Description of A.G. Edwards presentation slides

EX-99.2 5 ex992.htm DESCRIPTION OF A.G. EDWARDS PRESENTATION SLIDES Description of A.G. Edwards presentation slides

Exhibit 99.2

Outline of Slides for the

A.G. Edwards Energy Conference Presentation

March 21, 2007

Slide 1 - Continuing Growth

A.G. Edwards Energy Conference

March 20-21, 2007

Boston

Slide 2 - Corporate Information

·	Headquarters: The Exploration Company; 777 E. Sonterra Blvd., Suite 350;

San Antonio, Texas 78258; Phone: (210) 496-5300; Fax: (210) 496-3232; www.txco.com

·	Contacts: James E. Sigmon, Chairman, President & CEO, jsigmon@txco.com

Roberto R. Thomae, Vice President-Capital Markets, bthomae@txco.com

·	TXCO -- The Exploration Company -- NASDAQ Listed, a NASDAQ Global Select Company

Forward-Looking Statements: Statements herein that are not historical, including statements regarding TXCO’s or management’s intentions, hopes, beliefs, expectations, representations, projections, estimations, plans or predictions of the future, are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements relating to the pending merger and acquisition plans, expected costs savings therefrom, closing dates and transaction costs; whether the merger will be accretive; the terms of and ability to obtain permanent financing for the merger; capital expenditures; drilling plans; production levels; oil and gas prices; the timing, number and cost of wells to be drilled, projects and expected response; and establishment of reserves. It is important to note actual results may differ materially from the results predicted in any such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, difficulties in integrating the Output businesses and operations in an efficient and effective manner; the costs of exploring and developing new oil and natural gas reserves, the price for which such reserves can be sold, environmental concerns affecting the drilling of oil and natural gas wells, as well as general market conditions, competition and pricing. Shareholders and other readers are cautioned not to place undue reliance on the forward-looking statement contained herein, which speak only as of the date they are made. TXCO undertakes no obligation to update publicly or revise any forward-looking statement. More information about potential factors that could affect the Company’s operating and financial results is included in TXCO's annual report on Form 10-K for the year ended Dec. 31, 2005, and its Form 10-Q for the quarter ended Sept. 30, 2006. This and all previously filed documents are on file at the Securities and Exchange Commission and can be viewed on TXCO’s Web site at www.txco.com. Copies are available without charge, upon request from the Company.

Note: Since these slides were printed and shipped to the conference, we have filed our Form 10-K for the year ended Dec. 31, 2006.

Slide 3 - TXCO's Profile: Focused Growth

Map of South Central United States of America with Maverick and Marfa Basins indicated.

Maverick Basin

·	Core focus: 85% WI in 707,000 acres

·	Glen Rose Porosity oil play

·	99% of reserves -- 41.0 Bcfe at YE06

81% oil

·	Significant multi-play growth potential

·	Pearsall shale

·	San Miguel oil sands

Marfa Basin

·	50% WI in 141,000 acres

·	Target: Barnett and Woodford shales

·	New resource play potential

·	First well now in completion

Slide 4 - TXCO's Profile: Organic Growth

Picture of drilling rig.

·	TXCO's drilling rig, acquired in 2006, lowers costs and increases development flexibility.

·	A Full-Cycle Exploration Company

·	Lease minerals

·	Acquire / interpret seismic

·	Generate prospects

Drill

Produce

·	Multiple Resource Plays

·	1,000s of drilling prospects

Slide 5 - Output Exploration: Acquisition Summary

·	Merger Agreement Signed with Output Exploration LLC, Feb. 20, 2007

·	Target closing date: April 2, 2007

·	Purchase Price -- $95.6 Million

·	$91.6 million in cash + $4.0 million in TXCO stock valued at $11.80 / share

·	Acquisition Financing by BMO Capital Markets

·	New 4-year senior secured revolver

·	New 5-year senior secured second-lien term loan

Slide 6 - Output Exploration: Acquisition Summary

TXCO Gains:

