Return to flip book view

STOCKMAN FIELD SOF LIV SHELBY COUNTY EAST TEXAS EXHIBIT F CONFIDENTIAL PLACEMENT MEMORANDUM STRATEGIC CASHFLOW OPPORTUNITY FOR RECOMPLETION ON EXISTING PROVEN RESERVES LOCATED IN THE COTTON VALLEY SANDS IN SHELBY COUNTY EAST TEXAS

EXECUTIVE SUMMARY ALFREDO MANZUR GONZALEZ President CEO Sof Exploration Alfredo M Gonzalez is the President and CEO of Sofi Exploration Mr Gonzalez is a sought after influential leader For the last 10 years his forte is offering proficient Good Practice Guidance aligning high production Asset Development opportunities in the Oil and Gas sectors with sophisticated investors who are in the market to expand their Cash Flow and Tax Advantage positions His corporate Vision for Sofi Exploration is to be the energy company most admired for its people partners and performance His corporate Mission is to build successful partnerships based on 7 established pillars High Performance Integrity Transparency Trust Verification and Protecting Partners and the Environment His immense knowledge and innovative counsel regarding asset development programs in the industry confirms the confidence of vigorous partnerships and superior offerings from the industry s leading and selective Operators Drilling Corporations and Completion Companies Mr Gonzalez continues to develop an extensive vetting process compelling industry leader to perform at the highest levels for investor participation and production achievement The corporate goals are capital development drilling completion production success and continuous liquidity development for his associates and partners PHIL MARTIN President CEO New Century Exploration Inc Mr Martin is President and CEO of New Century Exploration Inc an active operator in Texas and Louisiana He began his career at Union Texas Petroleum and has managed many E P programs for over 30 years Phil has presented at many industry groups regarding oil and gas exploration development production and economics especially regarding unconventional resources Phil is a member of various professional organizations including Houston Producers Forum Houston Energy Finance Group ADAM Houston IPAA and TIPRO AAPL AAPG SIPES and the LSU Foundation Phil earned a Bachelor of Science in Geology from LSU and a Master of Science in Geology from University of Louisiana He is involved with various community and charitable organization and serves on the board of the Pearl Fincher Museum of Fine Arts and the Centrum League RYAN SESSIONS Senior Petroleum Engineer Mr Sessions Petroleum Engineer is responsible for all of New Century Exploration Inc s drilling completion and production operations He has a Bachelor of Science degree in Engineering from Texas A M and has worked at New Century for 6 years He has significant experience in the Cotton Valley and Haynesville trends of East Texas and North Louisiana the Eagle Ford and Austin Chalk trends of Central Texas and multiple Gulf Coast trends He is expert at most oil industry technology and sofware including PhdWin Kingdom IHS TGS DrillingInfo and Spotfire He is an active member of the Society of Petroleum Engineers 1

