Wolfcamp Development

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PERMIAN BASIN WOLFCAMP DEVELOPMENT
Palo Petroleum, Inc. & Devon Energy
Reagan, Crocket, Irion and Glasscock Counties, West Texas

Palo Petroleum, Inc. owns “deep” rights under several thousand acres in the Permian Basin of West Texas.  During the 1980s, Palo was one of the most active Spraberry-Dean developers in the Permian Basin.  As these properties were sold, Palo retained the “deep” rights below the Spraberry-Dean formation whenever possible.  Some of these “deep” rights, including the prolific Wolfcamp formation, are still held by production from Palo’s former wells.  The current multi-pay horizontal Wolfcamp development in the Permian Basin is one of the most active horizontal oil plays in the United States.  Palo has acreage in some of the prime areas of the Wolfcamp play in Reagan, Crockett, Irion and Glasscock Counties, Texas, where companies such as Devon, Pioneer, EOG, American Energy, El Paso and RSP Permian are most active.  The great majority of our potential 100 plus locations can be classified as Proven Undeveloped.

We have sold some of our ownership to Devon and others but retained a non-op working interest position (usually 12.5%) in this acreage.  As of October 2014, we have participated in six (6) successful wells operated by Devon Energy (DVN:NYSE), all six (6) wells should be completed and producing by the end of the first quarter of 2015.  The first Devon operated well drilled on Palo acreage, the Devon/University 47-4W #1H well, had an IP30 of 370 BO/day and 777 MCF/day in August 2014.  Additional wells could be added in 2015 and 2016 by other operators and we are anticipating that as many as 30 horizontal Wolfcamp wells will be drilled on Palo’s acreage by year end 2017.

We expect our horizontal Wolfcamp development will last for many years to come.  Assuming all Wolfcamp productive zones are developed, we foresee that 100 or more additional wells will be drilled on Palo’s acreage over the ensuing years.  The AFEs are approximately $5 million per well, and expected per zone recoveries are projected to be in the 300-450,000 BO range.