Jackson #1

Jackson #1 Prospect
Jackson County, Texas

Alliance Petroleum Interests specializes in the exploration, TABLE OF
development and the acquisition of domestic oil and gas CONTENTS
reserves. With the use of technological advances, we
can procure more oil and gas than previous developers 2 Prospect Summary
of these same proven fields. Advances in fracking and 3 Location Map
other technology has led to the success of this strategy. 4 Geological Summary
We are not a “wildcat” driller, and specifically seek out 6 Geological Team
infield acreage to assure best possible production in 7 Geological Team
today’s economic climate.  The owners’ relationships in the 8 Conversion Table
industry provide the ability to capitalize on our extensive 9 Production Map
network and partnerships or “allies” hence the name of 11 E-Log X-Section
the company. Alliance prides itself on securing superior 13 Schematic Diagram
opportunities in oil and gas prospects and properties 15 Seismic A Map
that provide significant return potential with quantified 17 Tax Benefits
downside risk for our participating Partners. 19 Example Tax Worksheet
20 Scout Tickets

1 API JACKSON #1 PROSPECT

PROSPECT SUMMARY

Prospect Jackson #1 Prospect
Jackson County, TX

Re-enter Santos Koop #1 and drill to 15,000’ to test a
series of Yegua sands

Structure is supported by 3D seismic and subsurface well
control

Prospect Data 1 well reenter and redrill
1st right of refusal on 7 potential future wells

Location About 2.5 miles north of the town of Vanderbilt, TX

Depth Total vertical depth is approx. 15,000’

Objective Yegua Sands:
Upper: 3 million + BOE
Middle: 3 million + BOE
Lower: 3 million + BOE

Completion Technology Triple zone completion, multi-stage frac

Potential Reserves 9 million + BOE

Units Available 12

1 Unit 1.25% Working Interest and 0.9375% Net Revenue Interest
2 stage turnkey investment

Managing Venturer Alliance Petroleum Interests

Operations Emerald Bay Exploration
Kaler Energy

API JACKSON #1 PROSPECT 2

DALLAM SHERMAN LIPSCOMB
HARTLEY HEMPHILL
HANSFORD OCHILTREE

HUTCHINSON

MOORE ROBERTS

OLDHAM POTTER CARSON GRAY WHEELER
DEAF SMITH 40 ARMSTRONG
DONLEY
RANDALL COLLINGSWORTH

CASTRO SWISHER

BRISCOE HALL CHILDRESS

PARMER

FLOYD MOTLEY COTTLE HARDEMAN
FOARD
BAILEY LAMB WICHITA

27 HALE WILBARGER CLAY

LUBBOCK BAYLOR GRAYSON LAMAR

KNOX MONTAGUE RED RIVER

CROSBY DICKENS KING ARCHER COOKE

COCHRAN HOCKLEY FANNIN

DELTA

YOAKUM TERRY WISE DENTON FRANKLIN TITUS BOWIE
GAINES WISE CASS
STONEWALL HOPKINS MORRIS
LYNN GARZA HASKELL THROCKMORTON JACK COLLIN 30
KENT
YOUNG HUNT

CAMP

PROSPECT SCURRY SHACKLEFORD PARKER DallROaCKsWALL RAINS UPSHUR MARION
ACREAGE FISHER
DALLAS WOOD

DAWSON BORDEN JONES STEPHENS Fort WorthPALO PINTO TARRANT

HOWARD 20 HOOD ZVAANNDT 20 GREGG
20 SOMERVELL RUSK
MARTIN EASTLAND KAUFMAN SMITH

ANDREWS MITCHELL TAYLOR ERATH JOHNSON ELLIS
35W
NOLAN CALLAHAN 45

NAVARRO HENDERSON

STERLING BROWN COMANCHE

EL PASO ECTOR BOSQUE HILL

El Paso LOVING MIDLAND COKE RUNNELS ANDERSON CHEROKEE

HUDSPETH WINKLER GLASSCOCK
10
CULBERSON 20 TUPTON REAGAN E X AGTROEMEN COLEMAN MILLS HAMILTON 35 SFREESTONE NACOGDOCHES SHELBY
JEFF DAVIS WARD CORYELL MCLENNAN HOUSTON
PRESIDIO CRANE CONCHO LIMESTONE SABINE
MCCULLOCH FALLS LEON ANGELINA NEWTON

