Thoughts on future potential of Keyser Partnership Culberson County Royalty Interests    
Modified: 2017-02-06, 2018-5-13 added some clarification in formula and lowered forecast price from $80/bbl to $65

Points:

• Our interests are in one of the best areas in the country, the Delaware basin
• Our properties are in the middle of the play
• We have three active horizontal wells producing from one layer, bench, of shale
• There appear to be as many as six benches
• Our wells are operated by ConocoPhillips who is not a big or experienced player in this basin
• Future development is being done by the companies committed to the basin on lands that maximize their advantage (Our properties are not as clean as some)
• Oil prices are climbing and will continue to climb through 2020
• In late 2017, we were offered $1MM for our interest. Research shows an offer of $1MM would probably result in a net proceeds before taxes around $1.4MM (using an auction house). Revenue from these properties was 2017=$80M, 2016=$76M.

Bit more detail:

Keyser Partnership has rights to all of Section 4 and the NW corner of section 10.

(Click here to popup a map). Section 4 is on top and section 10 is below and to the right, east. (We also have an interest in section 16 which was not included in the 2017-2018 offering to buyers)

These properties are in the middle of the Delaware Basin which is and will be one of the most active basins in North America. The basin is being developed by horizontal drilling into shale layers at various depths. Each layer is called a “bench”. In the last few years, horizontal drilling technology has improved. The initial oil volumes from new drilling is as much as four times greater than just a few years ago.

We have 2 horizontal wells, in Section 4, the Bronco 1 and Bronco 2. We have one horizontal well in section 10, the Harrier 4. Each well was completed several years ago, old technology, and into one bench. Wells in this area are now being completed in 3 benches and it appears there may be as many as 6 benches.

Properties are developed by the lease holder, usually a large oil company, the operator. Our wells are operated by ConocoPhillips who is not a big player in this area. There are other oil companies that have huge investments in this area.

If you look at the map, you can see lines extending across the section north-south (ie. East side of section 4 and west side of section 10). These lines represent the laterals, horizontal drilling from the well at the origin of the lines. In our sections, the wells have been drilled horizontally for a mile. Newer drilling in this basin drills for two miles. As an operator considers where to drill, they look for sections where they have a large ownership with the fewest expenses and complications. Our sections, are more complicated, have more property lines in them. See section 15, below section 10 as an example of a clean section. (Section 16 is west of 15).

A Summary & possible scenario:

Our properties in Culberson County are in one of the best locations in the country. Our revenue from our three wells over the first three years of production of  $250M was from one producing zone, bench, completed with old technology and oil prices around $50/barrel. There are potentially six benches and room for additional wells. A better case scenario of three benches, five wells (two more), $65/barrel oil would give us revenue of 9.75MM or
               $250M x 15 (3 benches x 5 wells) x 1.3 ($65 instead of $50) x 2 (better technology) = $9.75MM.

Our properties are not the cleanest and our operator is not committed to this area. Both factors reduce the likelihood of development.