ARG Resources

Site Visit Meeting Facts and Figures

• ARG’s Inventory: 1,796 wells drilled, All on the Allegheny National Forest. – Abandoned: 14 – Active: 1,578 (~934 Producing / ~644 injection) – DEP Plugged: 5 ? ? ? – Plugged: 199

• When the lease is plugged and abandoned there will be an estimated 136 miles (@ 400’ spacing) to 150 miles (ANF estimate)of road to be removed.

• Assuming there is a culvert every 1,000’ that would mean there could be an estimated 718 to 792 culverts to be removed and disposed of. Even if they were crushed to allow 50 in a roll-off, they would still need 15 to 16 roll-offs for culverts.

Things to Ponder

• If the roads are an average of 20’ wide, there would be 330 to 364 acres of disturbance from roads to be reclaimed.

• To cover this area with the required 3 tons/acre of mulch, you would need 35,983 – 62,338 bales of hay or straw.

• The mulch costs alone at $3/ bale would be $107,949 – $187,013. This estimate does not include seed, fertilizer or labor costs.

Things to Ponder

• There are three pressure plants and multiple tank batteries to remove with contaminated soil at each, all on the Allegheny National Forest.

• There are over 2 dozen buildings and more than 100 storage tanks to remove, each with additional areas for parking and equipment storage in need of reclamation.

• The additional disturbance from building and tank battery removal along with the associated parking and storage areas could result in an additional 100 to 200 acres of reclamation.

• This additional reclamation would result in an additional 10,909 – 34,286 bales of hay or straw, at a cost of $32,727 – $102,857. Again this estimate does not include seed, fertilizer or labor costs.

Things to Ponder

• In conversations with Dave Rectenwald, EPA UIC Inspector, it has been suggested that due to complications observed on other water floods, it may be necessary to produce some of the wells as others are plugged to relieve pressure on the formation in order to properly plug the wells.

• Unlike during the normal production of the lease, where the produced fluid is recycled back into the formation, if they are producing the lease to relieve pressure they will incur costs associated with the disposal of the produced fluid.

• Since 2012, ARG has produced an average of 6,287.68 Bbl of produced fluid per day. If it were necessary to haul all of that produced fluid to treatment it would cost approximately $73,544 per day.

Things to Ponder

• There are approximately 644 injection wells on this project. EPA estimates a cost of $5,000 – $6,000 per well to plug the injection wells.

• At that price, it would cost approximately $3,220,000 – $3,864,000 to plug the injectors alone.

• That would leave the other 934 active and 14 abandoned wells to be plugged at an additional cost.

• Assuming the cost to plug the remaining 946 wells is the same, it can then be estimated that it will cost an additional $4,730,000 - $5,676,000 to plug these 946 wells.

Things to Ponder

• Possible Scenarios:

– ARG declares bankruptcy and walks away from the multimillion dollar liability and a legal battle over the plugging, cleanup and reclamation would ensue.

– ARG adopts a phased production and plugging routine. This would involve plugging the less productive sections of the project while the remaining areas are produced.

– ARG sells the project to a smaller entity that does not have the capital available to properly plug a project of this size and when they fail the liability shifts to the State and Federal Governments to: plug the wells, remove the buildings and tank batteries and clean up any contamination on the Allegheny National Forest with tax payer money.

• Jim Bolinger of ARG recently stated that ARG’s lifting costs are around $46/Bbl. So they are currently breaking even and have laid off staff. If oil prices continue to drop they will need to decide if the prices will return and continue to operate at a loss or if they will shut the project down. We may not have much time to come up with solutions.

Things to Ponder

Highland Pressure Plant (41.5216 °N, 78.917935 °W)

Horton Pressure Plant (41.585694°N, 78.891261 °W)

Lamont Pressure Plant (41.536324°N, 78.918249°W)

Weaver Facility (41.546554°N, 78.850044 °W)

Field Office & Work Shop (41.5348265°N, 78.9141125°W)

Highland Repair Shop (41.521458°N, 78.921869°W)

H2S Knock-Out Facility (41.522805°N, 78.905359°W)

CO2 Injection Facility (Inactive) & Waste Storage (41.5284305°N, 78.9129225°W)

Bear Creek Battery (41.554801°N, 78.833601°W)

Chaffee Loading Station (41.577758°N, 78.927726°W)

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Historical Gas Production Data

Daily Gas Production (Mcf) Wells Produced Production Trend Well Trend

Data missing : 1974-1990, 1992, 1994, 1995, 2001, 2005, 2006

* 11/21/1995 - Pennzoil Products Co. Sells to Pa General Energy Corp. * 1/3/2001 - Pa General Energy Corp. Sells to ARG Resources Inc.

Historical Oil Production Data

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Historical Oil Production Data

Daily Oil Production(Bbl) Wells Produced Production Trend Well Trend

Data missing : 1974-1990, 1992, 1994, 1995, 2001, 2005, 2006

* 11/21/1995 - Pennzoil Products Co. Sells to Pa General Energy Corp. * 1/3/2001 - Pa General Energy Corp. Sells to ARG Resources Inc.

• They have tried new areas and have hit the limits of the profitable area so they will not be able to continue drilling.

• Former and current employees have said that they figure the lease may continue to be profitable for 10 years. But that was when oil was at $100/Bbl. At current oil prices, ARG is breaking even at best and any further drop in price will cause them to lose money on every barrel of oil produced.

• Since 2012 Oil production has dropped 19,827.67 Bbl/year, while at the same time they have added 31 wells per year into production. Once they stop drilling new wells this rate of decrease in production will increase dramatically.

How long will lease last?

• Since 1991 the gross earnings (adjusted for inflation to November 2014) for this lease have been between:

$268,413,167 (based on reported production, missing 6 years of data) &

$345,437,325 (estimating production for missing years)

• The above figures do not count the production made when the lease was at its peak production 1974 – 1990 as we do not have production data for this time period.

How profitable has this lease been?

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Inflation Adjusted Gross Earnings

Gas

Oil

* 11/21/1995 - Pennzoil Products Co. Sells to Pa General Energy Corp. * 1/3/2001 - Pa General Energy Corp. Sells to ARG Resources Inc.

2015 Earnings are estimated with

production trends since 2012 and

current price data ($2.99/Mcf & $45.41/Bbl)

Data missing : 1974-1990, 1992, 1994, 1995, 2001,

2005, 2006

• Since purchasing the lease in 2001 the gross earnings (adjusted for inflation to November 2014) for this lease have been between:

$185,396,428 (based on reported production, missing 3 years of data) &

$224,969,718 (estimating production for missing years)

• The tax payers should not be on the hook for the plugging of the wells or removal of the buildings, tank batteries , and contaminated soil on the Allegheny National Forest.

ARG’s Profitability

Chad Meyer Water Quality Specialist Spvr. DEP Office of Oil and Gas Mgt. Knox District Office 310 Best Ave, Knox PA 16232 814.797.1191 www.depweb.state.pa.us