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Home My WebLink About20162332.tiffAugust 10, 2016 Petitioner: FRONTIER DRILLING 1608 NW EXPRESSWAY STE 102 OKLAHOMA CITY, OK 73118-1440 CLERK TO THE BOARD PHONE (970) 400-4226 FAX (970) 336-7233 WEBSITE: www.co.weld.co.us 1150 O STREET P.O. BOX 758 GREELEY CO 80632 Agent (if applicable): RE: THE BOARD OF EQUALIZATION 2016, WELD COUNTY, COLORADO NOTICE OF DECISION Docket #: 2016-2332 Appeal #: 2008211221 Hearing Date: 8/4/2016 10:00 AM Dear Petitioner: On the day indicated above, the Board of County Commissioners of Weld County Colorado convened and acting as the Board of Equalization, pursuant to C.R.S. Section 39-8-101 et seq., considered petition for appeal of the Weld County Assessor's valuation of your property described above, for the year 2016. The Assessment and valuation is set as follows: Actual Value as Actual Value as Account # Decision Determined by Assessor Set by Board O9526224 Adjust - Denied in Part O9526225 Adjust - Denied in Part O9526267 Adjust - Denied in Part O9532240 Adjust - Denied in Part $4,752,000 $4,752,000 $3,358,948 $4,752,000 $4,086,720 $1,052,470 $4,086,720 $167,948 Totals: $17,614,948 4 Total Accounts $9,393,858 A denial of a petition, in whole or in part, by the Board of Equalization must be appealed within thirty (30) days of the date the denial is mailed to you. You must select only one of the following three (3) options for appeal: 1. Appeal to Board of Assessment Appeals: You have the right to appeal the County Board of Equalization's decision to the Colorado Board of Assessment Appeals. A hearing before that Board will be the last time you may present testimony or exhibits or other evidence, or call witnesses in support of your valuation. If the decision of the Board of Assessment Appeals is further appealed to the Court of Appeals pursuant to C.R.S. Section 39-8-108(2), only the record of proceedings from your hearing before the Board 02D/6, O2-33.2 -soo''A of Assessment Appeals and your legal brief are filed with the appellate court. All appeals to the Board of Assessment Appeals filed after August 10, 2016, MUST comply with the following provisions of C.R.S. Section 39-8-107(5): (5)(a)(I) On and after August 10, 2011, in addition to any other requirements under law, any petitioner appealing either a valuation of rent -producing commercial real property to the board of assessment appeals pursuant to section 39-8-108(1) or a denial of an abatement of taxes pursuant to section 39-10-114 shall provide to the county board of equalization or to the board of county commissioners of the county in the case of an abatement, and not to the board of assessment appeals, the following information, if applicable: (A) Actual annual rental income for two full years including the base year for the relevant property tax year; (B) Tenant reimbursements for two full years including the base year for the relevant property tax year; (C) Itemized expenses for two full years including the base year for the relevant property tax year; and (D) Rent roll data, including the name of any tenants, the address, unit, or suite number of the subject property, lease start and end dates, option terms, base rent, square footage leased, and vacant space for two full years including the base year for the relevant property tax year. (II) The petitioner shall provide the information required by subparagraph (I) of this paragraph (a) within ninety days after the appeal has been filed with the board of assessment appeals. (b)(I) The assessor, the county board of equalization, or the board of county commissioners of the county, as applicable, shall, upon request made by the petitioner, provide to a petitioner who has filed an appeal with the board of assessment appeals not more than ninety days after receipt of the petitioner's request, the following information: (A) All of the underlying data used by the county in calculating the value of the subject property that is being appealed, including the capitalization rate for such property; and (B) The names of any commercially available and copyrighted publications used in calculating the value of the subject property. (II) The party providing the information to the petitioner pursuant to subparagraph (I) of this paragraph (b) shall redact all confidential information contained therein. (c) If a petitioner fails to provide the information required by subparagraph (I) of paragraph (a) of this subsection (5) by the deadline specified in subparagraph (II) of said paragraph (a), the county may move the board of assessment appeals to compel disclosure and to issue appropriate sanctions for noncompliance with such order. The motion may be made directly by the county attorney and shall be accompanied by a certification that the county assessor or the county board of equalization has in good faith conferred or attempted to confer with such petitioner in an effort to obtain the information without action by the board of assessment appeals. If an order compelling disclosure is issued under this paragraph (c) and the petitioner fails to comply with such order, the board of assessment appeals may make such orders in regard to the noncompliance as are just and reasonable under the circumstances, including an order dismissing the action or the entry of a judgment by default against the petitioner. Interest due the taxpayer shall cease to accrue as of the date the order compelling disclosure is issued, and the accrual of interest shall resume as of the date the contested information has been provided by the taxpayer. Appeals to the Board of Assessment Appeals must be made on forms furnished by that Board, and must be mailed or delivered within thirty (30) days of the date the denial by the Board of Equalization is mailed to you. The address and telephone number of the Board of Assessment Appeals are: Board of Assessment Appeals 1313 Sherman Street, Room 315 Denver, Colorado 80203 Telephone Number: 303-864-7710 Email: baa@state.co.us Fees for Appeal to the Board of Assessment Appeals: A taxpayer representing himself is not charged for the first two (2) appeals to the Board of Assessment Appeals. A taxpayer represented by an attorney or agent must pay a fee of $101.25 per appeal. OR 2. Appeal to District Court: You have the right to appeal the decision of the Board of Equalization to the District Court of the /county wherein your property is located: in this case that is Weld County District Court. A hearing before The District Court will be the last time you may present testimony or exhibits or other evidence, or call witnesses in support of your valuation. If the decision of the District Court is further appealed to the Court of Appeals pursuant to C.R.S. Section 39-8-108(1), the rules of Colorado appellate review and C.R.S. Section 24-4-106(9), govern the process. OR 3. Binding Arbitration: You have the right to submit your case to binding arbitration. If you choose this option, the arbitrator's decision is final and you have no further right to appeal your current valuation. C.R.S. Section 39-8-108.5 governs this process. The arbitration process involves the following: a. Select an Arbitrator: You must notify the Board of Equalization that you will pursue arbitration. You and the Board of Equalization will select an arbitrator from the official list of qualified people. If you cannot agree on an arbitrator, the District Court of the county in which the property is located (i.e., Weld) will select the arbitrator. b. Arbitration Hearing Procedure: Arbitration hearings are held within sixty (60) days from the date the arbitrator is selected, and are set by the arbitrator. Both you and the Board of Equalization are entitled to participate in the hearing. The hearing is informal. The arbitrator has the authority to issue subpoenas for witnesses, books, records documents and other evidence pertaining to the value of the property. The arbitrator also has the authority to administer oaths, and determine all questions of law and fact presented to him. The arbitration hearing may be confidential and closed to the public if you and the Board of Equalization agree. The arbitrator's decision must be delivered personally or by registered mail within ten (10) days of the arbitration hearing. c. Fees and Expenses: The arbitrator's fees and expenses are agreed upon by you and the Board of Equalization. In the case of residential real property, the fess may not exceed $150.00 per case. For cases other than residential real property, the arbitrator's total fees and expenses are agreed to by you and Board of Equalization, but are paid by the parties as ordered by the arbitrator. If you have questions concerning the above information, please call me at (970) 400-4226. Very truly yours, Esther E. Gesick, Clerk to the Board Weld County Board of County Commissioners and Board of Equalization Cc: Christopher Woodruff, Weld County Assessor Weld County CHRISTOPHER M. WOODRUFF COUNTY ASSESSOR BRENDA DONES DEPUTY ASSESSOR VALUATION REPORT OF PERSONAL PROPERTY FOR County Board of Equalization Frontier Drilling PE11T1ONER Vs. WELD COUNTY ASSESSOR'S OFFICE RESPONDENT Schedule Number: O9526224 +3 Log Number: Date: 8/4/2016 Time: 01:30 PM Board: Board #1 PREPARED BY Sean McElroy 08/03/16 Signature Date ASSESSOR'S OFFICE STAFF APPRAISER Personal property is everything that is the subject of ownership and that is not included in the term 'real property'. This includes machinery, equipment and other articles related to a commercial or industrial operation that arc either affixed or not affixed to the real property. Drilling rigs are classified as personal property. Personal Property values shall be determined by appropriate consideration of the Cost Approach, Market Approach, and Income Approach to value. § 39-1-103(5)(a) C.R.S. Page 3.01 in the Colorado Assessor Reference Manual states For Colorado personal property assessment purposes, the actual value is the value in use, as