Preview
EXHIBIT
DRAFT - Preliminary Analysis Based on Incomplete Information
QRE Operating v. Roger Parsons in his capacity as Trustee of LL&E Royalty Trust and thus a General Partner in the
LL&E Royalty Partnership
Adjustments to Jay Field Monthly Reports for December 29, 2012 through January 2023
Schedule 1 - Historical Analysis
. Required Adjustments to Excess Production Costs ("EPC"):
EPC Deficit at January 31, 2023 as Reflected by Breitburn $s (22,305,010)
Adjustment 1: Adjust Interest on Escrow Based on Prime Rate Published by J.P. Morgan Chase ! 10.421.491
Adjustment 2: Remove Duplicative Overhead Charges” 5,538,848
Adjustment 3: Adjust Costs Charged After Gas Plant Shutdown? 3,400
Adjustment 4: Adjust Interest on EPC Based on Revised Balance ‘ 2.289.990
Total Amount of Adjustments 18,253,728
[Revised EPC Deficit After Adjustments at January 31, 2023
ay 4,051,281}
I. Required Adjustments to Jay Trust Models
Adjustment5: Adjust Production, Prices, Opex, Capex, P&A Costs”
Escrow Balance 31,675,196
Revised Escrow Balance Based on Adjusted Production, Prices, Opex, Capex and P&A Costs 16,683,801
Difference to Further Adjust EPC (Positive = Payment Due) 14,991,395,
Revised EPC After Adjustments From Above 10,940,114
Adjust Interest on EPC and Escrow 1,621,625
Revised EPC After Adjustments (Payment Due to LL&E at 02/01/2023) 12,561,738
Interest Due 02/01/2023 through 11/27/2023 1,023,727
Amount Due to LL&E at 11/27/2023 13,585,466
Partnership's Shar re 50%
A RFE ol, skpers. 3 Mi QP 3
Revised Escrow Balance 16,683,801
Partnership's Share 50%
ILL&E Partnership's 50% Share S$ 8,341,900
Page | of 3 Privileged and Confidential
LLETX_085179
DRAFT - Preliminary Analysis Based on Incomplete Information
QRE Operating v. Roger Parsons in his capacity as Trustee of LL&E Royalty Trust and thus a General Partner in the
LL&E Royalty Partnership
Adjustments to Jay Field Monthly Reports for December 29, 2012 through January 2023
Schedule 1 - Historical Analysis
[1] Beginning September 2010, interest on Escrow was calculated in the Monthly Reports based on T-Bill rates instead of the Prime Rate. Per
the Conveyance Agreement, we have used the Prime Rate published at https://www .jpmorganchase.com/corporate/About-JPMC/historical-
prime-rate. htm.
[2] We have removed the additional overhead charges included in "Other Deductible Items" that are considered to be duplicative based on the
Conveyance Agreement.
[3] Even though the Jay Gas Plant was shutdown in February 2008, LOE, Capital and Plant costs were charged through 2013 and the
overhead for the plant was charged through December 2018. At this time, we have not been provided with the details supporting these
expenses, hence, we have only allowed 50% of the LOE, Capital & Plant expenses incurred after shutdown. Additionally, we have removed
all plant overhead costs charged after December 2011
[4] We have revised the Interest on EPC calculation based on utilizing proper Prime Rate published by JP Morgan Chase per the Conveyance
Agreement and based on changes in EPC deficit due to the various adjustments.
[5] Based on analysis performed by Mr. Gardner Walkup (BRG), we have adjusted the inputs for the monthly escrow funding calculation. In
particular, we have made the following adjustments to the Jay Trust Model for 2012 through 2022: (1) adjusted production to be at least 115%
of proved reserves per the reserve reports for the same time frame by increasing the production each year in the forecast to achieve the 115%
value (for the avoidance of doubt, any production forecasts greater than 115% were not adjusted) (2) used pricing data for NYMEX Light
Sweet Crude Oil Futures and applied a negative $0.50 differential (3) revised OPEX such that annual OPEX per barrel does not exceed
$30/bb1 (4) revised CAPEX such that cumulative forward CAPEX per forward barrel in the adjusted production forecast does not exceed
$5/obl (5) revised the 2012 P&A estimates (approx. $30 million on gross basis) by adjusting the per well P&A estimate and non-well P&A
costs by the North America Cost Index and applying a learning curve correction. The inputs for the monthly escrow funding calculation for
January 2023 have not been adjusted since the operator has failed to produce the Jay Trust Model for 2023 and the associated reserve report.
Note: The above is a preliminary analysis since BRG has limited and/or incomplete information (Le. geological data such as well files,
field plans, etc. and other financial information such as general ledger supporting historical transactions, estimates for future capex
supporting Jay Trust Models, etc.) required to complete the analysis. Therefore, the above does not reflect a final and complete
damage analysis.
