Supplemental Reserve Information (unaudited)
The following information summarizes our net proved reserves of oil (including condensate and
natural gas liquids) and gas and the present values thereof for the three years ended December 31,
2011. All of our reserves are located in the United States. The following table sets forth certain
information with respect to our proved reserves that for 2011 are based upon (1) reserve reports
prepared by the independent petroleum engineers of Netherland, Sewell & Associates, Inc., or NSA
(95% of proved reserve volumes) and (2) reserve volumes prepared by us, which were not audited by
an independent petroleum engineer (5% of proved reserve volumes). In 2010, our proved reserves
were based upon (1) reserve reports prepared by the independent petroleum engineers of NSA and
Ryder Scott Company L.P., or Ryder Scott (99% of proved reserve volumes) and (2) reserve volumes
prepared by us, which were not audited by an independent petroleum engineer (1% of proved reserve
volumes). In 2009, our proved reserves were based upon reserve reports prepared by NSA and Ryder
Scott.
Management believes the reserve estimates presented herein, in accordance with generally
accepted engineering and evaluation principles consistently applied, are reasonable. However, there
are numerous uncertainties inherent in estimating quantities and values of proved reserves and in
projecting future rates of production and the amount and timing of development expenditures, including
many factors beyond our control. Reserve engineering is a subjective process of estimating the
recovery from underground accumulations of oil and gas that cannot be measured in an exact manner,
and the accuracy of any reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Because all reserve estimates are to some
degree subjective, the quantities of oil and gas that are ultimately recovered, production and operating
costs, the amount and timing of future development expenditures and future oil and gas sales prices
may all differ from those assumed in these estimates. In addition, different reserve engineers may
make different estimates of reserve quantities and cash flows based upon the same available data.
Therefore, the Standardized Measure shown below represents estimates only and should not be
construed as the current market value of the estimated oil and gas reserves attributable to our
properties. In this regard, the information set forth in the following tables includes revisions of reserve
estimates attributable to proved properties included in the preceding year’s estimates. Such revisions
reflect additional information from subsequent development activities, production history of the
properties involved and any adjustments in the projected economic life of such properties resulting
from changes in product prices.
Decreases in the prices of oil and natural gas have had, and could have in the future, an adverse
effect on the carrying value of our proved reserves, reserve volumes and our revenues, profitability and
cash flow. As of February 2012, the twelve-month average of the first-day-of-the-month reference price
for natural gas has declined from $4.12 per MMBtu at year-end 2011 to $3.86 per MMBtu, while the
comparable price for oil has increased from $95.99 per Bbl at year-end 2011 to $97.28 per Bbl.
Historically, the market price for California crude oil differs from the established market indices in
the United States due principally to the higher transportation and refining costs associated with heavy
oil. Recently, however, the market price for California crude oil has strengthened relative to NYMEX
and WTI primarily due to world demand and declining domestic supplies of both Alaskan and California
crude oil. Approximately 53% of our 2011 reserve volumes are attributable to properties in California
where differentials to the reference prices have been volatile due to these factors.
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