installed. Colorado statutes require that personal property be valued inclusive of all costs incurred in acquisition and installation of the property. The costs of acquisition, installation, sales/use tax, and freight to the point of use must be considered in the personal property valuation. The inclusion of these costs requires that personal property be valued in use. Therefore, the actual value of personal property is based on its value in use. Furthermore page 3.19 of the Colorado Assessor Reference Manual states The assessor is appraising property at value in use not at liquidation value. ASSESSOR'S CURRENT VALUE Account # O9526224 O9532240 O9526267 O9526225 Total Description Drilling Rig #8 Drilling Rig #9 Drilling Rig #10 Drilling Rig #26 ECONOMIC OUTLOOK US ECONOMIC CONDITIONS Actual Value $4,752,000 $195,288 $3,358,948 $1,223,803 $9,530,039 The US economy did expand in 2015 at a rate of 2.5 percent.' Personal income rose 2.6 percent during 20152. The unemployment rate also improved throughout 2015 ending in December at 5.0%.' The following is an excerpt from the 2016 Economic Forecast for Metro Denver. The United States continued on an expansionary path through 2015, as all jobs lost during the recession were recovered by mid -2014 and employment growth occurred in 49 of 50 states in 2015. The nation's businesses generated over 2.9 million jobs in 2015, the most jobs created in a single year since 1999 when the economy added 3.1 million jobs. The unemployment rate fell to 5.3 percent in 2015, recording the lowest unemployment rate since 2007. With significant improvement in the national employment situation and strong consumption measures, the Federal 1 2016 Colorado Business Economic Outlook. p. 7. CU Leeds School of Business University of Colorado Boulder Business Research Division ==' Ibid, p 7 Bureau of Labor Statistics (accessed July 25, 2016); available from http:,!www.bls.gov! 2 Reserve decided to raise the target federal fiends rate for the first time since 2008, raising the range to 0.25 to 0.5 percent in December 2015. Following trends that started in mid -2014, the price of oil continued to rapidly decline through 2015. The spot price for West Texas Intermediate crude oil dropped from a monthly average price of $106 per barrel in June 2014 to $37 per ban -el in December 2015. The decline in oil prices is beneficial to consumers as they have more money in their pockets to spend on other goods and services; however, major oil - producing states have reduced employment and shut down low producing wells in response to the downturn.' COLORADO CONDITIONS The following is an excerpt from the 2016 Economic Forecast for Metro Denver. Colorado is expected to be among the top 15 states for employment growth during 2015, as preliminary numbers suggest a 2.9 percent increase in jobs in 2015. The employment base will expand by about 65,800 jobs in 2016 to nearly 2.6 million workers, a 2.6 percent increase. The natural resources and construction, education and health services, and professional and business services supersectors arc expected to lead the state in employment growth through 2016. Personal income growth will accelerate in 2016 to 5.3 percent due to increasing wages, rising housing prices, and increased investment. Falling unemployment and rising personal income bode well for consumer spending in 2016. Retail trade sales increased by about 4.8 percent in 2015 as consumers had more discretionary spending due to increased income, low inflation, and historically low fuel prices. Retail trade sales are expected to increase at a faster pace of 5.4 percent in 2O16. INDUSTRY CONDITIONS The oil and gas industry has seen a large downturn in activity mostly due to the slide of the price of oil from averaging $96.25 a barrel in 2014 to averaging $50.79 a barrel in 2015. Average WTI Price $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 ,,u.uu 2011 2012 2013 2014 2015 Average WTI Price $103.94 $105.01 $104.07 $96.25 $50.79 42016 Economic Forecast for Metro Denver. p. i. Denver Metro Chamber of Commerce. { 2016 Economic Forecast for Metro Denver. p. i. Denver Metro Chamber of Commerce. 3 The number of rigs operating in the United States has fallen as a result of the downturn. Average Number Of Operating Rigs 80 60 40 20 0 2011 2012 2013 2014 2015 • Average Number Of Operating Rigs The decrease in oil price has resulted in a reduction in the number of new wells drilled in Weld County for 2015, 1084 down from 1560 in 2014. Well 2000 Starts Per Year 1672 1457 1560 1500 1311 1000 1084 500 0 2011 2012 2013 2014 2015 Well Starts Per Year ECONOMIC SUMMARY The oil and gas industry has seen a large drawback due to the sharp decline of crude prices. The low crude prices have affect most businesses related to the oil and gas industry. Drilling rigs have been shut down and stacked, resulting in liquidation sales and lower valuations. Economic adjustments have been taken into consideration for this appraisal. 4 HISTORY OF SUBJECT PROPERTY Below is an excerpt from Frontiers website. Formed on April 12, 2005 by Mac McAlister, Frontier Drilling is a private land drilling contractor headquartered in Denver, Colorado and Oklahoma City, Oklahoma. Operating predominantly in the Rocky Mountain region, Frontier has become a reputable benchmark in the drilling industry. Dedicated to provide the best quality drilling service to its operators, Frontier Drilling firmly believes in: • Hiring and training highly qualified rig crews. • Upholding the highest safety principles. • Providing and maintaining the finest quality drilling equipment • Setting exceptionally high expectations for performance and integrity. By utilizing a state of the art and well maintained rig fleet, Frontier's dedicated and experienced personnel are trained to meet any operational challenge that may arise in the field. Frontier Drilling is committed to providing quality service and value to the U.S. land drilling market.° ()Frontier Drilling (accessed July 27, 2016); http: /frontierdrilling.netithe-company 5 COST APPROACH NARRATIVE The Colorado Division of Property Taxation (DPT) publishes tables that are used in the cost approach to establish the value. An inflation factor is used to calculate the replacement cost new (RCN) values for all reported equipment. Then an economic life for the equipment is determined and an age for the equipment is calculated. With an economic life and an age determined for the equipment, a percent good is applied to the RCN value for the equipment to find the replacement cost new less depreciation (RCNLD) value. A level of value (LOV) is then applied to the RCNLD to reach the actual value for the equipment. The LOV is used because §C.R.S. 39-1- 104( I 2.3)(a)(I) requires personal property to be adjusted to the June 30 appraisal date. The DPT tables have been attached to this report. The cost trending factors are derived from Marshall Valuation Services. The economic life tables are developed from the IRS, Marshall Valuation Services and other sources. The percent good tables are assembled from the Iowa State University property retirement & depreciation studies. The minimum value on the general percent good table is 15% because Colorado is a value in use state. This means that nothing is ever fully depreciated as long as it is in use. For technologically advanced personal property the floor value is 7%. After this the Assessor is required to apply any economic obsolescence that exists. We determined that economic obsolescence did exist in the oil & gas drilling/service industry. We determined that the appropriate adjustment for economic obsolescence was an additional 27% reduction. Due to the cost for the drilling rigs not being provided, the Weld County Assessor has used the Hadco table of established replacement cost new (RCN) values to establish a cost value. Below are two tables showing how the cost value was arrived at. Account Rig # Depth RCN Year Acquired Percent Good Economic RCNLD Obsolescence O9526224 8 18000 $13,500,000 2010 51% -27% $5,026,050 O9532240 9 18000 $13,500,000 2010 51% -27% $5,026,050 O9526267 10 18000 $13,500,000 2010 51% -27% $5,026,050 O9526225 26 18000 $13,500,000 2010 51% -27% $5,026,050 Total $54,000,000 20,104,200 Account Rig it RCN LD Rollback to June 30, 2014 Total Actual Value Days In Weld Prorated Actual Value 2016 Actual Value O9526224 8 $5,026,050 .99 $4,975,790 365 $4,975,790 $4,975,790 O9532240 9 $5,026,050 .99 $4,975,790 15 S204,485 $204,485 O9526267 10 $5,026,050 .99 $4,975,790 365 $4,975,790 4,975,790 O9526225 26 $5,026,050 .99 $4,975,790 94 $1,281,436 $1,281,436 Total 20,104,200 S19,903,160 $11,437,501 6 COST APPROACH VALUE $11,437,501 MARKET APPROACH Pursuant to the Colorado Revised Statutes the Assessor has considered the Market Approach. This approach is an appraisal technique in which the market value estimate is predicated upon prices being paid in the actual market. It is a process of correlation and analysis of similar recently sold properties. The reliability of this technique is dependent upon: 1. The degree of comparability of each property with the property under appraisal; 2. The time of the sale; 3. The verification of the sale data; 4. The absence of unusual conditions affecting the sale. The market derived fourth quarter of 2015 tables published by Hadco International LLC were used, they are attached to this report. This table is derived from sales of drilling rigs that occurred in the fourth quarter of 2015. Three pieces of information are required to value the rigs with this market table, the depth capacity for the rig, the overall condition of the rig and if the rig has a top drive or not. The rated depth capacity of the rig was provided by Frontier Drilling for each rig. The following information was used to determine the value of the rig by condition. Good Operating condition is 100%. No known or obvious mechanical defects, but the rig may have some minor worn parts that will need repair or replacement in the near future. May have high hours of use, but no defects are obvious. Fair Has very high hours, indicating extended use. Defects are obvious and will require repair or general rebuilding soon. Not 100% functional or efficient, rigs may be operational or functional, but questionable as to how long this will continue. Also if the rig was stacked for the entire time during 2015 it was in Colorado it was rated as Fair. Whether or not the rig had a top drive was provided by Frontier Drilling for each rig. With this information a value can be picked from the Hadco market tables for the rig. The Hadco market tables do not include the valuation of a top drive and associated automation. This is an additional add on to the value for rigs with a top drive. Once a value has been derived from the market approach a level of value (LOV) is then applied to the market value to reach the actual value for the equipment. The LOV is used because §C.R.S. 39-1- l 04(12.3)(a)(I) requires personal property to be adjusted to the June 30 appraisal date. Finally §C.R.S. 39-5-113.3(2) requires that drilling rig actual values be prorated for the number of days that they are located within the county. 