OFFERING SUMMARY PARTNERSHIP Sofi Exploration a non operating working interest management company is ready to release it s newest 2020 partnership called Sofi LIV The Sofi LIV consist of 2 premium Cotton Valley Sands in the Rose Berry formation that consists of a 40 interval of proven reserves behind pipe located in Shelby county East Texas Sofi Exploration is offering a participation of 25 W I with a 5 carried interest into potential ongoing cashflow INDUSTRY PARTNER OPERATOR AND DRILLER Sof Exploration New Century Exploration and Halliburton Partnership New Century CONTRACT PURCHASES Exploration Operator Frack Crew RRC 606055 Oil Purchaser CATEGORY Sofi Exploration and New Century Exploration Inc Texas operator RRC 606055 will be re completing and perforation 2 additional up whole productive Cotton Valley Roseberry sands Our main objective is to perforate each additional pay sands for the possibility to generate grater levels of future Premium natural gas and condensate oil production New Century Exploration s Cotton Valley Roseberry program has been categorized as an conventional proven reserve with direct access to Premium natural gas and condensate production PRODUCTION PROFILE New Century Exploration inc Texas operator RRC 606055 will be strategically re completing production profiles of 2 additional Cotton Valley Roseberry sands by perforation in the targeted depth s of 9 870 to 9 934 of our vertical casing New Century will be undertaking calculated manageable risk evaluations by perforating in the areas of interest which show production behind pipe located in Shelby county East Texas New Century Exploration inc will be exploring the possibilities to increase higher Premium natural gas oil condensate production and try to generate consistent flow of potential income VERTICAL PARAMETERS RECOMPLETION Sofi Exploration will participate in a vertical re completion program totaling 40 of proven reserves behind pipe with direct access to cash flow The total vertical depth TVD of the well is 12 900 on a 90 acre leasehold New Century Exploration inc will be utilizing state of the art fracking designs and entering the depth s between 9 870 to 9 934 to potentially establish higher recoverable estimated reserves VENTURE MAIN OBJECTIVE Sofi Exploration will be delivering a Vertical re completion fracking program targeting 2 premium additional proven Cotton Valley Roseberry sands located in the Stockman Field in the heart of Shelby county Texas Sofi Exploration s main goal is to potentially increase commercial recovery and generate long term cash flow ENERGY GRADE Sofi Exploration will be targeting Premium natural gas and 37 degree gravity oil condensate production with the Possibility to produce from multiple additional zones in the near future 2

SOF LIV PLAT Sof Liv Newest Fracking Opportunity Provided by New Century Exploration 3

DRILLING OBJECTIVE This diagram is used for information purposes only to identify our objectives for our venture This illustration is for informational purposes only This diagram does not guarantee the success execution and any future production on the program 4

The New Century 1 Chisholm Trouille well is located in Stockman Field Shelby County Texas This portion of the East Texas Basin is characterized by prolific production from multiple stacked reservoirs The New Century 1 Chisholm Trouille contains multiple productive sands behind pipe but was first completed in the deepest zone the Cotton Valley Lime which produced 9 BCF of gas Multiple logs confirm additional potential production in the Cotton Valley Travis Peak Pettet and James Lime New Century plans the first recompletion in the Cotton Valley Roseberry Sand The Cotton Valley Roseberry Sand contains approximately 40 of gas condensate at a log depth of 9 870 The Aethon 1 Skipper three miles to the east produced 1 82 BCF and 19 848 BO from the same zone although only half as thick at that location Reserves in the Roseberry are estimated at 3 6 BCF and 40 000 BO in the Chisholm Truille well Provided by New Century Exploration 5

OVERALL SUMMARY The estimated initial flow rate of the Roseberry is 4 000 MCF 64 BO 316 BSW This is proportionate to the results of a similar well to the east the Aethon 1 Skipper with only half the sand thickness The Chisholm Trouille borehole is in excellent shape original cost 3 million facilities including gas sales connection are in place A frac is scheduled to be performed by Halliburton with revenues beginning immediately after The Travis Peak will be the next recompletion which can be completed and production co mingled with the Chisholm Trouille when desired The Travis Peak Sand will be the next zone to be recompleted Found at a depth of 9 120 it is approximately 25 thick with reserves estimated at 1 2 BCF and 12 000 BO That zone also has very high quality petrophysical properties Provided by New Century Exploration 6

Provided by New Century Exploration 7

STOCKMAN FIELD Provided by New Century Exploration 8

Provided by New Century Exploration 9

PETROPHYSICAL LOG ROSEBERRY Provided by New Century Exploration 10

Provided by New Century Exploration 11

DENSITY LOG ROSEBERRY Provided by New Century Exploration 12

Provided by New Century Exploration 13

TRAVIS PEAK LOGS Provided by New Century Exploration 14

Permitted Well Active Producing API 419 31365 GPS Coordinates 31 719522 94 341039 STOCKMAN FIELD P50 OIL GAS RESERVES GAS 3 8 BCF EUR OIL 40 000 BBLS EUR NET RESERVE VALUE 8 150 160 Does not include L O E USING TODAY S PRICES AT 40 OIL BASES POINT Permitted Well 15

