BlackPearl Resources Inc.



Reserves/Resources


Oil and Gas Reserves

The following tables summarize certain information contained in the independent reserves report prepared by Sproule Unconventional Limited ("Sproule") as of December 31, 2013. The report was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Additional reserve information as required under NI 51-101 will be included in the Company's Annual Information Form which will be filed on SEDAR on or before March 31, 2014.

Summary of Oil and Gas Reserves

(Company interest, before royalties) Heavy Oil Bitumen Total
Crude Oil
Natural
Gas
2013
Total
2012
Total
  (Mbbl) (Mbbl) (Mbbl) (MMcf) (MBoe) (MBoe)
             
Proved developed producing 7,162 1,651 8,813 78 8,826 7,138
Proved developed non-producing 1,772 429 2,201 23 2,205 2,291
Proved undeveloped 52,789 0 52,789 52 52,798 6,456
Total proved 61,724 2,080 63,804 154 63,829 15,885
Probable 47,255 179,499 226,754 137 226,777 197,439
Total proved plus probable 108,979 181,579 290,558 291 290,606 213,324
Notes:
  1. BOE's may be misleading, particularly if used in isolation. In accordance with NI 51-101, a BOE conversion ratio of 6 Mcf: 1 barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
  2. Based on Sproule's December 31, 2013 forecast prices
  3. Columns may not add due to rounding

Net Present Value of Reserves

  0% 5% 10% 15% 20%
  ($000)
Before Tax          
Proved          
   Developed producing 238,686 218,667 202,355 188,814 177,393
   Developed non-producing 49,554 38,891 31,010 25,021 20,361
   Undeveloped 1,712,866 896,156 499,793 286,730 161,424
Total proved 2,001,106 1,153,713 733,158 500,565 359,178
Probable 6,778,456 2,964,519 1,460,725 788,943 435,070
Total proved plus probable 8,779,562 4,118,232 2,193,883 1,279,507 794,249
After Tax          
Proved          
   Developed producing 238,685 218,666 202,355 188,814 177,393
   Developed non-producing 49,554 38,891 31,010 25,021 20,361
   Undeveloped 1,324,267 696,268 387,724 219,111 118,059
Total proved 1,612,506 953,825 621,089 432,945 315,813
Probable 5,052,868 2,166,674 1,036,657 528,940 276,036
Total proved plus probable 6,665,374 3,120,499 1,657,747 961,885 591,849
Notes:
  1. Based on Sproule's December 31, 2013 forecast prices
  2. Columns may not add due to rounding
Estimated Future Development Capital

($ Millions) Total Proved Total Proved + Probable
2014 196.3 211.8
2015 80.1 100.3
2016 33.7 205.2
2017 35.9 118.9
2018 11.2 350.5
Remainder 370.2 1809.8
Total FDC undiscounted 727.4 2,796.5
Total FDC discounted at 10% 448.8 1,345.9

Reconciliation of Changes in Reserves

The following table summarizes the changes in the Company's share of oil and natural gas reserves (before royalties) from December 31, 2012 to December 31, 2013.

  Oil, Heavy Oil & Bitumen Natural gas BOE
  Proved Probable Total Proved Probable Total Total
  (Mbbls) (Mbbls) (Mbbls) (MMcf) (MMcf) (MMcf) (Mboe)
Balance, Dec 31, 2012 15,846 197,438 213,284 234 2 236 213,324
   Production (3,464) 0 (3,464) (524) 0 (524) (3,551)
   Extensions 4,327 1,846 6,174 18 40 58 6,183
   Discoveries 0 0 0 0 0 0 0
   Technical revisions 2,681 (3,855) (1,174) 215 116 331 (1,119)
   Improved recovery 44,740 31,396 76,136 0 0 0 76,136
   Acquisitions 0 0 0 210 0 210 35
   Dispositions (345) (76) (421) (10) (11) (21) (424)
   Economic factors 19 4 23 10 (10) 0 23
Balance, Dec 31, 2013 63,804 226,754 290,558 154 137 291 290,606
Notes:
  1. BOE's may be misleading, particularly if used in isolation. In accordance with NI 51-101, a BOE conversion ratio of 6 Mcf: 1 barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
  2. Columns may not add due to rounding
The pricing assumptions used in the Sproule evaluation are summarized below.