7 Below are two tables showing how the market values were reached for each of Frontier Drilling's rigs. Account Rig # Depth Condition Top Drive Hadco Value Top Drive Add On Total Market Value O9526224 8 18000 Good Ycs $4,200,000 $600,000 $4,800,000 O9532240 9 18000 Good Yes $4,200,000 $600,000 $4,800,000 O9526267 10 18000 Good Yes $4,200,000 $600,000 $4,800,000 O9526225 26 18000 Good Ycs $4,200,000 $600,000 $4,800,000 Total $19,200,000 Account Rig t Total Market Value Rollback to June 30, 2014 Total Actual Value Days In Weld Prorated Actual Value 2016 Actual Value O9526224 8 $4,800,000 .99 $4,752,000 365 $4,752,000 $4,752,000 O9532240 9 $4,800,000 .99 S4,752,000 15 S195,288 $195,288 O9526267 10 $4,800,000 .99 $4,752,000 365 $4,752,000 $4,752,000 O9526225 26 $4,800,000 .99 $4,752,9_09 94 $1,223,803 $1,223,803 Total $19,200,000 19,008,000 $10,923,091 The values on these accounts were originally derived from the information filed on the 2016 Oil and Gas Rotary Drilling Rig Declarations for Rigs 8 and 10. Rigs 9 and 26 were not reported on declarations. We used the best information available to arrive at a value, additional information was provided during the Assessor appeals process. Economic obsolescence does not need to be further deducted from the market approach because it is inherent in the sales that the values are derived from. The rig values for these rigs decreased 43 percent from 2014 to 2015. MARKET APPROACH VALUE $10,923,091 INCOME APPROACH Pursuant to the Colorado Revised Statutes the Assessor has considered the Income Approach to value on Personal Property. This approach considers value in relation to the present worth of future benefits derived from ownership and is usually measured through capitalization of a specified level of income. This approach is the least common approach used in the valuation of machinery and equipment, since it is difficult to isolate income attributable to such assets from the income attributable to the services received from the assets. Drilling rigs are one of the few assets that the income can be isolated to assets and not the services received from the assets. Due to the day rate and daily expenses not being provided for these rigs, the Weld County Assessor has not derived a value using the Income Approach. 8 CONCLUSION The subject property has been classified as Personal Property for property tax purposes. Personal Property values shall be determined by appropriate consideration of the Cost Approach, Market Approach, and Income Approach to value. §39-1-103(5)(a) C.R.S. The Assessor reviewed the Cost, Market and Income approach to value and selected the Market Approach as the most accurate method for determining the value. Alter consideration of the three approaches, it is the Weld County Assessor's request that the value be set at $10,923,091 for the tax year 2016. FINAL VALUE Account # J Description Current Value Cost Value Market Value Recommended Value O9526224 Drilling Rig #8 $4,752,000 $4,975,790 $4,752,000 $4,752,000 O9532240 Drilling Rig #9 $195,288 $204,485 $195,288 $195,288 O9526267 Drilling Rig #10 $3,358,948 $4,975,790 $4,752,000 $4,752,000 O9526225 Drilling Rig #26 $1,223,803 $1,281,436 $1,223,803 $1,223,803 Total $9,530,039 $11,437,501 $10,923,091 $10,923,091 ADDENDUM 4-C - ECONOMIC LIFE ESTIMATES PROPERTY TYPE Recommended Economic Life (years) COMMERCIAL Wholesale/ retailpersonalproperty 9 Adding machines, calculators 6 All -terrain vehicles (ATVs): (for additional information, see Chapter 7) 6 Amusement parks 12 Automated teller machines (ATMs): (see Chapter 7) Computer, -electronic components/portion 4* Structural housing 10 Autorepairshops 10 Bankvaultdoors 20 Barber and beauty shops 10 Cable/Satellite television: (for additional information, see Chapter 7) 4 to 11 Computers — personal & accessories 3* Computers — other and stand-alone peripherals 4* Computer — integrated personal property 4 Construction personal property, general 6 Copiers 4* Data handling personal property, except computers 6 Electronic personal property, except computers or gaming 6 Furnishings 10 Gaming: (see Chapter 7) Electronic (e.g., slot machines) 5 Larger gaming personal property (e.g., tables) 10 Gas station personal property: Electronic fuel pumps 6 General 10 Tanks (e.g., above ground, propane, septic) 10 Tanks (e.g., below ground, double -walled, fuel) 20 Hydroelectric Generators 20 Golf carts 6 Laundry and dry cleaning 10 Machinery (not otherwise listed) 10 Medical personal property: (for additional information., see Chapter 7) 3 to 10 Meter and stamp personal property 6 Office furniture 10 Pedicabs 10 Photo processing personal property (electronic) 6 Port -a -potty 10 Radio and television broadcasting 6 Recreation and amusement 10 Restaurant and bar (all) 10 Renewable energy property 20 Commercial Continued on next page * Use appropriate technologically advanced computer percent good table 2015. Sources: Division of Property Taxation, Marshall Valuation Service, &I.R.S. 10 ADDENDUM 4-C - ECONOMIC LIFE ESTIMATES CONTINUED... PROPERTY TYPE Recommended Economic Life (years) COMMERCIAL (continued) River Rafts 10 Shopping carts 5 Signs (billboard and monument) 20 Signs(other) 10 Signs (electronic) 6 Snow cats: (for additional information see Chapter 7) Heavy use (e.g., snow -grooming operations) 6 Moderate use (e.g., transportation operations) 10 Storage tanks: Tanks (e.g., above ground, propane, septic) 10 Tanks (e.g., below ground, double -walled, fuel) 20 Telecommunication personal property: 1--Iigh Tech (excluding towers) 4* Theater 10 Towers 20 Typewriters 6 Vending machines 10 Video machines (arcade) 6 NATURAL RESOURCES Mining - Metallic and Nonmetallic All draglines, large cranes (with 50+ ton lift capacity) 20 Electric mining shovels 15 Other mining, quarrying, & milling personal property 10 Petroleum and Natural Gas Exploration, drilling 6 High-technology drilling rigs 10 Production (excluding pipelines) 14 Marketing, retail 9 Machinery (not otherwise listed) 10 Refining 16 Timber Logging 6 Sawmills, permanent 10 Sawmills, portable 6 * Use appropriate technologically advanced computer percent good table 2015. 11 4.13 ADDENDUM 4-C - ECONOMIC LIFE ESTIMATES CONTINUED... PROPERTY TYPE Recommended Economic Life (years) INDUSTRIAL Aerospace 10 Apparel and fabricated textiles 9 Bakeries and Confectionery 12 Brewery 12 Canneries and frozen food 12 Cement manufacture 20 Cereal, flour, grain and mill products 17 Chemicals and related products 10 Clay and gypsum products 15 Concrete manufacture 15 Dairy products manufacturing 12 Electrical personal property manufacturing 10 Electronic personal property manufacturing 6 Fabricated metal products 12 Food and beverage production 12 Special handling devices 4 Forklifts 10 Glass and glass product 14 Grain Bins 20 Jewelry 12 Lumber, wood products and furniture 10 Machinery (not otherwise listed) 10 Meat packing 12 Motion picture and television production 12 Paint and varnish 10 Plastics and plastic products 11 Printing and publishing 11 Professional and scientific instruments 10 Paperboard and pulp 10 Rubber products 14 Refining personal property 16 Semi -conductor manufacturing: General 5 Research and development 3 Test personal property 5 Wafer fabrication 3 Soft drink bottling 12 Special tools (all industries) 3 Steel and related products 15 Stone products 15 Sugar and sugar products 18 Sources: Division of Property Taxation, Marshall Valuation Service, & I.R.S. 13 4.14 ADDENDUM 4-D - PERCENT GOOD TABLES 2015 GENERAL PERCENT GOOD TABLE Average Economic 3 4 5 6 7 8 9 10 Life in Years 11 12 13 14 15 16 17 18 19 20 Effective Age tm 00 -1 CA C!i a W N I p OC QN LA a W N 68 76 82 85 88 90 91 92 93 94 95 95 96 96 97 97 97 98 38 53 63 70 75 79 82 85 87 88 89 91 92 92 93 94 94 95 17 33 46 55 63 68 73 76 79 82 84 86 87 88 90 91 91 92 15 18 31 41 50 58 63 68 72 75 78 80 82 84 86 87 88 89 15 18 30 39 47 54 59 64 68 72 75 77 80 82 83 85 86 15 19 28 37 44 51 57 61 65 69 72 75 77 79 81 83 15 20 29 37 43 49 55 59 63 67 70 73 75 78 80 L5 21 28 35 42 47 53 58 62 65 68 71 74 76 15 21 28 34 41 47 52 56 60 63 67 70 72 15 22 28 35 40 46 50 56 59 63 66 69 15 23 28 35 41 46 50 54 58 62 65 ------------------------------------ 19 24 28 35 40 45 48 53 58 61 15 20 24 31 34 40 43 49 54 57 15 22 25 31 36 39 45 49 53 16 20 26 32 36 41 45 49 15 18 21 27 32 37 41 45 15 20 22 28 32 37 41 15 22 24 28 33 37 18 20 25 29 33 15 16 21 26 30 15 18 23 27 15 20 24 17 21 15 19 1 17 15 Source: Division of Property Taxation Rate Applied: 8.9% 14 ADDENDUM 4-E - LEVEL OF VALUE FACTORS 2015 PERSONAL PROPERTY LOV FACTOR TABLE June 30. 