Attached files

file filename
10-K - FORM 10-K - XTO ENERGY INCd10k.htm
EX-23.1 - CONSENT OF KPMG LLP - XTO ENERGY INCdex231.htm
EX-23.2 - CONSENT OF MILLER & LENTS, LTD. - XTO ENERGY INCdex232.htm
EX-10.30 - SECOND FORM OF STOCK AWARD AGREEMENT (RESTRICTED SHARES) - XTO ENERGY INCdex1030.htm
EX-12.1 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - XTO ENERGY INCdex121.htm
EX-10.24 - SECOND FORM OF STOCK AWARD AGREEMENT - XTO ENERGY INCdex1024.htm
EX-10.8 - AMENDED EMPLOYMENT AGREEMENT - HUTTON - XTO ENERGY INCdex108.htm
EX-10.11 - AMENDED EMPLOYMNET AGREEMENT - VENNERBERG - XTO ENERGY INCdex1011.htm
EX-21.1 - SUBSIDIARIES OF XTO ENERGY INC. - XTO ENERGY INCdex211.htm
EX-31.2 - CERTIFICATION - CFO - XTO ENERGY INCdex312.htm
EX-10.5 - AMENDMENT 2 TO EMPLOYMENT AGREEMENT - SIMPSON - XTO ENERGY INCdex105.htm
EX-31.1 - CERTIFICATION - CEO - XTO ENERGY INCdex311.htm
EX-10.37 - FOURTH AMENDED MANAGEMENT GROUP EMPL. SEVERANCE PROTECTION PLAN - XTO ENERGY INCdex1037.htm
EXCEL - IDEA: XBRL DOCUMENT - XTO ENERGY INCFinancial_Report.xls
EX-32.1 - SECTION 906 CERTIFICATIONS - CEO & CFO - XTO ENERGY INCdex321.htm

EXHIBIT 99.1

February 17, 2010

XTO Energy Inc.

810 Houston Street, Suite 2000

Fort Worth, TX 76102

 

Re:    XTO Energy Inc. (XTO)   
   Reserves and Net Revenues Forecast   
   As of December 31, 2009   
   SEC Pricing Case   

Gentlemen:

At your request, Miller and Lents, Ltd. (MLL) estimated the proved reserves and future net revenues as of December 31, 2009 attributable to the XTO Energy Inc. (XTO) interests in certain properties located primarily in Alaska, Arkansas, Colorado, Kansas, Louisiana, Montana, New Mexico, Oklahoma, Pennsylvania, Texas, Utah, West Virginia, and Wyoming. The properties include approximately 41,105 leases and 64,584 wells.

MLL performed evaluations, which are designated as the SEC Pricing Case, using prices and expenses as specified by XTO and described in detail on Attachment 1. The aggregate results of MLL’s evaluations are as follows:

 

      Net Reserves    Future Net Revenues
Reserves Category   

Oil and    

Condensate,  

MBbls.  

   Natural  
Gas  
Liquids,  
MBbls.  
  

Gas,  

MMcf  

  

Undiscounted,  

M$  

  

Discounted at

10% Per Year,
M$

Proved Developed

    Producing

   207,103.3      59,837.3      6,757,221.0      21,416,044.1      12,441,620.9

Proved Developed

    Nonproducing

   5,454.1      2,849.8      596,024.9      1,393,113.1      730,615.3

Proved

    Undeveloped

   81,851.1      30,493.6      5,148,587.1      8,071,568.3      1,910,115.3

Total Proved

   294,408.5      93,180.7      12,501,833.0      30,880,725.5      15,082,351.5

Platform

Abandonment Costs

                  -189,529.3      -121,326.7

Total

   294,408.5      93,180.7      12,501,833.0      30,691,196.2      14,961,024.8

Proved reserves and future net revenues were estimated in accordance with the provisions contained in Securities and Exchange Commission Regulation S-X, Rule 4-10(a). The Securities and Exchange Commission definition of proved reserves is shown on Attachment 2. Gas volumes for each property are stated at the pressure and temperature bases appropriate for the sales contract or state regulatory authority;


XTO Energy Inc.    February 17, 2010
   Page   2

 

therefore, some of the aggregated totals may be stated at a mixed pressure base. No provisions for the possible consequences, if any, of product sales imbalances were included in MLL’s projections since MLL received no relevant data. Estimates of future net revenues and discounted future net revenues are not intended and should not be interpreted to represent fair market values for the estimated reserves. In MLL’s projections, with the exception of the offshore platforms, future costs of abandoning facilities and wells were assumed to be offset by salvage values. Estimated costs, if any, for restoration of producing properties to satisfy environmental standards are beyond the scope of this assignment.

