Despite the foregoing risks, management believes that further substantial
financial investment in the Concession is justified and could prove a
significant exploration opportunity for the Company.
Subsequent to the initial filing of Form 8-K, the Company received communication
from the Directorate General of Petroleum Concessions of the Government of
Pakistan with comments regarding the information within the Filing. The
following are those comments related to the Form 8-K filing, along with the
Company's response to those comments:
DGPC Comment #1:
"The statement that Kharnhak #1 is not presently classified as a commercial
discovery by GOP and the Company has not applied for such discovery status with
the Government of Pakistan due to uncertainty as to the well commercial
viability" is misleading and an impression is being given here that discovery
has already been made but the company has not yet filed a commercial discovery
notice to the Government."
Management Response to Comment #1:
The Company's statement on this matter is a factual statement included to
specifically dispel any previous impressions or implications that the Kharnhak
#1 was a discovery. The disclosure that the Company has not applied for
discovery status further attempts to emphasize this fact.
DGPC Comment #2:
"The statement that the Company commissioned a preliminary geological analysis
and independent reserves study from M/s Martin Petroleum and Associates and
Associates of Calgary, Alberta, Canada a firm with experience in such
evaluations in Pakistan is also not correct as an independent verification of
data was not conducted by the consultant and the study was not authorized by the
joint venture and therefore could not be used as a basis for release of any
information to any agency. M/s Martin Petroleum and Associates have also very
limited experience in such evaluations in Pakistan.
Management Response To Comment #2:
Martin Petroleum and Associates experience is shown in Paragraph 4 of its
Certificate of Qualification in its Report dated August 21, 1998, and attached
to Form 8-K as Exhibit "A".
The American Energy Group, Ltd. Form 8-K Page 3
<PAGE>
The study was not authorized by the Joint Venture but by The American Energy
group, Ltd, the parent company of a joint venture partner and an affiliate in
terms of the Joint Operating Agreement. As advised by counsel, an affiliate to a
joint venture party is entitled to receive information from an affiliated joint
venture party and is authorized to disclose the same if required by law. Counsel
has advised that the Martin Report is a material event requiring disclosure to
the SEC. Therefore, as per advise received the release of the information is not
"unauthorized".
Consultants do not normally carry out an independent verification of the data
but rely on the information provided by the client. Martin Petroleum has
qualified its opinion accordingly.
DGPC Comments #3:
"The estimates of probable recoverable reserves of gas are speculative and
therefore misleading as the data used by consultant was not verified by them as
stated in the report."
Management Response to Comment #3:
The Company agrees that the estimates are speculative, and have disclosed
repeatedly the uncertainty of these estimates. Reserve Estimates, by their own
definition, are a "calculated guess" prepared by qualified professionals as to
various categories of reserves, qualified even further by categorization as
either Proved, Probable, or Possible. When qualified as Probable, reserves are
therefore recognized as not proven. As they are identified as such, they are in
no way misleading. The estimates of Probable Reserves is the opinion of the
consultant, Martin Petroleum and Associates.
DGPC Comment #4:
"According to their own statement in Form 8-K, the estimates and projections
contained in the report are forward looking and there is no guarantee this the
estimated reserves will be recoverable or will even be found to exist in the
magnitudes identified in the Report. The reserves estimates are therefore highly
speculative."
Management Response to Comment #4:
The Company again agrees that the estimates are speculative. The estimates of
Probable Reserves is the opinion of the consultant, Martin Petroleum and
Associates.
DGPC Comment #5:
"The report by M/s Martin Petroleum and Associates has been attached as exhibit
to Form 8-K. The joint venture has not authorized such a study and therefore
this disclosure is unauthorized."
Management Response to Comment #5:
As discussed in Response #2, the study was not authorized by the Joint Venture
but by The American Energy Group, Ltd, the parent company of a joint venture
partner and an affiliate in terms of the Joint Operating Agreement. As advised
by counsel, an affiliate to a joint venture party is entitled to receive
information from an affiliated joint venture party and is authorized to disclose
the same if required by law. Counsel has advised that the Martin Report is a
material event requiring disclosure to the SEC. Therefore, as per advice
received, the release of the information is not "unauthorized".
The American Energy Group, Ltd. Form 8-K Page 4
<PAGE>
In addition to the comments above, the Company has attached hereto and by
Exhibit made a part hereof the complete response by letter to the above matter.
(See Exhibit "C" attached.)
ITEM 6. RESIGNATIONS OF REGISTRANTS DIRECTORS.
Not Applicable.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Not Applicable
ITEM 8. CHANGE IN FISCAL YEAR.
Not Applicable.
EXHIBITS:
EXHIBIT A: Attached hereto and by reference made a part hereof is the
Martin Petroleum and Associates Reservoir Study entitled
"Evaluation of Jacobabad Prospect, Pakistan" dated August 21,
1998.
EXHIBIT B: Attached hereto and by reference made a part hereof is the
Martin Petroleum and Associates Letter of Consent for
disclosure of this study dated September 17, 1998.
EXHIBIT C: Attached hereto and by reference made a part hereof is the
American Energy Group, Ltd. Letter dated September 28, 1998 in
Response to the Government of Pakistan's comments regarding
Form 8-K Filing.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE AMERICAN ENERGY GROUP, LTD.
(Registrant)
Date: SEPTEMBER 29, 1998 BY: B/J/S
Bradley J. Simmons, President
The American Energy Group, Ltd. Form 8-K Page 5
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
TABLE OF CONTENTS
LETTER OF TRANSMITTAL
INDEPENDENT PETROLEUM ENGINEERS' CONSENT
CERTIFICATE OF QUALIFICATIONS
RESERVES DEFINITIONS
TAB NO.
--------
JACOBABAD EVALUATION
Discussion...................... 1
FIGURES......................... 2
TABLES.......................... 3
MARTIN PETROLEUM & ASSOCIATES
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
MARTIN PETROLEUM & ASSOCIATES
SUITE 500, 808 - 4TH AVENUE S.W., CALGARY, ALBERTA, T2P 3E8, CANADA
Telephone: (403) 264-5379 Facsimile: (403) 262-3589
e-mail: [email protected]
The American Energy Group, Ltd.
P.O. Box 489
Simonton, Texas 77476
ATTENTION: Mr. Brad Simmons
Dear Sir:
RE: EVALUATION OF JACOBABAD PROSPECT, PAKISTAN
At your request, we have prepared an evaluation of the gas reserves and the
future cash flows attributable to the interests of The American Energy Group,
Ltd., in the Jacobabad area of Pakistan. The effective date of the evaluation is
August 1, 1998.