2014 Level of Value Industry Category Number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Fixtures & Leasehold Imps LOV Factor 1.00 1.00 0.99 0.99 1.00 0.99 1.00 1.00 0.99 1.00 1.00 0.99 1.00 1.00 0.99 Source: Division of Property Taxation and Marshall Valuation Service 15 Fr•rfi&tEAC 5 6. CO•VIJ LING SFiECF`S T NEWSLETTER PO Box 1465 Conroe,Tex-as • 77205 • Ph rie (936). 763-122C - Fa , 19:93; 7E3:]-1121 FOURTH QUARTER 2015 PRICE INDEX UPDATES 4TH QUARTER RIG COUNTS DROPPING f QUARTERLY MARKET COMMENTS OUTLOOK FOR 15T QUARTER 2016 EQUIPMENT PRICES M A R K ET INDEX / INDICATORS ot QUARTER 2015 VitTI ; NW EX CRUDE OIL PRICE R.ANGE,;bMMt I $33 -X43 Henry FlulaiNYMEXNATURAL GAS PRICES RANGE, iMMBTLJ 1 S3 -32.24 LAND DRILLING RIG UTILIZATION FROM RIGDATA REPORTS atm QTR 19%1650 ACTIVE DRILLING RIG SALES VERY SLOW V' OTR 2015 PRICE INDEX CHANGE -14.3" ea QTR 2095 PRICE INDEX CHANGE ... 42.4% G!� 'I 5 PRICE INDEX CHANGE R -17.3% 4 QTR 2O15 PRICE INDEX CHANGE -11.2% t OTR 2415 DRILLING RIG OUTLOOK -15% FORECAST SERVICE RIG UTILIZATION USA & CANADA {AVGl 45% 112174 ACTIVE SERVICE RIG SALES , •.. VERY SLOW 1_ CST R 2015 PRICE INDEX CHANGE • -I5% 2CTR 2015 PRICE INDEX CHANGE * -15% 3 OTR 20.1$ PRICE INDEXCHJANGE 1 -20% el OTR 2015 PRICE INDEX CHANGE -15% 1" QTR 20.6 SERVICE RIG OUTLOOK _* t -20% FORECAST 4`"QTR USED DRILL PIPE INDEX -15.O% 4"" QTR NEW DRILL PIPE INDEX 440,0% 4 QTR USED DRILL COLLAR INDEX ' -10,0% 41"' QTR NEW DRILL COLLAR INDEX ; -10,0% PRODUCTION EQUIPMENT SALES DECREASINGI nrHALlr 2015 PRODUCTION EQUIPMENT PRICE INDEX -20.09E HALF 2015 PRODUCTION EQUIPMENT PRICE INDEX -30.0% rill HALF 2016 PRODUCTION) _ EQUIPMENT PRICE INDEX ' -•15.04,6 FORECAST OVERALL MARKET CONFIDENCE ' I DECREASING OVERALL INVESTOR CONFIDENCE 4 DECREASING 2015 RECAP & 2016 OIL OUTLOOK DRILLING RIG & EQUIPMENT PRICES CONTINUE DECLINE 4Th QUARTER 2016 MARKET COMMENTS As we closed out the 4'"' quarter of 2O15, some analysts tell us that this slump is worse than what was seen in 1986. OPEC's meeting held December 4th in Vienna, forecasted global demand for oil to increase by 1.3 mbfal, while non -OPEC markets are expected to continue Contraction. WM sanctions lifted, w5 expect that Iran's oil stockpile will hit the market some time in February. We expect a further dip in oil prices. which will further cripple an already weak domestic market. With each quarter, we continue to see decreasing domestic oil production and rig utilization; resulting in continued heavy auction activity and increasing levels of surplus oilfield equipment, drill pipe, and drill collars. In the 1u half o€ 2015, production equipment sales decreased by 20%, as well as a 30% decline for the 2nd half of 2015. Used drill pipe prices have decreased by 15%, new drill pipe decreased y and drill collars, both new end used, declined in QUARTER 2016 FORECAST We predict that the 1"• quarter of 2016 will show continued decline. We forecast that drilling rig values vvill decline 155% and well service rigs will decline 20%. 16 DEPTH RATING FIRST QUARTER 2015 DRILLING RIG PRICE INDEX Percentage of Change from previous Quarter FAIR GOOD VERY GOOD EXCELLENT AVERAGE Up to 2504' °' -34.0% -25.0% -25,0% -25.0% -25,51.4, 2501to 5000' 5001, to 7500 0' -34.9'% -25.0% -25.0% -25.0% -25.3% 40.0% -25.0% -25, -25.0% -25. 7501' to 10000' -30.01% -25.0% -25.0% -25.0% -25.5% 10001' to 12500" -30.0% -20.0% -20,00% -20.0% -20.8% 12501' to 15000' -13.0% 421% -9.8% -5.7% -4,9% 15001' to 175001 -12.5% -11.9% -9.0% -5.3% -8,3% 17501' to 20000` -15.0% -11,0% -112% -8.0% 1 -10.3% Over 200001 -23.1% -115.3% p -15.4% -12.2% 44.6% All Average -20.3% -15.5% t 44S% 12 3% -14.3° 6 DEPTH RATING SECOND QUARTER 2015 DRILLING RIG PRICE INDEX Percentage of Change from previous Quarter FAIR GOOD VERY GOOD EXCELLENT AVERAGE Up to 2500' 2501' to 5000 5001' to 7500' 7501' to 10000' -30.0% -30.0% -30,0% -300.0% -30,0% -30.0% -300% A -30.0% -30.0% -30.0% -30.0% -30.0% -30.0% - 30.0% - 30,0% -30.0% 40.0% -30.0% -30.0% -30.0% 10001' to 12500' 40,0% 40.0`u 12501' to 150001 -20.0% -20.0% -30.0% 40.0% -30,0% -20.0% -20.0% 15001' to 17500' -20.06 -20.0% -20.0% -20.0% -20.0% -20.0% 17501' to 20000 Over 20000' -2a.0°_.. -20.0% -20,0% -20.0% All Average -22.4% -22.5% -20.0% -20.0% -20.0% -20.0% -22.5% -22.4% THIRD QUARTER 2015 DRILLING RIG PRICE INDEX Percentage of Change from previous Quarter VERY GOOD EXCELLE -20.0% -20.0% -2'1'..4% AVERAGE I Up to 2500' ' -20,0% 0, -20.0% -20.0% -200% 2501' to 5010' -20.1% -20,0% t -20.0% -20.0% ..� .__ -20.0% 5001 to 7500' I -20.0% -2.4.0% -20,0% -20.0% -20.0% 7501' to 10000' • -20.0% -20.0% -20. -20.0% -20.09 10001' to 12500' 12.501' to 150[14]' ; -20,0% -20.0% -20.0% w -20.0% -20.0% . -15-0% -10.0% -10,0% -10.0% -10.0% 15001 to 17500' -15.0% -10.0% 40.0% -10.0% -10.4% 17501' to 20000' -15-0% -10.0% -10.0% -10.0% -10.0% Over 20000' -20,0i% -20.0% -20.0% -20,0% -20.0% All Average -17.21% • -17.2% _ -"17.3% -17.4% -17.3% DEPTH RATING FOURTH QUARTER 2015 DRILLING RIG PRICE INDEX Percentage of Change from previous Quarter FAIR GOOD VERY GOOD EXCELLENT AVERAGE j to 2500' -13.3% -0.7% -10.7% -12.3% 3% 2501' to 5000' -14.9% -10.7% 4.8% -9,9% ' -8.7% _ 5001' to 7500' -9.9% -10.7% -10.7% -11.6% T -11.0% -102% . 7501' to 10000' -102% -12.7% -9.9% -9.1% 10001' to 12500' -6.0% -9.9% -1O.7% I -10,6 -10.2°% 12501' to 15000' -7,6% -11.4% -9.3% -9,7% -9.8% 15001' to 17500 -7.4% -10.5% -101% -11.1% -10.4% 17501' to 20000' -11-3% -10.3% -X1,4% _ -9.4% 9.7% Over 20004' -16.7% -15.4% t -14,8% -14.9% -15.1% All Average -10.7% .... .......-11,7% 1 -10.8% -11„3% -11.2% WE APPRECIATE ANY DATA YOU SNARE WETTI US FOR THE NEXT PRICE INDEX UPbATE 2 17 QUARTERLY DRILLING RIG PRICE CHANGE INDEX BY DEPTH AND CONDITION, ROUNDED BY QUARTER IN US DOLLARS (THOUSANDS) DEPTH RAT1NG FAIR GOOD V GOOD EXCELLENT ALL AVG. UP TO 2500 1Q15 175,0 225,0 450.0 712..5 391.0 2Q15 122.5 157,5 315.0 499..0 273.5 3015 98.0 126.0 252,0 399..0 218.5 4015 85.0 115.0 225,0 350.0 193,8 2501 TO 5000 1015 210.0 750.0 1125.0 1387.5 868.0 2015 147.0 525.0 787.5 971.0 607.5 3015 117.5 420.0 630.0 776.5 486.0 4015 100.0 375.0 600.0 70{1.0 443.8 5001 TO 7500 1015 525.0 1200.0 1500.0 2625.0 1462.5 2015 367.5 840,0 1050.0 1837.5 10233 3015 294,0 672.0 840.0 1470.0 819..0 4015 265,0 600.0 750,0 1300.0 726.8 7501 TO 10000 1015 875.0 2250,0 2775.0 4125.0 2506.0 2015 612.5 1575.0 1942.5 2867.5 1754.4 3015 490.0 1260.0 1554,0 2310.0 1403.5 4015 440,0 1100.0 1400.0 2100.0 1260.0 10001 TO 12500 1015 2Q15 3Q15 4015 12501 TO 15000 1015 2015 3015 4015 15001 TO 17500 1Q15 2015 3015 4015 17501 TO 20000 1015 2015 3Q15 4015 OVER 2O000 1415 2015 3015 4015 ALL AVERAGE 1Q15 201► 3015 4015 1330,0 4160.0 6000,0 8000.0 4872.5 931.0 2912,0 4200.0 5600.0 3410,8 744.0 2329.6 3360.0 4480.0 2728.6 700,0 2100.0 3000.0 4000,0 2450,0 2000.0 5800.0 7500.0 10000.0 6325.0 1600,0 4640.0 6000.0 8000.0 5060.0 1440.0 4176.0 5400.0 7200.0 4554.0 1330.0 3700.0 4900.0 6500.0 4107.5 2100,0 5900.0 8500.0 12500.0 7250.0 1660.0 4720.0 6800.0 10000,0 5800.0 1512.0 4248.0 6120.0 9000.0 5220.0 1400.0 3800,0 5500.0 8000.0 4675.0 2975.0 6500.0 9500.0 13800.0 8194.0 2380.0 5200.0 7600.0 11040.0 8555.0 2142,0 4660.0 6840.0 9938.0 5899.5 1900.0 4200.0 6200.0 9000.0 5325.0 3000.0 7200.0 11000.0 18000.0 98000 2400.0 5760.0 8800..0 14400.0 75140.0 1920.0 4608.0 7040.0 11520.0 6272,0 1600.0 3900,0 6000.0 9800.0 5325.0 1465.5 3776.1 53722 7905.5 4629.8 1137.8 2925.5 4166.1 6137.2 3591.7 973.1 2502.2 3559.56 5232.4 3066.8 868.9 2210.0 3175.0 4:438.9 2723.2 3 18 90111 5403.8 4838.9 2723.2 F4C.T CAPABLE OF WORKING, USUALLY MISSING MAJOR COMPONENTS, Prolonged Uncertainty While we would like to remain optimistic for 2016, we foresee in the short term that oil prices will continue to fluctuate. We hope to not see the same steep loss in value as we saw in late 2014 and early 2015, but by our estimates., we predict further losses in value into sate 2016, according to Duke Coonl, President and Chief Executive Officer of Hadco internationals LL. Looking to 2016, oil prices will likely fluctuate at these lower levels as the market seeks to rebalance at current supply/demand dynamics, Current oil prices will continue to cripple domestic producers, while industry SY DEPTH DEPTH RATING UP TO 2500 4O14 4015 2501 TO 5000 4014 4015 5001 TO 7500 4O14 4015 7501 TO 10000 4014 4015 10001 TO 12500 4Q14 4015 12501 TO 15000 4014 -1015 15C,C1 TO 17500 40-14 4015 17501 TO 20000 4014 4015 OVER 20000 4014 4015 ALL AVERAGE 4014 4015 ONE YEAR DRILLING RIG PRICE CHANGE At4D CONDITION, ROUNDED BY QUARTER IN US DOLLARS (THOUSANDS) VERY GOOD EXCELLENT AVERAGE FA[R GOOD 250.0 3004 55.0 115.0 300.0 1000.0 100.0 375.0 750.0 1600.0 265.0 600.0 1250 0 3000.0 440.0 1100.0 1900.0 5204.0 700.0 2100.0 2300.0 6600.0 1330_0 3700,0 2400.0 6700.0 1400.0 3800.0 3500.0 7350.0 1900.0 4200.0 3900.0 8500.0 1600.0 3900.0 600,0 950.0 525.0 225.0 350.0 193.8 1500.0 1650,0 1162.5 600.0 700.0 443.8 2000_5 3500.0 1952.5 750.0 1300,0 728.8 3700.0 5500.0 3362.5 1400.0 2100.0 1260.0 7500.0 10000,0 6150.0 3000.0 4000.0 2450.0 8300.0 10600.0 6950.0 4900.0 6500,0 4107.5 9340.0 13200.0 7910.0 5500.0 8000.0 4675.0 10700,0 15000.0 9137.5 62000 9000.0 5325.0 13000.0 20500.0 11475.0 6000.0 910.0 5325.0 1838.8 4472.2 6293.3 868.9 2210.0 3175.0 PECIAi ATE • IN P€ H C[lNDI RARELY HAVE PIPE OR COLLARS. IN GENERAL, POOR CONDITION AVERAGES ABOUT 3.0% OF THE FAIR CONDITION R'ATIPIS.. SHORT TERMVi OUTLOOK FOR OIL & GAS analysts are seeing only turmoil ahead in the near future. Devastatinc Co nseg uences As we see more of the smaller businesses fail, one serious side -effect continues to be thi market saturation of surplus productiol equipment available at auctions for historic loAi prices, in 2016,considering the impact on Ulf industry's workforce, Graves & Co. estimate that 250,000 jobs have been affected since th slump began in late 2014. In 2016 we expec to see more workforce reductions, 4 CectIinued on Page I 19 Ding Depth in Fee t <2500 ft 4O14 Nal 4{15 a 1501-5040 ft 4014 dQi.5 try 5001--7500 ft 4O14 tt 4015 Ds E1 7541-1fld4ib ft 4014 lir-7777 4015 CC. 1,0001— 2$4o ft do1la spor- ztiE_I 4015 F 13001-15000 ft 4014 4415 15004,-5,,500 ft 4Q14 4015 1750124044 It 4O14 4015 RIG VALUES BY DRILLING DEPTH Q4 2014 and O4 2015 Comparison >20000 ft 4014 4Q15 III HUI SI WIND 4ttr WOO a IXCIL EIO tffffffif . Q O G sir C 0. q a q + fl � F. .y M N a 4 PI Pd 8 a "V*Mu,In US Collars Iteorndod to Thousands a a M a ga a O a M5 g I2 d S} Q (SHORT TERM OUTLOOK continued) Lenders and Borrowers Affected In the short term, the longer we are in a contracting period, we will continue to see more economic losses over the next year. Banks and lending institutions with energy assets in their portfolio are preparing for significant losses in 2016 by increasing loan loss reserves. This is unfortunate news for those in the energy sector who are struggling to survive, as they are facing significant hurdles to obtaining funding in an effort to stay afloat, while credit resources are drying up. Unfortunate Strategy OPEC's strategy of maintaining current levels of production has been effective in S decimating the competitors and it seems that they are prepared to continue this strategy for as long as they feel necessary to drive out as many domestic producers as possible. Oils producing countries such as Venezuela, Brazil, and Russia are also continuing to suffer, and the financial impact and humanitarian implications on a global scale are unknown at this time. twookin4 Forward We hope that in 2016, we will begin to see stabilization in the market. While the immediate future is uncertain, we will weather this storm as we 113 VG many times before. 