ROSEBERRY SANDS OPPORTUNITY STOCKMAN FIELD EAST TEXAS Permitted Well Active Producing API 419 31336 Shelby County Texas SOFI LIV Chisholm Trouille API 419 31422 Newest Recompletion Opportunity New Century Exploration RRC 606055 Chisholm Trouille Payzone Log API 419 31422 16

Permitted Permitted W 17

RECOMPLETION OPPORTUNITY STOCKMAN FIELD TEXAS Active Producing API 419 31336 Permitted Well Permitted Well Well SOFI LIV BP 1 API 419 31422 Newest Recompletion Fracking Opportunity Active Producing API 419 31365 Well Permitted Well 18

Provided by New Century Exploration 19

ORIGINAL OIL LEASE Provided by New Century Exploration 20

RESERVES TERMS ECONOMICS Any additional markup or promotion is not officially calculated on these terms You will find the current markup or promotion located in our CIM Provided by New Century Exploration 21

ESTIMATED PARTNERSHIP ECONOMICS WORKING INTEREST PARTICIPATION Working Interest 1 Unit 5 0 Net Revenue 1 Unit 3 00 PARTICIPATION Unit W I N R I FRAC FACILITIES 1 5 0 3 0 130 000 00 3 4 3 75 2 25 97 500 00 1 2 1 4 2 5 1 25 1 5 75 65 000 00 1 8 0 625 0 375 16 250 00 32 500 00 Frac Completion and Facilities 130 000 00 1 Unit TOTAL CAPITALIZATION 1 300 000 00 22

POTENTIAL MONTHLY REVENUE IP RATES RICH NATURAL GAS 4 000 MCF 8 000 IPD 243 200 IPM 7 296 X X X 2 00 30 4 Days 3 0 Per Unit 10 LOE 8 000 IPD 243 200 IPM 7 296 6 566 40 IPU 6 566 40 Gas Proceeds Per Month estimated OIL PRODUCTION 64 BPD 2 560 IPD 77 824 IPM 2 334 72 X X X 40 00 30 4 Days 3 0 Per Unit 10 LOE 2 560 IPD 77 824 IPM 2 334 72 2 101 24 IPU 2 101 24 Oil Proceeds Per Month estimated 6 566 40 2 101 24 PROCEEDS Gas Estimate Oil Estimate 8 667 64 Total Estimate Annual Rate of Return 10 50 Potential Premium Natural Gas Condensate Oil Payout 24 month payout These are estimated figures only upon production BPD BARRELS PER DAY MCF MILLION METRIC CUBIC FEET IPD INCOME PER DAY IPM INCOME PER MONTH IPU INCOME PER UNIT These numbers were formulated based on first annual rate of return without expenses and depletion rates 23

POTENTIAL REVENUE PROJECTIONS IP RATES Gas Average MCF Gas p d 2 000 4 000 6 000 OIL Average BO p d 32 64 96 Price of MCF 1 50 2 50 2 00 Monthly Income 2 462 40 3 283 20 4 104 00 Estimated Operating Expense 273 60 364 80 456 00 Annual Rate of Return 22 30 37 Monthly Income 4 924 80 6 566 40 8 208 00 Estimated Operating Expense 547 20 729 60 912 Annual Rate of Return 45 60 75 Monthly Income 7 387 20 9 849 60 12 312 00 Estimated Operating Expense 820 80 1 094 40 1 368 00 Annual Rate of Return 68 90 113 40 00 45 00 50 00 Monthly Income 1 050 62 1 181 95 1 313 28 Estimated Operating Expense 116 74 131 33 145 92 Annual Rate of Return 9 10 12 Monthly Income 2 101 25 2 363 90 2 626 56 Estimated Operating Expense 233 47 262 66 291 84 Annual Rate of Return 19 21 24 Monthly Income 3 151 87 3 545 86 3 939 84 Estimated Operating Expense 427 50 470 25 513 00 Annual Rate of Return 29 32 36 Price of BOPD Spreadsheet has been rounded off to the nearest decimal These numbers were calculated on first annual rate of return minus expenditures and without any depletion rates 24