The estimated net gas reserves and the future cash flows at constant prices
and costs of The American Energy Group, Ltd., after deduction of all outside
working interests, royalties, government bonuses and future capital and
operating costs, but before income taxes, are as follows:
<TABLE>
<CAPTION>
REMAINING RESERVES
--------------------------------------------------------------
GROSS COMPANY NET
----------------------------- -----------------------------
SALES SALES
OIL NGLS GAS OIL NGLS GAS
RESERVES CATEGORY MSTB MSTB BCF MSTB MSTB BCF
- ------------------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C>
Probable Reserves.................... -- -- 5,159.9 -- -- 3,231.3
Possible Reserves.................... -- -- 2,203.3 -- -- 1,435.2
Total Probable and Possible.......... -- -- 7,363.2 -- -- 4,666.5
PRESENT VALUE OF CASH FLOW, MM $ BEFORE TAX
--------------------------------------------------------------
RESERVES CATEGORY UNDISC. @ 10% @ 12% @ 15% @ 18% @ 20%
- ------------------------------------- ------- ------- ------- ------- ------- -------
Probable Reserves.................... 4,461.1 1,767.6 1,521.9 1,235.5 1,020.0 904.9
Possible Reserves.................... 2,077.3 497.6 391.6 279.3 203.4 166.4
Total Probable and Possible.......... 6,538.4 2,265.2 1,913.5 1,514.8 1,223.4 1,071.3
</TABLE>
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
The American Energy Group, Lt. August 21, 1998
Attention: Mr. Brad Simmons Page 2
- --------------------------------------------------------------------------------
The above values represent the potential assuming no risk is attached to
the performance of the properties and the results are as estimated. However, as
an allowance for the risk that is associated with the probability of
successfully producing such reserves, the probable reserves have been reduced by
50 percent and the possible reserves have been reduced by 75 percent. This
adjustment applies only to the results in this letter. The cash flow forecasts
throughout the report have not been risk adjusted. These adjusted values are as
follows:
<TABLE>
<CAPTION>
REMAINING RESERVES
---------------------------------------------------
GROSS COMPANY NET
------------------------ ------------------------
SALES SALES
OIL NGLS GAS OIL NGLS GAS
RESERVES CATEGORY MSTB MSTB BCF MSTB MSTB BCF
- ------------------------------------- ---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Probable Reserves.................... 0.0 0.0 2,580.0 0.0 0.0 1,615.7
Possible Reserves.................... 0.0 0.0 550.8 0.0 0.0 358.8
Total Probable + Possible............ 0.0 0.0 3,130.8 0.0 0.0 1,974.5
PRESENT VALUE OF CASH FLOW, MM$ BEFORE TAX
---------------------------------------------------------------
RESERVES CATEGORY UNDISC. @ 10% @ 12% @ 15% @ 18% @ 20%
- ------------------------------------- ------- --------- --------- --------- --------- ---------
Probable Reserves.................... 2,230.6 883.8 761.0 617.8 510.0 452.5
Possible Reserves.................... 519.3 124.4 97.9 69.8 50.9 41.6
Total Probable + Possible............ 2,749.9 1,008.2 858.9 687.6 560.9 494.1
</TABLE>
The cash flow forecasts are shown as TABLES JAC-IV and JAC-V.
Please note that, throughout this evaluation, more significant digits were
carried in the mathematical calculations than are presented in this report and,
as a result, columns of numbers may not add exactly to the totals presented. All
monetary values presented in this report are expressed in U.S. dollars.
The information used in this report was provided by The American Energy
Group, Ltd., or was obtained from public sources and from the files of Martin
Petroleum & Associates. With respect to the data that was made available by The
American Energy Group, Ltd., Martin Petroleum & Associates, its employees and/or
its agents have relied upon the accuracy of such data and did not conduct any
independent verification of such data. In addition, Martin Petroleum &
Associates did not perform any field inspections of any of the properties
evaluated in this report. The report has been prepared by Martin Petroleum &
Associates for the use of The American Energy Group, Ltd.
The gas price used in this report has been held constant at $1.78/Mcf as
discussed in the body of this report. As well, no inflation has been applied to
anticipated capital or operating costs.
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
The American Energy Group, Ltd. August 21, 1998
Attention: Mr. Brad Simmons Page 3
- --------------------------------------------------------------------------------
Uncertainty of results always introduces risk into drilling ventures.
Because of the inherent risk, no guarantee is given or implied that the
conclusions of this report, either production forecasts or monetary, will be
achieved. The study represents a best effort to predict future performance and
subsequent economic worth of properties reviewed. The values reported herein may
not necessarily be the fair market value of the reserves. No estimate of the
prospective value of undeveloped land is included.
Attached to this covering letter is a report discussing the material
reviewed and the assumptions and methodology used in preparing the evaluation.
No Company overheads or administration costs are included other than those
directly charged to the well, facility or drilling operations.
Also included is a list of reserves definitions used herein.
We appreciate the opportunity to be of service and will be pleased to
discuss any concerns or questions you may have regarding this report.
Yours truly,
MARTIN PETROLEUM & ASSOCIATES
/s/ S. NEIL SEDGWICK
S. Neil Sedgwick, B.Sc., P.Eng.
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
INDEPENDENT PETROLEUM ENGINEERS' CONSENT
The undersigned firm of Independent Petroleum Engineers of Calgary,
Alberta, Canada, knows that it is named as having prepared an evaluation of gas
reserves of The American Energy Group,, Ltd., in Jacobabad, Pakistan during the
months of July and August 1998, at the request of The American Energy Group,
Ltd., and the undersigned firm hereby gives its consent to the use of its name
and to the use of the said estimates.
PERMIT TO PRACTICE
MARTIN PETROLEUM & ASSOCIATES
Signature /s/ S. NEIL SEDGWICK
Date 4/9/98
PERMIT NUMBER: P 4373
The Association of Professional
Engineers, Geologists and
Geophysicists of Alberta
MARTIN PETROLEUM & ASSOCIATES
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
CERTIFICATE OF QUALIFICATIONS
I, S. Neil Sedgwick, Petroleum Engineer, Suite 500, 808 - 4th Avenue S.W.,
Calgary, Alberta, Canada, hereby certify:
1. THAT I am a consulting partner with Martin Petroleum & Associates,
Petroleum Consultants, which Company prepared an evaluation of gas
reserves of The American Energy Group, Ltd., during the months of July
and August 1998, at the request of The American Energy Group, Ltd.
2. THAT Martin Petroleum & Associates, their officers and their employees
have no direct or indirect interest, nor do they expect to receive any
direct or indirect interest in the properties of or in any securities
of The American Energy Group, Ltd.
3. THAT I attended Queen's University at Kingston, Ontario, Canada and
graduated with a Bachelor of Science Degree in Geology in 1975; and
that I am a Registered Professional Engineer with the Association of
Petroleum Engineers, Geologists and Geophysicists in the Province of
Alberta and have in excess of 23 years experience in engineering
evaluations and operations of oil and gas fields.
4. THAT Martin Petroleum & Associates has been providing technical and
economic evaluations of oil and gas properties to the industry since it
was originally formed in 1979. The Company has acquired considerable
domestic and international expertise. With respect to this evaluation,
our experience includes a review of the Thatta Block 2367-1 in 1997 for
a private company; preparation of a large "Hydrocarbon Sector Strategy
Study" of Pakistan's oil and gas industry for the Asian Development
Bank in 1993; and preparation of a feasibility study on the Dhodak
field for the Pakistan Ministry of Petroleum and Natural Resources in
1984. Our experience in the region also includes evaluations of
prospects in Thailand, Indonesia, Australia and Turkey.
