The Oldest Energy Property Clearinghouse

and

the First Website in the Petroleum Industry3Dec091

Connecting projects with funding sources since 1983

Energy Exchange Presents:

WINDOWS OF OPPORTUNITY

IN ENERGY

Three Parts• What is the Energy Exchange?

• Opportunities in Energy

• Select Projects

What is the Energy Exchange?

• An energy consulting firmwww.ERCO-EnergyResources.Com

• An association of engineers, geologists, and financial professionals

• Not a brokerage firm

Our Purpose

To connect energy projects with funding sources

The Energy Exchange

• Modeled after Real Estate’s MLS

• Oldest energy clearing house (1983)

• Petroleum industry's first website (1994) www.enex.com

The Energy Exchange

• Hundreds of projects available

• From $10 thousand to $10 billion

Gold Silver Mining Coins Bullion Treasure Oil Gas Biofuels Nuclear Wind Solar

Patents Processes Chemistry Technology Pipe Pumps Hardware Rigs Equipment

China Russia Japan Middle East

The Energy Exchange

• Technical Network• Financial Network

The Energy Exchange is a bridge between the technical community

and the financial community.

The Energy Exchange

Oil Company

Engineer

Geologist

Broker Dealer

Venture Capital

Institutional Investor

Project A1

Project A2

Energy Exchange

$

$

$

$Agent.

Rep

Rep.

Rep

Rep.

Rep

Project B1

Project B2

Project C1

Project C2

$

$

$

$

$

$

$

$

Energy Store Analogy

One Project Store Energy Exchange Store

Oil

Natural Gas

Geo-thermal

Wind

Solar

Coal

Nuclear

Bio-Fuels (Bio-diesel)

Bio-Mass Fuel Cells

Who are we?

Discovery of the East Texas Oil Field (7 Billion Barrels of Oil)

Technical AssociatesDavid H. Mangum - Petroleum Engineer, Geologist, MBABill Olson - Geologist, Geophysicist, MBA, AttorneyCesar Abeigne, PhD – International Operations, GeoscientistTyler C. Shantz – Petroleum EngineerBelkis Fernandez – Petroleum Engineer, Reservoir Modeling, VenezuelaVladimir Ingerman, Ph.D. – Geophysicist, RussiaCharles Mangum, – Civil Engineer, Drilling Rig Designer - HoustonDennis McMurdie – M.S., Geologist, Salt Lake CityBob Oberndorf, Geologist, DenverEdwin Tillman – Computer Systems EngineerD. Grady Mangum – Information SystemsKhalid Al-Ruwaili – Petroleum Engineer, Saudi ArabiaJim Evans – Geophysicist, Denver Many Others Nationwide & Worldwide

Landman ServicesRichard Rosenberg – Senior LandmanDaniel Mangum, Petroleum LandmanD. B. Mangum – Landman

David H. Mangum, President

• Over 35 years petroleum experience with five Fortune-100 energy companies(Mobil, Shell, Schlumberger, Tenneco, XDS, and Coastal)

• Geology, Mississippi State University • B.S. in Petroleum Engineering, University of Texas • M.B.A., Pepperdine University • Professional Engineering, Real Estate, Insurance, and Securities Licenses (All Expired)

Technical Professionals (continued)

Cesar Abeigne, Ph.D., Asst. V.P. International • Five Languages (French, Arabic, and Spanish)• Over 12 years experience with Elf Aquitaine, Shell

Oil Company and Total. • Ph.D. in Geosciences from Montpellier in France• One of the first geophysicists to explore deep water

off coast of West Africa.

Technical Professionals (continued)

• Charles Mangum, P.E., V P - Engineering Registered Professional Engineer Over 35 years experience in Offshore Drilling Captain in the U.S. Army Corps of Engineers Army Ranger, Airborne B.S. in Civil Engineering -- Mississippi State University

M.S. in Engineering -- University of Texas , Austin

Technical Professionals (continued)

• Vladimir Ingerman, PhD, Manager, Russia Operations Petrophysics software development, International Business Development. Twenty-years oil exploration experience in Russia VP of Tyumen (#2 geophysical company in Russia)

Worked for Schlumberger in the U.S.A. PhD in Natural Resources Exploration and Development Authored 47 professional publications and one textbook

Legal Professionals

Bill Olson, Esq. – Attorney, Geologist, Geophysicist, MBA

George Nama, Esq. – International Law

Darin Mangum, Esq. – Securities, Former SEC

Carlos Reyerson, Esq. – EB5 Immigration

Legal Professionals (continued)