Pricing Assumptions

Year WTI
Cushing
40° API
Edmonton Par Price
40° API
Western
Canadian Select
20.5° API
Alberta
AECO-C
Spot
Inflation rate Exchange rate
  (US$/bbl) (CDN$/bbl) (CDN$/bbl) (CDN$/MMBtu) (%/yr) (US$/Cdn$)
2014 94.65 92.64 77.81 4.00 1.5 0.940
2015 88.37 89.31 75.02 3.99 1.5 0.940
2016 84.25 89.63 75.29 4.00 1.5 0.940
2017 95.52 101.62 85.36 4.93 1.5 0.940
2018 96.96 103.14 86.64 5.01 1.5 0.940
2019 98.41 104.69 87.94 5.09 1.5 0.940
2020 99.89 106.26 89.26 5.18 1.5 0.940
2021 101.38 107.86 90.60 5.26 1.5 0.940
2022 102.91 109.47 91.96 5.35 1.5 0.940
2023 104.45 111.12 93.34 5.43 1.5 0.940
2024 106.02 112.78 94.74 5.52 1.5 0.940
Escalation rate of 1.5% thereafter
Notes:
  1. The pricing assumptions were provided by Sproule Unconventional Limited
  2. None of the Company's future production is subject to a fixed or contractually committed price.
Definitions:
  1. "Proved" reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
  2. "Probable" reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.
  3. "Developed" reserves are those reserves that are expected to be recovered from existing wells and installed facilities or, if facilities have not been installed, that would involve a low expenditure (e.g. when compared to the cost of drilling a well) to put the reserves on production.
  4. "Developed Producing" reserves are those reserves that are expected to be recovered from completion intervals open at the time of the estimate. These reserves may be currently producing or, if shut-in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty.
  5. "Developed Non-Producing" reserves are those reserves that either have not been on production, or have previously been on production, but are shut in, and the date of resumption of production is unknown.
  6. "Undeveloped" reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves classification (proved, probable, possible) to which they are assigned.
  7. The Net Present Value (NPV) is based on Sproule Forecast Pricing and costs. The estimated NPV does not necessarily represent the fair market value of our reserves. There is no assurance that forecast prices and costs assumed in the Sproule evaluations will be attained, and variances could be material.
Contingent Resources

The following table summarizes certain information contained in the contingent resource evaluations prepared by Sproule as of December 31, 2013. The reports were independently prepared in accordance with definitions, standards and procedures contained in the COGE Handbook.

It should not be assumed that the estimates of recovery, production, and net revenue presented in the tables below represent the fair market value of the Company's contingent resources. There is no assurance that the forecast prices and cost assumptions will be realized and variances could be material. The recovery and production estimates of the Company's contingent resources provided herein are only estimates and there is no guarantee that the estimated contingent resources will be recovered or produced. Actual contingent resources may be greater than or less than the estimates provided here. There are certain contingencies which currently prevent the classification of these contingent resources as reserves. Information on these contingencies are provided in the footnotes to the tables below. There is no certainty that it will be commercially viable for the Company to produce any portion of the contingent resources on any of its properties.

Summary of Best Estimate (P50) Contingent Resource - By Property(1)(3)

Project Gross(2)
Heavy Oil//Bitumen
Net Present Values of Before Tax Future Net Revenue
as of December 31, 2013
Contingent Resources - Best Estimate
Discounted at
    0% 5% 10% 15% 20%
  (MMboe) ($million)
Blackrod 566,141 15,178,455 4,571,360 1,500,195 486,579 120,741
Onion Lake 29,815 1,198,290 565,584 289,947 158,736 91,285
Mooney 34,726 898,410 510,646 311,009 200,037 134,295
Total 630,682 17,275,155 5,647,590 2,101,151 845,352 346,321
Notes:
  1. These volumes are arithmetic sums of multiple estimates of contingent resources, which statistical principles indicate may be misleading as to volumes that may actually be recovered. Readers should give attention to the estimates of individual classes of resources and appreciate the differing probabilities of recovery associated with each class as explained.
  2. Contingent Resources are defined in the COGE Handbook as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. It is also appropriate to classify as Contingent Resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage.
  3. There are three categories in evaluating contingent resources: Low Estimate, Best Estimate and High Estimate. Best estimate (P50) is a classification of estimated resources described in the COGE Handbook as being considered to be the best estimate of the quantity that will be actually recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the best estimate.
  4. The estimates of contingent resources (best estimate) and future net revenue for individual properties may not reflect the same confidence levels as estimates of contingent resources (best estimate) and future net revenues for all properties, due to the effects of aggregation.
  5. "Gross" means the Company's working interest share in the contingent resources of bitumen and heavy oil before deducting royalties. The Company has a 100% working interest at Blackrod and Mooney, and a 79.795 to 100% working interest at Onion Lake.
  6. The amounts included in these tables do not include the volume and value of BlackPearl's proved and probable reserves previously assigned by Sproule to these properties.
  7. The contingencies in the Sproule Report associated with the Company's Blackrod contingent resources are due to the following: (a)the requirement for more evaluation drilling, as required by the regulatory process, to define the reservoir characteristics to assist in the implementation and operation of the SAGD process (b)the absence of submission of an application to expand the commercial SAGD development; and (c)the uncertainty of timing of production and development.
  8. The contingencies in the Sproule Report associated with the Company's Onion Lake contingent resources are due to the following: (a)the absence of approval to extend the SAGD development area (b)the requirement for more evaluation drilling to define the reservoir characteristics of the resource to assist in the implementation and operation of the SAGD recovery process; (c)the uncertainty of company commitment for expansion of the commercial SAGD development; and (c)the uncertainty of timing of production and development.
  9. The contingencies in the Sproule Report associated with the Company's Mooney contingent resources are due to the following: (a) the requirement for more evaluation wells to further define reservoir and fluid characteristics (b)further establishment of increased production response from the Alkali Surfactant Polymer (ASP) flood in Phase One, which began July 2011; and (c) the uncertainty of timing of production and development of the entire field.
 



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