IRION

REEVES LAMPASAS

SAN SABA ROBERTSON

SCHLEICHER MADISON

BELL

PECOS MENARD BURNET WALKER POLK
KIMBLE
CROCKETT WILLIAMSON MILAM BRAZOS GRIMES
10 REAL
MASON LLANO TYLER

SUTTON BLANCO TRAVIS BURLESON 45 JASCAINNTO
EDWARDS
TERRELL KINNEY GILLESPIE

LEE WASHINGTON MONTGOMERY LIBERTY HARDIN
AUSTIN
10 HAYS Austin ORANGE
KERR 10
VAL VERDE 35

BASTROP HARRIS

KENDALL WALLER

COMAL CALDWELL FAYETTE

BREWSTER BANDERA 10 Houston JEFFERSON
GONZALES CHAMBERS
GUADALUPE

UVALDE COLORADO

San Antonio WILSON LAVACA FORT BEND 45
BEXAR BRAZORIA GALVESTON
MEDINA
WHARTON

37 DE WITT

MAVERICK FRIO VICTORIA

ZAVALA KARNES JACKSON

MATAGORDA

ATASCOSA GOLIAD

CALHOUN

DIMMIT MCMULLEN

LA SALLE LIVE OAK BEE REFUGIO
35 WJEILMLS SAN PATRICIO ARANSAS

WEBB 37

DUVAL NUECES Corpus Christi

111 KLEBERG

ZAPATA BROOKS

KENEDY

JIM HOGG

STARR

HIDALGO

WILLACY
CAMERON

PROPOSED LOCATION 59
Jackson #1
Edna

111

1041 Acre Lease JACKSON
COUNTY

35

8 Well Drilling Program 28
Jackson #1 is first of 8 proposed
Estimated Ultimate Recovery (8 Wells) Jackson #1 Prospect
Jackson County, Texas
9,128,571 BOE
8+ PUDS (Proven Undeveloped Sands) LOCATION MAP

3 API JACKSON #1 PROSPECT

GEOLOGICAL SUMMARY

Summary faulting. The trap for the prospect is the pinching
out of sands at the edge of the fan. It is believed
The Jackson Prospect lies approximately 2.5 miles that multiple development wells will be needed to
north of the town site of Vanderbilt, Texas. This fully develop this structure at its full potential.
prospect is an expanded Yegua feature which
covers over 1000 acres. It is a 3D seismically Prospect History
controlled drilling prospect with multiple objectives
getting up-dip from the Santos Koop well. It has been The Santos Koop #1 well was designed to test a
determined through log analysis by Jimmie Babbitt Yegua/Cook Mountain prospect south of Edna,
and George R. Coates (professional log analysts) In Jackson County, Texas. The well was drilled to
that the Santos Koop well contains approximately 15,800’ and was logged on May 8, 2005. The well
48’ of laminated log pay that was never tested. was temporarily abandoned pending the analysis of
These sands were deposited down dip to the main the data collected from the drilling and logging of
Yegua production fairway, the prospect formed as the well.
the result of two major geologic events: the erosion
and re-deposition of Upper Cook Mountain deltaic The well encountered the top of the prospective
sands found in an up-dip field, and the subsequent interval at 13,700’, approximately 100 feet high to
breakup and down dip rotation of the fans by late prognosis. The upper 550 feet consisted of thin
forming Yegua faults and re-activated deep Wilcox sad zones with porosities in the low 20’s across the
‘basement’ faults. The Jackson reservoir interval thickest zones. The middle 600’ of the zone was
exhibits classic seismic character for a fan. The shale with now sand. The lowest 700’ of section
Jackson fan thins laterally away from the axis of consisted of a large fining-upward package of
deposition as well as up dip and down dip. The fan sand with several blocky sand lobes near the base.
dips to the northwest due to post-deposition Yegua Calculations based on a 21% net porosity cutoff
showed a 14.5’ of net pay, concentrated at 13,750’

