NOTE 4. OIL AND GAS PROPERTIES
Villarreal - Zapata County, Texas
The purchase price of this property was approximately $3,100,000, and included a prepaid drilling credit from the well operator of approximately $680,000. At acquisition, there were eight producing wells on this property. Black Rock acquired the approximate 13.942% working interest and 10.46% net revenue interest in seven of the producing wells and remaining leasehold. Black Rock also acquired approximately a 15.65% working interest and 11.74% net revenue interest in one producing well. During the period ended February 29, 2012, Black Rock elected to participate in all of the drilling operations commenced by the operator of the property, ConocoPhillips. Those drilling operations included capital expenditures on two wells plus drilling three new wells. Total development costs incurred by Black Rock during the three month period ended February 29, 2012, were approximately $561,314.
Frost Bank - Duval County, Texas
The purchase price of this property was approximately $200,000. At acquisition, there were five producing wells. Black Rock acquired an approximate 31.968% working and 23.976% net revenue interest in the well production. No drilling activity occurred during the period ended February 29, 2012. RMR Operating is the operator of the Frost Bank lease.
Resendez and LaDuquesa - Zapata County, Texas
The purchase price of this property was approximately $36,000. At acquisition, there were two producing and two shut in wells. Black Rock acquired an approximate 23.125% and 50.007% working interest in Resendez and LaDuquesa, respectively, and 17.34% and 37.56% net revenue interest in the well production for Resendez and LaDuquesa, respectively. No drilling activity occurred during the period ended February 29, 2012. RMR Operating is the operator of the Resendez and LaDuquesa leases.
Madera Prospect - Lea County, New Mexico
The purchase price of this property was approximately $4,774,000, including approximately $27,000 in acquisition related costs. At acquisition, the two leases comprised two producing wells and one shut in well. Black Rock acquired a 100% working interest and a 75% net revenue interest in one producing well, a 56.05% working interest and a 42.04% net revenue interest in the shut in well and a 41.38% working interest and a 31.04% net revenue interest in the second producing well. On April 29, 2011, Black Rock issued a promissory note to Red Mountain in return for borrowing approximately $4,900,000 to close this lease acquisition. The promissory note was cancelled upon closing of the transaction between Red Mountain and Black Rock.
The Company agreed to drill one test well to at least 9,000 feet by November 1, 2012 or incur $15,000 per month penalty until completed. We have drilled and completed the Madera 24-2H to fulfill this obligation. Upon commencement of the Madera 24-2H, the Company owned approximately 39.68% working interest and 29.76% net revenue interest; however, a portion of the other working interest owners elected not to participate in the drilling and completion of the Madera 24-2H. As a result of these non-consents, the Company increased its ownership to approximately 96.5% working interest and 72.38% net revenue interest. RMR Operating is the operator of the Madera leases. Total development costs incurred by Black Rock during the three month period ended February 29, 2012 were approximately $5,676,250.
Pawnee Prospect – Lea County, New Mexico
On July 8, 2011, Black Rock entered into a Purchase and Area of Mutual Interest Agreement (“PAMI”), effective as of July 1, 2011, that governed the relationship between Black Rock and certain other parties with respect to oil and gas leases in the Permian Basin (the “Pawnee prospect”) in which Black Rock acquired an 82% ownership interest. Pursuant to the PAMI on July 25, 2011, Black Rock acquired the remaining 18% ownership interest in the land from such other parties. The total acquisition cost was $439,222 or $350 per acre. Pursuant to the PAMI, on July 27, 2011, Black Rock acquired an 87.5% working interest with a 66.94% net revenue interest for $98,000 or $350 per acre. Additionally pursuant to the PAMI, on July 27, 2011, Black Rock acquired a 100% working interest with a 76.5% net revenue interest in one lease; a 100% working interest with a 75% net revenue interest in three leases; and a 100% working interest with a 77.75% net revenue interest in four leases. The total acquisition cost was $114,000 or $600 per acre. RMR Operating is the operator of the Pawnee leases.
In December 2011, Black Rock acquired a 100% working interest and a 78% net revenue interest from COG Operating, LLC and Oxy USA, Inc. in a lease for $16,000. In December 2011, Black Rock acquired 7 wellbores from Draco Energy, Inc. for the assumption of the plugging liability.
Two wells were completed and brought online on the Pawnee prospect during the quarter ended February 29, 2012: the Big Brave #1 and the Good Chief #1. Total well costs capitalized for the Pawnee prospect as of February 29, 2012 were $5,151,531.
The total cost of the Pawnee prospect was $6,064,076, which includes acquisition and closing costs. $46,713 in leasehold costs associated with proved reserves was reclassified as proved property from unproved property during the quarter, leaving $686,376 in leasehold costs associated with unproved property as of February 29, 2012. We have excluded $179,000, related to the Pawnee prospect, from depletion. Total costs incurred by Black Rock during the three month period ended February 29, 2012 were approximately $856,988.
Martin Prospect – Andrews County, Texas
On August 16, 2011, Black Rock acquired a 100% working interest with a 75% net revenue interest in the "Martin Lease" in exchange for 320,000 shares of Red Mountain's common stock. The fair value of assets acquired was $320,000. The Martin Lease is held by production and is for all rights 5,000 feet and below the surface of the land. In the event the Company elects to perform operations on this property, RMR Operating will be the operator.
Shafter Lake Prospect – Andrews County, Texas
On August 16, 2011 Black Rock acquired a 100% working interest with a 75% net revenue interest in the “Shafter Lake Lease” for $250,000 and 250,000 shares of Red Mountain’s common stock. The fair value of assets acquired was $500,000. The Shafter Lake Lease is held by production and is for all rights from surface to approximately 4,520 feet below the surface of the land. In the event the Company elects to perform operations on this property, RMR Operating will be the operator.
The Martin and Shafter Lake prospects were unproved properties for the quarter ended February 29, 2012 and had no proved reserves associated with these prospects.
Cowden Leasehold Interests– Ector County, Texas
On November 1, 2011 Black Rock acquired the “Cowden Leasehold Interests” and certain surface property located within the Cowden Leases for $1,150,000. The fair value of assets acquired was $1,556,384, offset by an asset retirement obligation of $406,384. At acquisition, the Cowden Leases contained 17 producing wells. Black Rock acquired 100% working interest with a 75% net revenue interest in two leases; a 100% working interest with a 79.375% net revenue interest in one lease; and a 75% working interest with a 62.8% net revenue interest in one lease. RMR Operating is the operator of the Cowden Lease.
Total unproved property costs, comprised of leasehold costs, amounted to $1,584,662 as of February 29, 2012.
