Exhibit 99.1
[Letterhead of Netherland, Sewell & Associates, Inc.]
October 13, 2010
Mr. Matthew D. Cabell
Seneca Resources Corporation
1201 Louisiana Street, Suite 400
Houston, Texas 77002
Dear Mr. Cabell:
In accordance with your request, we have audited the estimates prepared by Seneca Resources
Corporation (Seneca), as of September 30, 2010, of the proved reserves and future revenue to the
Seneca interest in certain oil and gas properties located in the United States and the Gulf of
Mexico. It is our understanding that the proved reserves estimates shown herein constitute all of
the proved reserves owned by Seneca. We have examined the estimates with respect to reserves
quantities, reserves categorization, future producing rates, future net revenue, and the present
value of such future net revenue, using the definitions set forth in U.S. Securities and Exchange
Commission (SEC) Regulation S-X Rule 4-10(a). The estimates of reserves and future revenue have
been prepared in accordance with the definitions and guidelines of the SEC and, with the exception
of the exclusion of future income taxes, conform to the FASB Accounting Standards Codification
Topic 932, Extractive Activities—Oil and Gas. This report has been prepared for Seneca’s use in
filing with the SEC.
The following table sets forth Seneca’s estimates of the net reserves and future net revenue, as of
September 30, 2010, for the audited properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Properties |
|
|
|
Net Reserves |
|
|
Future Net Revenue (M$) |
|
|
|
Oil |
|
|
Gas |
|
|
|
|
|
|
Present Worth |
|
Category |
|
(MBBL) |
|
|
(MMCF) |
|
|
Total |
|
|
at 10% |
|
Proved Developed |
|
|
37,681.4 |
|
|
|
296,287.7 |
|
|
|
2,799,122 |
|
|
|
1,333,957 |
|
Proved Undeveloped |
|
|
7,557.9 |
|
|
|
132,125.4 |
|
|
|
681,215 |
|
|
|
244,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proved |
|
|
45,239.3 |
|
|
|
428,413.1 |
|
|
|
3,480,337 |
|
|
|
1,578,226 |
|
For the purposes of this audit, the properties were divided into sections for the East Coast, Gulf
Coast, and West Coast Divisions. The following tables set forth Seneca’s estimates of the net
reserves and future net revenue by division, as of September 30, 2010, for the audited properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Coast Division |
|
|
|
Net Reserves |
|
|
Future Net Revenue (M$) |
|
|
|
Oil |
|
|
Gas |
|
|
|
|
|
|
Present Worth |
|
Category |
|
(MBBL) |
|
|
(MMCF) |
|
|
Total |
|
|
at 10% |
|
Proved Developed |
|
|
263.1 |
|
|
|
210,816.5 |
|
|
|
612,919 |
|
|
|
362,791 |
|
Proved Undeveloped |
|
|
5.9 |
|
|
|
120,445.7 |
|
|
|
292,923 |
|
|
|
116,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proved |
|
|
269.0 |
|
|
|
331,262.2 |
|
|
|
905,842 |
|
|
|
478,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Coast Division |
|
|
|
Net Reserves |
|
|
Future Net Revenue (M$) |
|
|
|
Oil |
|
|
Gas |
|
|
|
|
|
|
Present Worth |
|
Category |
|
(MBBL) |
|
|
(MMCF) |
|
|
Total |
|
|
at 10% |
|
Proved Developed |
|
|
1,065.8 |
|
|
|
19,292.8 |
|
|
|
57,943 |
|
|
|
56,067 |
|
Proved Undeveloped |
|
|
437.7 |
|
|
|
6,134.4 |
|
|
|
30,284 |
|
|
|
19,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proved |
|
|
1,503.5 |
|
|
|
25,427.2 |
|
|
|
88,227 |
|
|
|
75,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast Division |
|
|
|
Net Reserves |
|
|
Future Net Revenue (M$) |
|
|
|
Oil |
|
|
Gas |
|
|
|
|
|
|
Present Worth |
|
Category |
|
(MBBL) |
|
|
(MMCF) |
|
|
Total |
|
|
at 10% |
|
Proved Developed |
|
|
36,352.6 |
|
|
|
66,178.5 |
|
|
|
2,128,261 |
|
|
|
915,098 |
|
Proved Undeveloped |
|
|
7,114.2 |
|
|
|
5,545.2 |
|
|
|
358,008 |
|
|
|
108,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proved |
|
|
43,466.8 |
|
|
|
71,723.7 |
|
|
|
2,486,269 |
|
|
|
1,023,376 |
|
In addition, the East Coast Division was further subdivided into sections for the Marcellus and
Other Regions. The following tables set forth Seneca’s estimates of the net reserves and future
net revenue by region, as of September 30, 2010, for the audited East Coast Division properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Coast Division – Marcellus Region |
|
|
|
Net Reserves |
|
|
Future Net Revenue (M$) |
|
|
|
Oil |
|
|
Gas |
|
|
|
|
|
|
Present Worth |
|
Category |
|
(MBBL) |
|
|
(MMCF) |
|
|
Total |
|
|
at 10% |
|
Proved Developed |
|
|
0.0 |
|
|
|
91,223.7 |
|
|
|
293,580 |
|
|
|
198,008 |
|
Proved Undeveloped |
|
|
0.0 |
|
|
|
110,003.7 |
|
|
|
277,175 |
|
|
|
114,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proved |
|
|
0.0 |
|
|
|
201,227.4 |
|
|
|
570,755 |
|
|
|
312,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Coast Division – Other Region |
|
|
|
Net Reserves |
|
|
Future Net Revenue (M$) |
|
|
|
Oil |
|
|
Gas |
|
|
|
|
|
|
Present Worth |
|
Category |
|
(MBBL) |
|
|
(MMCF) |
|
|
Total |
|
|
at 10% |
|
Proved Developed |
|
|
263.1 |
|
|
|
119,592.7 |
|
|
|
319,339 |
|
|
|
164,783 |
|
Proved Undeveloped |
|
|
5.9 |
|
|
|
10,442.0 |
|
|
|
15,748 |
|
|
|
1,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proved |
|
|
269.0 |
|
|
|
130,034.7 |
|
|
|
335,087 |
|
|
|
166,231 |
|
The oil reserves shown include crude oil and condensate. Oil volumes are expressed in thousands of
barrels (MBBL); a barrel is equivalent to 42 United States gallons. Gas volumes are expressed in
millions of cubic feet (MMCF) at standard temperature and pressure bases.