API JACKSON #1 PROSPECT Continued on page 5

4

GEOLOGICAL SUMMARY

continued

and 38’ of net pay concentrated at 14,700’. Based on The upper sands have 630 acres up-structure from
this data, the operator, Santos USA, recommended the Koop well, proven to be within productive closure.
temporarily abandoning the well pending further There are 1,030 acres within mapped structural
analysis of the data. closure which has a good chance of being productive.
The reserves for the upper section would be on the
Prospect Data and Analysis order of 1.2 BCF per net foot of pay for the upper sand
based on 1,000 acres and 1,000 mcf/ac-ft. Every 5 feet
The paleo data from the well showed the target of pay in the optimistic case where the Koop #1 is at or
interval to by EY Yegua in age, not upper Cook in the gas/water transition.
Mountain as was originally predicted. In fact the
upper Cook Mountain section was only 100’ thick and The key unknown is probably the amount of net pay
occurred below the sand completely. This compares that would be encountered by an offset to the Koop
to the 3300’ of Upper Cook Mountain section see up 31. The net pay calculations came to 52.5 feet based
dip in the Allegro Signal Hill #1. The closest Yegua on the 21% cutoff established by analysis of the Big 12
producer is the Allegro Thunderbird #1, which has EY #1. Work by Santos has shown that the 21% cutoff may
Yegua pay. be too pessimistic since the Koop #1 encountered a
deep water fan system, which can have on e to two
While the Thunderbird pay and the sand section in orders of magnitude better permeability for a given
the Koop #1 are age equivalents, the correlations porosity. Their work shows that we may need to use
between the two wells are not straight forward. The an 18% cutoff for the deep water facies rather than
Thunderbird pay most likely correlates to the upper the 21% cutoff used. In addition, we appear to lose 2%
sandy section, but in a more distal environment. porosity per 1,000 feet of burial depth.
The lower sand section probably has no equivalent
section in the Thunderbird well. Base on log character What this means is that if we drill the Koop offset at the
and the interpreted regional geology, the Thunderbird structural crest, we can evaluate the expected lower
well may sit at the break in slope between the shelf sand by looking at the Koop log with pay cutoffs from
and deep water. The upper part of the Koop sand may 16-18% in the existing well. When we go through the
be the distal equivalent of a prograding shallow water calculations, the Koop #1 drilled 1,000’ up dip on the
sand section, while the basal sand sequence in the lower sand would have 14-22 feet of net reservoir in
Koop #1 is likely the basin-floor fan in a mini-basin. the upper sand (18-21% cutoff) and 38-64 feet of net
reservoir in the lower sand (16-18% cutoff).
Koop Offset Well
Calculating potential reserves for the prospect gives
Santos USA has proposed drilling an offset well up dip you a range of 7-18 BCF for the upper sand and
to the Koop #1 at the upper part of the sand package. 20-60 BCF for the lower sand. The upper zone has
It is possible to gain 1200 feet of structure on the hydrocarbons as deep as 14,100 feet. If the Santos
basin floor fan section. A well that would penetrate calculations of the water saturations are correct, we
the upper fan 320 feet high would still gain 1,000 feet have hydrocarbons down to as deep as 147,600 feet.
of elevation on the basin floor fan because of thinning This would support a prospect size of 30-90 BCF.
of the shale section between the two sands.

5 API JACKSON #1 PROSPECT

GEOLOGICAL TEAM

Chris McClanahan Abaco Operating, and Suemaur Exploration, Patrick
generated high quality, conventional oil and gas
For the past 14 years Chris has worked as CEO of prospects in the Gulf of Mexico, East Texas, and the
Coastal Drilling Land Company. Prior to Coastal he South Texas areas which led to the discovery and
founded BSI Drilling and Workover, which was sold development of sizeable hydrocarbon reserves.
in 1998 to R&B Falcon (now Hero Assets) a large
publicly traded company. Coastal Drilling Company Together they generate low risk oil and gas prospects
has strategically expanded their rig inventory from with significant reserve potential. Their focus is
one working rig in the South Texas market to seven primarily onshore Gulf Coastal areas as well as South
rigs working today throughout Texas and Louisiana. and East Texas. They have established relationships
Chris’s success with Coastal inspired him to found a with various South Texas oil and gas companies which
Marine division of Coastal Drilling, LLC in 2002 and allows Chris and Patrick to evaluate and work their
has since operated three state of the art barge rigs private seismic data, in addition to working public
capable of drilling down to 35,000 feet seismic data.

Patrick McCullough Chris and Patrick intend to provide attractive long term
Patrick McCullough is a third generation oilman and returns through their exploration efforts by generating
has over 10 years of experience as a generating geologically sound prospects.
geologist for several prominent exploration and
production companies. While at Hunt Oil Company, Company headquarters are based out of Corpus
Christi, Texas.