Bill Olson, Esq., CEO of ERCO

• Geologist • Geophysicist• Attorney• M.B.A.• Over 27 years petroleum experience• University of Southern California

Legal Professionals (continued)

Darin H. Mangum, Esq., Legal Counsel • Securities Attorney• Oil and Gas• SEC - Los Angeles and Salt Lake City• Syndication, partnership law, mergers,

acquisitions, and compliance• EB5 Immigration• BYU

Financial Associates

Brent Harley Janson Durney, West Point Military Academy

Alex Westwood, Finance Rick Veale, Petroleum Products Trading Alan Tomkow, Business DevelopmentGerald Avery, Administration Hector Escamilla, Jr. Gwen O. Pearson, African Business Development

Kate Nesselrode, Regional Advisor - Latin America

Many More Nationwide & Worldwide

Projects FundedProject Name State Wells Drilled Successful Completions Dry HolesAthens Pennsylvania 30 30 0Bender Texas 2 2 0West Jefferson* Oklahoma 2* 2* 0*Misener Oklahoma 2 1 1Quinn #1 Texas 1 0 1Loving County Texas 5 5 0Salt Folk #1, #2 Oklahoma 2 2 0Tabb-Harrell #1, #2 Texas 1 2 0Jimmy Joe #1, #2 Oklahoma 5 2 0Goliad County Texas 3 3 0Atascosa County Texas 15 15 0Harrington #1* Texas 1* 0* 1*Trinity Unit #1* Texas 1* 1* 0*Luna #1* Texas 1* 0* 1*Tschirhart #1* Texas 1* 0* 1*Solcher #1 Texas 1 1 0Polocek #1 Texas 1 1 0Milam #1 Texas 1 1 0Mayo #1 Texas 1 1 0Ealand #1 Texas 1 0 1Jones #1 Texas 1 1 0Billings #1 Texas 1 1 0Sweeney #1 Texas 1 1 0

*Wildcat wells

Projects Funded (continued)

Project Name State Wells Drilled Successful Completions Dry HolesSweeney #2 Texas 1 1 0Weeks #2 Texas 1 1 0Woods #A-1 Texas 1 1 0Wilmeth #1 Texas 1 1 0Solcher #2 Texas 1 1 0Patrick #1 Texas 1 1 0Stewart-Menefee #3 Texas 1 1 0Zernial #1-H Texas 1 1 0Williams #1 Louisiana 1 1 0Wilson #1 Texas 1 1 0Dunn A-#1 Texas 1 1 0Raintree #1 Texas 1 1 0EDCO Ranch #1 Texas 1 1 0Brazoria Unit #1* Texas 1* 0* 1*Starr County Texas 2 2 0Flowella, Brooks Co. Texas 3 3 0Queen City Texas 1 1 0Loma Blanca Texas 3 3 0Hardeman Co.* Texas 1* 0* 1*Zipsie #1* Oklahoma 1* 0* 1*Horne#1* Texas 1* 0* 1*Hawkins Ranch #1 Texas 1 1 0Cadjewl #2-5 Oklahoma 1 1 0Phillips #1 Texas 1 1 0

TOTALS: 107 97 10

Part II

WHY INVEST IN ENERGY?

WHY INVEST IN ENERGY?• Inflation Hedge• High Financial Rewards• Cash Flow (Mail Box Money)• Diversification• Tax Benefits• Competition• Lease Costs• Drilling Prospect Availability• Demand / Consumption• Oil Production Trend • Price Forecasts• Drilling Costs• Technology• Environment• Government Endorsement• Money Crunch

The Sinking US Dollar

Three Boogie Men

• Inflation – (As the government spends its way

out of the current economic downturn.)

• Demand – rapidly increasing

• Supply -- rapidly decreasing

“If you think $140 oil was bad, wait until exploding Asian demand overwhelms global markets and America's suppliers cut us off.”

Weiss Research, Inc.

HIGH FINANCIAL REWARDS

• Producing Wells – 10-20% Cash-on-Cash Return

• Developmental Wells – Average 85% success

25% to 100% Annualized Return on Investment

• Exploratory Wells (Wildcats = 10% to 50% Success)

100 to one Return-on-Investment

RISK

• Drilling is becoming less risky.• Occasional projects have a probability

of success better than 90%.• Many projects would be economically

attractive even if oil or gas prices would fall 50%.