·	Output's Significant Gulf Coast and Midcontinent Assets

·	Establishes a new core operating area

·	$2.39 / mcfe for Proved Reserves

·	40 Bcfe, 78% proved developed

62% gas

·	$2.85 / mcfe, fully developed

·	$1.05 / mcfe for 3P reserves of 91 Bcfe ($1.78 / mcfe fully developed)

·	8.4 mmcfed Current Oil and Gas Sales

55% gas

Slide 7 - TXCO / Output Pro Forma Asset Overview

Map of Texas and Oklahoma with four focus areas indicated as follows:

·	TXCO -- Marfa Basin

·	Current Net Production: (mmcfed) -- n/a

·	Net Acres: 67,500

·	% Undeveloped -- 100

·	Proved Reserves: (Bcfe) -- n/a

·	TXCO -- Maverick Basin

·	Current Net Production: (mmcfed) -- 13.0

·	Net Acres: 563,000

·	% Undeveloped -- 95%

·	Proved Reserves: (Bcfe) -- 41.0

·	Output -- Midcontinent

·	Current Net Production: (mmcfed) -- 1.3

·	Net Acres: 11,000

·	Proved Reserves: (Bcfe) -- 5

·	P2 & P3 Reserves: (Bcfe) -- 3

·	Total Reserves: (Bcfe) -- 8

·	Output -- Gulf Coast

·	Current Net Production: (mmcfed) -- 7.1

·	Net Acres: 20,000

·	Proved Reserves: (Bcfe) -- 35

·	P2 & P3 Reserves: (Bcfe) -- 48

·	Total Reserves: (Bcfe) -- 83

Slide 8 - TXCO / Output: Key Metrics

Pro Forma Acquisition Statistics
					Pro Forma
	TXCO		Output		TXCO

Estimated current net production / mmcfed		13.4		8.4		21.8
Oil Sales / bopd		1,837		640		2,477
Gas sales / mmcfd		2.4		4.6		7.0
Net acres		713,172		31,000		744,172
Undeveloped acres		685,165		7,440		692,065
Proved reserves (Bcfe) *		41.4		40		81.4
Effectively operated / %		87		63		75
Proved developed reserves (Bcfe)		19.9		31.2		51.1
Reserves mcfe / share		1.21		-		2.40
Reserve life / years		7.0		13.0		10.0

* Based on third-party independent engineer estimates and current production

Slide 9 - Revised 2007 CAPEX Budget

Slide contains two pie charts & the heading "Estimated Combined CAPEX: $85-90 Million."

The first chart is titled "TXCO -- $70-75 Million, 90+ Wells, 83% of Total" and shows budget dollars, number of wells and, in some cases, % for focus areas, as follows: Glen Rose -- 48 wells, including 36 Porosity wells -- $43.6 million -- 58%; Pearsall -- 3 Wells -- $4.8 million -- 6%; Georgetown -- 5 Wells -- $4.9 million; Leasehold and Infrastructure -- $6.5 million; Other -- $2.0 million; Pena Creek San Miguel -- 11 Wells -- $3.1 million; Marfa -- Seismic, 1 Well -- $3.0 million; and San Miguel Oil Sands Leasehold, 21 Wells -- $7.6 million -- 10%.

·	The second chart is titled "Output -- $15 Million, 39 Wells, 17% of Total" and shows three focus areas, as follows: Gulf Coast, Fort Trinidad -- $6.0 million -- 39% -- 13 Wells; Gulf Coast, Other -- $4.9 million -- 32% -- 14 Wells; and Midcontinent -- $4.5 million -- 29% -- 12 Wells.

Slide 10 - Maverick Basin Focus Area

Map of TXCO's Maverick Basin lease area that indicates by shading or outline the acreage where:

TXCO has all rights; the oil sands AMI (50% WI); TXCO has shallow rights and is covered by EnCana joint venture (50% working interest, deep rights only); TXCO has shallow rights only; TXCO's Glen Rose and San Miguel waterflood (where EnCana has all other zones); TXCO's area with all shallow rights to the Glen Rose (where EnCana has deeper zones); and acreage covered by 3-D seismic data. The map also indicates the relative position of the Eagle Pass, and Piedras Negras, Mexico communities.