API JACKSON #1 PROSPECT 6

OPERATOR PROFILE

Kaler Energy Corp., “KEC” is a bonded Kaler Energy Corp. which has drilled over 150 wells
and produced 47.5 BCF and 1.98 MMBO totaling gross
operator in the oil and gas business as per revenue of $371,285,000.
the rules and regulations of the RRC of Texas.
KEC has drilled and/or operated over 150 Craig New
vertical and horizontal wells ranging in depth Craig New, a practicing lawyer and graduate of Texas
from 1000’ to 16,000’. KEC has a reputation for A&M University, has been involved in the oil and gas
getting wells drilled and producing in a timely industry for 37 years, a large part of which with Teco
and cost-efficient manner. Pipeline Company. As President of Teco Pipeline
he developed projects and acquired assets and
John A. Kaler II companies to grow Teco from a small regional gas
John A. Kaler II founded Kaler Energy Corp. in 1999. gathering company to a statewide network of natural
John has over 30 years of experience in the oil and gas pipelines, gathering systems, and processing and
gas industry. He began his career in the business treating plants. Following the sale of Teco to PG&E,
at the age of 17 years by working as a gauger both Craig was President of PG&E Teco until the purchase
onshore and offshore while in high school and later of Valero Energy Corp.’s natural gas business. The
during summers while attending college, in which purchase resulted in a new entity, PG&E Texas, of
John received a BS Degree in Petroleum Engineering which Craig was Executive Vice President in charge of
at The University of Texas at Austin. Beginning his Engineering, Operations and Business Development.
career as an engineer in Corpus Christi with Texas Craig has worked primarily in the upstream side of
Oil & Gas Corp., his responsibilities included drilling, the industry for the past eleven years after spending
completion and production operations along with the first twenty-six years in the midstream sector.
reservoir engineering. Representing land owners, mineral owners and oil
and gas exploration companies have been the bulk of
In January of 1990, John left Texas Oil and Gas, to his practice. As part of his practice, Craig has devoted
work with a private pipeline company, Teco Pipeline time to asset sales and purchase transactions and to
Company. At the time, Teco was owned by the Rowling regulatory matters, both primarily in the oil and gas
Family of Corpus Christi, Texas. Within two (2) years, industry.
John became Vice-President of Engineering. In 1997,
Teco sold to Pacific Gas and Electric and formed PG&E
Gas Transmission Texas, in which John stayed with
the new company for approximately 18 months acting
as Regional Director of Operations for the Central and
West Texas Area. He left PG&E and in 1999 formed

7 API JACKSON #1 PROSPECT

API Jackson #1 Prospect Conversion Table
Table Assumes 5% severance Tax
25% Royalty and 3% Monthly Operating Expense

PHASE 1 Drilling and Testing 1/2 Unit (.625%WI) 1 Unit (1.25%WI) 2 Units (2.5%WI)
Effective Hard
(Turnkey) Dollar Risk $42,500 $85,000 $170,000

PHASE 2 ***assumes 35% tax bracket $27,625 $55,250 $110,500

(Turnkey)

Completion $16,000 $32,000 $64,000

TOTAL $58,500 $117,000 $234,000
INVESTMENT

MONTHLY PRODUCTION

Monthly Revenue Scenarios - 1 Unit Example
* For 1/2 unit example assume half the revenue dollar amount

Daily Rate $50.00 $60.00 $70.00 $80.00 $90.00

Barrels of Oil $19,707.86 $23,649.43 $27,591.01 $31,532.58 $35,474.15
Equivalent $16,423.22 $19,707.86 $22,992.50 $26,277.15 $29,561.79
$13,138.57 $15,766.29 $18,394.00 $21,021.72 $23,649.43
1500 $9,853.93 $11,824.72 $13,795.50 $15,766.29 $17,737.08
1250 $6,569.29 $7,883.14 $9,197.00 $10,510.86 $11,824.72
1000 $3,284.64 $3,941.57 $4,598.50 $5,255.43 $5,912.36
750
500 0 0 0 0 0
250

0

CUMULATIVE PRODUCTION

Total Return Potential - 1 Unit Example
* For 1/2 unit example assume half the revenue dollar amount