Congressional Incentives Encourage Domestic Petroleum Development Oil and Natural Gas from domestic reserves helps to make our country more energy self sufficient by reducing our dependence on foreign imports In light of this Congress has provided tax incentives to simulate domestic natural gas and oil production financed by private sources Drilling projects offer many tax advantages and these benefits greatly enhance the economics The incentives are not Loop Holes they were placed in the Tax Code by Congress to make participation in oil and gas ventures one of the best tax advantaged investments Intangible Drilling Cost Tax Deduction The intangible expenditures of drilling labor chemicals mud grease etc are usually about 65 to 80 of the cost of a well These expenditures are considered Intangible Drilling Costs IDC which are 100 deductible during the first year For example a 100 000 investment could yield up to 80 000 in tax deductions during the first year of the venture These deductions are available in the year the money was invested even if the well does not start drilling until March 31 of he year following the contribution of capital Sec Section 263 of the Tax Code Tangible Drilling Cost Tax Deduction The total amount of the investment allocated to the equipment Tangible Drilling Costs TDC is 100 tax deductible In the example above the remaining tangible cost 25 000 may be deducted as depreciation over a seven year period See Section 263 of the Tax Code Active vs Passive Income The Tax Reform Act of 1986 introduced into the Tax Code the concepts of Passive income and Active income The Act prohibits the offsetting of losses from Passive activities against income from Active businesses The Tax Code specifically states that a Working Interest in an oil and gas well is NOT a Passive Activity therefore deductions can be offset against income from active stock trades business income salaries etc See Section 469 c 3 of the Tax Code Small Producers Tax Exemption The 1990 Tax Act provided some special tax advantages for small companies and individuals This tax incentive known as the Percentage Depletion Allowance is specifically intended to encourage participation in oil and gas drilling This tax benefit is not available to large oil companies retail petroleum marketers or refiners that process more than 50 000 barrels per day The Small Producers Exemptionz allows 15 of the Gross Income not Net Income from an oil and gas producing property to be tax free Lease Costs Lease costs purchase of leases minerals etc sales expenses legal expenses administrative accounting and Lease Operating Costs LOC are also 100 tax deductible through cost depletion Alternative Minimum Tax Prior to the 1992 Tax Act working interest participants in oil and gas ventures were subject to the normal Alternative MinimalTax to he extent that this tax exceeded their regular tax This Tax Act specifically exempted Intangible Drilling Cost as a Tax Preference item Alternative Minimum Taxable Income generally consists of adjusted gross income minus allowable Alternative Minimum Tax itemized deduction plus the sum of tax preference items and adjustments Tax preference items are preferences existing in the Code to greatly reduce or eliminate regular income taxation Included within this group are deductions for excess Intangible Drilling and Development Costs and the deduction for depletion allowable for a taxable year over the adjusted basis in the Drilling Acreage and the wells thereon 25

TAX BENEFITS EXAMPLE THE BASIC TAX CONSIDERATIONS INVOLVED IN AN OIL GAS INVESTMENT 1 INTANGIBLE DRILLING COSTS Up to 80 of the investment amount constitutes what are known as intangible Drilling Costs IDC and are deductible against active passive or portfolio income in the first year incurred This includes all labor related costs for the prospect well Including but not limited to drilling contractors professional services and others The total amount of IDC is reported to each participant at the end of the year Please consult with your tax advisor for further details 2 TANGIBLE DRILLING COSTS Approximately 20 of the amount of costs to drill the well constitutes Tangible Drilling Costs TDC This includes but is not limited to all well equipment piping storage tanks wellhead equipment lease expenses and others The exact amount will be determined after the well is drilled This portion of an investment is depreciated over a seven year period Please consult with your tax advisor for further details ESTIMATED TAX INVESTMENT EXAMPLE A 130 000 x 80 104 000 2 872 106 872 B 106 872x 35 37 405 C 130 000 37 405 92 595 Investment Amount Intangible Drilling Costs estimate 1st year deductions of intangible drilling costs estimate 1st year depreciation deduction estimate 104 000 x 20 divided by 7 years TOTAL FIRST YEAR TAX DEDUCTIONS estimate Total Deduction estimate Maximum Income Tax Bracket TOTAL FIRST YEAR CASH VALUE OF DEDUCTIONS estimate Investment Amount Actual Cash Savings from Tax Deductions estimate AFTER TAX CASH INVESTMENT estimate 3 DEPLETION ALLOWANCE Currently the depletion allowance is 15 This means that fifteen cents of every dollar is tax free Please consult with your tax advisor for further details 4 STATE INCOME TAXES State income taxes could add substantial additional savings however they may vary from state to state Please consult with your tax advisor for further details 26

