EX-99.3 7 d13508exv99w3.txt RESERVE REPORT Exhibit 99.3 (MILLER AND LENTS, LTD. LETTERHEAD) January 30, 2004 Mr. Ron E. Hooper Senior Vice President Bank of America, N.A., Trustee Williams Coal Seam Gas Royalty Trust 901 Main Street, Suite 1700 Dallas, Texas 75201 Re: Proved Reserves and Future Net Revenues As of December 31, 2003 Dear Mr. Hooper: At your request, we estimated the proved reserves and projected the future net revenues from the gas reserves in the Fruitland Coal Formation that are attributable to the subject interests of the Williams Coal Seam Gas Royalty Trust ("WTU"). These interests consist of net profits interests in natural gas properties located in the San Juan Basin in Colorado and New Mexico. A summary of the reserves for the Underlying Properties and Royalty Interests (net to the Trust) is as follows:
FUTURE NET PRESENT VALUE NET GAS RESERVES, REVENUES, AT 10 PERCENT MMCF M$ PER ANNUM, M$ ------------------ ------------------ ------------------ THE UNDERLYING PROPERTIES Proved Producing 94,520 327,003 217,452 Proved Undeveloped 29,284 86,647 49,619 TOTAL PROVED 123,804 413,650 267,071 THE ROYALTY INTERESTS (NET TO THE TRUST) Proved Producing 41,602 106,807 62,005 Proved Undeveloped 2,761 6,876 3,321 TOTAL PROVED 44,363 113,683 65,326
In order to estimate the reserves to the WTU, it was necessary to estimate the reserves attributable to (i) the "Underlying Properties," which are certain working interest properties ("Working Interest Properties") and net profits interests properties ("Farmout Properties") that are managed by Williams Production Company ("WPC") and (ii) the "Royalty Interests," the variable net revenue interest conveyed to WTU by WPC. WTU receives a "Specified Percentage" of "Net Proceeds" from gas produced and sold from the Working Interest Properties and from the revenue stream of the Farmout Properties. (MILLER AND LENTS, LTD. LETTERHEAD) Mr. Ron E. Hooper January 30, 2004 Bank of America, N.A., Trustee Page 2 Williams Coal Seam Gas Royalty Trust For the Working Interest Properties, overhead costs (beyond the standard overhead charges for the non-operated properties) have not been included, nor have the effects of depreciation, depletion, and Federal Income Tax. Net Proceeds is defined as revenues derived from the sale of Working Interest Properties gas volumes less severance and ad valorem taxes, lease royalty payments, and operating expenses in excess of the estimates shown in Exhibit B of the Trust Conveyance. The reserves attributable to the Royalty Interests from the Working Interest Properties were computed by multiplying the net gas reserves of the Working Interest Properties by the ratio of (i) the net revenue received by WTU from the Working Interest Properties to (ii) total revenues from the Working Interest Properties after deduction of severance and ad valorem taxes. The proved reserves were estimated in accordance with the definitions contained in Securities and Exchange Commission Regulation S-X, Rule 4-10(a). Estimates of future net revenues and discounted future net revenues are not intended and should not be interpreted to represent the fair market value of the estimated reserves. The production forecast for the total proved reserves and future net revenues as of December 31, 2003 attributable to the Underlying Properties and to the WTU are shown on Table 1. Forecasts for proved developed reserves and proved undeveloped reserves are shown on Tables 2 and 3. The proved reserves and future net revenues as of December 31, 2003 attributable to the individual Underlying Properties are shown on the attached one-line summary identified as Table 4. The gas reserves for the Fruitland Coal were primarily estimated by decline curve analyses utilizing type curves for the various areas in the San Juan Basin. These type curves were developed for each area and were based on production histories and the initial reservoir pressures of the wells in the separate areas. The Trust provides for an Infill NPI on any second well drilled on the standard 320-acre spacing. In October 2002, the field rules for the Basin Fruitland Coal Gas Pool in New Mexico were revised to allow an optional second (infill) well in certain designated areas of the pool. As of July 2003, the infill drilling rules were further modified to allow such infill drilling in all areas of the pool. The Trust is entitled to receive 20 percent of the Infill Net Proceeds. The Working Interest Properties contain 394 infill locations of which 78 have been drilled and 315 additional locations are evaluated as containing proved undeveloped reserves according to the SEC guidelines. The gas price of $5.610 per MMBtu used in these projections for the Farmout Properties is based on the December 2003 Blanco Hub Index Price reported by WPC. The gas price for the Working Interest Properties is the adjusted price of $3.805 per MMBtu until December 31, 2012, after which the contract will no longer be in effect. Beginning in year 2013, the gas price is $5.610 per MMBtu, based on the December 2003 Blanco Hub Index Price. Gathering and transportation charges, taxes, treating, and other costs payable prior to the delivery points were deducted from the index price in order to determine the wellhead price used in this evaluation. These prices and deductions were held constant. (MILLER AND LENTS, LTD. LETTERHEAD) Mr. Ron E. Hooper January 30, 2004 Bank of America, N.A., Trustee Page 3 Williams Coal Seam Gas Royalty Trust Deductions for lease royalty and production and ad valorem taxes for the Working