5. THAT a personal field inspection of the properties was not made;
however, such an inspection was not considered necessary in view of the
nature of the information available on the area studied.
/s/ S. NEIL SEDGWICK
S. Neil Sedgwick, B.Sc., P.Eng.
MARTIN PETROLEUM & ASSOCIATES
MARTIN PETROLEUM & ASSOCIATES
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
RESERVES DEFINITION
"PROVED RESERVES"
These reserves are estimated as recoverable under current technology and
existing economic conditions from that portion of a reservoir which can be
reasonably evaluated as economically productive on the basis of analysis of
drilling, geological, geophysical and engineering data, including the reserves
to be obtained by enhanced recovery processes demonstrated to be economic and
technically successful in the subject reservoir.
"PROVED PRODUCING RESERVES"
These are proved reserves that are actually on production or, if not
producing, could be recovered from existing wells or facilities and where the
reasons for the current non-producing status is the choice of the owner rather
than the lack of markets or some other reason. An illustration of such a
situation is where a well or zone is capable, but is shut-in because its
deliverability is not required to meet contractual commitments.
"PROVED NON-PRODUCING RESERVES"
These are proved reserves that are not currently producing either due to
lack of facilities and/or markets.
"PROBABLE RESERVES"
These are reserves which analysis of drilling, geological, geophysical and
engineering data does not demonstrate to be proved under current technology and
existing economic conditions, but where such analysis suggests the likelihood of
their existence and future recovery. Probable reserves to be obtained by the
application of enhanced recovery processes will be the increased recovery over
and above that estimated in the proved category which can be realistically
estimated for the pool on the basis of enhanced recovery processes which can be
reasonably expected to be instituted in the future.
"POSSIBLE RESERVES"
These are additional reserves which may be discovered by further drilling
on lands indicated to be hydrocarbon bearing by wells drilled in the area, but
too far distant from the subject lands to yet be considered to contain proved or
probable reserves, or from prospective hydrocarbon bearing zones in existing
wells which have not been adequately tested.
"METRIC VOLUMES"
Metric gas volumes at 101.325 kPa and 15C (288 K), oil at 15C.
"IMPERIAL VOLUMES"
Imperial gas volumes at 14.65 psia and 60 F (520 R), oil at 60 F.
MARTIN PETROLEUM & ASSOCIATES
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
JACOBABAD, PAKISTAN
INTRODUCTION
In April 1995 the Company acquired a concession from the Government of
Pakistan consisting of an exploration license on BLOCK 2768-4 in the Middle
Indus Basin. Geographically, the block is near the town of Jacobabad which is
approximately 233 miles north of the port city of Karachi. The location is
highlighted on the attached FIGURE JAC-1. The concession terms and conditions as
understood and applicable to this analysis are summarized in TABLE JAC-1.
Block 2768-4 is a continguous block which originally encompassed 5,000
square kilometers. In 1998, the Company relinquished 1,000 square kilometers
leaving the current size of 4,000 square kilometers or approximately 988,000
acres. The area is close to a major highway as well as the main Sui Southern gas
transmission lines.
GEOLOGICAL POTENTIAL
Prior to the Company's involvement, there were three wells drilled on this
block, two in the 1950's and one in 1974. All were drilled on the crest of a
major seismically-defined anticlinal structure and all had significant gas shows
in the Eocene Sui Main Limestone. Unfortunately, the single gas analysis
available indicated a CO2 plus N2 content in excess of 70 percent. The high CO2
plus N2 content is not uncommon for Eocene limestone reservoirs in the region.
Other prospective horizons on the Block include the Cretaceous Pab and
Goru/Sembar Sandstones. Generally, the older Cretaceous reservoirs in the region
contained much lower concentrations of non-hydrocarbon gas and could also be oil
bearing.
The Company acquired and interpreted 684 kilometers of 2D seismic including
260 kilometers of new seismic run by the Company. Their interpretation
delineates a significant structure cut by a major north-south fault and numerous
smaller faults as shown on FIGURE JAC-2. All of the earlier wells were drilled
at the highest point on the west or up thrown side of the major fault.
On the basis of the seismic interpretation, the Company drilled the
Kharnhak-1 well in the spring of 1998. The location was chosen as the best
compromise for encountering all three horizons.
KHARNHAK-1 WELL
The Kharnhak-1 well was spudded on March 15, 1998 and drilled to a depth of
8,250 feet in the Jurassic Chiltan Limestone. Intermediate casing was set at
3,808 feet and final 7 inch casing was set at 7,500 feet. During drilling the
mud log showed gas "kicks" in the Kirthar Limestone, the Sui Main Limestone,
the Pab Sandstone and the Chiltan Limestone. The Goru/Sembar, one of the
original targets, had no shows and appeared tight in this well. It should be
noted that the mud log "kicks" indicated high concentrations of methane and
ethane which implied low concentrations of CO2 and N2
After casing was set, three DSTs (DSTs 1, 1A and 2) were attempted over the
open hole section from 7,500 to 8,500 feet in the Chiltan Limestone with the
packer set in the casing. The open hole was subsequently isolated with a cement
plug from 7,200 to 7,317 feet. Two intervals in the Sui Main Limestone,
3,920-3,930 feet (DST 3) and 3,830-3,818 (DST 4), were perforated and tested in
succession using DST tools. DST 3 was technically successful but problems
isolating the lower perforations invalidated DST 4. Production testing and
stimulation equipment were unavailable and the decision was made to suspend
operations for the time being. Neither the Kirthar nor Pab formations were
tested. The Company expects to return to this well and continue testing in
conjunction with drilling a follow-up well in the fall of 1998.
MARTIN PETROLEUM & ASSOCIATES
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
- 2 -
Although the Kirthar, Pab, Chiltan and even the Goru/Sembar still have
potential on this structure, it is considered too prospective at this time and
therefore, beyond the scope of this analysis. Accordingly, the focus of this
evaluation is the Sui Main Limestone.
THE SUI MAIN LIMESTONE
During the drilling of Kharnhak-1, the Sui Main Limestone was cored almost
continuously from 3,858 to 3,998 feet. Core analysis results which are still
preliminary indicate porosities ranging from 5 percent to more than 30 percent.
This is consistent with the log derived porosities. Corresponding permeabilities
range from .2 to more than 15 millidarcies.
Sidewall cores were also cut at intervals in the Sui and Pab formations
from 3,824 to 4,792 feet. These were sent to Core Laboratories in Malaysia. Head
space gas analysis indicated high CO2 content which was inconsistent with the
mud log. During DST 3 the mud logging unit was used to continuously analyse the
gas and was calibrated to detect CO2 but none was detected. The well was drilled
with an acidic KCL mud system which may have had sufficient reaction with the
limestone to contaminate the core samples. As well the integrity of the core
samples was compromised in transit as the same bottles were all opened at both
customs in Pakistan and Malaysia.