20 DRILLING RIGS PRICE INDEX AVERAGE PRICE CHANGE ALL RIGS AVG CHANGE FROM PREVIOUS QUARTER eAR 1 S OTR tD 3Ra QTR 4Tl1 QTR 20fh +9.6% .69.8% +2.6% � 2002 +2_0% -t4 6":'s3 rfpV .3lQ 2.00;3 +61,44!% +1.0t: 3.1%. _ +3.2% 2004 +0.5°v_• +4,9% 2.3% *i.U''k 200)5 +4.5°to +,#o +$.6° 2005 +8.8% +2.7% +2.346 2007 +11% *1.1% 11'% +3.29 2006 ?4..9% _ 5..8 -0.T% 2009 -9.1% -9-4% -5.0% .4.2% 2010 4.1% .0.5% 4.0% *2.0% 1 2011 .'<. +5.A¢ *5,1% +5.2°16 2012 - 0.7% 1.1% .-a3% -0"!.3%_ - -0.8% 0 0% 0-_.= 0.0% X2013 2014 0.0% 0_0% 0.0% -2.0% _ . 2015 -22.4% 414,6% -15.0% -11.2% WELL SERVICE RIGS PRICE INDEX AVERAGE PRICE CHANGE ALL RIGS AVG CHANGE FROM PREVIOUS QUARTER YEAR 1sT OTR 21. QTR elb CSR 4Th QTR 2001 +8-0% .8.5% +7,0% +2.00 2002 +2.0% +11% +11% 2003 +2.5% +1.0°Yo +'6,542 +2.590 2004 +1.5'4 +2.0%... +2.0% +24% I 20115 +3, +2..54 +3.0% +8.5% 20906 +5.5% +3.5% +3.0% +2.59 2007 r-3.5% *1,5% +2.0% +3,0% 2008 +2,5% +3.0% +3,5% +1.5% 2009 -7.0% -7.0% -43% a 2010 -2196 -1.0% +.3.5% 2011 +3.0% +4.5 +4,0% '3.0° 2012 ►2.5°J +2..0% +1.5% +2.0% 2013 +2.0% +3. +2.0% +ti % 20'44 +1.0% 0.0% 0.0% ' -1.0% 2015 -15.0% -1 s.0°A -20..096 -12.4% PRICES OF NEW DRILLING RIGS ROUNDED REPLACEMENT COST NEW (RCN} AVG CHANGE FROM PREVIOUS QUARTER PTH RATINGS RCN PRICE RANGE_ UP TO 2,500 FT $ 5OOF 51.000,000 - 2,501 TO 6,000 FT $1,000.000 51,500,1100 5.001 TO 7.500 FT 11,500,000 12,500,000 • 7,501 TO 10100[1 FT *S3,000,000 "56,000.00o 10.001 TO 12,500 FT \ '56.500 '58.500,004 12,501 TO -15,000 FT `$ 000,000! `511,000.0 _ 15,001. TO 17,500 FT 111,500,000 ' S12,00101000 17,501 TO 20,000 FT 113,500,0N $$17,000,0Q0 I, *S17,5OO,OOO 5191000,0 20.000 TO 25.000 FT OVER 25,000 FT 520,0%,40'1 i 124,000.000] * Er Uudutagi this quarter. F�r3. do not reiker q#3COrJM#W Pe come -warts. Prices dg_rrrttihda do opt, ors trio rig, bandlirmfrovii, Con 4* fro .rpuQhneck , camp faci ittecOr(Ong stack 6 PRODUCTION EQUIPMENT PRICE INDEX FORECAST 1ST HALF 2016 PERIOD % CHANGE INDEX S151 YEAR 151 2'`° 1sr 2ND 2ND 1ST 2ND 151- 2PD 1st fD 11 2" 131 2r45 ts1 2° 1ST 2ND 1sT 2195 1 aT a'° 151 2tir} 1sT END 02 BASE 0.0 HALF 03 -5.Q°, .95 HALF 03 +7.5% 1,021 HALF 04 +2.5% 1,047 HALF 04 +3.5% 1.083 HALF 05 +2.5% 1.111 ,. HALF 05 +4.5% 1.161 HALF 45 +4.0% 1.207 HALF 06 +3,5% 1.249 HALF 07 +3,0% 1.2p7 HALF 07 +3.0% 1.325 HALF 06 ----+5.0% - 1.391 HALF 08 43.5% 1.44€1 HALF 09 , HALF 09 HALF 10 HALF 10 HALF 11 HALF ii HALF 12 HALF 12 HALF 13 HALF 13 HALF 14 HALF 14 HALF 15 HALF 15 HALF 16 -10.5% 1289 -7.0% 1.199 4.0% 1.163 +5.5% 1227 +5.0% 1,288 +4.5% 1.346 t2.0% 1.373 +2.5% 1.447 +1.5%. 1.42.8 +.5°96 1.435 +.5% 1.442 -.5% _ 1, 35 -20.0% 1,148 -30.0% 0!.804 -'15.4 /o 0683 The Top Ten Reasons for Requesting an Appraisal 1. Buying or selling rigs, equipment or complete companies. 2. Mergers or acquisitions of companies. 3. Banking an financing. 4. Establishing insurance loss or i.nsurable value. 5. Providing input for investment analysis for investor g roups. 6. Tax appeals and establishing taxable values, 7_ ArlocatlOns of value for book adjustments after sales are completed. 8. Establishing values for lawsuits involving rig and equipment values. 9, establishing asset to stock value ratios. 10. Asset Appraisals used for stockholder and investor reports. 21 USED DRILL COLLAR MARKET INDEX UPDATED FOR 4T" QUARTER 2015 PREMIUM USED 6. INSPECTED PRICES ROUNDED SIZE 1" QTR a OTh 3A° QTR OTR r-3" 231 1 196 167 15O X 71' 2g4 1 n4 191 172 ,3 W 468. _ 398 330 3014 ,, 3 %" 498 I 423 380 324 4" 525 446 379 341 4 YW' BOO 551 477 429 4 W , 900 765 650 585 4 t4" ' 93O 791 672 605 5t._...... 1.170 995 845 761 5 VC ' 1,230 1,04C 889 N0 5 'r€" 1,2150 1,071 910 819 5 W 1,410 .. 1,199 1.019 917 s" 1,650 1,403 1.19'2 1073 I a wi 1,740 1t479 I 1.257 1131 6 $4" 2,010 _1,709_1.452 13O7 I 6 "'." 2,250 1,9'13- 1.626 1463 /" 2.670 Wt 2.270 , 1.929 1736 y 7 'l•' 2,865 2,435 2,070 1863 7 3 ' 2.820 2,397 2,037 1833 7 'f' 3,900 3.315 2.610 2536 B' 4,800 4,080 3,465 3121 M 8 W 4,920 4,182 3,555 3200 8W 5070 4,310 3,663 3297 0 5 ' 5415!0 4,385 3,725 3355 9' 5.280 4,486 3.815 3434 9 W 5.580 4,743 4,032 3629 9 % ' 6.360 5,405 4,595 4136 9 %' I 6.640 5.814 4,942 4446 4652 1W 7,200 6.120 5.202. ' 1O%P e 7,890 8,601 5,679 5111 10 W 9,0501 7,701 6,546 5691 10 %" 9.000 7.650 6,503 5253 ' 1r . 9,9100 6,415 7,153 8438 INDEX 116481 99,009 q 84,158 76,743 ° i CHG -40% -15% 45% -10% NEW DRILL COLLAR PRICE INDEX UPDATED FOR 41H QUARTER 2015 ROUNDED O.D. 1ra QTR r1 QTR 3F GTR 4- I QTR 3lie 748 673 572 51. } 3 %I' 845 .761 6146 581 .3 'W 1.49 1346 1144 1030 4 'fa' 1.593 1434 1219 1097 4 W' 2,015 1514 1541 1367 4'fe 2 6063 2340 1969 i 1790 5" 3,120 2808 2387 2148 8' 422.5 3803 3232 2909 - 3222 6'/a" 1 4.650 42.12 3580 1 ! 6 '.' 4.810 4329 3680 3312 6 W 4.875 43818 3729 -4077 335; `t` t 5,33.0 4797 3869 7 W I 5,655 5090 4328 3093 7'/" 5,9810_. _ 5382 4575 4118 ° 8,775 7898 6713 6042 8 2 1 - 8,970 8073 6862 6176 8'h' 9,100__ _-819 6962 6266 9r _ 9.750 8775 7459 6713 W 5 10.335 10,595 9302 9535 7906 5105 7115 7295 10" 11a 12.155 10940 9299 8369 INDEX 1177651 1056886 90,043 51r003 CNQ -38% -10% 45% —10% PRICES OF NEW WELL SERVICE RIGS UPDATED REPLACEMENT COST NEW (RCN) 4Th QUARTER 201$ CLASS MAST ENGINE S RANGE CLASS I 100 71' X 125M# 1 71' X 150M# 72' X 1S0M1# 1 72' X 125M# 75' X 150M0 C-7 50 SERIES 6V71 ii$225,OOO TO 1300,000 CLASS II 96' X 1501w1# C-11 1325,000 200 96` X 18OM# 50 SERIES TO 966' X 18-5M# $1f r 1 "1400, 96' X 200M# 962X 2450## 96` X 210M# 96' X 212M# 9°X215hdi# — 96' X, 2.4OM# 041 '$425,000 CLASS III 96' X 25OM# 50 SERIES TO 300 96' X 260M# X32 `500{X10 1.02' X 215Mtt _ CLASS IV 1O2' X 224M# C-15lC"13 '5525,000 400 102' X 25001# 60 SERIES TO 103' X 225O# 12V71 '5600,000 103' X 250141# 104' X 250M# ' 105' X 225M# 105' X 2SOM# CLASS V 105' X 28*M# C -15/C-13 '$625,000 500 106' X 25OM# 60 SERIES TO 108' X 2544411 12V71 '5700,000 1081X 260M# 12V92 1 X 2666 /08. � . y8�M�# 108 l' 108' ' X2 0M# 108' X 300M# CLASS VI 110' X 25OM# C-15 '$725,000 600 110' X 275M# 60 SERIES TO 112' X 3OOM# 12V71 '16 00,000 112' X 3506# (2) 8'92 CLASS VII , 117' X 3500# (2) C-18 *5800,000 700 (2) 60 SERIES . TO ' (2) 8V92 '5875,000 i _ (2) 12V71 PritesOD. vant dOstA f = Chars Ibis quarter. HADCO INTERNATIONAL has completed appraisal and consulting services worldwide since 19132. HA DCO appraisers have completed assignments throughout the United States and over forty countries: RADCO is the leader in complex valuation services and has earned a reputation for quality works expert analysis and advanced litigation support around the world. Referrals from clients make up the majority of our appraisal and co ns ult i n g business. 7 22 USED DRILL PIPE MARKET INDEX UPDATED FOR 4i" 0TF . 2015 PREMIUM USED & ROUNDED PRICES WITH INSPECTION PAPERS SIZ GHT/GRADE 1O15 2015 4115 3 ,. .6 it 51 2.0.3 2 ,'a X 11:4,40# E 4.36 322 2.'95 2.53 3 W X 13.30# E 7$D L30 5.10 4.34 3 34" X 13.30# X 6.04 &.83 5A7 4,65 3 IQ X 13.31m G 622 6.99 6.59 4.75 334"X13.30#S 6.60 7.55 6.04 5,13 3 34"X 15.50# E 9.12 7'.75 620 , 5.27 33"X15.50#X 9.36 726 6.36 5.41 _ 3 14* X15.504 G 9.60 SAG 6.53, _ 5.55 31,4" X 15,504S 9.66 all 6.57 5,58 4' X 14,00# E 9.96 8.47 6-77 5.75 4' X 14.0O4X 10.20 S.S? 0.94 5.90 4" X 14.160# G 10.68 9.138 7.26 6.17 4"X 14.00# S 10.86 9.23 7.38 6.27 4" X 1510# E 12.60 1.0.71 837 1.28 t X 15.70# X 13.20 11.22 8..98 , 7.63 4' X 15.7010 G 13.26 1117 9,82 1.67 41X 15,70# S 13,32 11.32 906 710 4 IN" X 16.61}#• E 21.60 18,36 14,69 12.49 4'h" X t6.80#X 21.90 18.52 14.89 12.6 6 4 J:" X 16.60# G _ 22.08 18.77 15.O1 . 12.7€ 4 W4` X 16.60#S_ _ 22.14 18.82 15.06 12.80 4W.X20.DDy E • 22.32 18.97 'i5.1S 12.90 4 %" X 20.00# X 22.56 13.04 4 "ii" X; 21].00 G 22,90 13,18 4 3W' X 20.00# S 23.40 19.89 i 16.91 13.52 4 W X 22.82# E 24.00 20.40 18.32 13.87 4 %" X 22 212# X 24.24 20.60 16A8 14.01 4 !a" X 22.82# G 24:42w -3 a' 20.76 46,61 1 14,12 4 'A' X 22.82# S 24.36 4 20.71 1665 14.05 4 &' X 19.54# E 25.02 21.27 17.01 14,46 5' X 19.50# X 25.822 2138 1742 14.81 Si X 19.500G 26.04 22.13 17:71 15.05 V' X 19.504 S 26.34 22.39 17.91 15.22 5" X 2$ salt E 26.64 22.64 18.12 15A0 Sr X 2LSO# X 27.24 23.16 18.52 16.74 51X 25.x€ G i 27.36 23.26 . 18.60 15.81 5" X 25.604S ; 27.48 23.36 18.59 46.89 S" X 34.01# E 27A8 23,35 10,fi9 15,69 5" X 34.011# X 27.72 23.50 18.65 *02 S' X 34.01# C 27,50 23.72 1@ 97 1G 12 5' X34.01#S M08 2187 19.09 .il 2? 5'4" X 21.95# E 26.38 24.12 19 30 16 -1/ 16.5: 5'h" X 21.90# X 28.68 24,36 19,50 5 W X_21 r901O . 29.28 24.09 1821 16S2 5 W X.21.90# S ' 29-82 25,35 24.2'8 17.2'4 5` "X24.70#E 31.022. 