·	TXCO Acreage Block

·	707,000 gross acres

·	601,200 net acres

·	603,000 acres 3-D seismic coverage

Slide 11 - Pipeline Marketing Synergy

Map of pipeline superimposed over Maverick Basin lease map, indicating TXCO acreage, TXCO's pipeline system, Area pipelines, Compressor stations and Delivery points, as well as indicating the relative location of the Eagle Pass and Carrizo Springs communities and Piedras Negras, Mexico.

·	Strong infrastructure, 100% WI

·	Operational synergies

·	91-mile system provides:

·	Higher netback

·	U.S. / Mexico markets

·	Ongoing cost savings

·	Multiple delivery points

·	35 mmcfd current capacity

·	33% capacity utilization

·	100 mmcfd capacity potential

·	Enhanced basin-wide production monitoring

Slide 12 - Maverick Basin Cross Section

Drawing showing the relative positions of the following geologic formations: Escondido, Olmos / CBM, San Miguel, Anacacho, Austin Chalk, Eagle Ford, Buda, Del Rio, Georgetown, Pryor, McKnight, Glen Rose, Pearsall, Pine Island, Sligo, Hosston and Jurassic. The slide also indicates 9 of the formations as potential resource plays (those have been underlined above), 10 formations with gas production (shown in italics above), and 8 formations with oil production (shown in bold above). It also indicates that all the listed formations, except the Jurassic, are Cretaceous.

·	20+ Productive Zones, Thousands of Drilling Prospects

Slide 13 - Maverick Basin Core Focus: Glen Rose Porosity Oil Play

Picture of seismic data for a portion of the Maverick Basin lease with a span of 30 miles indicated with TXCO wells drilled for 2002 through 2007, wells currently drilling, and focus areas indicated.

·	75 TXCO wells drilled since 2002 discovery

·	31 wells spudded 2006

·	36-well target in 2007

·	3 rigs currently drilling

·	300+ potential drilling locations in inventory

·	300,000+ gross acres

Slide 14 - 3-D Seismic Imaging Defines Glen Rose Porosity Locations

Close up of seismic data for a portion of the lease with Porosity 'traps' and existing wells and a 6-mile span indicated.

·	Enhanced seismic imaging improves well placement

Slide 15 - Porosity Drilling Techniques

Close up of Porosity seismic data for a portion of the lease, indicating a perpendicular wellbore and a parallel wellbore.

During 3Q06 / 4Q06, TXCO attempted to improve on Porosity play economics by reducing produced water. In order to reduce the number of fractures encountered that extend into the water zone, new wells were drilled fairly parallel to known fracture systems rather than perpendicular to them as done primarily in the past .

Six of these wells initially flowed oil, then watered out. These wells will be re-entered and drilled across the fracture system. Future wells will be drilled perpendicular to fractures, as has been successful in most previously drilled wells. Overall, the Porosity project remains profitable.

Slide 16 - Glen Rose Porosity Production Type Curve -- Actual

Line chart indicating production curves for the types of wells indicated in the table. Also marking each line with a star indicating the payout point.

·	GR Porosity Type Well EUR: 131,000 Bbls

·	Payout based on 36 MBbls @ $50 per Bbl

·	Drilling costs -- horizontal, $1.1 -- $1.3 million

Type

No. Wells

Cum Prod.

