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Cedar Valley Energy focuses
on drilling wells that are economically profitable for ourselves, investors, and the landowner. In order for the drilling of an oil and natural gas well to have a positive economic impact for the landowner it must have a reasonable chance of finding sufficient quantities of oil and/or gas to be profitable for the corporation. In most respects, the landowner and our company are long-term partners in this economic venture. Cedar Valley Energy, therefore, strives to drill wells with recoverable reserves of at least 150,000 MCF gas or the equivalent barrels of oil. As the following examples will show, the return for the drilling company and the landowner are very product price sensitive.


Recoverable Reserves (MCF)
150,000
150,000
150,000
Price/MCF
$5.00
$7.00
$9.00
Gross Revenue
$750,000
$1,050,000
$1,350,000
Landowner Royalty (12.5%)
($93,750)
($131,250)
($168,750)
Gross Revenue to Well Investors
$656,250
$918,750
$1,181,250
Well Operating Expenses
($85,000)
($85,000)
($85,000)
Net Revenue to Well Investors
$571,250
$833,750
$1,096,250
Drilling and Completion Costs
($300,000)
($300,000)
($300,000)
Net Return to Well Investors
$271,250
$533,750
$796,250
Cash on Cash Return
1.9:1
2.8:1
3.7:1
Assumed Life of Well
20 years
20 years
20 years

Landowners please note that the royalty actually received is based upon the landowner having the well and the entire drilling acreage on their land. If a drilling unit (the pooling of neighboring landowners to meet State of Ohio legal requirements) is required, then the landowner’s share of the royalty revenues will be based on their proportionate share to the total acreage in the drilling unit. For example, if the State requires a 20 acre drilling unit and two landowners own 10 acres each, then each landowner will receive one-half of the royalty revenues (6¼% each). Please see the following link for well spacing requirements:

http://www.dnr.state.oh.us/mineral/oil/faq/tabid/17869/Default.aspx.

Cedar Valley Energy generally attempts to “lock-in” as high as natural gas price as possible reflecting current, and our view of future market conditions. This locking-in of prices, we feel, maximizes the economic benefit for both the landowner and the well investors. Crude oil is always sold at the prevailing “field market” price that changes often, sometimes daily, based on world commodity trading.

Unfortunately, we cannot guarantee results for either landowners or investors as the drilling of wells has significant elements of risk. In addition to the geological, producing reservoir and mechanical risks associated with the actual drilling of the wells, market pricing conditions are variable and subject to change.


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