CERTIFICATE OF LIABILITY INSURANCE NEWCENT 02 NSEITZ CERTIFICATE OF LIABILITY INSURANCE DATE MM DD YYYY 3 24 2020 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER S AUTHORIZED REPRESENTATIVE OR PRODUCER AND THE CERTIFICATE HOLDER IMPORTANT If the certificate holder is an ADDITIONAL INSURED the policy ies must have ADDITIONAL INSURED provisions or be endorsed If SUBROGATION IS WAIVED subject to the terms and conditions of the policy certain policies may require an endorsement A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement s CONTACT NAME PHONE A C No Ext E MAIL ADDRESS PRODUCER Houston Alliant Insurance Services Inc 5444 Westheimer Rd 9th fl Houston TX 77056 FAX A C No 832 832 485 4000 INSURER S AFFORDING COVERAGE INSURER A Markel INSURED 485 4001 NAIC International Insurance Company Limited 00000 INSURER B New Century Exploration Inc 20008 Champion Forest Drive Suite 701 Spring TX 77379 INSURER C INSURER D INSURER E INSURER F COVERAGES CERTIFICATE NUMBER REVISION NUMBER THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED NOTWITHSTANDING ANY REQUIREMENT TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS EXCLUSIONS AND CONDITIONS OF SUCH POLICIES LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS INSR LTR A X ADDL SUBR INSD WVD TYPE OF INSURANCE POLICY EFF POLICY EXP MM DD YYYY MM DD YYYY POLICY NUMBER COMMERCIAL GENERAL LIABILITY CLAIMS MADE X JCGL101683 OCCUR 6 21 2019 6 21 2020 GEN L AGGREGATE LIMIT APPLIES PER PROX POLICY LOC JECT A A OTHER AUTOMOBILE LIABILITY X ANY AUTO OWNED AUTOS ONLY HIRED AUTOS ONLY X UMBRELLA LIAB SCHEDULED AUTOS NON OWNED AUTOS ONLY X X EXCESS LIAB DED JCGL101683 6 21 2019 6 21 2020 LIMITS EACH OCCURRENCE DAMAGE TO RENTED PREMISES Ea occurrence MED EXP Any one person PERSONAL ADV INJURY GENERAL AGGREGATE PRODUCTS COMP OP AGG COMBINED SINGLE LIMIT Ea accident BODILY INJURY Per person JUMB101443 CLAIMS MADE 6 21 2019 6 21 2020 EACH OCCURRENCE AGGREGATE RETENTION ANY PROPRIETOR PARTNER EXECUTIVE OFFICER MEMBER EXCLUDED Mandatory in NH If yes describe under DESCRIPTION OF OPERATIONS below A Control of Well A Equipment Floater 1 000 000 BODILY INJURY Per accident PROPERTY DAMAGE Per accident OCCUR WORKERS COMPENSATION AND EMPLOYERS LIABILITY 1 000 000 100 000 5 000 1 000 000 2 000 000 2 000 000 PER STATUTE Y N OTHER E L EACH ACCIDENT N A 15 000 000 15 000 000 E L DISEASE EA EMPLOYEE JCOW11172 6 21 2019 JCOW11172 6 21 2019 E L DISEASE POLICY LIMIT 6 21 2020 All Wells 6 21 2020 Limit 15 000 000 1 506 661 DESCRIPTION OF OPERATIONS LOCATIONS VEHICLES ACORD 101 Additional Remarks Schedule may be attached if more space is required In regards to the New Century 5H Arch Nesbitt well in Harrison County Texas CERTIFICATE HOLDER CANCELLATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS For Information Only AUTHORIZED REPRESENTATIVE ACORD 25 2016 03 1988 2015 ACORD CORPORATION All rights reserved The ACORD name and logo are registered marks of ACORD Provided by New Century Exploration 27