EUR*

Best Well

305 MB

449 MB

Horz >1,000' in Zone

180 MB

227 MB

Horz < 1000' in Zone

82 MB

112 MB

Vertical

91 MB

95 MB

Horz < 200' in Zone

44 MB

57 MB

Horz -- Not in Zone

30 MB

Total Commercial Wells

* Estimates prepared by independent reservoir engineers

Slide 17 - Oil & Gas Sales Continue to Rise

Bar chart showing oil and gas sales by year for 2001 through 2006 and range from less than 500 MBOE for 201 to almost 1,000 MBOE for 2006. A 14.6% CAGR is indicated over the time period and the percentage of oil sales to total oil and gas sales is indicated for each year as follows: 2001 -- 10%; 2002 -- 43%; 2003 -- 56%; 2004 -- 39%; 2005* -- 52%; and 2006 -- 81%.

·	Continuing growth in the Glen Rose Porosity oil play focuses TXCO on oil production while Maverick Basin's multiple gas resource plays develop

·	* Approximately 20% of gas production sold to EnCana, September 2005

Slide 18 - Glen Rose Porosity Oil Sales Show Continuing Growth

Bar chart showing oil sales from the Glen Rose Porosity by quarter for the last 12 quarters. The chart indicates 335 BOPD for 2Q05 and 1,984 BOPD for 4Q06, and an increase of 492% for that period.

·	2Q06 / 3Q06 sales include 10,000 Bbls from inventory bottleneck in 4Q05 / 1Q06

Slide 19 - Maverick Basin's Oil Sands Resource Play

Map of portion of our Maverick Basin leasehold indicating oil sands deposit by outline (170,000 acres), the 50' contour line (123,000 acres), the AMI by outline (68,000 acres), the TXCO / Pearl joint acreage (36,000 acres) by shading, TXCO's acreage prospective for oil sands (41,000 acres, 100%), and outlining the area of heavy oil deposit (10,000 acres) .

·	7-10 billion Bbls* estimated in place

·	TXCO operator (50% WI), JV with Pearl E&P

·	TXCO Carried on first two wells, steam facilities

·	Analogous to Athabasca's Cold Lake Field

·	New technology, higher oil prices boost economics, synergies over Exxon, Conoco 1970s pilots

* Revised internal estimates based on advanced geologic review

Slide 20 - Maverick Basin Oil Sands Pilot

Pictures of portable steam generator and water, oil and diluent tank battery.

·	Initial cyclic steaming phase now under way on first 2 wells

·	1st well -- flowback phase

·	2nd well -- initial steaming continues

·	21 new wells scheduled in 2007, based on evaluation of initial steaming results

·	SAGD alternative under evaluation

Slide 21 - San Miguel Oil Sands Cyclic Steam Stimulation

Drawings illustrating phases of a cyclic steam stimulation project.

·	Steam Injection -- condensed steam enters from steam generator and is injected into the formation through the well bore, heating the zone of thick oil.

·	Soak -- area is heated by convection from hot water.

·	Oil Production -- Condensed steam and thinned oil is produced through the same well bore.

* Source: National Energy Technology Laboratory. See appendix for expanded explanation.

Slide 22 - Pearsall Shale Gas Resource Play

Map of TXCO's Maverick Basin lease area that indicates by shading the acreage where:

TXCO has all rights; TXCO has shallow rights and is covered by EnCana joint venture (50% working interest, deep rights only); TXCO has shallow rights only; EnCana acreage; and TXCO's shallow zones to Glen Rose (where EnCana has deeper zones). Also indicates by dots: permitted wells and active wells. The area of recent Anadarko and Cornerstone acreage acquisitions and drilling focus are also shown..

·	First EnCana / TXCO Vertical Well Now Being Flow Tested

·	EnCana operator, 50% WI

·	Underbalanced / horizontal drilling and fracturing

·	3-D seismic defined

·	Historical production averaged 400 mmcfe from 50+ vertical wells completed prior to 3-D seismic, underbalanced drilling, fracturing or horizontal drilling

Slide 23 - Pearsall Shale Gas Resource Play

·	Unconventional Tight Gas

·	Blanket presence -- overpressured formation

·	Thermally mature -- in gas window

·	100 Bcf / Section, Estimated Gas in Place, Per EnCana Estimates

·	500+ Potential Locations

·	2007 -- 3 Wells Planned, $4.8 Million (50% WI)

·	2006 -- 1 Well, $2 Million (50% WI)

·	Anadarko Now Holds 330,000+ Acres Targeting the Pearsall, Eagleford Shales

·	7 wells permitted, 2 rigs drilling

·	Cornerstone (Ex-EnCana Management) Now Holds 190,000 +/- Acres Targeting Cretaceous and Jurassic Formations

·	First Pearsall well now in completion

Slide 24 - Pearsall Type Log From Existing Production

Slide contains logs for the Los Cuatros Field (early 1970s).