DST 3 flowed gas to surface on preflow after 60 minutes at rates too small
to measure. Gas would burn when ignited. On second flow the well flowed gasified
formation water and unfortunately the Operator could not obtain a gas sample.
The water appears to have come from below a gas water contact at approximately
3,940 feet KB or 3,739 feet subsea. This contact was estimated from the pressure
gradient as shown on FIGURE JAC-3 which shows a significant break at
approximately that depth. The contact is not evident on the resistivity log but
that's not surprising considering the mud filtrate and formation water
resistivities are very similar.
Based on our analysis, the Sui Main Limestone appears to be gas charged
above 3,739 feet subsea. Further, it appears that the gas composition will be
greater than 80 percent hydrocarbons.
RESERVES
FIGURE JAC-2 is a time structure map of the Jcobabad feature on top of the
Sui Main Limestone prepared by the Company. The red and green shaded areas on
the map represent the lower and upper limits of closure above the interpolated
water contact. The Sui Main Limestone gains approximately 1,200 feet of
structure over an areal extent of between approximately 85,000 and 112,500
acres. The Sui Main Limestone in the Kharnhak-1 well is approximately 692 feet
thick. The earlier wells on the west side of the major fault at the crest of the
structure as well as the seismic give no indication of an erosional unconformity
at the top of the structure and, therefore, the formation thickness is expected
to be relatively consistent. Using a simple concentric cone analysis and an
average net to gross pay ratio of 73.8 percent derived from the Kharnhak-1 well,
there are between 20 and 30 million acre feet of potential reservoir. The
original gas in place (OGIP) could be between 8.8 Tcf and 12.6 Tcf.
In this analysis, probable reserves have been assigned to the lower limit
area, shaded red on FIGURE JAC-2 and probable plus possible reserves have been
assigned the total red plus green shaded areas. The average volumetric
parameters were estimated based on the Kharnhak-1 well. An ultimate recovery
factor of 65 percent of the OGIP and a surface loss of 10 percent of the raw gas
produced have been assumed. The volumetric parameters and reserve estimates are
summarized in TABLES JAC-IIa and JAC-IIb.
MARTIN PETROLEUM & ASSOCIATES
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
- 3 -
PRODUCTION AND ECONOMIC FORECASTS
In this evaluation, it has been assumed that field development would
commence with two additional wells in 1998 and continue with 28 wells in 1999
and 30 wells per year thereafter to an ultimate development of 200 wells in the
probable case and 265 wells in the probable plus possible case. The average well
density would be approximately 425 acres per well.
Initial production has been scheduled for mid 1999 from 30 wells with
additional wells coming on stream as they are drilled. The production forecasts
have been developed based on an initial rate of 8,500 Mcf/d per well declining
at 5 percent per year for two years and then at 11 percent per year to the
economic limit.
The capital and operating cost assumptions used in this analysis for well,
gathering and field facilities are summarized in TABLE JAC-III. Production
bonuses payable to the Government have been included as per the schedule
outlined in TABLE JAC-III. Reimbursement of the expenses for the Government's 5
percent carried working interest has been included based on an estimated $3.6
million gross cost to the end of the next well.
It is our understanding that the Sui Southern Gas Company is paying an
average of $1.98 per MMBTU. It has been estimated that with minimal CO2 plus N2
content the Jacobabad gas should contain at least 900 MMBTU per Mcf.
Accordingly, an average price of $1.78/Mcf has been used. Most of the gas is
used for power generation and the gas company will accept gas with as little as
250 MMBTU per Mcf.
All of the values presented in this report are expressed in U.S. dollars.
No price escalation or cost inflation has been applied.
The individual production and cash flow forecasts are presented in TABLES
JAC-IV and JAC-V for the probable and probable plus possible cases,
respectively.
MARTIN PETROLEUM & ASSOCIATES
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
TABLE JAC-I
JACOBABAD, PAKISTAN
LAND SUMMARY
THE AMERICAN ENERGY GROUP, LTD.
Jacobabad Block 2768-4-Exploration License
Middle Indus Basin, Pakistan
ORIGINAL CONCESSION 5,000 square kilometers (1,235,000 acres)
Obtained April 1995 -- Three year term
One year extension obtained -- June 1998
CURRENT CONCESSION 4,000 square kilometers (988,000 acres)
1,000 square kilometers, relinquished in 1998
OBLIGATIONS First year -- Process (Done)
previous data $26,000
Second year -- Run Seismic (Done)
Surveys $525,000
Third year -- Drill (Done)
exploratory
well $2,020,000
-- Relinquish 1,000 square kilometers
Fourth year -- Relinquish 1,500 square kilometers
INTERESTS Company pays 100% of costs
Revenue is subject to 5% Carried Working Interest
in favor of Government Holdings; a 12.5%
Government Royalty and a 3% GORR on 8/8 of
production.
Upon commercial discovery, Government Holdings has
the right to convert its carried working interest
to a participating working interest up to a
maximum of 25%, with reimbursement to the Company
of pre-discovery expenditures relating to the 5%
Carried Working Interest. Reimbursement would be
in five annual instalments out of production
revenue.