When compared on a field-by-field basis, some of the estimates of Seneca are greater and some are
less than the estimates of Netherland, Sewell & Associates, Inc. However, in our opinion the
estimates of Seneca’s proved reserves and future revenue shown herein are, in the aggregate,
reasonable and are within the recommended 10 percent tolerance threshold set forth in the Standards
Pertaining to the Estimating and Auditing of Oil and Gas
Reserves Information promulgated by the Society of Petroleum Engineers (SPE). We are satisfied
with the methods and procedures used by Seneca in preparing the September 30, 2010, estimates of
reserves and future revenue, and we saw nothing of an unusual nature that would cause us to take
exception with the estimates, in the aggregate, as prepared by Seneca.
The estimates shown herein are for proved reserves. Seneca’s estimates do not include probable or
possible reserves that may exist for these properties, nor do they include any value for
undeveloped acreage beyond those tracts for which undeveloped reserves have been estimated.
Reserves categorization conveys the relative degree of certainty; reserves subcategorization is
based on development and production status. The estimates of reserves and future revenue included
herein have not been adjusted for risk.
Prices used by Seneca are based on the 12-month unweighted arithmetic average of the
first-day-of-the-month price for each month in the period October 2009 through September 2010. For
oil volumes, the average regional posted prices are adjusted by field for quality, transportation
fees, and local price differentials. For gas volumes, the average regional spot prices are
adjusted by field for energy content, transportation fees, and local price differentials. The
tables following this letter set forth the regional oil and gas index prices by field or region.
All prices are held constant throughout the lives of the properties. The average adjusted product
prices weighted by production over the remaining lives of the properties are $72.11 per barrel of
oil and $4.707 per MCF of gas.
Lease and well operating costs used by Seneca are based on historical operating expense records.
These costs include the per-well overhead expenses allowed under joint operating agreements along
with estimates of costs to be incurred at and below the district and field levels. Headquarters
general and administrative overhead expenses of Seneca are not included. Lease and well operating
costs are held constant throughout the lives of the properties. Seneca’s estimates of capital
costs are included as required for workovers, new development wells, production equipment, and
abandonment. The future capital costs are held constant to the date of expenditure.
The reserves shown in this report are estimates only and should not be construed as exact
quantities. Proved reserves are those quantities of oil and gas which, by analysis of engineering
and geoscience data, can be estimated with reasonable certainty to be economically producible. If
the reserves are recovered, the revenues therefrom and the costs related thereto could be more or
less than the estimated amounts. Because of governmental policies and uncertainties of supply and
demand, the sales rates, prices received for the reserves, and costs incurred in recovering such
reserves may vary from assumptions made while preparing these estimates. Estimates of reserves may
increase or decrease as a result of future operations, market conditions, or changes in
regulations.
It should be understood that our audit does not constitute a complete reserves study of the audited
oil and gas properties. Our audit consisted primarily of substantive testing, wherein we conducted
a detailed review of all properties. In the conduct of our audit, we have not independently
verified the accuracy and completeness of information and data furnished by Seneca with respect to
ownership interests, oil and gas production, well test data, historical costs of operation and
development, product prices, or any agreements relating to current and future operations of the
properties and sales of production. However, if in the course of our examination something came to
our attention that brought into question the validity or sufficiency of any such information or
data, we did not rely on such information or data until we had satisfactorily resolved our
questions relating thereto or had independently verified such information or data. We used
standard engineering and geoscience methods, or a combination of methods, such as performance
analysis, volumetric analysis, and analogy, that we considered to be appropriate and necessary to
establish the conclusions set forth herein. Our audit did not include a review of Seneca’s overall
reserves management processes and practices.
Our expertise is in petroleum engineering, geoscience, and petrophysical interpretation, not legal
or accounting matters; we are not accountants, attorneys, or landmen. As in all aspects of oil and
gas evaluation, there are uncertainties inherent in the interpretation of engineering and
geoscience data; therefore, our conclusions necessarily represent only informed professional
judgment.
Supporting data documenting this audit, along with data provided by Seneca, are on file in our
office. The technical persons responsible for conducting this audit meet the requirements
regarding qualifications, independence, objectivity, and confidentiality set forth in the Standards
Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the
SPE. We are independent petroleum engineers, geologists, geophysicists, and petrophysicists; we do
not own an interest in these properties and are not employed on a contingent basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sincerely, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NETHERLAND, SEWELL & ASSOCIATES, INC. |
|
|
|
|
|
|
|
|
Texas Registered Engineering Firm F-002699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ C.H. (Scott) Rees III
C.H. (Scott) Rees III, P.E.
|
|
|
|
|
|
|
|
|
|
|
Chairman and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Richard B. Talley, Jr.
Richard B. Talley, Jr., P.E. 102425
|
|
|
|
By:
|
|
/s/ Mike K. Norton
Mike K. Norton, P.G. 441
|
|
|
|
|
Vice President
|
|
|
|
|
|
Senior Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Signed: October 13, 2010 |
|
|
|
Date Signed: October 13, 2010 |
|
|
RBT:EBL