Following Attachment 2 is a list of exhibits that include annual projections of future production and net revenues for the reserves category totals; for the property designations, i.e., operated, non-operated, or royalty; and for the XTO production entities. The annual projections of future production and net revenues for each individual property are included in separate volumes to this report. Those projections are grouped in the volumes by property designation, production entity, and reserves category. The exhibits included herein and the accompanying volumes should not be relied upon independently of this narrative.

The proved developed producing reserves and production forecasts were estimated by production decline extrapolations, water-oil ratio trends, P/Z declines, or in a few cases, by volumetric calculations. For some properties with insufficient performance history to establish trends, MLL estimated future production by analogy with other properties with similar characteristics. These analogies were mostly type curves developed by XTO for specific formations. Type curves are the projection of average monthly production normalized to time zero for a large number of wells producing from a specific formation. The decline characteristics of the type curve are used as a basis for estimating future production and reserves for evaluated wells that do not have adequate production history to establish trends. MLL reviewed these curves and employed them in our evaluations because MLL believes the type curves are the best available indication of future production for some of the evaluated wells. The past performance trends of many properties were influenced by production curtailments, workovers, waterfloods, and/or infill drilling. Actual future production may require that MLL’s estimated trends and/or the type curves be significantly altered.

The estimated proved developed nonproducing reserves can be produced from existing wells, but require expenditures for recompletions, workovers, and/or initial completions and pipeline connection. Recompletions open and produce formations that are currently behind the pipe. Workovers restore wells to production levels prior to wellbore damage or mechanical failures. Initial completions and pipeline connections put wells that have been drilled and logged on production. Proved developed nonproducing reserves estimates were based on analogies with other wells that commercially produce from the same formation or, in a few cases, on volumetric calculations. For some wells that had been damaged by scale buildup or mechanical problems, estimated proved nonproducing reserves assumed that workover operations could restore the wells to production levels prior to the damage. The timing of initial production was provided to MLL by XTO. When actual production history is available for these nonproducing reserves, MLL’s reserves estimates may be significantly revised.

The estimated proved undeveloped reserves require significant capital expenditures such as costs to drill wells or to install secondary and/or tertiary recovery operations. Drilling costs were mainly for infill wells that were evaluated based on analogies to similar infill wells already drilled in the field and/or the production histories of offset wells in the same field. Secondary recovery operations are mainly waterfloods,


XTO Energy Inc.    February 17, 2010
   Page   3

 

and tertiary recovery operations are mainly carbon dioxide and/or nitrogen injection projects. Proved undeveloped reserves for these operations were based on analogies with pilots in the same field or production from a nearby field with similar reservoir properties or, in one case, on reports provided by the field operator. The estimated timing of infill drilling and waterflood and tertiary expansions was provided by XTO. As the actual results of the infill wells and waterflood and tertiary installations became available, MLL’s estimates of reserves may be significantly revised.

Reserves estimates from volumetric calculations and from analogies are often less certain than reserves estimates based on well performance obtained over a period during which a substantial portion of the reserves was produced.

Natural gas liquids were estimated for areas with gas production that is processed by gas plants. The gas reserves attributed to this production were reduced to account for the shrinkage associated with the extraction of the liquids.

The data employed in MLL’s estimations of proved reserves and future net revenues were provided by XTO. The current expenses for each lease were obtained from operating statements provided by XTO except for certain leases where XTO deducted items considered by XTO to be nonrecurring expenditures. No overhead was included for those properties operated by XTO. For some properties, such as large waterfloods, XTO assumed a decline in operating costs due to depleting production that was derived by forecasting a decrease in the property well count. For some gas properties, XTO assumed operating costs would be split between a variable component and a fixed component. The variable component was a constant cost per thousand cubic feet of gas production, and the fixed component was a constant cost per well completion. Also, for some properties that XTO operates, operating expenses were reduced due to contractual payments received from non-operators that were greater than the non-operated working interest portion of the expenses. None of the data provided to MLL by XTO, including, but not limited to, graphical representations and tabulations of past production performance, well tests and pressures, ownership interests, prices, and operating costs, were verified by MLL as such was not within the scope of MLL’s assignment.