At the present time, the Kharnhak 1 well is not
considered a commercial discovery. It will require
more testing and a follow up well. At that time it
has been assumed that Government Holdings will
participate to the maximum 25%. Accordingly, the
Company's interests as evaluated in this analysis
are as follows:
Working Interest.... 100% Follow up well
75% Subsequent wells
Revenue Interest.... 63.375%
MARTIN PETROLEUM & ASSOCIATES
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
TABLE JAC-IIA
KHARNHAK-1
JACOBABAD, PAKISTAN
ESTIMATED GAS RESERVES BY VOLUMETRIC METHOD AND RESERVOIR DATA
<TABLE>
<CAPTION>
SI UNITS IMPERIAL UNITS
------------ ----------------
<S> <C> <C>
Reserves Category.................... PROBABLE
Productive Horizon................... SUI MAIN LIMESTONE
Top of Pay........................... m (ft) 115.8.2 3800.0
Productive Area...................... hectares (acres) 34398.3 85000.0
Average Net Pay...................... m (ft) 74.06 243.0
RESERVOIR VOLUME..................... E6M3 (AC-FT) 25477.654 2.0655E7
Average Porosity................ Percent 19. 6 19.6
Water Saturation................ Percent 50.0 50.0
Residual Oil Saturation......... Percent 5.0 5.0
Initial Res. Pressure........... kPa (psia) 12065.8 1750.0
Reservoir Temperature........... K (R) 352.7 635.0
Gas Deviation Factor............ 0.880 0.880
IGIP/Reservoir Volume................ m3/m3 (Mcf/ac-ft) 9.753 427.03
INITIAL-GAS-IN-PLACE................. E6M3 (MMCF) 248503.94 8820332.0
Recovery Factor...................... Percent 65.0 65.0
Initial Rec. Raw Gas................. E6m3 (MMcf) 161527.57 5733216.0
Est. Cum. Raw Gas Prod............... E6m3 (MMcf) 0.00 0.0
to AUGUST 1, 1998
Rem. Raw Gas Reserve................. E6m3 (MMcf) 161527.57 5733216.0
Surface Loss......................... Percent 10.0 10.0
REM. MARKETABLE GAS.................. E6M3 (MMCF) 145374.81 5159894.0
Average AOF..................... E3m3/d (Mcf/d)
Slope........................... (n)
Average DST..................... E3m3/d (Mcf/d)
Flow Test....................... E3m3/d (Mcf/d)
CURRENT PRODUCTION RATE.............. E3M3/D (MCF/D)
Rec. Condensate/Raw Gas......... m3/E6m3 (STB/MMcf)
Rec. Propane/Raw Gas............ m3/E6m3 (STB/MMcf)
Rec. Butane/Raw Gas............. m3/E6m3 (STB/MMcf)
Rec. Sulphur/Raw Gas............ t/E6m3 (LT/MMcf)
Heating value........................ MJ/m3 (Btu/Scf)
Specific Gravity
H2S.................................. Percent
CO2.................................. Percent
N2................................... Percent
Pc................................... kPa abs. psia
Tc................................... K R
</TABLE>
MARTIN PETROLEUM & ASSOCIATES
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
TABLE JAC-LLB
KHARNHAK-1
JACOBABAD, PAKISTAN
ESTIMATED GAS RESERVES BY VOLUMETRIC METHOD AND RESERVOIR DATA
<TABLE>
<CAPTION>
SI UNITS IMPERIAL UNITS
------------ --------------
<S> <C> <C>
Reserves Category.................... PROBABLE + POSSIBLE
Productive Horizon................... SUI MAIN LIMESTONE
Top to Pay........................... m (ft) 1158.2 3800.0
Productive Area...................... hectares (acres) 45527.1 112500.0
Average Net Pay...................... m (ft) 79.85 262.0
RESERVOIR VOLUME..................... E6M3 (AC-FT) 36356.872 2.9475E7
Average Porosity................ Percent 19.6 19.6
Water Saturation................ Percent 50.0 50.0
Residual Oil Saturation......... Percent 5.0 5.0
Initial Res. Pressure........... kPa (psia) 12065.8 1750.0
Reservoir Temperature........... K (R) 352.7 635.0
Gas Deviation Factor............ 0.880 0.880
IGIP / Reservoir Volume.............. m3/m3 (Mcf/ac-ft) 9.753 427.03
INITIAL-GAS-IN-PLACE................. E6M3 (MMCF) 354618.94 1.25867E7
Recovery Factor...................... Percent 65.0 65.0
Initial Rec. Raw Gas................. E6m3 (MMcf) 230502.31 8181387.0
Est. Cum. Raw Gas Prod. E6m3 (MMcf) 0.00 0.0
to AUGUST 1, 1998...............
Rem. Raw Gas Reserve................. E6m3 (MMcf) 230502.31 8181387.0
Surface Loss......................... Percent 10.0 10.0
REM. MARKETABLE GAS.................. E6M3 (MMCF) 207452.09 7363248.0
Average AOF..................... E3m3/d (Mcf/d)
Slope........................... (n)
Average DST..................... E3m3/d (Mcf/d)
Flow Test....................... E3m3/d (Mcf/d)
CURRENT PRODUCTION RATE.............. E3M3/D (MCF/D)
Rec. Condensate/Raw Gas......... m3/E6m3 (STB/MMcf)
Rec. Propane/Raw Gas............ m3E6m3 (STB/MMcf)
Rec. Butane/Raw Gas............. m3/E6m3 (STB/MMcf)
Rec. Sulphur/Raw Gas............ t/E6m3 (LT/MMcf)
Heating Value........................ MJ/m3 (Btu/Scf)
Specific Gravity
H2S.................................. Percent
CO2.................................. Percent
N2................................... Percent.....
Pc................................... kPa abs. psia
Tc................................... K R
</TABLE>
MARTIN PETROLEUM & ASSOCIATES
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
TABLE JAC-III
JACOBABAD, PAKISTAN
ECONOMIC PARAMETERS
1998$
------------
CAPITAL COSTS
Drill & complete................... $ 1,000,000 /well
Gathering.......................... $ 500,000 /well
Field facilities................... 1999 $ 3,000,000
2000 $ 7,000,000
2113 $ 3,000,000
Maintenance capital:
Gathering..................... 2003 onward $ 1,000,000 /year
Facilities.................... 2001 onward $ 1,000,000 /year
Government Bonus payable at:
Initial discovery............. 1999 $ 500,000
Cumulative 300 Bcf............ 2001 $ 1,000,000
Cumulative 600 Bcf............ 2002 $ 1,500,000
Cumulative 800 Bcf............ 2003 $ 3,000,000
Cumulative 1,000 Bcf.......... 2004 $ 5,000,000
OPERATING COSTS
Fixed.............................. 1998 $ 500,000
1999 $ 3,000,000
2000 onward $ 6,000,000 /year
Unit............................... $ 0.20 /Mcf
PRICE
$1.78/Mcf assuming 900 MMBTU/Mcf
ESCALATION
Nil
MARTIN PETROLEUM & ASSOCIATES
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
JAC 01:08:00 PM
98032 PAKISTAN TABLE JAC-IV 21 Aug 1998
JACOBABAD PROSPECT, PAKISTAN
CONSTANT $1.78/MCF CASE --
PROBABLE GAS -- SUI MAIN LIMESTONE
EFFECTIVE AUGUST 1, 1998 ENGINEER: NEIL SEDGWICK
WI = 100% EXLORATION PHASE, 75% DEVELOPMENT PHASE
BURDEN = 12.5% GOVERNMENT ROYALTY + 3% GORR on 8/8
PREPARED FOR: THE AMERICAN ENERGY GROUP, LTD.
SUMMARY OF PRODUCTION AND REVENUE
<TABLE>
<CAPTION>
GROSS DAILY GROSS COMPANY EFFECTIVE COMPANY REIMBURSE
PRODUCING GAS GAS NET GAS PRODUCTION GOVT.
