(14) Equity Investment in Savoy

We currently own a 40% 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. Our 45% ownership was decreased to 40% on October 1, 2014 due to the exercise of options by Savoy’s management. We account for our interest 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
	2014		2013
Current assets	$	14,863	$	29,182
Oil and gas properties, net		27,549		25,408
Other		852		260
	$	43,264	$	54,850

Total liabilities	$	10,079	$	16,447
Partners' capital		33,185		38,403
	$	43,264	$	54,850


Condensed Statement of Operations
	2014			2013
Revenue	$	41,583		$	42,248
Expenses		(29,354	)		(29,322	)
Net income	$	12,229		$	12,926

In 2014, Savoy engaged Energy Spectrum Advisors Inc. (ESA) to market its Trenton-Black River oil properties located in southeast Michigan. No acceptable offers were received. Marketing efforts are on hold until oil prices recover

Savoy made a $12 million cash distribution in early October 2014; our share was $4.9 million; such amount was applied toward our bank debt as required under the new credit agreement.

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

The data below is shown proportionate to our 40% (45% in 2013) ownership of Savoy.


Costs incurred are as follows:	2014		2013
Unproved property acquisition	$	899	$	1,287
Development		1,224		858
Exploration		5,130		7,061
Total	$	7,253	$	9,206


	Oil		NGLs			Natgas
	(Bbls)		(Bbls)			(Mcf)
Change in proved reserves:
January 1, 2013	700			29		1,108
Extensions and discoveries	898			58		442
Production	(153	)		(11	)	(96	)
Revisions to previous estimates	24			23		(153	)
December 31, 2013	1,469			99		1,301
Extensions and discoveries	262			14		253
Production	(143	)		(9	)	(83	)
Revisions to previous estimates	(840	)		(60	)	(956	)
Change in ownership from 45% to 40%	(73	)		(5	)	(65	)
December 31, 2014	675			39		450

Proved developed reserves included above:
December 31, 2013	746			60		450
December 31, 2014	467			30		292
Proved undeveloped reserves (PUDs) included above:
December 31, 2013	723			39		851
December 31, 2014	208			9		158

FOR INFORMATION PURPOSES ONLY


	Proved						Total
December 31, 2014 based on current and future NYMEX strip prices	Developed			PUDs			Proved
Future cash inflows:
Oil	$	24,768		$	12,239		$	37,007
NGLs		785			252			1,037
Natgas		915			683			1,598
Total cash inflows		26,468			13,174			39,642
Future production costs		(9,462	)		(3,398	)		(12,860	)
Future development costs		(58	)		(1,800	)		(1,858	)
Future income tax (none since Savoy is a pass-through entity for income tax purposes)
Future net cash flows		16,948			7,976			24,924
10% annual discount for estimated timing of cash flows		(3,608	)		(2,336	)		(5,944	)
Discounted future net cash flows	$	13,340		$	5,640		$	18,980


	Proved						Total
December 31, 2014 based on SEC first-of-month average prices	Developed			PUDs			Proved
Future cash inflows:
Oil	$	41,660		$	18,530		$	60,190
NGLs		1,256			368			1,624
Natgas		1,203			721			1,924
Total cash inflows		44,119			19,619			63,738
Future production costs		(12,886	)		(3,749	)		(16,635	)
Future development costs		(60	)		(1,790	)		(1,850	)
Future income tax (none because Savoy is a pass-through entity for income tax purposes)
Future net cash flows		31,173			14,080			45,253
10% annual discount for estimated timing of cash flows		(7,125	)		(4,028	)		(11,153	)
Standardized measure of discounted future net cash flows	$	24,048		$	10,052		$	34,100


	Proved						Total
December 31, 2013 based on SEC first-of-month average prices	Developed			PUDs			Proved
Future cash inflows:
Oil	$	70,582		$	70,662		$	141,244
NGLs		2,551			1,669			4,220
Natgas		1,365			976			2,341
Total cash inflows		74,498			73,307			147,805
Future production costs		(12,213	)		(12,233	)		(24,446	)
Future development costs					(3,073	)		(3,073	)
Future income tax (none because Savoy is a pass-through entity for income tax purposes)
Future net cash flows		62,285			58,001			120,286
10% annual discount for estimated timing of cash flows		(14,375	)		(15,111	)		(29,486	)
Standardized measure of discounted future net cash flows	$	47,910		$	42,890		$	90,800


		2014			2013
Beginning of year	$	90,800		$	35,300
Sales, net of production costs		(11,000	)		(12,600	)
Net changes in prices and production costs		(5,700	)		1,600
Extensions and discoveries		13,300			57,200
Revisions of previous quantity estimates		(61,000	)		2,100
Change in production timing and other		3,100			3,700
Change in ownership from 45% to 40%		(4,500	)
Accretion of discount		9,100			3,500
End of year	$	34,100		$	90,800

Average wellhead prices based on SEC average prices:
Oil (per Bbl)	$	89		$	95
NGLs (per Bbl)		41			42
Natgas (per Mcf)		4.27			3.04
Average wellhead prices based on NYMEX strip prices:
Oil (per Bbl)		59
NGLs (per Bbl)		28
Natgas (per Mcf)		3.94

The 2014 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, a Licensed Professional Engineer in the State of Texas (No. 61794), has been practicing consulting petroleum engineering at NSAI since 1983 and has over 5 years of prior industry experience. 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. Brock Engineering, LLC, an independent petroleum engineering firm, estimated our proved reserves as of December 31, 2013.

Differences in the professional opinions of the two engineering firms, plus the fact that 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 are the primary reasons for the 2014 downward revision.