·	20+ Bcfe production

·	Vertical wells

·	Prior to advanced completion and stimulation technology

·	Mud log confirms strong gas shows throughout Pearsall interval source rock

·	Known geochemistry:

·	High gas-in-place potential

·	Organically rich

·	Thermally mature in gas window

Slide 25 - TXCO's Other Plays In the Maverick Basin

Drawing of geological formations with relative location of following plays indicated.

San Miguel Pena Creek Waterflood

·	2006 Sales = 181 BOPD

·	15 wells drilled / re-entered

·	120+ potential infill locations

2007 plan

·	$3.5 million CAPEX

·	11 wells (100% WI)

Georgetown Formation

·	Gas and oil play

·	2006 Sales = 60 BOEPD

·	4 wells drilled / re-entered

·	300+ potential locations

2007 plan

·	$4.9 million CAPEX

·	5 wells (63 - 100% WI)

Slide 26 - TXCO's Marfa Basin Lease Block

Inset map of Texas portion of the Ouachita Thrusts; the Marathon and Llano uplifts; the Marfa, Delaware, Val Verde, Kerr and Fort Worth basins, and locations where Barnett and Woodford Shales have been developed. Enlargement map indicating a 25-mile span and showing the TXCO, Quicksilver and Carrizo acreage (based on public filings) and the relative position of the Marfa and Alpine communities.

·	TXCO acreage block acquired October 2005

·	50% WI in 141,000 gross acres

·	Continental Resources serves as operator

Slide 27 - Marfa Basin Focus Area

·	Underexplored Basin Along Ouachita Overthrust

·	Geologically Similar to Gas-Prone Fort Worth, Delaware And Arkoma Basins

·	Excellent Geochemical Characteristics

·	Barnett and Woodford shales present

·	400' - 1,200' thick shales

·	High gas-in-place potential

·	Organically rich -- good TOC

·	Thermally mature -- in gas window

·	Other Leading West Texas Shale Players

·	EnCana, ConocoPhillips, Chesapeake, EOG, Quicksilver, Carrizo, Petrohunt, etc.

·	Initial Exploration / Development

·	3-D seismic, 2nd well, scheduled for 2007

·	4Q06 re-entry confirmed gas present

Slide 28 - Continuing Reserve Growth

Line chart shows reserves in Bcfe by formation in layers, by year for the period from 2001 to 2006, for: Glen Rose - oil; Glen Rose - gas; San Miguel - oil; Georgetown; Other Formations; and, Williston Basin - oil. The chart shows the growth in oil reserves from the San Miguel, and Glen Rose formations and the growth in gas reserves in the Glen Rose formations over the years. Also indicates a drop in gas reserves after the EnCana sale, with a 27% CAGR in proved reserves over the period presented. Also indicates the proposed addition of Output reserves in 2007.

·	YE2006 proved reserves were 41.4 Bcfe

·	48% proved developed

·	2006 sales -- 5.9 Bcfe

·	Oil -- 796,000 Bbls (81%)

·	Gas -- 1.1 Bcf (19%)

