Xun Energy, Inc. (fka XNRG)

[MaxDaniel]

XNRG -CMR & XNRG has played this game before. Is "PG" not Kerry?. Is Kerry representing CMR?Try and disregard the misspellings by CEO. Seems "guarantee" & "acquisition" are not in his vocab if you catch my drift. When the idea to loft some preknown questions CEOs way,I would think For 300+ grand CMR shouldve have made sure the circus tent was perfect. CEO needed to sell idea at least for sba loan to give shareholders some hope.

Thank you PG for your post above and the questions in Post #1. We have replicated your post below:

Good Afternoon, Jerry,

As always, thank you for the opportunity to communicate with you via the XUN forum. I have a couple of questions, one of which pertains to production while the other pertains to finances:

A.) You have stated that there was a delay in operations with the Rice wells due to a change in location request by the land owner. Can you please expound on this change request by the land owner? That is to say, what specifically (if you know) caused the land owner to make such a request? And, where are you presently in effectuating these changes?

B.) Can you apprise us of the current status of the SBA loan, within the confines of the law, of course? Are you feeling more confident in the successful execution of the loan?

Again, thank you for your willingness to communicate with we shareholders and the transparency that should serve to allay any concerns one might have.

Regards,
PG

Question A1: Can you please expound on this change request by the land owner?

Response to Question A1: The landowner requested the tank battery to be relocated near the Rice #15 oil well which caused the delay.

Question A2: That is to say, what specifically (if you know) caused the land owner to make such a request?

Response to Question A2: The landowner received several telephone calls from investors and shareholders with negative information passed on to the landowner about the Company's ability to pay which undermined good will and credibility of the Company and our Operator, Vencedor Energy Partners (VEP).

Question A3: And, where are you presently in effectuating these changes?

Response to Question A3: Our Operator, VEP, their onsite contractor, and the landowner have mutually agreed to a new location. The tanks have been ordered and VEP is awaiting delivery of the tanks before commencing work on the new tank battery location.

Question B1: Can you apprise us of the current status of the SBA loan, within the confines of the law, of course?

Response to Question B1: The Company is working with a financial consultant on the SBL. Based on the Consultant's assessment, the Company meets the eligibility for a SBL. There are certain covenants that have to be met, such as personal guarantee by all shareholders that have 20% or greater ownership in the Company and a minimum of 10% investment by the Company. Our President and CEO is the only shareholder that has a stake in the Company of 20% or greater and has agreed to personally guarantee the SBL.

As part of its mission to promote the development of businesses, the Small Business Administration offers a number of different SBL programs tailored to specific capital needs of growing businesses. The 504 program works by distributing the loan among three parties. The Company puts a minimum of 10%, a conventional lender (typically a bank) puts up 50%, and a Certified Development Company (CDC) puts up the remaining 40%. CDC's are established under the 504 code as non-profit corporations set up to support economic growth in their local areas.

The maximum amount of the loan is $5 million ($5 million for meeting SBA-defined policy goals, and $5.5 million for manufacturers and some energy-related policy goals), and if the borrower defaults, the private sector lender is paid off first, reducing the risk to the lender and encouraging loans.

The SBA loan (SBL) is in process and progressing through the stages. Our financial consultant is working with a Texas CDC as the SBL is underwritten on a State level even though it is a Federal Program and with a Texas based bank (Bank). Since the Bank puts up 50% of the loan, we started the process first with the Bank. We submitted our Executive Business Plan for the acquisition and development of the oil and gas leases; and the Appraisal Report, prepared by a reputable Texas Registered Engineering Firm.

The Bank reviewed both reports and advised the Company that they have vetted the documents and project and are prepared to move to the next step which requires the Company and the guarantor to complete the formal applications and submit the required documentation for the Bank to further review and perform a “preflight” that involves a 100 foot overview to screen out challenges. Upon “preflight” confirmation, then the Bank will issue a tentative term sheet and begin full due diligence/underwriting of the SBL.

Once the underwriting process is completed by the Bank, we will then make formal application to the CDC to continue the process of obtaining the SBL.

DISCLAIMER: THERE IS NO GUARATEE THAT THE COMPANY WILL BE APPROVED OR CLOSE ON THE FINANCING OR CLOSE ON THE ACQUSISITION OF THE PRODUCING OIL AND GAS LEASES. SUBJECT TO SAFE HARBOR CLAUSE.

Question B2: Are you feeling more confident in the successful execution of the loan?

Response to Question B2: We are positively optimistic that the SBA has an excellent chance of being underwritten for the SBL. The contemplated purchase of the oil and gas leases are currently producing 45 to 55 Barrels of Oil Per Day (BOPD) with an average netback of 60%, based on $95 oil, currently generating gross revenue of $130,000 per month. The completion of the 23 well drilling program and a workover program on 6 shut in oil wells projects the daily production to peak at a settled in rate of 130 to 140 BOPD in 2015, an increase of 300% over current BOPD, resulting in additional gross revenue of $269,000 per month on a decline curve of 8.1% per year.

As discussed in the US Market section of our May 31, 2013 - 10-K, link: www.sec.gov/Archives/edgar/data/1435936/000143593613000170/f10ka20130531.htm, US production is not expected to peak until year 2020 which would support current pricing levels over the next several years.

Our WTI crude oil price sensitivity analysis in the Executive Business Plan indicates that based on the current crude oil production from the oil and gas leases, and the $5 million SBL amortized over 10 years, the Company can service the debt with crude oil prices as low as $70 per barrel for a sustained period of time. The acquisition offers a high potential for growth in production and proven reserves. The contemplated purchase of the oil and gas leases is developed at less than 25% to 30% of its potential reserves of crude oil.

In addition to the oil and gas leases having development potential, the current operators will remain with the contemplated acquisition to continue the operations providing continuity and their expertise to develop the oil and gas leases to their full potential.

In summary, in our opinion, the oil and gas leases are great properties, the operators have a proven track record of success, the net cash flow from the contemplated acquisition and development more than enough cover the debt service of the SBA and crude oil prices are projected to stay at current levels for the next several years. Based on this, we are positively optimistic that the SBA has an excellent chance of being underwritten for the SBL.

DISCLAIMER: THERE IS NO GUARATEE THAT THE COMPANY WILL BE APPROVED OR CLOSE ON THE FINANCING OR CLOSE ON THE ACQUSISITION OF THE PRODUCING OIL AND GAS LEASES. SUBJECT TO SAFE HARBOR CLAUSE.

We thank you for your interest, support and faith in the Company.

Respectfully,
Xun Energy, Inc.
Jerry G. Mikolajczyk
President and CEO