Cumulative $50.00 $60.00 $70.00 $80.00 $90.00
Barrels of Oil
Equivalent $755,917.97 $907,101.56 $1,058,285.16 $1,209,468.75 $1,360,652.34
$647,929.69 $777,515.63 $907,101.56 $1,036,687.50 $1,166,273.44
1,750,000 $539,941.41 $647,929.69 $755,917.97 $863,906.25 $971,894.53
1,500,000 $431,953.13 $518,343.75 $604,734.38 $691,125.00 $777,515.63
1,250,000 $323,964.84 $388,757.81 $453,550.78 $518,343.75 $583,136.72
1,000,000 $215,976.56 $259,171.88 $302,367.19 $345,562.50 $388,757.81
750,000 $107,988.28 $129,585.94 $151,183.59 $172,781.25 $194,378.91
500,000
250,000 0 0 000

0

The values shown are hypothetical and used to assist in the calculation relating to possible production levels. Furthermore, all Working Interest (relative to the Joint
Venture) is owned solely by the Joint Venture and not by the individual participants thereof: however each unit in the Joint Venture is comprised of an economic equivalent

of 1.25% Working interest and 0.9375% Net Revenue Interest. Over the last 10 years oil prices have averaged $75.94 per barrel.

API JACKSON #1 PROSPECT 8

N WHARTON API # 33841
COUNTY
LAVACA Speaks IP: 419 BO
COUNTY API # 34188 CUM: 662,7

API #00165 IP: 450 BOE API # 33050
CUM: 585,673 BOE
IP: 320 BOE IP: 8,429 B
CUM: 548,296 BOE API # 34155 CUM: 678,

IP: 743 BOE API # 33180
CUM: 637,156 BOE
IP: 9,571 B
CUM: 543,

API # 80813 API # 34175 E
IP: NA A
IP: 820 BOE
CUM: 454,081 BOE CUM: 274,009 BOE I
C
Morales Cordelo

API # 32003-Re-Entry 111 API # 00271
IP: NA
IP: NA API # 32245 EKEY WELL
CUM: 961,868 BOE CUM: 418,302 BOE
IP: 1,107 BOE
API # 32003 FKEY WELL 59 Ganado
CUM: 1,312,763 BOE
IP: 502 BOE

CUM: 1,740,277 BOE

API # 32903 API # 33055

IP: 127 BOE IP: 285 BOE
CUM: 1,395,110 BOE
Edna CUM: 834,842 BOE

API # 32104 DKEY WELL El Toro API # 32977

IP: 10,000 BOE IP: 714 BOE

CUM: 1,662,482 BOE 59 CUM: 719,728 BOE

API # 32993

Inez

API # 32118 Jackson #1 Prospect JACK
Proposed LocationLa Ward COU
IP: 15,000 BOE
Telferner CUM: 995,537 BOE Lolita
Vanderbilt
API # 32991

IP: 812 BOE
CUM: 918,899 BOE

Disclaimer: Map not to scale and only productive Yegua wells from 10,000’ to 15,000’ are shown.

9 API JACKSON #1 PROSPECT

1 API # 32931 API # 33849 API # 32856

OE IP: 1,750 BOE IP: 163 BOE IP:3,571 BOE
700 BOE CUM: 379,853 BOE CUM: 543,755 BOE CUM: 560,985 BOE

0 API # 33262 Boling

BOE IP: 400 BOE
,534 BOE CUM: 187,571 BOE

Pierce API # 32998 New Gulf

0 El Campo IP: 506 BOE
CUM: 2L1a3n,e5C2i5ty BOE
BOE

,755 BOE API # 33100

API # 33069 IP: 520 BOE Pledger
CUM: 309,157 BOE
IP:1,749 BOE
CUM: 2,622,923 BOE KUEHNLE CKEY WELL EJ POPPE AKEYMWaEgLnL et
API # 33007 API # 32901
ELAM BKEY WELL
API # 33181 IP: 2,500 BOE IP: 1,357 BOE

IP: 606 BOE CUM: 1,314,033 BOE CUM: 1,543,197 BOE

CUM: 741,389 BOE

API # 33030

Danevang IP: 139 BOE
CUM: 563,429 BOE

Clemville Markham Bay City

111
Midfield

Buckeye

KSON Blessing Wadsworth
UNTY
MATAGORDA 28
COUNTY
Jackson #1 Prospect
LEGEND Jackson County, Texas

Productive Yegua wells from 10,000’ to 15,000’ PRODUCTION MAP

API JACKSON #1 PROSPECT 10

KEY WELL A KEY WELL B
LADD PETRO LADD PETRO
#1 POPPE EJ
#2 ELAM
TD 13,476’
TD 10,682’