WELL SALES SALES GAS PRICE REVENUE 5% CWI
DATE COUNT (MMSCF/D) MSCF MMSCF $/MSCF MM$ (MM$)
- ------------------------------------- ---------- ------------ --------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1998................................. -- -- -- -- $ -- $-- $--
1999................................. 15 113 41,379 25,913 1.78 46.1 0.04
2000................................. 45 331 121,010 75,783 1.78 134.9 0.04
2001................................. 75 538 196,638 123,144 1.78 219.2 0.04
2002................................. 105 728 265,834 166,479 1.78 296.3 0.04
2003................................. 135 896 327,294 204,968 1.78 364.8 0.04
2004................................. 165 1,046 381,883 239,154 1.78 425.7 --
2005................................. 190 1,141 416,576 260,881 1.78 464.4 --
2006................................. 200 1,110 405,512 253,952 1.78 452.0 --
2007................................. 200 1,001 365,466 228,873 1.78 407.4 --
2008................................. 200 892 325,956 204,130 1.78 363.4 --
2009................................. 200 793 289,515 181,309 178 322.7 --
2010................................. 200 704 257,148 161,039 1.78 286.6 --
2011................................. 200 625 228,399 143,035 1.78 254.6 --
2012................................. 200 555 202,865 127,044 1.78 226.1 --
--------- -------- ----------- ----------
Subtotal............................. 3,825,475 2,395,704 $4,264.4 $ 0.18
Thereafter........................... 1,334,420 835,680 1,487.5 --
--------- -------- ----------- ----------
Total 33 Years....................... 5,159,894 3,231,384 $5,751.9 $ 0.18
</TABLE>
TOTAL TOTAL
OPERATING OPERATING
EXPENSE INCOME
DATE (MM$) (MM$)
- ------------------------------------- ---------- ----------
1998................................. $ (0.3) $ (0.3)
1999................................. (9.1) 37.0
2000................................. (24.7) 110.3
2001................................. (37.3) 182.0
2002................................. (48.8) 247.6
2003................................. (59.0) 305.8
2004................................. (68.1) 357.5
2005................................. (73.9) 390.4
2006................................. (72.1) 379.9
2007................................. (65.4) 342.0
2008................................. (58.8) 304.5
2009................................. (52.8) 270.0
2010................................. (47.4) 239.3
2011................................. (42.6) 212.0
2012................................. (38.3) 187.8
---------- ----------
Subtotal............................. $ (698.6) $3,565.9
Thereafter........................... (303.4) 1,184.1
---------- ----------
Total 33 Years....................... $(1,002.0) $4,750.0
<TABLE>
<CAPTION>
GOVT. FIELD TOTAL
PRODUCTION SEISMIC DRILLING GATHERING FACILITY CAPITAL UNDISC.
BONUSLL COST COST COST COST COSTS CASH FLOW
DATE (MM$) (MM$) (MM$) (MM$) (MM$) (MM$) (MM$)
- ------------------------------------- ----------- -------- --------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998................................. $-- $-- $ (1.7) $-- $ -- $ (1.7) $ (2.0)
1999................................. (0.4) -- (21.0) (11.3) (2.3) (34.9) 2.1
2000................................. -- -- (22.5) (11.3) (5.3) (39.0) 71.3
2001................................. (0.8) (2.3) (22.5) (11.3) (0.8) (37.5) 144.5
2002................................. (1.1) (2.3) (22.5) (11.3) (0.8) (37.9) 209.7
2003................................. (2.3) -- (22.5) (11.3) (0.8) (36.8) 269.1
2004................................. (3.8) -- (22.5) (11.3) (0.8) (38.3) 319.3
2005................................. -- -- (15.0) (7.5) (0.8) (23.3) 367.2
2006................................. -- -- -- (0.8) (0.8) (1.5) 378.4
2007................................. -- -- -- (0.8) (0.8) (1.5) 340.5
2008................................. -- -- -- (0.8) (0.8) (1.5) 303.0
2009................................. -- -- -- (0.8) (0.8) (1.5) 268.5
2010................................. -- -- -- (0.8) (0.8) (1.5) 237.8
2011................................. -- -- -- (0.8) (0.8) (1.5) 210.5
2012................................. -- -- -- (0.8) (0.8) (1.5) 186.3
----------- -------- --------- ---------- --------- ------- ----------
Subtotal............................. $(8.3) $ (4.5) $(150.2) $(80.3) $ (16.5) $(259.7) $3,306.2
Thereafter........................... -- -- -- (13.5) (15.8) (29.3) 1,154.9
----------- -------- --------- ---------- --------- ------- ----------
Total 33 Years....................... $(8.3) $ (4.5) $(150.2) $(93.8) $ (32.3) $(289.0) $4,461.1
</TABLE>
CUMULATIVE CUMULATIVE
UNDISC. 10% DISC. 10% DISC.
CASH FLOW CASH FLOW CASH FLOW
DATE (MM$) (MM$) (MM$]
- ------------------------------------- ----------- ---------- -----------
1998................................. $ (2.0) $ (2.0) $ (2.0)
1999................................. 0.1 2.0 --
2000................................. 71.4 59.4 59.4
2001................................. 215.8 109.4 168.8
2002................................. 425.5 144.4 313.1
2003................................. 694.6 168.4 481.5
2004................................. 1,013.9 181.7 663.2
2005................................. 1,381.1 189.9 853.1
2006................................. 1,759.6 178.0 1,031.1
2007................................. 2,100.0 145.5 1,176.6
2008................................. 2,403.1 117.8 129.4
2009................................. 2,671.5 94.8 1,389.2
2010................................. 2,909.3 76.4 1,465.6
2011................................. 3,119.9 61.5 1,527.1
2012................................. 3,306.2 49.5 1,576.5
--------- ---------- -----------
Subtotal............................. $3,306.2 $1,576.5 $ 1,576.5
Thereafter........................... $4,461.1 191.1 $ 1,767.6
--------- ---------- -----------
Total 33 Years....................... $4,461.1 $1,767.6 $ 1,767.6
UNDISC.
CASH FLOW
DISCOUNTED (MM$)
- ---------- ----------
0.00% $4,461.1
10.09% 1,767.6
12.00% 1,521.9
15.00% 1,235.5
18.00% 1,020.0
20.0% 904.9
MARTIN PETROLEUM & ASSOCIATES
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
TABLE JAC-IV
JACOBABAD PROSPECT, PAKISTAN
PROBABLE GAS -- SUI MAIN LIMESTONE
WI = 100% EXPLORATION PHASE, 75% DEVELOPMENT PHASE
BURDEN = 12.5% GOVERNMENT ROYALTY + 3% GORR ON 8/8
PREPARED FOR: THE AMERICAN ENERGY GROUP, LTD.
JAC 01:08:00 PM
98032 PAKISTAN 21 AUG 1998
CONSTANT $1.78/MCF CASE
EFFECTIVE AUGUST 1, 1998 ENGINEER: NEIL SEDGWICK
EXECUTIVE SUMMARY
Effective Date (ED)..................... August, 1998
Production Start Date (PSD)............. July, 1999
Date of First Investment (DFI).......... October, 1998
Primary Discount Rate................... 10.00%
Project Life............................ 32.42 years
<TABLE>
<CAPTION>
VOLUMES GROSS WI NET
- ---------------------------------------- ----- ---- ----
<S> <C> <C> <C>
Oil..................................... -- mstb -- mstb -- mstb
Gas..................................... 5,159,894.4 mmcf 3,869,920.8 mmcf 3,231,383.9 mmcf
Condensate.............................. -- mstb -- mstb -- mstb
Sulphur................................. -- mtcn -- mtcn -- mtcn
</TABLE>
PROFITABILITY INDICES (BEFORE TAX AND
ARTC)
- ----------------------------------------
Cash Flow Discounted at 10.00%
Internal Rate of Return................. >100%
Payout.................................. December, 1999
Discounted Payout....................... January, 2000
Undiscounted Income/Undiscounted
Capital............................... 15.439
Discounted Income/Undiscounted
Capital............................... 6.117
Discounted Income/Discounted Capital.... 9.558
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
TABLE JAC-V
JACOBABAD PROSPECT, PAKISTAN
PROBABLE + POSSIBLE GAS -- SUI MAIN LIMESTONE
WI=100% EXPLORATION PHASE, 75% DEVELOPMENT PHASE
BURDEN=12.5% GOVERNMENT ROYALTY = 3% GORR
PREPARED FOR: THE AMERICAN ENERGY GROUP, LTD.