Interest Properties were based on the December 2003 index gas price of $5.610 per MMBtu less appropriate deductions as reported by WPC. Operating expense estimates were based on expenses incurred during 2003 and were not escalated. Where appropriate, estimated operating expenses which exceeded the operating expenses in Exhibit B to the Conveyance were deducted in calculating Net Proceeds and, therefore, reduced the amounts payable to the WTU. In preparation of our estimates, we relied on production histories, accounting and cost data, engineering and geological information supplied by WPC, and data from public records. The ownership interests evaluated herein were provided by WPC and were employed as presented. No independent verification of these interests was made by Miller and Lents, Ltd. Capital expenditures to plug and abandon wells are considered to be equal to the salvage values of the wells at the time of abandonment. We did not include any consideration for the future environmental restoration that might be required as such was beyond the scope of our assignment. In our projection of future net revenues, no provisions are made for production prepayments or for the consequences of future production balancing. As instructed, we assumed for purposes of this report, that the Trust will continue as long as there is economic production from the contributing properties. The evaluations presented in this report, with the exceptions of those parameters specified by others, reflect our informed judgments based on accepted standards of professional investigation but are subject to those generally recognized uncertainties associated with interpretation of geological and engineering information. Government policies and market conditions different from those employed in this study may cause the total quantity of oil or gas to be recovered, actual production rates, prices received, and operating and capital costs to vary from those presented in this report. Very truly yours, MILLER AND LENTS, LTD. BY /s/ STEPHEN M. HAMBURG ------------------------------- Stephen M. Hamburg, P.E. SMH/psh WILLIAMS COAL SEAM GAS ROYALTY TRUST RESERVES AND ECONOMICS AS OF DECEMBER 31, 2003 UNDERLYING PROPERTIES AND TRUST INTERESTS NON-ESCALATED 12/31/2003 PRICES TOTAL PROVED RESERVES
Underlying Properties ------------------------------------------------------------------------------------------------------------- Natural Gas, MMCF Net Oper Costs, M$ --------------------------------------------- Revenue --------------------------------------------- Price to Net Oper Adv&Sev Future Year Gross Net $/Mcf Intr M$ Expns Taxes Capital ----- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 2004 222,828 18,354 4.154 76,247 4,027 8,511 2,528 2005 203,203 15,998 4.157 66,497 3,525 7,454 4,189 2006 183,849 14,669 4.161 61,032 3,257 6,890 4,518 2007 170,928 13,819 4.165 57,556 3,097 6,549 4,537 2008 153,169 12,379 4.167 51,586 2,790 5,895 2009 120,429 9,747 4.166 40,607 2,191 4,629 2010 95,072 7,713 4.165 32,121 1,729 3,654 2011 75,370 6,133 4.164 25,536 1,372 2,898 2012 60,008 4,902 4.162 20,404 1,094 2,311 2013 47,966 3,935 4.161 16,376 877 1,852 2014 38,469 3,171 4.161 13,193 705 1,489 2015 30,935 2,562 4.160 10,655 569 1,201 2016 24,821 2,056 4.158 8,552 455 962 2017 19,438 1,638 4.157 6,809 362 764 2018 15,390 1,301 4.155 5,408 286 605 2019 12,017 1,024 4.153 4,253 224 474 2020 9,286 800 4.150 3,320 174 368 2021 7,562 658 4.150 2,730 143 302 2022 6,318 553 4.150 2,294 120 254 2023 5,255 464 4.151 1,926 101 214 2024 4,350 387 4.153 1,605 85 179 2025 3,573 321 4.154 1,332 70 149 2026 2,935 268 4.157 1,113 59 125 2027 2,406 222 4.160 923 49 104 2028 1,975 187 4.161 779 42 88 2029 1,597 156 4.162 648 35 73 AFTER 3,793 390 4.170 1,624 88 187 TOTAL 1,522,940 123,804 4.161 515,124 27,525 58,178 15,773 Underlying Properties Trust Interests ------------------------------------------------------------- --------------------------------------------- Future Net Revenue, M$ Tax Credits, M$ Future Net Revenue, M$ ----------------------------- ----------------------------- ----------------------------- Disc Disc Net Disc Year Annual @10% Annual @10% MMCF Annual @10% ----- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 2004 61,181 58,233 6,790 14,863 14,147 2005 51,329 44,225 5,714 12,479 10,752 2006 46,367 36,164 4,738 10,340 8,064 2007 43,373 30,622 4,045 8,799 6,212 2008 42,901 27,417 3,777 8,127 5,193 2009 33,787 19,546 3,086 6,645 3,844 2010 26,738 14,002 2,488 5,368 2,811 2011 21,265 10,080 2,156 4,633 2,196 2012 16,998 7,294 1,785 3,835 1,646 2013 13,648 5,301 1,733 6,835 2,655 2014 10,998 3,867 1,427 5,628 1,979 2015 8,886 2,828 1,177 4,642 1,478 2016 7,135 2,056 969 3,823 1,102 2017 5,684 1,483 797 3,144 820 2018 4,517 1,067 657 2,590 612 2019 3,555 759 540 2,131 455 2020 2,778 538 444 1,749 339 2021 2,285 400 371 1,464 256 2022 1,920 305 313 1,236 196 2023 1,611 231 263 1,038 149 2024 1,342 174 219 865 112 2025 1,113 132 182 717 85 2026 929 99 152 599 64 2027 769 73 126 496 47 2028 650 57 106 419 36 2029 540 42 88 348 27 AFTER 1,350 76 220 872 49 TOTAL 413,650 267,071 44,363 113,683 65,326 Trust Interests ----------------------------- Tax Credits, M$ ----------------------------- Disc Year Annual @10% ----- ------------- ------------- 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 AFTER TOTAL
-------------------------------------------------------------------------------- THIS PAGE IS A PART OF A MILLER AND LENTS, LTD. REPORT AND SHOULD NOT DATE: 01/2004 BE USED INDEPENDENTLY OF THE REPORT. TABLE 1