Page 2 of 3 Privileged and Confidential
LLETX_085180
DRAFT - Preliminary Analysis Based on Incomplete Information
QRE Operating v. Roger Parsons in his capacity as Trustee of LL&E Royalty Trust and thus a General Partner
in the LL&E Royalty Partnership
Adjustments to Jay Field Monthly Reports for December 29, 2012 through January 2023
Schedule 2 - Adjustments to Historical Opex and Capex based on Industry Standards for Prudent Operator
Adjustment 6; Adjust Historical Opex and Capex
Revised EPC After Adjustments | through 5 (From Schedule 1) 12,561,738
Reduce annual Opex per barrel to a maximum of $30/bbl" 4,909,193
Reduce Capex for 2014, 2015 and 2019 based on the average Capex for other years” 33,234,560
Adjust Interest on EPC 12,566,631
Revised EPC After Adjustments (Payment Due to LL&E at 02/01/2023) 63,272,123
Interest Due 01/01/2023 through 11/27/2023 5,156,404
Amount Due to LL&E at 11/27/2023 68,428,527
Partnership's Share 50%
A agusyy Pac 33 LX & 3 Sie Si 34
38 218,285
[Revised Escrow Balance (Same as Schedule 1) 16,683,801
Partnership's Share 50%
ILL&E Partnership's 50% Share $ 8,341,900
[1] Based on an analysis of the limited information available pertaining to Jay’s Field’s historical operating expenses and
comparison to relevant industry data, it is my understanding that annual OPEX costs exceeding $30/barrel are excessive and
likely indicate that Jay Field was potentially not operated prudently in those years.
[2] Based on analysis performed by Mr. Gardner Walkup (BRG Petroleum Engineer Expert), it is my understanding that if the Jay
Field was operated prudently, then Capex costs for 2014, 2015 and 2019 would have been lower and comparable to Jay Field's
historical costs for other years and industry data. Therefore, for January 2014 through December 2015 and January 2019 through
December 2019, we used the average capex for other years, except 2009.
Note: The above is a preliminary analysis since BRG has limited and/or incomplete information (i.e. geological data such
as well files, field plans, etc. and other financial information such as general ledger supporting historical transactions,
estimates for future capex supporting Jay Trust Models, etc.) required to complete the analysis. Therefore, the above does
not reflect a final and complete damage analysis.
Page 3 of3 Privileged and Confidential
LLETX_085181
Preview
EXHIBIT DRAFT - Preliminary Analysis Based on Incomplete Information QRE Operating v. Roger Parsons in his capacity as Trustee of LL&E Royalty Trust and thus a General Partner in the LL&E Royalty Partnership Adjustments to Jay Field Monthly Reports for December 29, 2012 through January 2023 Schedule 1 - Historical Analysis . Required Adjustments to Excess Production Costs ("EPC"): EPC Deficit at January 31, 2023 as Reflected by Breitburn $s (22,305,010) Adjustment 1: Adjust Interest on Escrow Based on Prime Rate Published by J.P. Morgan Chase ! 10.421.491 Adjustment 2: Remove Duplicative Overhead Charges” 5,538,848 Adjustment 3: Adjust Costs Charged After Gas Plant Shutdown? 3,400 Adjustment 4: Adjust Interest on EPC Based on Revised Balance ‘ 2.289.990 Total Amount of Adjustments 18,253,728 [Revised EPC Deficit After Adjustments at January 31, 2023 ay 4,051,281} I. Required Adjustments to Jay Trust Models Adjustment5: Adjust Production, Prices, Opex, Capex, P&A Costs” Escrow Balance 31,675,196 Revised Escrow Balance Based on Adjusted Production, Prices, Opex, Capex and P&A Costs 16,683,801 Difference to Further Adjust EPC (Positive = Payment Due) 14,991,395, Revised EPC After Adjustments From Above 10,940,114 Adjust Interest on EPC and Escrow 1,621,625 Revised EPC After Adjustments (Payment Due to LL&E at 02/01/2023) 12,561,738 Interest Due 02/01/2023 through 11/27/2023 1,023,727 Amount Due to LL&E at 11/27/2023 13,585,466 Partnership's Shar re 50% A RFE ol, skpers. 3 Mi QP 3 Revised Escrow Balance 16,683,801 Partnership's Share 50% ILL&E Partnership's 50% Share S$ 8,341,900 Page | of 3 Privileged and Confidential LLETX_085179 DRAFT - Preliminary Analysis Based on Incomplete Information QRE Operating v. Roger Parsons in his capacity as Trustee of LL&E Royalty Trust and thus a General Partner in the LL&E Royalty Partnership Adjustments to Jay Field Monthly Reports for December 29, 2012 through January 2023 Schedule 1 - Historical Analysis [1] Beginning September 2010, interest on Escrow was calculated in the Monthly Reports based on T-Bill rates instead of the Prime Rate. Per the Conveyance Agreement, we have used the Prime Rate published at https://www .jpmorganchase.com/corporate/About-JPMC/historical- prime-rate. htm. [2] We have removed the additional overhead charges included in "Other Deductible Items" that are