·	Output acquisition would double TXCO's proved reserves to 80+ bcfe, pro forma

See appendix for definitions

Slide 29 - Key Financial Metrics Demonstrate Stronger 2006 Results

($ in millions, except per share amounts)							Net Change
	2006			2005						$%
Oil & Gas Sales	$	56.5		$	38.5		$	18.0			+46.7	%
Total Revenues	$	72.4		$	67.0		$	5.4			+8.1	%
Operating Income	$	10.5		$	7.3		$	3.2			+43.7	%
Net Income *	$	7.2		$	13.7		$	(6.5	)		-47.3	%
Earnings per Share *	$	0.22		$	0.48		$	(0.26	)		-54.2	%
Ebitdax **	$	40.3		$	24.6		$	15.7			+63.7	%
Ebitda **	$	37.3		$	21.3		$	16.0			+74.9	%
Debt / Asset		0.2	%		0.2	%
Debt / Ebitda		0.01x			0.01x
Ebitda / Interest Expense		138.76			7.30
Debt / Proved Reserves	$	0.01		$	0.01

* 2005 net income includes one-time, $24.5 million pre-tax gain on EnCana sale

** See Ebitda/Ebitdax reconciliation on TXCO's Web site, www.txco.com

Slide 30 - Key Indicators Confirm Growth

Slide contains a data box and three bar charts:

·	TXCO's Rolling 3-Year Metrics 2004 - 2006

·	Production Replacement - 197%

·	Drillbit Gross Profit ROI - 175%

·	Drillbit F&D Cost/mcfe - $3.92

·	J.S. Herold's 2003-2005 Smallcap Universe drillbit F&D cost/mcfe: $3.14

Chart 1 -- Bar chart indicating EBITDA, EBITDAX by year in millions for 2001 through 2006. Actual dollar amounts not indicated. EBITDA ranges from approximately $5 million in 2001 to more than $30 million in 2006. EBITDAX ranges from under $10 million in 2001 to more than $30 million in 2006. A CAGR of 45% is shown for Ebitda.

·	Chart 2 -- Bar chart indicating Proved Reserves* in Bcfe by year for oil and gas for 2001 through 2006, as follows: Oil -- 2001 - 1.8, 2002 - 8.9, 2003 - 12.8, 2004 - 20.2, 2005 - 29.6, and 2006 - 33.5; Gas -- 2001 - 11, 2002 - 14.7, 2003 - 15.6, 2004 - 17.7, 2005 - 9.9, and 2006 - 7.9.

·	Chart 3 -- Bar chart indicating Total Revenues by year for 2001 through 2006 in millions. Actual dollar amounts not shown. Ranges from about $14 million in 2001 to about $72 million in 2006. A CAGR of 40% is shown over that period.

* Reflects sale to EnCana at Sept. 1, 2005

Slide 31 - 2-Year Comparative Stock Performance

Line chart shows stock performance for TXCO, TXCO Peers, S&P 500 and Dow Jones for 2005 and 2006 and early 2007. Beginning and ending prices labeled as $6.14 and $8.86, respectively. Sections are labeled, as follows:

·	September / October 2005 -- EnCana Sale

·	January / February 2006 -- A.G. Edwards Coverage

·	March / April 2006 -- A.G. Edwards, BMO, C.K. Cooper Upgrades

·	February / March 2007 -- Output Acquisition

TXCO -- The Exploration Company; TXCO Peers -- BEXP, CRZO, CWEI, DBLE, EPEX, GSX, ABP, MCF, NGAS, PLLL, PQ; Standard & Poor's 500 Stock Index; Dow Jones Industrial Average

Source: Bloomberg

Slide 32 - Growing Share of Institutional Ownership

Chart indicating number of institutional investors, by year from 2000 through present, with percentage of shares held by institutions indicated for 2002 and later periods, as follows: 2000 -- 1; 2001 -- 4; 2002 -- 21 -- 9%; 2003 -- 18 -- 14%; 2004 -- 29 -- 37%; 2005 -- 33 -- 39%; 2006 -- 113 -- 54%; and '07 YTD -- 130 -- 59%.

·	Added to Russell 3000 Index and NASDAQ's Global Select Market in 2006

·	At YE 2006:

·	33.2 million shares outstanding

·	375,000 shares, 3-month average daily volume

Slide 33 - Why Own TXCO Now?