INDUSTRY PARTNERS REFERENCES New Century Exploration PHIL MARTIN PRESIDENT CEO PHONE AVAILABLE UPON REQUEST ALFREDO MANZUR GONZALEZ PRESIDENT CEO DIRECT 469 802 0332 REFERENCES PROJECT GENERATOR DAVID MASON CHIEF EXECUTIVE OFFICER PHONE AVAILABLE UPON REQUEST JOSEPH M COX JOE COX BRACEWELLLAW COM WWW BRACEWELL COM 214 468 3800 KITTELSON A S S O C I AT E S DOUG KITTELSON DOUG KITTELSONLAW COM WWW KITTELSONLAW COM 214 734 2700 KAREY REBELLO KREBELLO HENSLEYCPAS US WWW HENSLEYCPAS US 214 390 9071 MINDY GAYER BUSINESS DEVELOPMENT MANAGER MGAYER THEENTRUSTGROUP COM 615 569 9122 Sof Exploration LLC memorandum does not constitute any accuracy or any guarantees of present or future success of this venture Sof Exploration LLC is not responsible for the outcome or the performance of the venture This memorandum is for illustration purposes only 28

INDUSTRY TERMS Acreage Land leased for oil and gas exploration and or land for which Millennium Exploration owns the mineral rights Anticline A convex upward formation of rock layers which may form a trap for hydrocarbons Barrel of Oil Equivalent A measure used to aggregate oil and gas resources for production with one BOE being approximately equal to 6 000 cubic feet of natural gas Basin A large natural depression on the Earth s surface in which specimins brought by water accumulate Borehole A hole in the earth made by a drilling rig British Thermal Unit BTU The heat required to raise the temperature of a one pound mass of water by one degree Fahrenheit Casing Thick walled steel pipe placed in wells to isolate formation fluids such as fresh water and to prevent borehole collapse Coal Bed Methane CBM Natural gas extracted from coal beds Completion The process of making a well ready to produce natural gas or oil Completion involves installing permanent equipment such as a wellhead and often includes hydraulic fracturing Condensate Mixture of hydrocarbons which as in a gaseous state under reservoir conditions and when produced become liquids at the temperature and pressure is reduced Conventional Resources Discrete accumulations of hydrocarbons contained in rocks with relatively high matrix permeability which normally have relatively high recovery factors Developed Acreage The number of acres that are allocated to assignable to productive wells or wells capable of production Developed Reserves Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well and if extraction is by means other than a well through installed equipment and infrastructure operational at the time of the reserves estimate Development Well A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive Directional Drilling The application of special tools and techniques to drill a wellbore at a predetermined angle Horizontal drilling is a form of directional drilling where the wellbore is ultimately drilled at 90 degrees to the vertical direction Drilling Rig The machine used to drill a wellbore Dry Gas Dry gas is almost pure methane and occurs in the absence of liquid hydrocarbons or by processing natural gas to remove liquid hydrocarbons and impurities Dry Hole A well incapable of economically producing saleable hydrocarbons in suffucuent quantities to justify commercial exploitation E P Exploration and Production Economically Producible A resource that generates revenue that exceeds or is reasonably expected to exceed the costs of the operation Enhanced Oil Recovery One or more of a variety of processes that seek to improve recovery of hydrocarbon from a reservoir after the primary production Environmental Assessment phase A study that can be required to assess the potential direct indirect and cumulative environmental impacts of a project Estimated Ultimate Recovery The sum of reserves remaining as of a given date and cumulative production as of that date Exploratory Well A