JACPOS 01:08:01 PM
98032 PAKISTAN 21 Aug 1998
CONSTANT $1.78/MCF CASE
EFFECTIVE AUGUST 1, 1998 ENGINEER: NEIL SEDGWICK
<TABLE>
<CAPTION>
SUMMARY OF PRODUCTION AND REVENUE
GROSS DAILY GROSS COMPANY EFFECTIVE COMPANY REIMBURSE
PRODUCING GAS GAS NET GAS PRODUCTION GOVT.
WELL SALES SALES GAS PRICE REVENUE 4% CWI
DATE COUNT (MMSCF/D) MMSCF MMSCF $/MSCF MM$ (MM$)
- ------------------------------------- --------- ----------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998............................. -- -- -- -- $-- $ -- $--
1999............................. 15 113 41,379 26,224 1.78 46.7 0.04
2000............................. 45 331 121,010 76,690 1.78 136.5 0.04
2001............................. 75 538 196,640 124,620 1.78 221.8 0.04
2002............................. 105 729 266,262 168,743 1.78 300.4 0.04
2003............................. 135 900 328,785 208,367 1.78 370.9 0.04
2004............................. 165 1,054 384,932 243,951 1.78 434.2 --
2005............................. 195 1,192 435,355 275,906 1.78 491.1 --
2006............................. 225 1,316 480,636 304,603 1.78 542.2 --
2007............................. 253 1,408 514,403 326,003 1.78 580.3 --
2008............................. 265 1,378 503,166 318,881 1.78 576.6 --
2009............................. 265 1,251 456,995 289,620 1.78 515.5 --
2010............................. 265 1,127 411,816 260,989 1.78 464.6 --
2011............................. 265 1,013 369,824 234,824 1.78 417.2 --
2012............................. 265 909 332,114 210,477 1.78 374.6 --
--------- --------- ---------- ---------
Subtotal........................... 4,843,316 3,069,451 $5,364.6 $0.18
Thereafter........................... 2,519,933 1,597,007 2,842.7 --
--------- --------- ---------- ---------
Total 38 Years....................... 7,363,248 4,666,459 $8,306.3 $0.18
</TABLE>
TOTAL TOTAL
OPERATING OPERATING
EXPENSE INCOME
DATE (MM$) (MMS)
- ------------------------------------- --------- ---------
1998............................. $ (0.3) $ (0.3)
1999............................. (9.1) 37.6
2000............................. (24.7) 111.9
2001............................. (37.3) 184.6
2002............................. (48.9) 251.5
2003............................. (59.3) 311.6
2004............................. (68.7) 365.6
2005............................. (77.1) 414.1
2006............................. (84.6) 457.6
2007............................. (90.2) 490.1
2008............................. (88.4) 479.2
2009............................. (80.7) 434.9
2010............................. (73.1) 391.4
2011............................. (66.1) 351.1
2012............................. (59.9) 314.8
-------- --------
Subtotal........................... $ (868.3) $4,595.5
Thereafter........................... (523.5) 2,319.2
-------- --------
Total 38 Years....................... $(1,391.8) $6,914.7
<TABLE>
<CAPTION>
GOVT FIELD TOTAL UNDISC.
PRODUCTION SEISMIC DRILLING GATHERING FACILITY CAPITAL CASH
BONUS COST COST COST COST COSTS FLOW
DATE (MM$) (MM$) (MM$) (MM$) (MM$) (MM$) (MM$)
- ------------------------------------- ---------- ------- -------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998............................. -$- $ -- $ (1.7) $ -- $-- $ (1.7) $ (2.0)
1999............................. (0.4) (0.8) (21.0) (11.3) (2.3) (35.6) 1.9
2000............................. -- (3.0) (22.5) (11.3) (5.3) (42.0) 69.9
2001............................. (0.8) (4.5) (22.5) (11.3) (0.8) (39.8) 144.8
2002............................. (1.1) (4.5) (22.5) (11.3) (0.8) (40.1) 211.4
2003............................. (2.3) -- (22.5) (11.3) (0.8) (36.8) 274.9
2004............................. (3.8) -- (22.5) (11.3) (0.8) (38.3) 327.3
2005............................. -- -- (22.5) (11.3) (0.8) (34.5) 379.6
2006............................. -- -- (22.5) (11.3) (0.8) (34.5) 423.1
2007............................. -- -- (18.8) (9.4) (0.8) (28.9) 461.2
2008............................. -- -- -- (0.8) (0.8) (1.5) 477.7
2009............................. -- -- -- (0.8) (0.8) (1.5) 433.4
2010............................. -- -- -- (0.8) (0.8) (1.5) 389.9
2011............................. -- -- -- (0.8) (0.8) (1.5) 349.6
2012............................. -- -- -- (0.8) (0.8) (1.5) 313.3
---------- ------ ------- --------- -------- ------- ---------
Subtotal........................... $(8.3) $(12.8) $(199.0) $(103.1) $ 16.5) $(339.6) $4,255.9
Thereafter....................... -- -- -- (17.3) (19.5) (36.8) 2,282.4
---------- ------ ------- --------- -------- ------- ---------
Total 38 Years................. $(8.3) $(12.8) $(199.0) $ 120.4) $(36.0) $(376.3) $6,538.4
</TABLE>
CUMULATIVE
CUMULATIVE 10% DISC.
UNDISC. 10% DISC. CASH
CASH FLOW CASH FLOW FLOW
DATE (MM$) (MM$) (MM$)
- ------------------------------------- ---------- --------- ----------
1998............................. $ (2.0) $ (2.0) $ (2.0)
1999............................. (0.1) 1.8 (0.2)
2000............................. 69.8 58.2 58.0
2001............................. 214.6 109.7 167.7
2002............................. 426.0 145.5 313.2
2003............................. 700.9 172.0 485.3
2004............................. 1,028.3 186.2 671.5
2005............................. 1,407.8 196.3 867.8
2006............................. 1,830.9 198.9 1,066.8
2007............................. 2,292.1 197.1 1,263.9
2008............................. 2,769.8 185.7 1,449.6
2009............................. 3,203.2 153.1 1,602.7
2010............................. 3,593.1 125.2 1,727.9
2011............................. 3,942.7 102.1 1,830.0
2012............................. 4,255.9 83.2 1,913.2
---------- --------- ----------
Subtotal........................... $4,255.9 $1,913.2 $1,913.2
Thereafter....................... $6,538.4 352.1 $2,265.2
---------- --------- ----------
Total 38 Years................. $6,538.4 $2,265.2 $2,265.2
UNDISC.