·	Dominate Maverick Basin Position

·	Growing Glen Rose Porosity oil sales

·	Multiple resource plays

·	1,000's of potential drilling prospects

·	Integrated infrastructure

·	EnCana, Anadarko, Cornerstone Entries In Maverick Basin Validate Acreage, Increase Drilling Activity

·	Output Acquisition Accelerates Continuing Growth

·	3 Growth Catalysts Offer High-Impact Potential

·	San Miguel oil sands project

·	Pearsall shale play

·	Marfa Basin -- West Texas shale play

·	Exploration Team with Proven Track Record

Slide 34 - Continuing Growth

Visit us on the Web at www.txco.com

Slide 35 - Appendix

·	Acreage Position -- Gross / net mineral acres held under lease or option

·	AMI -- Area of mutual interest

·	Average Daily Sales Volumes -- Sales volumes approximate field production volumes after the impact of fuel, shrink, venting and / or downtime related to pipeline curtailment, amine / processing plant capacity, weather, compression, or routine repairs and maintenance.

·	Bbl -- Barrel of oil, equal to 42 U.S. gallons, 35 imperial gallons or 159 liters.

·	BO -- Barrels of oil per day

·	CAGR -- Compound annual growth rate

·	Cash Flows -- Net cash provided by operating activities

·	Debt-to-Capitalization Ratio -- Total debt over (total debt plus total stockholder equity)

·	Drillbit Finding / Development Costs -- Per mcfe, including exploration costs and actual drilling costs incurred compared to the volume of new reserves added, prior to any revisions in engineering estimates.

·	Ebitdax and Ebitda -- See the Investor Relations section of the Company's Web site at www.txco.com for a reconciliation of non-GAAP financial measures.

·	EOR -- Enhanced oil recovery, technology used to enhance or prolong oil field production.

·	EUR -- Estimated ultimate recovery, as estimated by independent reservoir engineers.

·	Gross Profit -- Oil and gas revenues less operating expenses and G&A costs

·	Gross Profit Return on Investment -- Gross Profit divided by Finding and Development Costs

·	MBbls / MMBbls - Thousand / million barrels of oil

·	mcf -- Thousand cubic feet of gas

·	mmcfd -- Million cubic feet of gas per day

·	mcfe / mmcfe / bcfe / tcfe -- Thousand cubic feet equivalent / Million cubic feet equivalent / Billion cubic feet equivalent / Trillion cubic feet equivalent

·	Proved Reserves -- Interim estimates internally generated. Year-end estimates prepared by independent reservoir engineers. Reserve estimates prepared in accordance with SEC and FASB requirements.

·	ROI -- Return on investment

·	SAGD -- Steam-assisted gravity drainage. A heavy oil recovery technique.

·	TOC -- Total organic carbon present in a formation. A basic chemical analysis of source rock.

·	WI -- Working interest

Slide 36 - Appendix

San Miguel Oil Sands Cyclic Steam Stimulation ("Huff-and-Puff") (A well-stimulation method)

This method is sometimes applied to heavy-oil reservoirs to boost recovery during the primary production phase. During this time it assists natural reservoir energy by thinning the oil so it will more easily move through the formation to the injection / production wells. It can also be used, however, as a single-well procedure.

To utilize this EOR method, a predetermined amount of steam is injected into wells that have been drilled or converted for injection purposes. These wells are then shut in to allow the steam to heat or "soak" the producing formation around the well. After a sufficient time has elapsed to allow adequate heating, the injection wells are back in production until the heat is dissipated with the produced fluids. This cycle of soak-and-produce, or "huff-and-puff," may be repeated until the response becomes marginal because of declining natural reservoir pressure and increased water production.

At this time a continuous steamflood is usually initiated to continue the heating and thinning of the oil and to replace declining reservoir pressure so that production may continue. When the steamflooding is started, some of the original injection wells will be converted for use as production wells, along with the others drilled or designated for that purpose.

Source: National Energy Technology Laboratory.