well drilled to find a new field or a new reservoir in a field previously found the be productive of oil or gas in another reservoir Farm In The acquisition of part or all of an oil natural gas or mineral interest from a third party Farm Out The assignment of part or all of an oil natural gas or mineral interest to a third party Field An area consisting of a single hydrocarbon reservoir or multiple geologically related reservoirs all grouped or related to the same individual geological structure or stratigraphic condition Flaring The burning of natural gas for safety reasons or when there is no way to transport the gas to the market to use the gas for other beneficial purposes such as EOR or reservoir pressure maintenance The practice of flaring is being steadily reduced as pipelines are completed and in response to environmental concerns Formation A rock layer which has distinct characteristics e g rock type geologic age Fossil Fuel A fuel source such as oil condensate natural gas liquids or coal formed in the earth from plant or animal remains Heavy Oil Crude oil with an API gravity less than 20 degrees Heavy oil generally does not flow easily due to its elevated viscosity Horizontal Drilling A drilling technique whereby a well is progressively turned from vertical to horizontal so as to allow for greater exposure to an oil or natural gas reservoir Horizontal laterals can be more than a mile long In general longer exposure lengths allow for more oil and natural gas to be recovered from a well and often can reduce the number of wells required to develop a field thereby minimizing surface disturbance Horizontal drilling technology as been extensively used since the 1980s and is appropriate for many but not all developments Hydraulic Fracturing Hydraulic fracturing also referred to as frac ing or fracking is an essential completion technique in use since the 1940s that facilitates production of oil and natural gas trapped in low permeability reservoir rocks The process involves pumping fluid at high pressure into the target formation thereby creating small fractures in the rock that enable hydrocarbons to flow into the wellbore Hydraulic Fracturing Fluids Mixture of water and proppant along with minor amounts of chemical additives used to hydraulically fracture low permeability formations Water and sand typically compromise 99 5 of the mixture Hydrocarbons An organic compound containing only carbon and hydrogen and often occurring in nature as petroleum natural gas coal and bitumens or in refined products such as gasoline and jet fuel Improved Oil Recovery Term used to describe methods employed to improve the flow of hydrocarbons from the reservoir to the wellbore or to recover more oil or natural gas Enhanced oil recovery would be one form of IOR Infill Wells Wells drilled into the same reservoir as know producing wells so that oil or natural gas does not have to travel as far through the formation thereby helping to improve or accelerate recovery Jack up Rig An offshore rig with retractable steel legs that are placed on the ocean floor to raise the rig above the water line Joint Operating Agreement An agreement governing the rights and obligations of co owners in a field or undeveloped acreage which defines amongst other things how costs and revenues are to be shared among the parties and who is the operator Lease A legal document executed between a mineral owner and a company or individual that conveys the right to explore for and develop hydrocarbons and or other products for a specific period of time over a given area Liquefied Natural Gas Natural gas that has been converted to a liquid by refrigerating it to 260 degrees Fahrenheit Liquefying natural gas reduces the fuel volume by 600 times enabling it to be shipped economically from distant producing areas to markets 29