The evaluations presented in this report, with the exceptions of those parameters specified by others, reflect MLL’s informed judgments based on accepted standards of professional investigation but are subject to those generally recognized uncertainties associated with interpretation of geological, geophysical, and engineering information. Government policies and market conditions different from those employed in this study may cause the total quantity of oil or gas to be recovered, actual production rates, prices received, or operating and capital costs to vary from those presented in this report. Minor precision inconsistencies in subtotals may exist in the report due to truncation or rounding of aggregated values.

Miller and Lents, Ltd. is an independent oil and gas consulting firm. No director, officer, or key employee of Miller and Lents, Ltd. has any financial ownership in XTO Energy Inc. or any related company. MLL’s compensation for the required investigations and preparation of this report is not contingent on the results obtained and reported, and MLL has not performed other work that would affect our objectivity. Preparation of this report was supervised by an officer of Miller and Lents, Ltd., who is a professionally qualified and licensed Professional Engineer in the State of Texas with more than 25 years of relevant experience in the estimation, assessment, and evaluation of oil and gas reserves.


XTO Energy Inc.    February 17, 2010
   Page   4

 

MLL’s work papers and data are in our files and available for review upon request. If you have any questions regarding the above, or if we can be of further assistance, please call.

 

Yours very truly,

 

MILLER AND LENTS, LTD.

Texas Registered Engineering Firm No. F-1442

By:   /S/    JAMES C. PEARSON        
 

James C. Pearson, P.E.

Chairman

JCP/slc


Attachment 1

12/31/09

XTO Energy Inc. (XTO)

SEC PRICING CASE

 

A.   Oil Price   Average price during the 12-month period prior to 12/31/09 determined as the arithmetical average of the first-day-of-the-month price for each month during the year 2009. The average price was held constant through the life of the property.
B.   Gas/NGL Price   Average price during the 12-month period prior to 12/31/09 determined as the arithmetical average of the first-day-of-the-month price for each month during the year 2009. The average price was held constant through the life of the property.
C.   Operating Costs   Current expenses held constant through the life of the property. For some properties, expenses included a variable component that was a constant cost per unit of gas production and a fixed component that was a constant cost per well completion.
D.   Discount Rate   10% per year.


Attachment 2

Page 1

Reserves Definitions In Accordance With

Securities and Exchange Commission Regulation S-X

Reserves

Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known 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 the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir, or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).

Proved Oil and Gas Reserves

Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

 

  1. The area of the reservoir considered as proved includes:

 

  a. The area identified by drilling and limited by fluid contacts, if any, and

 

  b. Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

 

  2. In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.

 

  3. Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.

 

  4. Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:

 

  a. Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and

 

  b. The project has been approved for development by all necessary parties and entities, including governmental entities.


Attachment 2

Page 2

 

  5. Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

Developed Oil and Gas Reserves

Developed oil and gas reserves are reserves of any category that can be expected to be recovered:

 

  1. 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

 

  2. Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

Undeveloped Oil and Gas Reserves

Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

 

  1. Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.

 

  2. Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.

 

  3. Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined below, or by other evidence using reliable technology establishing reasonable certainty.

Analogous Reservoir

Analogous reservoirs, as used in resources assessments, have similar rock and fluid properties, reservoir conditions (depth, temperature, and pressure) and drive mechanisms, but are typically at a more advanced stage of development than the reservoir of interest and thus may provide concepts to assist in the interpretation of more limited data and estimation of recovery. When used to support proved reserves, an “analogous reservoir” refers to a reservoir that shares the following characteristics with the reservoir of interest:

 

  1. Same geological formation (but not necessarily in pressure communication with the reservoir of interest);

 

  2. Same environment of deposition;

 

  3. Similar geological structure; and

 

  4. Same drive mechanism.

Reservoir properties must, in aggregate, be no more favorable in the analog than in the reservoir of interest.