2'8.37 nog 17.93 IN DEX 918.2 780.5 624.4 530.7 I . % CHANGE -40% 41% •20% -159 NEW DRILL PIPE MARKET INDEX UPDATED FOR 4TH QTR 2015 INSPECTED PREMIUM PIPE, WITH CURRENT INSPEC NION PAPERS ROUNDED PRICES 5(4 -2. v4h It $ PC (CoM'd from pceu$cus kiwi) 4015 SIZEWCHT/GRADE 1015 2O le 3015 401 NEW DRILL PIPE MARKET INDEX UPDATED FOR r QTR 201E INSPECTED PREMIUM PIPE, WITI"I CURRENT INSPECTION PAPERS PRICE ROUNDED (Std +2' with HB &PC) SIZEWGHTJGRADE 1015 2015 3'01!5 4015 2'a'e' X 8.55# E 9.04 814 x.92 6.23 2'i"X6,65#X 9.10 6.19 8.96 6.26 2'!33` X 6.65# 1a 9.62 8.86 7.3.6 6.62 2+teX6.65#S 9.75 6.76 7,45 6.71 2 Vo" X 10,404 E 11.44 10.30 8.75 7.88 2'!e' X 10.44# X 12.03 10.83 9.20 8.26 2 'IC X 10.40# G 12.22 11.00 9.35 8.42 Via" X 10.40# 5 12.55 11.30 9.60 8.64 3'" X 9.51# E 15.73 1416 12.03 10.,53 3' "X.9.5{1#.X ;.58 1422 12.60 11.,11 3lie X9.50#G 17.94 46.15 13.72 12.35 33W"X9.5046 18.79 16.11 14.37 12,93 3WX13.30#E 21.45 19.31 16.41 14.77 3 W X.13.30# X 22.36 20.12 17.11 15,40 3 f� X 13.30# G 22.562020 17,26 16.53 ' X 13.30# s 22.8M59 17,60 15,75 20.89 1716 15S0 3 l` X 16,50# X 24,1621.76 18.50 16.65 3la"'X156 G... 243121,88 18,60 16.74 21.94 18,65 16.79 4" X.1+1,00 E 24,4422.00 18.70 16.83 4" X 1+!.4,031 X 24.70 18.90 11.O1 4" X 114..00# G 2x.0922.58 19.19 17.27 +4'X14.00#S 25.88nil 19.55 17.69 �4` X 15.7{]':• E 2fi.B524.17 20.54 1149 2'8.91 24.22 20.59 4' X 15.70 Cti 27.56 24.80 21.06 18.97 4"X15.70#5 27.56 24.88 21.08 18.97 414"X 16.60# E 32.11 ' 2820 24.58 22.10 4 '4" X 16.6011X 32.37 29.13 24,76 22.28 4 !4' X 16.60# €3 3,4.19 130.77 26.15 23.6 =;,. 4 51"X MIMS 34.19 30.77 26.16 23.5 4 W' X 2+0.00x# E 34.26 C 30.83 26.21 23.59 41j X 24.00# X 34.32 30.89 26.25 23,63 4 1/2' X 20.00# G 34.45 31.01 26.35 23.72 4 W X 2O.0O# 5 34.97 31.A7 20.75 24.08 .4II" X22..82#E 35,1O 31.59 26,05 24.17 4s" X 22.82#X 35.36 31 $2 27,05 24.35 4 51°X 22.82# G 35.69 3,2.12 .27.30 24.57 - 4 1c X 22,02# $ 35.76 32.10 27.35 24.52 5' X 19,50# E 39.65 35.69 30.33 27.30 5" X10,50# X 39.91 35.92 30.53 27.48 6"X19.50# G 40.17 36.15 30,73 27 ,66 S" ?419.811114 S 40.17 36.15 30.73 2716 5" X 25.600 E 40430 .36,27 30.55 27.75 5" X 26660# X 40.46 34.41 30.95 27.56 5' X.25.60# G 41.08 36,97 31;4-3 26.29 6" X.25.604 9 41,15 37.04 31.48 23.33 _ 5" X 34.01# E 41.21 37.09 31.53 25.38 5" X 34.01#. 41.93 37.74 32.x36 23..87 5' X 34,09 G 4225 3803• 3212 29.09 54)(34.01* $ 42.50 38.32 32.57 29!.31 51x''X21.90E 4197 725.67 32.87 2.9.58 6W X 21,904X 43.2:3 3.6.91 33.07 29.76 5 W" X 21.90S G 43.88 39.49 :33.57 33.21 5W X 21.90# 5 43.94 39.55 33.61 3025 514" X 24.704 E 42.64 35313 32.62 29.36 514"X 24.70# X . 42.07 . 30.67 . - 32.67 29,58 5 lir X 24.70# 043.81 39.43 33.51 30,16 5 W X 24.70# S 43.811 39.49 33.57 30.21 `-.-. 6 +W X 25.2x0$ E 47.06 42.35 36.00 .."- 32.40 6 'te' X 27.70# E 46.30 43A7 36,95 33.26 1406X 1940.3 1746.3 1484.,`3 1335.5 % CHANGE -35% -10% -15% .40% 23 Home u The Rigs n Rig 8 Rig 8 Rig 8 DRAWWORKS: NOV 1000 Electric Draviiworkswl (2)1000 HP Electric Motors MAST: DSI 142 FT Hig h 750,000 LB Static Hook Load SUBSTRUCTURE: DSI 21 FT C lear Height Box an Box ye/ 400.000 LB Setback GENERATORS: (3) Detroit 16v2000 Diesel Engines vi/ 1000 KIN Gen erator Sets SCR: 4 -Bay TOP DRIVE: Canrig 500 Tan MUD PUMPS: i2i 1600 HP Triplex ptb i2)1000 HP Traction Motors ROTARY TABLE: B 27.5' Oih°rell BOP: 13 Sig' 5.000 LB Double Ram wl 13 4.r$' 5000 LB Annular MUD SYSTEM: 1080 BBL u1 5x6 Centrifugal Meting Pumps and 7.5 HP Agitators Desander, Desifter SHALE SHAKER: i21 Lineartulotian CHOKE MANIFOLD: 5000 LB Skid Mounted Choke 1MMlanifold FUEL TANK:10.000 Gallon wi 4 Compartment Lubster WATER TANK: 500 BBL DOGHOUSE: ID' x8'x30' CHANGE HOUSE: 10' x 8' x 30' BLOCK HOOK: 350 Ton SKID PACKAGE: Able to skid in a straight line up 10150ft. MISCELLANEOUS: Toolpusher House, Catwalk, Pipe Racks. Misc Handling Tools, Spare Parts and Complete Mntereation wi Baler 24 Home » Rig 9 Rig 9 Rig 9 1000H Drawwo rks: Oikvell 760-e Mast 142 FT High 750,000 LB Static Hook Load Subswcture: 21 FT High Box on Box with Walking System Generators: (3) Caterpillar 3512C Diesel Engines Iv/ 1:365 KW Generators SCR: 4 Bay Mud pumps: (21 1600 HP Triplex each plb (2)1000 HP Traction Motors 7500psi Fluid Ends Top Drive: Canrig 560 Ton Iron Roughneck: ST80 Catwalk: Hydraulic with Walking System Rotary Table: 27.5' National B©P: 11' 5000 Cameron Mud System: MK BBL vrf 6x8 Centrifugal Mxing Pumps and 10 HP Agtators Desander, Desilter Shale Shakers: (3) MiSwaco Linear Motion Choke Manifold: 5000 LB Skid Mounted Choke Manifold Fuel Tank:10,000 Gallon w/ 4 Compartment Lubster Water Tank: 500 BBL Dog House: 10' x 8' x 30' Change House: l0' x 8' x 30' Block Hook: 500 Ton Miscellaneous: Tool Pusher House, Catwalk, Pipe Racks, Miscellaneous Handling Tools, Spare Pads and Complete Winterization wl Boiler, Gas Buster. Flare Lines & Stack 25 Home)) The Rigs» Rig 10 Rig 10 Rig 10 Uniskid DRAWWORKS: Drillmaster 1000 HP Electric wl (2) Electric Motors MAST: (New) Full Circle 142 FT Bootstrap Rated 750,000# Hoak SUBSTRUCTURE: 25 Uniskid Box Type wl 10' Side Skid GENERATORS: (3) Detroit Series 2000 Diesel Engines vet 1000 KW, 600 Vol SCR:(1)Omron 4Y4 TOP DRIVE: Can rig 500 Ton MUD PUMPS: (2)1600 HP Triplex. Belt Driven w/ GE 752 motors ROTARY TABLE: Oitive II 27.5' BLOC KIN 00K: 350 Ton Unktzed BOP RAMS:11' 500O Double Ram BOP ANNULAR: 11' 5000# CHOKE MANIFOLD: 5000# CLOSING UNIT: 5 Station 110 Gallon MUD SYSTEM: 1100 BBL Mud System ► 16 x $ Centrifugal Mixing Pumps, Low Pressure Mixing Guns, Agitators, (3) Denick Linear Motion Shale Shaker, Denick Desanderl Desiker and 500 BBL PrembrTank FUEL TANK: (2)10,000 gallon WATER TANK: 500 BBL DOGHOUSE; (2)10' x 8' x 30' SKID PACKAGE: UniSkid. Able to skid in a straight line, can also do a second row of wells on 10 ft centers simply by U nSkidding without having to ng down MISCELLANEOUS: Rig Phnterization, Toolpusher's Quarters, Catwalk. Sb (6) Pipe Racks. Pipe Spinner, Kelly Spinner. Miscellaneous Handling Tools, and (2) 150 HP Boilers. 26 Hone >> The Rigs n Rig 26 Rig 26 Rig 26 DRAVI/WORKS: National NUE MAST: 1 42 FT High 750.000 LB Static Hook Load SUBSTRUCTURE: 21 FT High Box on Box GENERATORS: i3'. Caterpillar 3512C Diesel Engineswl 1,225 KW Generators SCR: 4 -Bay MUD PUMPS: (211600 HP Triplex p/b (21 1000 HP Traction Motors TOP DRIVE: 500 Ton IRON ROUGHNECK: STBO ROTARY TABLE:27.5' National BOP: 13 518.5000 MUD SYSTEM: 1100 BBL w/ S .6 Centrifugal fvlixing Pumps and 10 HP Agitators. Desander Desilter SHALE SHAKER S:i31Swaco CHOKE MANIFOLD: 5000 LB Skid Mounted Choke Manifold FUEL TANK: 10.000 Gallon vi! 4 Compartment Lubster WATER TANK: 500 BBL DOG HOUSE:10'x8'x30' CHANGE HOUSE: 10' x 8'y 30' BLOCK HOOK: 500 Ton SKID PACKAGE: Walking System MISCELLANEOUS: Tool Pusher House,Hydraulic Catwalk, Pipe Racks, Miscellaneous Handling Tools, Spare Parts and Complete \"Minteri ation vs Boiler 27 Esther Gesick From: Sent: To: Subject: webmaster@co.weld.co.us Wednesday, July 20, 2016 10:45 AM CTB-County Board of Equalization Board of Equalization Appeal Submitted Appeal Submitted: 10:44 AM on Wednesday July 20, 2016 Contact Information Supplied: • Contact Name: Frontier Drilling • Contact Email: robert@frontierdrilling.net • Contact Phone: (405) 745 - 7700 Property: N O9532240 - , Legal: DRILLING RIG 9 Estimated Value: $ 97,614 Reason: Drilling equipment values have dropped significantly with the downturn in oil and gas prices. O9532238 - , Legal: DRILLING RIG 4 Estimated Value: $ 750,000 Reason: Drilling equipment values have dropped significantly with the downturn in oil and gas prices. " O9532239 - , Legal: DRILLING RIG 7 - --n f u LA7eD Estimated Value: $ 643,500 Reason: Drilling equipment values have dropped significantly with the downturn in oil and gas prices. O9532229 - , 5Yi Pu L Legal: DRILLIN RIG 6 Estimated Value: $ 523,615 Reason: Drilling equipment values have dropped significantly with the downturn in oil and gas prices. O9526267 - , Legal: DRILLING RIG 10 Estimated Value: $ 1,679,474 Reason: Drilling equipment values have dropped significantly with the downturn in oil and gas prices. N O9526225 - , Legal: DRILLING RIG 26 Estimated Value: $ 611,901 Reason: Drilling equipment values have dropped significantly with the downturn in oil and gas prices. N O9526224 - , Legal: DRILLING RIG 8 Estimated Value: $ 2,376,000 1 (SPM) 2016-2332 /-Soo 4- Reason: Drilling equipment values have dropped significantly with the downturn in oil and gas prices. Documents Esther Gesick From: Robert Hammons <robert@frontierdrilling.net> Sent: Thursday, August 04, 2016 8:33 AM To: Esther Gesick Subject: Fwd: Frontier Rigs Attachments: app. FrontierDrilling.08.16. pdf Esther, I forgot to copy you on this email. Best regards, Robert Forwarded message From: Robert Hammons <robert@frontierdrilling.net> Date: Wed, Aug 3, 2016 at 4:53 PM Subject: Frontier Rigs To: Sean McElroy <smcelroy@co.weld.co.us> Sean, Duke's partner passed away and today is the funeral so he was not available. I had Dan with Superior Asset Appraisals give me a desktop appraisal on a 1000HP rig. Best regards, Robert Robert llammons l rontier Drilling ;608 Nom' E'lxpressway Suite 102 Oklahoma City, OK 73 1 1 8 405-745-7700 Robert Hammons Frontier Drilling 1608 NW Expressway Suite 102 Oklahoma City, OK 73118 405-745-7700 i APPRAISAL FOR FRONTIER DRILLING AUGUST 3, 2016 Page 1 of 16 SUPERIOR SUPERIOR SUPERIOR ASSET MANAGEMENT Frontier Drilling 1608 NW Expressway, Suite 102 Oklahoma City, OK 73118 Attn: Robert Hammons SUPERIOR ASSET APPRAISALS 11202 Disco Drive San Antonio, TX 78216 Phone (210) 499-0777 Fax (210) 499-4217 August 3, 2016 RE: Fair Market Value and Orderly Liquidation Value Desktop Appraisal of Rig No.'s 11 and 27 Dear Mr. Hammons: As per your request, enclosed is the desktop appraisal on the above -referenced equipment. The objective of this appraisal is to determine fair market value and orderly liquidation value as of August 2016 for the assigned use of securing a financial transaction. It should not be used for any other function. The total fair market value is appraised to be $4,800,000.00 