COMPETITION

The big money has gone offshore, because there are “too few easy-to-find big oil fields” remaining onshore in the USA. (To quote Mobil Oil Co.)

– Over 10,000 small oil companies have left the arena since 1982.

Average Oil Well Producing RatesProducingOil Wells

Average Barrels of Oil Per Day

8,7298,339

4,709

1,304

766

243

180

82

40

14

IranSaudi Arabia

United Kingdom

Nigeria

Mexico

Indonesia

Venezuela

China

Canada

United States

221

592

528

1,127

3,263

5,729

9,971

31,875

36,955

635,015

QUALITY OF DRILLING PROSPECTS

Because big oil companies are pulling out of the USA, the quality of small drilling prospects are getting better.

Newsweek Magazine

LEASE COSTS

Oil companies are not as anxious to renew oil leases.

(so lease costs are low)

Demand / Consumption

• U.S. consumes 25% of world’s petroleum.

• Asians are becoming like Americans, with an automobile or two in every household.

U.S. Oil Production

Natural Gas Production/Consumption - China

China is buying up world oil reserves

•South America (Venezuela)

•Africa (Angola)

•North America (USA, Canada)

U.S. OIL PRODUCTION

U.S. OIL PRODUCTION TREND

• USA production began decline in 1973

• Over two-thirds of USA onshore oil wells are “marginal”. (Less than 10 barrels per day)

Oil Price Chart

U.S. Oil Production vrs. Imports

U.S. Oil Imports• 1970 – 30% During OPEC Oil Embargo (Remember the gas lines?)

• 2012 – 61.2% Imported (High was 66% in 2006)

(What would happen if OPEC cut us off again?)

• 2030 – possibly 73% Imported. U.S. Office of Technology Assessment says:

“This will Bankrupt the U.S.A.”

USA’s Dangerous Addiction to IMPORTED OIL Imports have exceeded 66% of U.S. consumption!(USA paid over $51 per barrel just to maintain a military presence in the Middle East)

The days of cheap oil are over.

TECHNOLOGY

Recent advances in oil finding technology have reduced risk and improved recovery .Some companies report 85% success on wildcat wells.

ENVIRONMENT

Sierra Club endorses natural gas, wind, solar, and geothermal

(Combustion by-products of natural gas are carbon dioxide and water).

Benefits of Natural Gas

• It’s Clean – “Green Energy” • Fuels energy efficient vehicles• Generates our electricity • Warms our homes• Cools our homes• Heats our hot water• Cooks our food• The “Fuel of the Future”

Oil and gas has become a “necessity”

What Will Gas Prices do over the next decade?

Gas Price Historical Statistics ($/MCF)• $5.00 Approximate price

– “We are currently at historically low energy prices”

• $5.15 Ten Year Average• $15.00 Highest Price during the past 10 years

What is your guess?

The price of Natural Gas in 10 years will be: ________ $/MCF. The price of Oil in 10 years will be: ________ $/Barrel

What increase do you expect in your energy costs - Oil, Gasoline, Natural Gas, Etc.

GOVERNMENT

• Encourages domestic drilling with special tax breaks.

• Mandates natural gas usage over oil and coal.

• Natural gas is now deregulated.

TAX BENEFITS

• Congress gives tax breaks to individual oil investors that are not available to large oil companies.

• 100% tax deductible ... 65 to 80% written off in first year• Up to 100% tax-free income.

MONEY CRUNCH

Traditional sources of drilling money• Big Oil Companies• Banks• Mezzanine Financing

(money is not as available as it once was)

Sources of Funding

• Other Small Oil Companies• Foreign Funds• Private Funds

TAXES

“Oil Well Drilling is the best tax advantaged investment.” .

(Newsweek Magazine)

CONGRESSIONAL TAX INCENTIVES

U.S. Congress provides great tax incentives to stimulate private investment in drilling.

These incentives are not "Loop Holes" – they were placed in the Tax Code by Congress to encourage investment in oil and gas, thereby making drilling one of the best tax advantaged investments.

Well Work-over Tax Incentive (Texas)

• Tax exempt for the first 10 years from paying Texas Severance Tax

4.6 % Tax on oil 7.5 % Tax on natural gas.

