Exhibit 99.1

 

Williamson Petroleum Consultants, Inc.

Texas Registered Engineering Firm F-81

303 Veterans Airpark Lane, Suite 1100

Midland, Texas 79705

Phone: 432-685-6100

Fax: 432-685-3909

E-Mail: wpc@wpc-inc.com

 

April 10, 2015

 

Arabella Exploration, Inc.

500 West Texas Avenue, Suite 1450

Midland, Texas 79701

 

Attention Mr. Jason Hoisager

 

Subject:

Evaluation of Oil and Gas Reserves To the Interests of Arabella Exploration, Inc. Effective December 31, 2014 for Disclosure to the Securities and Exchange Commission Williamson Project 4.9637

 

Williamson Petroleum Consultants, Inc. has performed an engineering evaluation to estimate proved, probable and possible reserves and future net revenue from oil and gas properties to the subject interests held by the wholly owned subsidiary, Arabella Exploration, LLC. This evaluation was authorized by Mr. Jason Hoisager of Arabella Exploration, Inc. (Arabella). Projections of the reserves and future net revenue to the evaluated interests were based on economic parameters and operating conditions considered applicable as of December 31, 2014 and are pursuant to the financial reporting requirements of the Securities and Exchange Commission (SEC). This evaluation, in conjunction with other documents and data, is being used by Arabella for company purposes.

 

According to Arabella, this report includes 100% of the company’s reserves. All properties are located in Texas.

 

The hydrocarbon prices used in the preparation of this report are based on the average prices during the 12-month period prior to the effective date of this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements as required by the SEC regulations. Actual future prices may vary significantly from the prices required by SEC regulations; therefore, volumes of reserves actually recovered and the amounts of income actually received may differ significantly from the estimated quantities presented in this report.

 

Williamson Petroleum Consultants, Inc. F-81

 

  

Arabella Exploration, Inc.

Mr. Jason Hoisager

April 10, 2015

Page 2

 

Following is a summary result of the proved reserves category:

 

		PROVED DEVELOPED PRODUCING				PROVED DEVELOPED NONPRODUCING				PROVED UNDEVELOPED				TOTAL PROVED
Net Reserves to the Evaluated Interests:
Oil/Condensate, MBBL			369.942				90.851				2,049.148				2,509.941
Other Liquids, MBBL			0				0				0				0
Gas, MMCF			1,469.930				186.244				6,148.659				7,804.833
							0
Future Net Revenue, M$:
Undiscounted			27,249.885				5,783.018				99,945.102				132,978.000
Discounted Per Annum at 10.00 Percent			14,630.799				3,050.945				32,641.229				50,322.961

 

Note: Due to the method of rounding in ARIES, TOTAL PROVED may not equal PDP + PDNP + PU

 

Following is a summary result of the probable and possible reserves categories:

 

		PROBABLE				POSSIBLE
Net Reserves to the Evaluated Interests:
Oil/Condensate, MBBL			0				1,194.561
Other Liquids, MBBL			0				0
Gas, MMCF			0				2,448.849
Future Net Revenue, M$:
Undiscounted			0				53,453.762
Discounted Per Annum at 10.00 Percent			0				15,422.032

 

The attached Definitions describe all categories of reserves, and the Discussion describes the bases of this evaluation.

 

It has been a pleasure to serve you by preparing this engineering evaluation. All related data will be retained in our files and are available for your review.

 

Yours very truly,

 

WILLIAMSON PETROLEUM CONSULTANTS, INC.

 

 

Roy C. Williamson, Jr., P.E.

 

RCW/RCH/dee

 

 

Attachments

Williamson Petroleum Consultants, Inc. F-81

 

Williamson Petroleum Consultants, Inc. F-81

 

 

 

D I S C U S S I O N

 

INTRODUCTION

 

Williamson Petroleum Consultants, Inc. (Williamson) has performed an engineering evaluation to estimate proved, probable and possible reserves and future net revenue from oil and gas properties to the interests of Arabella Exploration, Inc. (Arabella) held by its wholly owned subsidiary Arabella Exploration, LLC. This evaluation was authorized by Mr. Jason Hoisager and includes 100% of the reserves owned by Arabella. The results of the evaluation are summarized in the cover letter and are presented by year in the reserve category summaries. The properties evaluated in this report are located in Pecos, Reeves, and Ward counties in Texas.

 

The individual projections of lease reserves and economics prepared to produce this report include data that describe the production forecasts and associated evaluation parameters such as interests, taxes, product prices, operating costs, investments, salvage values, abandonment costs, and net profit interests.

 

Projections of the reserves and future net revenue to the evaluated interests were based on economic parameters and operating conditions considered to be applicable as of December 31, 2014 and are pursuant to the financial reporting requirements of the Securities and Exchange Commission (SEC). This evaluation, in conjunction with other documents and data, is being used by Arabella for company purposes.