CASH
FLOW
DISCOUNTED (MM$)
- ------------------------------------- -------------
0.00%........................... $6,538.4
10.00%........................... 2,265.2
12.00%........................... 1,913.5
15.00%........................... 1,514.8
18.00%........................... 1,223.4
20.00%........................... 1,071.3
<PAGE>
EXHIBIT "A" TO FORM 8-K DATED SEPTEMBER 22, 1998
TABLE JAC-V
JACOBABAD PROSPECT, PAKISTAN
PROBABLE + POSSIBLE GAS -- SUI MAIN LIMESTONE
WI = 100% EXPLORATION PHASE, 75% DEVELOPMENT PHASE
BURDEN = 12.5% GOVERNMENT ROYALTY + 3% GORR
PREPARED FOR: THE AMERICAN ENERGY GROUP, LTD.
JACPOS 01:08:01 PM
98032 PAKISTAN 21 AUG 1998
CONSTANT $1.78/MCF CASE
EFFECTIVE AUGUST 1, 1998 ENGINEER: NEIL SEDGWICK
EXECUTIVE SUMMARY
Effective Date (ED)..................... August, 1998
Production Start Date (PSD)............. July, 1999
Date of First Investment (DFI).......... October, 1998
Primary Discount Rate................... 10.00%
Project Life............................ 37.42 years
<TABLE>
<CAPTION>
VOLUMES GROSS WI NET
- ---------------------------------------- ----- ---- ----
<S> <C> <C> <C>
Oil..................................... -- mstb -- mstb -- mstb
Gas..................................... 7,363,248.4 mmcf 5,522,436.2 mmcf 4,666,458.6 mmcf
Condensate.............................. -- mstb -- mstb -- mstb
Sulphur................................. -- mtcn -- mtcn -- mtcn
</TABLE>
PROFITABILITY INDICES (BEFORE TAX AND
ARTC)
- ----------------------------------------
Cash Flow Discounted at 10.00%
Internal Rate of Return................. >100%
Payout.................................. January, 2000
Discounted Payout....................... January, 2000
Undiscounted Income/Undiscounted
Capital............................... 17.374
Discounted Income/Undiscounted
Capital............................... 6.019
Discounted Income/Discounted Capital.... 10.081
<PAGE>
EXHIBIT "B" TO FORM 8-K DATED SEPTEMBER 22, 1998
MARTIN PETROLEUM & ASSOCIATES
SU ITE 500, 808 - 4TH AVENUE S.W., CALGARY,, ALBERTA, T2P 3E8, CANADA
TELEPHONE: (403) 264-5379 FACSIMILE (403) 263-3589
E-MAIL: [email protected]
September 17, 1998
The American Energy Group, Ltd. Hycarbex-American Energy, Inc.
PO Box 489 61-A Marvi Road, F-7/1
Simonton, Texas 77476 Islamabad, Pakistan
RE: PLANNED FORM 8-K FILING FROM THE AMERICAN ENERGY GROUP, LTD.
TO BE DATED SEPTEMBER 22, 1998
We, the undersigned firm of petroleum engineers, hereby consent to the use of
our name and the attachment of our report dated August 21, 1998, evaluating the
Jacobabad, Pakistan Prospect as of August 1, 1998 in its entirety to the subject
Filing.
Yours truly,
MARTIN PETROLEUM & ASSOCIATES
/s/ S. NEIL SEDGWICK
S. Neil Sedgwick, B.Sc., P.Eng.
<PAGE>
EXHIBIT "C" TO FORM 8-K/A DATED SEPTEMBER 28, 1998
THE AMERICAN ENERGY GROUP, LTD.
P.O. BOX 489
SIMONTON, TEXAS 77476
(281) 346-2652 / 346-2903 FAX
SEPTEMBER 29, 1998
MR. MANSOOR GHAYUR
ASSISTANT DIRECTOR (TECH)
DIRECTORATE GENERAL PETROLEUM CONCESSIONS
MINISTRY OF PETROLEUM AND NATURAL RESOURCES
1019-A PAK PLAZA, BLUE AREA
ISLAMABAD, PAKISTAN
RE: JACOBABAD BLOCK - SECURITIES AND EXCHANGE COMMISSION FORM 8-K FILING
Dear Sir,
This has reference to your letter No. Expl - 8(2) Hycarbex -Kharnhak -
1/98 dated September 25, 1998 regarding the above. Prior to receipt of your
above referenced letter, the Company had filed its Form 8-K as planned. This is
to confirm that the comments by the Government of Pakistan on the American
Energy Group, Ltd.'s Form 8-K have been filed with the Securities and Exchange
Commission along with our Company's comments to same. For your reference, AEG's
comments are set out below using the same comment numbers as in Annex-I
pertaining to the Form 8-K Filing as in your letter:
i) The Company's statement on this matter is a factual statement included to
specifically dispel any previous impressions or implications that the
Kharnhak #1 was a discovery. The disclosure that the Company has not
applied for discovery status further attempts to emphasize this fact.
ii) Martin Petroleum and Associates experience is shown in Paragraph 4 of its
Certificate of Qualification in its Report dated August 21, 1998, and
attached to Form 8-K as Exhibit "A".
The study was not authorized by the Joint Venture but by The American
Energy group, Ltd, the parent company of a joint venture partner and an
affiliate in terms of the Joint Operating Agreement. As advised by
counsel, an affiliate to a joint venture party is entitled to receive
information from an affiliated joint venture party and is authorized to
disclose the same if required by law. Counsel has advised that the Martin
Report is a material event requiring disclosure to the SEC. Therefore, as
per advice received the release of the information is not "unauthorized".
Consultants do not normally carry out an independent verification of the
data but rely on the information provided by the client. Martin Petroleum
has qualified its opinion accordingly.
<PAGE>
iii) The Company agrees that the estimates are speculative, and have disclosed
repeatedly the uncertainty of these estimates. Reserve Estimates, by their
own definition, are a "calculated guess" prepared by qualified
professionals as to various categories of reserves, qualified even further
by categorization as either Proved, Probable, or Possible. When qualified
as Probable, reserves are therefore recognized as not proven. As they are
identified as such, they are in no way misleading. The estimates of
Probable Reserves is the opinion of the consultant, Martin Petroleum and
Associates.
iv) The Company again agrees that the estimates are speculative. The estimates
of Probable Reserves is the opinion of the consultant, Martin Petroleum
and Associates.
v) As discussed in Response #2, the study was not authorized by the Joint
Venture but by The American Energy Group, Ltd, the parent company of a
joint venture partner and an affiliate in terms of the Joint Operating
Agreement. As advised by counsel, an affiliate to a joint venture party is
entitled to receive information from an affiliated joint venture party and
is authorized to disclose the same if required by law. Counsel has advised
that the Martin Report is a material event requiring disclosure to the
SEC. Therefore, as per advice received, the release of the information is
not "unauthorized".
We thank you for your consideration of these matters, and respectfully
submit our responses for your review.
Yours Truly,
B/J/S
Bradley J. Simmons
President
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