considered to be duplicative based on the Conveyance Agreement. [3] Even though the Jay Gas Plant was shutdown in February 2008, LOE, Capital and Plant costs were charged through 2013 and the overhead for the plant was charged through December 2018. At this time, we have not been provided with the details supporting these expenses, hence, we have only allowed 50% of the LOE, Capital & Plant expenses incurred after shutdown. Additionally, we have removed all plant overhead costs charged after December 2011 [4] We have revised the Interest on EPC calculation based on utilizing proper Prime Rate published by JP Morgan Chase per the Conveyance Agreement and based on changes in EPC deficit due to the various adjustments. [5] Based on analysis performed by Mr. Gardner Walkup (BRG), we have adjusted the inputs for the monthly escrow funding calculation. In particular, we have made the following adjustments to the Jay Trust Model for 2012 through 2022: (1) adjusted production to be at least 115% of proved reserves per the reserve reports for the same time frame by increasing the production each year in the forecast to achieve the 115% value (for the avoidance of doubt, any production forecasts greater than 115% were not adjusted) (2) used pricing data for NYMEX Light Sweet Crude Oil Futures and applied a negative $0.50 differential (3) revised OPEX such that annual OPEX per barrel does not exceed $30/bb1 (4) revised CAPEX such that cumulative forward CAPEX per forward barrel in the adjusted production forecast does not exceed $5/obl (5) revised the 2012 P&A estimates (approx. $30 million on gross basis) by adjusting the per well P&A estimate and non-well P&A costs by the North America Cost Index and applying a learning curve correction. The inputs for the monthly escrow funding calculation for January 2023 have not been adjusted since the operator has failed to produce the Jay Trust Model for 2023 and the associated reserve report. Note: The above is a preliminary analysis since BRG has limited and/or incomplete information (Le. geological data such as well files, field plans, etc. and other financial information such as general ledger supporting historical transactions, estimates for future capex supporting Jay Trust Models, etc.) required to complete the analysis. Therefore, the above does not reflect a final and complete damage analysis. Page 2 of 3 Privileged and Confidential LLETX_085180 DRAFT - Preliminary Analysis Based on Incomplete Information QRE Operating v. Roger Parsons in his capacity as Trustee of LL&E Royalty Trust and thus a General Partner in the LL&E Royalty Partnership Adjustments to Jay Field Monthly Reports for December 29, 2012 through January 2023 Schedule 2 - Adjustments to Historical Opex and Capex based on Industry Standards for Prudent Operator Adjustment 6; Adjust Historical Opex and Capex Revised EPC After Adjustments | through 5 (From Schedule 1) 12,561,738 Reduce annual Opex per barrel to a maximum of $30/bbl" 4,909,193 Reduce Capex for 2014, 2015 and 2019 based on the average Capex for other years” 33,234,560 Adjust Interest on EPC 12,566,631 Revised EPC After Adjustments (Payment Due to LL&E at 02/01/2023) 63,272,123 Interest Due 01/01/2023 through 11/27/2023 5,156,404 Amount Due to LL&E at 11/27/2023 68,428,527 Partnership's Share 50% A agusyy Pac 33 LX & 3 Sie Si 34 38 218,285 [Revised Escrow Balance (Same as Schedule 1) 16,683,801 Partnership's Share 50% ILL&E Partnership's 50% Share $ 8,341,900 [1] Based on an analysis of the limited information available pertaining to Jay’s Field’s historical operating expenses and comparison to relevant industry data, it is my understanding that annual OPEX costs exceeding $30/barrel are excessive and likely indicate that Jay Field was potentially not operated prudently in those years. [2] Based on analysis performed by Mr. Gardner Walkup (BRG Petroleum Engineer Expert), it is my understanding that if the Jay Field was operated prudently, then Capex costs for 2014, 2015 and 2019 would have been lower and comparable to Jay Field's historical costs for other years and industry data. Therefore, for January 2014 through December 2015 and January 2019 through December 2019, we used the average capex for other years, except 2009. Note: The above is a preliminary analysis since BRG has limited and/or incomplete information (i.e. geological data such as well files, field plans, etc. and other financial information such as general ledger supporting historical transactions, estimates for future capex supporting Jay Trust Models, etc.) required to complete the analysis. Therefore, the above does not reflect a final and complete damage analysis. Page 3 of3 Privileged and Confidential LLETX_085181