 

Net income to the evaluated interests is the future net revenue after consideration of royalty revenue payable to others, taxes, operating expenses, investments, salvage values, abandonment costs, and net profit interests, as applicable. The future net revenue is before federal income tax and excludes consideration of any encumbrances against the properties if such exist.

 

Williamson Petroleum Consultants, Inc. F-81

 

 

The future net revenue values presented in the Lease Reserves and Economics section of this report and summarized in the cover letter were based on projections of oil and gas production. It was assumed there would be no significant delay between the date of oil and gas production and the receipt of the associated revenue for this production.

 

Proved oil and gas reserves were evaluated for the proved developed producing (PDP), proved developed nonproducing (PDNP), and proved undeveloped (PU) categories. The summary classification of proved developed reserves combines the PDP and PDNP categories. No reserves were assigned as PDNP in this evaluation. Additionally, oil and gas reserves were evaluated for the categories designated as probable (PR) and possible (PO). Although no probable reserves were assigned, probable reserves are subject to significantly greater elements of uncertainty than proved reserves. Possible reserves are more uncertain than probable reserves.

 

In preparing this evaluation, no attempt has been made to quantify the element of uncertainty associated with any category. Reserves were assigned to each category as warranted. The attached Definitions describe all categories of reserves.

 

Oil reserves are expressed in thousands of United States (U.S.) barrels (MBBL) of 42 U.S. gallons. Gas volumes are expressed in millions of cubic feet (MMCF) at 60 degrees Fahrenheit and at the legal pressure base that prevails in the state in which the reserves are located.

 

Williamson Petroleum Consultants, Inc. F-81

 

 

The future net revenue was discounted at an annual rate of 10.00 percent. Future net revenue was also discounted at various secondary rates and is displayed as totals only. The future net revenue was discounted monthly. No opinion is expressed by Williamson in this report as to a fair market value of the evaluated properties.

 

This report includes only those costs and revenues which are considered by Arabella to be directly attributable to the individual leases and areas. There could exist other revenues, overhead costs, or other costs associated with Arabella which are not included in this report. Such additional costs and revenues are outside the scope of this report. This report is not a financial statement for Arabella and should not be used as the sole basis for any transaction concerning Arabella or the evaluated properties.

 

The reserves projections in this evaluation are based on the use of the available data and accepted industry engineering methods. Future changes in any operational or economic parameters or production characteristics of the evaluated properties could increase or decrease their reserves. Unforeseen changes in market demand or allowables set by various regulatory agencies could also cause actual production rates to vary from those projected. The dates of first production for nonproducing properties were based on estimates by Arabella. Due to the current operational environment of the industry, drilling rigs and/or completion units may be difficult to contract and the actual dates of first production may vary from those estimated. Williamson reserves the right to alter any of the reserves projections and the associated economics included in this evaluation in any future evaluations based on additional data that may be acquired.

 

Williamson Petroleum Consultants, Inc. F-81

 

 

The operations of Arabella may be subject to various levels of governmental controls and regulations. These controls and regulations may include matters relating to land tenure, drilling, production practices, environmental protection, marketing and pricing policies, royalties, various taxes and levies including income tax and investment and are subject to change from time to time. Such changes in governmental regulations and policies may cause volumes of reserves actually recovered and amounts of income actually received to differ significantly from the estimated quantities.

 

Williamson is an independent consulting firm and does not own any interests in the oil and gas properties covered by this report. No employee, officer, or director of Williamson is an employee, officer, or director of Arabella. Neither the employment of nor the compensation received by Williamson is contingent upon the values assigned to the properties covered by this report.

 

DATA SOURCES

 

All data utilized in the preparation of this report with respect to interests, reversionary status, oil and gas prices, gas categories, gas contract terms, operating expenses, investments, salvage values, abandonment costs, net profit interests, well information, and current operating conditions, as applicable, were provided by Arabella. Public record production data were used where available. If public records were not available, production data provided by Arabella were utilized. The production data were updated through December 2014 for wells not operated by Arabella and through January 2015 on Arabella operated wells. This data after the effective date did not change reserve category assignment. All data have been reviewed for reasonableness and, unless obvious errors were detected, have been accepted as correct. It should be emphasized that revisions to the projections of reserves and economics included in this report may be required if the provided data are revised for any reason. No inspection of the properties was made as this was not considered within the scope of this evaluation. No investigation was made of any environmental liabilities that might apply to the evaluated properties, and no costs are included for any possible related expenses.

 

Williamson Petroleum Consultants, Inc. F-81

 

 

Arabella represented to Williamson that it has, or can generate, the financial and operational capabilities to accomplish those projects evaluated by Williamson which require capital expenditures.

 

METHOD OF RESERVES DETERMINATION

 

The estimates of reserves contained in this report were determined by accepted industry methods and in accordance with the attached Definitions of Oil and Gas Reserves. Williamson used all methods and procedures deemed necessary under the circumstances to prepare this report. Williamson considered the assumptions, data, methods, and procedures used as appropriate for the purpose served by report.