and the total orderly liquidation value is appraised to be $3,840,000.00. These values represent gross amounts. Allowances have not been made for sales commissions, advertising, moving, make ready and security expenses or any other expenses which might be associated with a sale or liquidation. Due to the volatile oil and gas markets, values are fluctuating greatly in some asset markets. Appraised values and rig sale prices have dropped dramatically since 2014. The short future market outlook: oil prices are dropping; which summarizes an article produced by Reuters September l4', 2015 named "OPEC says, The World Will Want More of Its Oil Next Year by (Reuters) Alex Lawler. The article states, "...Sticking to its view that a strategy of letting prices fall will tame the U.S. Shale Boom and cut a global surplus." With this said, if Saudi Arabia is continuing to push output of its oil; then oil will stay lower. The equipment values are• summarized on a separate summary page in the body of the report. A definition of the above purposes and the methodology used in determining value is also included. Page 2 of 16 SUPERIOR FRONTIER DRILLING AUGUST 3, 2016 Because none of the equipment included in this appraisal was physically inspected, it should be understood by the client and any third parties that the values assigned to it are hypothetical and based upon descriptions and conditions stated, provided by Frontier Drilling. We have retained a copy of this report, the inventories and original notes from which it was prepared. These records will be kept confidential. Photographs are not included in desktop appraisals. This report has been prepared to conform with the principles and procedures for the evaluation and valuation of personal property as described in the Uniform Standards of Professional Appraisal Practice (USPAP) and Experienced Appraiser's International (EAI). Should you have questions regarding the content of this appraisal report or if we can be of further assistance in this matter, please contact us at 210/499-0777. Sincerely, SUPERIOR ASSET APPRAISALS Daniel J. Kruse, CAI, EAI President/Senior Appraiser Date: August 3, 2016 DJK: sap Enclosure Page 3 of 16 SUPERIOR FRONTIER DRILLING AUGUST 3, 2016 STATEMENT OF LIMITING CONDITIONS During the course of this appraisal, certain basic assumptions were made, which, if proven incorrect, could render the report invalid. As noted previously, none of the equipment described was physically inspected. The assumption was made that descriptions of that uninspected equipment, which were provided by Frontier Drilling, were correct. Where capacities or manufacturer's specifications such as mast hook load, substructure setback capacity, engine horsepower, generator electrical output, pump input horsepower are given, no warranty or guarantee is given or implied that these stated capacities can be relied on. They have been obtained from OEM (Original Equipment Manufacturer) published specifications or from information furnished by the owner and/or the client. Structural and/or dynamometer testing of the equipment are outside the scope of the appraisal and has not been done. The term "inspection", if used in this appraisal report, describes a visual examination done to produce a description, and does not refer to safety, engineering or metallurgical testing. Appraised values are not a guaranty that the appraised items would bring such returns if sold or liquidated. Appraised values are the appraiser's best estimations of values at the time of the appraisal, based upon the appraiser's experience and knowledge of the items being appraised and market conditions at the time of the appraisal. No safety or environmental studies or reports have been done. Safety and environmental concerns are outside the scope of the appraisal. Regulations regarding these are enforced by various government agencies, and Superior Asset Appraisals does not represent itself to be knowledgeable in these matters. The price of oil directly affects energy equipment. If oil is over $120 per barrel, we consider that a boom market. If oil is under $55 per barrel, we consider it a bust market. These markets play direct impact on energy equipment prices. Page 4 of 16 SUPERIOR FRONTIER DRILLING AUGUST 3, 2016 METHODOLOGY In determining market value, there are several different approaches which can be used. The income approach determines present worth by estimating future benefits (income) of ownership, and is most commonly used in real property valuations. The cost approach bases value on original cost less deductions for the various elements of the market, and in some cases depreciation may be considered, physical deterioration and functional and economic obsolescence. The market data approach is that approach to value where recent sales and/or offering prices of similar property are analyzed to arrive at an indication of the most probable selling price for the property being appraised. The values in this appraisal were determined by using the market data approach. A correlation of sales prices of similar equipment sold by private treaty, where available, was utilized in this value analysis. The cost to reproduce or replace such equipment was also considered, as well as the usage of this type of equipment in today's oilfield market. Such information can be derived from industry periodicals, value guides, manufacturers, distributors, and dealers, as well as personal and internet resources. In some cases, values were adjusted for dissimilarities on condition, age and obsolescence, time available for disposition, difficulty and cost of removal and any other pertinent factors known. Factors which can affect values are national economic conditions and/or governmental actions which affect prices in general. FAIR MARKET VALUE (FMV) Fair market value is defined as the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy nor sell and both having knowledge of relevant facts. Fair market value is not to be determined by a forced sale price nor is fair market value to be determined by the sale price in a market other than that on which a property is most commonly sold to the public, taking into account location of the item whenever appropriate. The sale can take an unlimited time period, however, typically happens in less than one year. ORDERLY LIQUIDATION VALUE (OLV) Orderly liquidation value is defined as the estimated gross amount in terms of money that could be typically realized from a sale given a reasonable period of time to find a purchaser, with the seller compelled to sell on an "as is, where is" basis. A sale generally takes place in less than six months. Page 5 of 16 SUPERIOR FRONTIER DRILLING AUGUST 3, 2016 CERTIFICATION STATEMENT I certify that, to the best of my knowledge and belief: • The statements of fact contained in this report are true and correct. • The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinions and conclusions. • I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest or bias with respect to the parties involved. • My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of a value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. • My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. • I have not made a personal inspection of the property that is the subject of this report. • No one provided significant professional assistance to the person signing this report. Daniel J. Kruse, CAI, EAI President/Senior Appraiser Page 6 of 16 SUPERIOR FRONTIER DRILLING AUGUST 3, 2016 TERMS AND CONDITIONS (TO WHICH THE APPRAISAL IS SUBJECT) This appraisal report is given subject to the terms and conditions hereinafter set forth, all of which are a part hereof unless expressly set aside in writing either on the pages of this appraisal or by a writing attached to the report signed by all parties concerned. 1. Unless otherwise stated herein, this report is based only on the readily apparent identity of the item(s) appraised, and no further opinion nor guarantee of authenticity, genuineness or attribution of authorship is made. 2. Unless otherwise stated herein, the appraisal value(s) is based on the whole ownership and possessory interest undiminished by any liens, fractional interests or any other form of encumbrance or alienation. 3. Proper emphasis on relevant facts, data or opinions have been fully stated and are assumed correct in obtaining the numerical results. 4. The subject items have been identified to the best of the appraiser's knowledge. 5. The appraisal service fee is based on a flat rate structure and is not in the form of a commission, rebate, division of brokerage, referral or any other fee contingent on the final numerical results. 6. The appraiser(s) has no present or contemplated future interest in the subject property or any other interest impeding a fair numerical result unless so stated. 7. The value concepts by which this report is structured are stated in the cover letter. Page 7 of 16 SUPERIOR FRONTIER DRILLING AUGUST 3, 2016 8. The valuation for equipment must not be used in conjunction with any other appraisal. The total valuation of equipment in this report applies only under the use at time of inspection. 9. Superior Asset Appraisals is not required to appear in court or give testimony in reference to this appraisal unless previous arrangements have been made. 10. In some cases, recovery values could be affected upwardly or downwardly, based on the reputation of the present ownership and maintenance of the subject matter. 11. This report is made at the request of the party named for his/her/its use. It is not an indication or certificate of title or ownership. The identification of the interest of the requesting party is simply that represented to the appraiser by such party and no inquiry or investigation has been made nor is any opinion given as to the truth of such representation. 