(5) Equity Investment in Savoy

12 Months Ended

Dec. 31, 2011

(5) Equity Investment in Savoy

We own a 45% interest in Savoy Energy L.P., a private company engaged in the oil and gas business primarily in the State of Michigan. Savoy uses the successful efforts method of accounting. We account for our interest in Savoy using the equity method of accounting.

Below (in thousands) to the 100% is a condensed balance sheet at December 31, for both years and a condensed statement of operations for both years.

Condensed Balance Sheet

	2011		2010
Current assets	$	16,200	$	9,103
Oil and gas PP&E, net		17,973		15,978
Other		2,152		2,048
	$	36,325	$	27,129

Total liabilities	$	9,469	$	10,004
Partners' capital		26,856		17,125
	$	36,325	$	27,129

Condensed Statement of Operations

	2011			2010
Revenue	$	31,997		$	14,447
Gain on sale of unproved properties					2,225
Expenses		(19,897	)		(14,438	)
Net income	$	12,100		$	2,234

Unaudited Oil and Gas Reserve Quantity and Value Information (in thousands)

The data below is shown proportionate to our approximate 45% ownership in Savoy.

Costs incurred are as follows:

	2011
Unproved property acquisition	$	1,202
Development		1,024
Exploration		3,990
Total	$	6,216

	Oil (Bbls)			NGLs (Bbls)			Natural Gas (Mcf)

January 1, 2011		350			6			356
Extensions and discoveries		509			21			689
Production		(128	)		(6	)		(61	)
Revisions to previous estimates		138			22			143
December 31, 2011		869			43			1,127

Proved developed reserves		361			22			438
Proved undeveloped reserves		508			21			689

	Proved Developed			PUDs			Total Proved
Future cash flows:
Oil	$	33,760		$	47,619		$	81,379
NGLs		1,452			1,435			2,887
Gas		2,170			3,199			5,369
Total cash flows		37,382			52,253			89,635
Future production costs		(10,866	)		(12,122	)		(22,988	)
Future development costs		(385	)		(5,196	)		(5,581	)
Future income tax (none since Savoy is a pass-through entity for income tax purposes)		0			0			0
Future net cash flows		26,131			34,935			61,066
10% annual discount for estimated timing of cash flows		(6,106	)		(10,870	)		(16,976	)
Standardized measure of discounted future net cash flows	$	20,025		$	24,065		$	44,090

Beginning of year	$	15,496
Sale of oil and gas produced, net of production costs		(10,374	)
Net changes in prices and production costs		4,806
Extension, discoveries and improved recoveries		24,066
Revisions of previous quantity estimates		8,547
Accretion of discount		1,549
End of year	$	44,090

Average wellhead prices
Oil (per Bbl)	$	93.60
NGLs (per Bbl)	$	66.95
Gas (per Mcf)	$	4.76

The 2011 reserve estimates shown above have been independently evaluated by Netherland, Sewell & Associates, Inc. (NSAI), a worldwide leader of petroleum property analysis for industry and financial organizations and government agencies. NSAI was founded in 1961 and performs consulting petroleum engineering services under Texas Board of Professional Engineers Registration No. F-2699. Within NSAI, the technical person primarily responsible for preparing the estimates set forth in the NSAI reserves report incorporated herein is Mr. G. Lance Binder. Mr. Binder has been practicing consulting petroleum engineering at NSAI since 1983. Mr. Binder is a Licensed Professional Engineer in the State of Texas (No. 61794) and has over 33 years of experience in the estimation and evaluation of reserves. He graduated from Purdue University in 1978 with a Bachelor of Science Degree in Chemical Engineering. He meets or exceeds the education, training, and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers; he is proficient in judiciously applying industry standard practices to engineering evaluations as well as applying SEC and other industry reserves definitions and guidelines.

The estimates of proved reserves are inherently imprecise and are continually subject to revision based on production history, results of additional exploration and development, price changes and other factors.