Undeveloped reserves that meet the reasonable certainty, economic and other requirements to be
classified as proved undeveloped, except that they are not expected to be developed within five years,
are classified as probable reserves. In 2011, 44 MMBOE of our Haynesville Shale undeveloped
reserves were classified as probable because they relate to undeveloped locations that are expected
to be developed beyond five years but would otherwise meet the requirements to be classified as
proved undeveloped reserves.
The reserve documentation and calculations for substantially all of our reserves are reviewed both
by our internal engineers and, where noted, by independent third party engineers each year. During
this process, all performance projections are updated and revised where appropriate, all new well
control and petrophysical data acquired is incorporated into our estimated ultimate recovery and
remaining reserve calculations and the remaining proved reserves are redistributed among proved
developed and proved undeveloped categories where appropriate. This ensures forecasts of proved
undeveloped reserves represent incremental capture and not acceleration.
In accordance with SEC guidelines, the reserve engineers’ estimates of future net revenues from
our properties, and the present value of the properties, are made using the twelve-month average of
the first-day-of-the-month reference prices as adjusted for location and quality differentials and are held
constant throughout the life of the properties, except where the guidelines permit alternate treatment,
including the use of fixed and determinable contractual price escalations. The reserve estimates
exclude the effect of any derivative instruments we have in place. The prices for oil and gas have
historically been volatile and are likely to continue to be volatile in the future.
Internal Control
Our corporate reservoir engineering department reports to the Vice President of Engineering who
maintains oversight and compliance responsibility for the internal reserve estimate process and
provides appropriate data to independent third party engineers for the annual estimation of our
year-end reserves. The management of our corporate reservoir engineering department, including the
Vice President of Engineering, consists of three degreed petroleum engineers, with between 22 and 35
years of industry experience, between 12 and 35 years of reservoir engineering/management
experience, and between six and ten years of experience managing our reserves. All are members of
the Society of Petroleum Engineers.
Qualifications of Third Party Engineers
The technical personnel responsible for preparing the reserve estimates at NSA 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 Society of Petroleum Engineers. NSA is an independent firm of petroleum engineers, geologists,
geophysicists, and petrophysicists; it does not own an interest in our properties and is not employed on
a contingent fee basis.
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