 

Where sufficient production history and related data were available, reserves for producing properties were determined by extrapolation of historical production trends. Analogy to the performance of similar properties was used for nonproducing properties and those producing properties which lacked sufficient production history and other data to yield a definitive estimate of reserves. Reserves projections based on analogy are subject to change due to subsequent changes in the analogous properties or subsequent production from the evaluated properties.

 

Williamson Petroleum Consultants, Inc. F-81

 

 

PRICING

 

The hydrocarbon prices used in the preparation of this report are based on SEC price parameters using the average prices during the 12-month period prior to the effective date of this report, determined as un-weighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements. Actual future prices may vary significantly from the prices required by SEC regulations; therefore, volumes of reserves actually recovered and the amounts of income actually received may differ significantly from the estimated quantities presented in this report.

 

The product prices that were actually used to determine the future gross revenue for each property reflect adjustments to the benchmark prices for gravity, quality, local conditions, gathering and transportation fees and/or distance from market, referred to herein as “differentials.” The differentials used in the preparation of this report were calculated by Williamson using data supplied by Arabella for the period December 2013 through November 2014.

 

In addition, the table below summarizes the Average Benchmark Prices adjusted for differentials and referred to herein as the “Average Realized Prices.” The average realized prices shown in the table below were determined from the total proved future gross revenue before production taxes and the total proved net reserves for the geographic area and presented in accordance with SEC disclosure requirements.

 

Geographic Area	Product	Price Reference	Average Benchmark Prices	Average Realized Prices
United States Texas	Oil/Condensate Gas	WTI Cushing NG Henry Hub	$ 95.28 / BBL $ 4.363 / MMBTU	$ 85.544 / BBL $ 5.506 / MMBTU

 

Williamson Petroleum Consultants, Inc. F-81

 

 

The effects of derivative instruments designated as price hedges of oil and gas quantities are not included in our individual property evaluations.

 

PRICING STATEMENT

 

It should be emphasized that with the current economic uncertainties, fluctuation in market conditions could significantly change the economics of the properties included in this report.

 

OPERATING EXPENSES

 

For the Wolfbone field wells, Arabella properties have limited production history and operational data. Monthly operating costs of $10,000 for horizontal wells and $6,000 for vertical wells were used at the instruction of Arabella. These costs were held constant for the life of the properties.

 

PRODUCTION AND AD VALOREM TAXES

 

State production taxes and county ad valorem taxes have been deducted at established rates.

 

INVESTMENTS

 

All capital costs for drilling and completion of wells, facilities, and environmental costs have been deducted as applicable. These costs were provided by Arabella.

  

SALVAGE AND PROPERTY ABANDONMENT

 

Abandonment costs or equipment salvage values were not provided by Arabella and are not included in this evaluation.

 

Williamson Petroleum Consultants, Inc. F-81

 

 

MAJOR PROPERTY REVIEW

 

The majority of the reserves in this evaluation are in the Wolfbone field located in Reeves, Pecos, Ward and Loving counties, Texas. This area is generally underlain by the Bone Spring and Wolfcamp formations having a combined thickness of approximately 2,000 feet. The formations are not affected by structural changes or faulting. Development of oil and gas from these formations is relatively recent with initial wells drilled vertically and producing from the entire interval. More recent wells have been drilled horizontally targeting individual zones within the overall interval. The horizontal completions develop greater reserves than the vertical completions as a result of communicating with a larger part of the reservoir. Future development is likely to include multiple horizontal laterals in the same wellbore.

 

These formations have low permeability and require rigorous perforating and fracture stimulation to allow economic production of oil and gas. The completion techniques are evolving almost daily and point toward improving hydrocarbon recovery. Mechanical risk is high in this area due to the complexity of the drilling and stimulating of horizontal wells. The proved reserves in this report are from developed wells or acreage directly offset to production.

 

Reserves from some of Arabella’s wells are negatively impacted by drilling or completion problems. These problems should be corrected in future development. Projections of expected performance from future or from currently producing wells with limited production history rely heavily on analogy to the performance of similar currently producing properties. Thirty-eight analog wells across the entire development were used to model the expected recovery for all horizontal wells to be drilled except for the Jackson wells. These analog wells used similar completion methods and had sufficient producing history to allow estimation of ultimate recovery. For the Jackson wells on the northeast portion of the development area, the Jackson #1H PDP well and other nearby producers were used to model expected production performance.

 

Williamson Petroleum Consultants, Inc. F-81

 

 

New development in the last year surrounding the Johnson 103 and Johnson 138 leases justified assignment of PU reserves. Completion of the McCoy Remme Ranch State 99-102 5H and the Ignacio 4306 H wells southeast and northwest of the Johnson leases respectively, provided offset production. This was further confirmed with completion of the Severo 3806 H well to the west of the Johnson leases in January 2015.

 

No attempt has been made to calculate reserves from all of the potentially productive intervals. Probable and possible reserves are assigned to acreage not directly offset to production but generally lying within the confines of an area having scattered production throughout.

 

RCW/RCH/dee

 

Williamson Petroleum Consultants, Inc. F-81

 

 

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