INTANGIBLE DRILLING COST TAX DEDUCTION

The Intangible Drilling Cost (IDC) - labor, chemicals, mud,

grease, etc. - usually about 75% of the cost of a well. IDC is 100% deductible during the first year.

For example: a $100,000 investment would yield approximately

$75,000 reduction in taxable income during the first year of the venture. These deductions are available in the year the

money was invested, even if the well does not start drilling until March 31 of the following year.

(See Section 263 of the Tax Code.)

TANGIBLE DRILLING COST TAX DEDUCTION

Tangible Drilling Costs (TDC) are 100% tax deductible over a seven-year period.

In the $100,000 example above, that is $25,000.(See Section 263 of the Tax Code.)

ACTIVE VS. PASSIVE INCOME

• The Tax Code prohibits the offsetting of losses from “Passive” activities against investor’s “Active“ businesses.

• The Tax Code specifically states that a Working Interest in an oil and gas well is not a "Passive" activity,

Therefore, deductions can be offset against income from active stock trades, business income, salaries, etc. (See Section 469(c)(3) of the Tax Code).

SMALL PRODUCERS TAX EXEMPTION The 1990 Tax Act provided special tax

advantages for small companies and individuals. This tax incentive, known as the "Percentage Depletion Allowance", is specifically intended to encourage small investor to participate in oil and gas drilling. This tax benefit is not available to large oil companies The "Small Producers Exemption" allows 15% of the Gross Income (not Net Income) from an oil and gas producing property to be tax-free.

(See Section 613A of the Tax Code.)

ALTERNATIVE MINIMUM TAX (AMT)

The Tax Code specifically exempts Intangible Drilling Cost (IDC) as a

Tax Preference Item. "Alternative Minimum Taxable Income" generally consists of :

Adjusted gross income, minus allowable AMT itemized deductions, plus the sum of tax preference items and adjustments. "Tax Preference Items" are preferences existing in the Code to greatly reduce or eliminate regular income taxation. Included within this group are deductions for excess Intangible Drilling and Development Costs and the deduction for depletion allowable for a taxable year over the adjusted basis in the Drilling Acreage and the wells thereon.

Green Tax Breaks

• 2.1 cents per Kilo-Watt-Hour (For 10 Years)

• Full Depreciation in 5 years• Federal Cash Grants

Replaces the Capital Cost Tax Credit with Cash (30% of the Qualifying Cost)

• 50% Depreciation • MACRS – (Modified Accelerated Cost-Recovery System) • Bonus Depreciation• Investment Tax Credits

10% for Geothermal, 30% for Solar, Fuel Cells, and Small Wind Systems

Why Invest in Oil and Gas?• High Financial Rewards• Risk• Tax Benefits• Competition• Lease Costs are Low• Drilling Prospect Availability• Demand / Consumption• Limited Resource – We are Past “Peak Oil”• Price Forecast is Up • Technology• Environment• Government Likes Natural Gas and Dislikes Coal• Money is Tight for Small Oil Operators

Part 3 Project Overviews

73

Connecting projects with funding sources since 1983

Sample Projects

• Gulf Coast Well Recompletion Program (#9022)• Texas Over-thrust Exploration Venture (#9019)• Domestic Refinery Expansion (#9048)• High-risk Central Texas Drilling Venture (#9028)• Geothermal Electrical Generation (#9020)• Diesel Emissions Control (#9098) • Nuclear Power Plant (90xx)• Steam Enhanced Oil Recovery (90xx)• Biofuels Electrical Power Generation (#9023)• Ethanol From Wood Pulp• Alabama Wildcat Oil Well• Texas Gold Mining / Processing • Central Louisiana Well Work-over Program

“Hundreds of other projects available”

Direct Ownership of EnergyThe USA is only country in world where foreigners can own the oil and gas in the ground

• Oil • Natural Gas• Wind• Solar• Coal • Nuclear • Geothermal• Alternative Energy

Summary• Protect yourself from inflation• Buy oil in the ground at deep discount• Sell it later at Market Price• Virtually work and worry free• Ownership recorded at County Courthouse• Help USA become energy independent• Revive “dead” oil and gas wells • Automatic monthly payments to your bank• “Mail-Box Money” (For the next 10 - 20 years)

• Earn handsome profits• Smile as energy prices increase

The Oldest Energy Property Clearinghouse and

The First Website in the Petroleum Industry.

77

Connecting projects with funding sources since 1983

END

Texas Oklahoma

Kay and Pawnee Counties

Oil Consumption - Asia