INDUSTRY TERMS Natural Gas Naturally occurring hydrocarbon gases found in porous rock formations Its principal component is usually methane Non hydrocarbon gases such as carbon dioxide and hydrogen sulfide can sometimes be present in natural gas Natural Gas Liquids A general term for highly volatile liquid products separated from natural gas in a gas processing plant NGLs include ethane propane butane and condensate Net Acres The percentage that a company owns in an acreage position with multiple owners For example a company that has a 50 interest in a lease covering 10 000 acres owns 5 000 net acres Oil Sands Geologic formation comprised predominately of sand grains and bitumen a highly viscous form of crude oil Operator The entity responsible for managing operations in a field or undeveloped acreage position Permeability The permeability of a rock is the measure of the resistance to the flow of liquid through the rock High permeability means fluid passes through the rock easily Play An areas in which hydrocarbon accumulations or prospects with similar characteristics occur such as the Lower Tertiary plan in the deepwater Gulf of Mexico or the Marcellus play in the eastern United States Porosity The measure of a rock s ability to slow a fluid Porosity is normally expressed as a percentage of the total rock which is taken up by pore space Possible Reserves Additional reserves that are less certain to be recovered than probable reserves Probably Reserves Additional reserves that are less certain the be recovered than proven reserves but which together with proved reserves are as likely as not to be recovered Produced Water Water produced in connection with oil and natural gas exploration and development activities Productive Well A well that is capable of producing hydrocarbons in sufficient quantities to justify commercial exploitation Proppant Sand or man made sand sized particles pumped into a formation during a hydraulic fracturing treatment to keep fractures open so that oil and natural gas can flow through the fractures to the wellbore Proved Developed Reserves Proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well Proven Reserves Proved oil and gas reserves are those quantities of oil and gas which by analysis of geosciences and engineering date can be estimated with reasonable certainty to be economically producible as defined by the US Securities and Exchange Commission regulations and the Millennium Exploration Policy for Reserves Estimation Accounting and Reporting Recompletion The process of entering an existing wellbore and performing work designed to establish production from a new zone Reserves Estimated remaining quantities of oil and gas related substances anticipated to be economically producible as of a given date by application of development projects to know accumulations In addition there must exist or there must be a reasonable expectation that there will exist the legal right to produce or a revenue interest in production installed means of delivering oil and gas related substances to market and all permits and financing required to implement the project Reservoir A porous and permeable underground formation containing a natural accumulation of producible il and or gas that is confined by impermeable rock or water barriers and is individual and separate to other reservoirs Resources Quantities of oil and gas estimated to exist in naturally occurring accumulations A portion of the resources may be estimated to be recoverable and another portion may be considered to be unrecoverable Resources include both discovered and undiscovered accumulations Shale A very fine grained sedimentary rock that is formed by the consolidation of clay mud or silt and that usually has a finely stratified or laminated structure Certain shale formations such as the Eagle Ford and the Barnett contain large amounts of oil and natural gas Sour Gas Sour gas is a natural gas or other gas containing significant amounts of hydrogen sulfide Spacing The distance between wells producing from the same reservoir Spacing is often expressed in terms of acres and is often established by regulatory agencies Steam Assisted Gravity Drainage A process used to recover butimen that is too deep to mine A pair of horizontal wells is drilled from a central well pad In a plant nearby steam generators heat water and transform it into steam The steam then travels through above ground pipelines to the wells It enters the ground via the steam injection well and heats the bitumen to a temperature at which it can flow by gravity into the producing well The resulting bitumen and condensed steam emulsion is then piped from the producing well to the plant where it is separated and treated The water is recycled for generating new steam Sweet Gas Natural gas that contains little or no hydrogen sulfide Tight Gas Natural gas produced from relatively impermeable rock Getting tight gas out usually required enhances technology applications like hydraulic fracturing The term is generally used for reservoirs other than shale Unconventional Reservoirs Reservoirs with permeability so low generals less than 0 1 millidarcy that horizontal hydraulically fractured stimulated wells or other advanced completion techniques must be utilized to extract hydrocarbons at commercial rates Shale reservoirs such as the Eagle Ford and Barnett as well as tight reservoirs like the Bakken and Three Fork both are examples of unconventional reservoirs Undeveloped Acreage Acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and gas regardless of whether or not the acreage contains proved reserves Unit The joining interests in a reservoir or field to provide for development and operations without regard to separate properly interests Also the area covered by a unitization agreement Waterflood An improved oil recovery technique that involves injecting water into a producing reservoir to enhance movement of oil to producing wells Wellbore The hole drilled by a drilling rig to explore for or developed oil and or natural gas Also referred to as a well or borehole Wet gas Produced gas that contains natural gas liquids Working Interest The right granted to the lessee of a property to explore for produce and own oil gas or other minerals The working interest owners bear the exploration development and operating costs 30

PARTNERSHIP PROCESS 31

NOTES 32

Stockman Field 6136 Frisco Square Blvd Suite 370 Frisco Texas 75034 469 518 0099 admin sofiexploration com