12. The value(s) expressed herein is based on the appraiser's best judgment and opinion and is not a representation or warranty that the item(s) will realize that value if offered for sale. The value(s) expressed is based on current information on the date made and no opinion is hereby expressed as to any further value nor, unless otherwise expressly stated, as to any past value. 13. Stated values are given item by item unless clearly stated as being per lot. The total of individual item values shall not be construed as an appraisal value for the whole lot, but merely as the addition of single values. Where values are given by lot, the value per lot is for the whole and no opinion is given as to individual proportionate values within the lot. 14. Unless otherwise stated herein, value(s) expressed is based on the general expertise and qualifications of the appraiser as to the appropriate market and valuation of the item(s) and purpose involved. Where particular detailed information is relied on, it will be so stated in writing. Page 8 of 16 SUPERIOR FRONTIER DRILLING AUGUST 3, 2016 15. Superior Asset Appraisals disclaims any and all damages that could arise out of or from this appraisal and are only liable for the amount of the appraisal fee charged, excluding expenses. 16. Where an appraisal is based on a sample of a larger whole, it will be so stated and it is based on the assumption that the sample delivered is representative and fair. No opinion or warranty is hereby made as to the fairness or representative nature of any large whole from which the sample was drawn. 17. Where an appraisal is based not only on the item(s), but also on data or documentation supplied therewith, this certificate shall so state by making references thereto and, where appropriate, attaching copies hereto. 18. Unless expressly stated, the stated apparent condition of the item(s) is good for its type, with serious deficiencies and repairs noted where observed. Ordinary wear and tear common to this type of item is not noted. No warranty is given or implied by any statement regarding condition, appearance or capacity. 19. Superior Asset Appraisals reserves the right to recall all copies of this report to correct any errors, make deletions or additions, if found necessary. 20. No portion of this report may be reproduced, copied or used in any manner by anyone without the previous written consent of Superior Asset Appraisals and then only in its entirety including all cover letters and material. 21. Should, in conjunction with this appraisal, additional services of the appraiser be requested by the client, his agent or attorney, or the Court (such as for added time researching for other value purposes, pretrial conferences, court appearances, court preparation, etc.), compensation for same shall charged by Superior Asset Appraisals and shall be paid by the client upon receipt of a statement. Page 9 of 16 SUPERIOR FRONTIER DRILLING AUGUST 3, 2016 DEFINITION OF TERMS The following is an explanation of terms which may be used in describing equipment. These terms are used to describe appearance only - no warranty is intended or implied. Unless so stated, no structural testing or engine dynamometer testing was done for this appraisal. EXCELLENT: Recently purchased. Extremely limited use. Practically new mechanical condition. VERY GOOD: In exceptionally good mechanical condition. Has just been completely overhauled or has had such limited use that no repairs or worn parts replacement is necessary. Very low hours. GOOD: No known mechanical defects except any that may be described. In operating condition, but possibly may have some worn parts that will need repair or replacement in the near future. FAIR: Has seen considerable service and may require general overhaul in the near future. POOR: Has seen hard service. Is worn and needs repairs. Page 10 of 16 SUPERIOR FRONTIER DRILLING AUGUST 3, 2016 APPRAISAL SUMMARY FOR FRONTIER DRILLING RIGS FMV OLV RIG NO. 11 2,400,000.00 1,920,000.00 RIG NO. 27 2,400,000.00 1,920,000.00 GRAND TOTALS: $ 4,800,000.00 $ 3,840,000.00 Page 11 of 16 SUPERIOR FRONTIER DRILLING AUGUST 3, 2016 EQUIPMENT INVENTORY Page 12 of 16 SUPERIOR FRONTIER DRILLING AUGUST 3, 2016 RIG NO. 11 1000HP (Value Consideration:This rig has a new certified top drive and is currently being reconditioned.) Drawworks: Continental Emsco D-3 Electric Drawworks w/ (2) 10000 HP Motor Mast: Branham 142' 567,000 LB Static Hook Load Capacity Top Drive: Canrig 500 Ton (Like New, Recertified 2014) Substructure: Branham Swing -Up Generators: (3) Caterpillar 3512C Diesel Engines w/ 1,225KW Generators SCR: M & 1 Mud pumps: (2) 1600 HP w/ GE 752 Motors Rotary Table: Rebuilt National 23" Block Hook: Gardner Denver 300 Ton Choke Manifold: 5,000 LB Choke Manifold Mud System: 1,000 BBL Mud System w/ 6 x 8 centrifugal mixing pumps, low pressure mixing guns, shaker, agitators Shale Shakers: (3) MI Swaco Shakers Fuel Tank: 10,000 Gallon Water Tank: 500 BBL Dog House: 10' x 8' x 30' Skid Package: Able to skid in a straight line up to 150 ft Miscellaneous: Toolpusher's Quarters, Catwalk, Six (6) Pipe Racks, Pipe Spinner, Kelly Spinner and Miscellaneous Handling Tools FMV= $2,400,000 OLV=$1,920,000 Page 13 of 16 SUPERIOR FRONTIER DRILLING AUGUST 3, 2016 SUPERIOR ASSET APPRAISALS Professional Profile Daniel J. Kruse, CAI, EAI Appraisal Experience: 1. Kruse Asset Management - Auctioneer/Appraiser/Consultant 2. Kruse Classic Car Productions - Auctioneer/Appraiser/Consultant 3. Kruse Energy Auctioneers — Auctioneer/Sales/Consultant 4. Superior Auctioneers & Marketing - Auctioneer/Appraiser/Consultant 5. Nelson International - Auctioneer/Appraiser/Consultant Appraisal/Market Analyst Discipline: 1. Petroleum Industry 2. Construction Equipment 3. Transportation 4. Machine Tools 5. Collector Cars 6. Office Equipment Value Concept Experience: 1. Auction Value 2. Orderly Liquidation Value 3. Liquidation Value in Place 4. Fair Market Value 5. Working in Place Value 6. Replacement Cost (New) Page 15 of 16 SUPERIOR FRONTIER DRILLING AUGUST 3, 2016 Professional Affiliations and Memberships: 1. Certified Auctioneers Institute - (Member Since 1978-2012) 2. Experienced Appraiser's International (EAI Since 1985 -Present) 3. International Association of Drilling Contractors (IADC) 4. Canadian Association of Oilwell Drilling Contractors (CAODC) 5. Association of Energy Service Companies (AESC) 6. Associated General Contractors of America (AGC) 7. John Hagee Ministries - (GETV Board Member) 8. Youth For Christ - (Honorary Lifetime Board Member) Education: Indiana University: Certified Auctioneers Institute - Graduate Work Experience: United States Air Force - Air Traffic Controller Yoder & Frey Auctioneers - Auctioneer/Appraiser Nelson International - Auctioneer/Appraiser Kruse International - Auctioneer/Appraiser Superior Auctioneers & Marketing, Inc. - President/Auctioneer/Appraiser Kruse Asset Management - President/Auctioneer/Appraiser Kruse Classic Car Productions - Owner/Auctioneer/Appraiser Superior Asset Appraisals - President/Senior Appraiser Kruse Energy Equipment - Auctioneer Page 16 of 16 SUPERIOR July 22, 2016 Petitioner: FRONTIER DRILLING 1608 NW EXPRESSWAY STE 102 OKLAHOMA CITY, OK 73118-1440 CLERK TO THE BOARD PHONE (970) 400-4226 FAX (970) 336-7233 WEBSITE: www.co.weld.co.us 1150 O STREET P.O. BOX 758 GREELEY CO 80632 Agent (if applicable): RE: THE BOARD OF EQUALIZATION 2016, WELD COUNTY, COLORADO NOTIFICATION OF HEARING SCHEDULED Docket #: 2016-2332, AS0094 Appeal #: 2008211221 Hearing Date: 8/4/2016 10:00 AM Account(s) Appealed: O9526224 O9526225 O9526267 O9532229 O9532238 O9532239 O9532240 Dear Petitioner(s): The Weld County Board of Equalization has set a date of AUGUST 4, 2016, at or about the hour of 10:00 AM, to hold a hearing on your valuation for assessment. This hearing will be held at the Weld County Administration Building, Assembly Room, 1150 O Street, Greeley, Colorado. You have a right to attend°this hearing and present evidence in support of your petition. The Weld County Assessor or his designee will be present. The Board will make its decision on the basis of the record made at the aforementioned hearing, as well as your petition, so it would be in your interest to have a representative present. If you plan to be represented by an agent or an attorney at your hearing, prior to the hearing you shall provide, in writing to the Clerk to the Board's Office, an authorization for the agent or attorney to represent you. If you do not choose to attend this hearing, a decision will still be made by the Board by the close of business on August 5, 2016, and mailed to you within five (5) business days. Because of the volume of cases before the Board of Equalization, most cases shall be limited to 10 minutes. Also due to volume, cases cannot be rescheduled. It is imperative that you provide evidence to support your position. This may include evidence that similar homes in your area are valued less than yours or you are being assessed on improvements you do not have. Please note: The fact that your valuation has increased cannot be your sole basis of appeal. Without documented evidence as indicated above, the Board will have no choice but to deny your appeal. If you wish to obtain the data supporting the Assessor's valuation of your property, please submit a written request directly to the Assessor's Office by fax (970) 304-6433, or if you have questions, call (970) 353-3845. Upon receipt of your written request, the Assessor will notify you of the estimated cost of providing such information. Payment must be made prior to the Assessor providing such information, at which time the Assessor will make the data available within three (3) working days, subject to any confidentiality requirements. Please advise me if you decide not to keep your appointment as scheduled. If you need any additional information, please call me at your convenience. Very truly yours, BOARD OF EQUALIZATION Esther E. Gesick Clerk to the Board Weld County Board of County Commissioners cc: Christopher Woodruff, Assessor Hello