IP 1,357 BOE IP 606 BOE
CUM 1,543,197 BOE CUM 741,389 BOE

Jackson #1 Prospect
Jackson County, Texas

ELECTRIC-LOG MAP

11 A P I J A C K S O N # 1 P R O S P E C T

KEY WELL C SANTOS USA PROPOSED LOCATION
LADD PETRO #1 KOOP GU
#1 KUEHNLE
RE-ENTRY
TD 10,800’
TD 15,800’

IP 2,500 BOE
CUM 1,314,033 BOE

API JACKSON #1 PROSPECT 12

KEY WELL A KEY WELL B KEY WELL C
LADD PETRO LADD PETRO LADD PETRO
#1 POPPE EJ #1 KUEHNLE
#2 ELAM

UYpepgeura UYpepgeura

FAULT
FAULT
FAULT
FAULT
YMeigdua YMeigdua UYpepgeura
LYoewgeura YMeigdua UYpepgeura
YMeigdua
FAULT LYoewgeura

IP 1357 BOE LYoewgeura
CUM 1,543,197 BOE
IP 606 BOE
CUM 741,389 BOE

IP 2,500 BOE
CUM 1,314,033 BOE

Jackson #1 Prospect
Jackson County, Texas

Schematic Diagram

*For Illustration Purposes Only-Not to scale

13 A P I J A C K S O N # 1 P R O S P E C T

PROPOSED LOCATION 1041 ACRES x 52’ x 1650 MCFAC/ft =
JACKSON #1 Estimated Ultimate Recovery
9,128,571 BOE (8 Wells)

8+ PUDS (Proven Undeveloped Sands)

SANTOS USA
#1 KOOP GU

FAULT

UYpepgeura 350,000 BOE
YMeigdua with potential of
additional intervals

Wellbore 350,000-400,000 BOE

350,000-450,000 BOE

LYoewgeura

API JACKSON #1 PROSPECT 14

A
PROPOSED LOCATION

SANTOS
#1 KOOP

Upper Yegua
350,000 BOE
with potential of
additional intervals

Middle Yegua
350,000-400,000 BOE
Lower Yegua
350,000-450,000 BOE

15 A P I J A C K S O N # 1 P R O S P E C T

A’

Jackson #1 Prospect 16
Jackson County, Texas

SEISMIC A-A’ MAP

API JACKSON #1 PROSPECT

TAX BENEFITS ACTIVE VS. PASSIVE INCOME: The Tax Reform Act of 1986
introduced into the Tax Code the concepts of “Passive” income
POTENTIAL RETURNS: Projected returns of five times the and “Active” income. The Act prohibits the offsetting of losses
initial investment are common in the industry. Elements of risk from Passive activities against income from Active businesses.
vary greatly in all investments, and based on the strategy used, The Tax Code specifically states that a Working Interest in an
can be extremely decreased within the oil and gas industry. oil and gas well is not a “Passive” Activity (Limited Partners
excluded), therefore, deductions can be offset against income
TECHNOLOGICAL ADVANCEMENT: The oil and gas industry from active stock trades, business income, salaries, etc.
is one of the largest users of advanced technology. Billions
of dollars are spent each year to reduce the investment risk DEPLETION ALLOWANCE: If you are an investor in an
associated with establishing productive wells. With modern independent oil and gas project, the current depletion
day advancements, it is easier to find oil and gas than ever. allowance is 15% of your share of the gross income from the
Technology rather than luck is what has allowed the industry to property based on average daily production and can be taken
continue to meet the rapidly increasing demand for oil and gas every single year until the well produces all of the oil and gas
from China, India and other developing nations. in its reservoirs. This makes fifteen cents of every gross income
dollar non-taxable, thereby producing tax-sheltered income.

STRATEGIC ADVANTAGES: By concentrating on infield SMALL PRODUCERS TAX EXEMPTION: The 1990 Tax Act
development plays, meaning oil production has been proven provided some special tax advantages for small companies
in the area, Alliance Petroleum Interests has been able to and individuals. This tax incentive, known as the “Percentage
put together risk diverse programs with high probabilities Depletion Allowance”, is specifically intended to encourage
of success. Using our connections in the industry, including participation in oil and gas drilling. This tax benefit is not
operators that are familiar with the area, technological available to large oil companies, retail petroleum marketers,
strategies that allot more production out of each well, we or refiners that process more than 50,000 barrels per day. It is
believe our programs to be some of the most risk averse in the also not available for entities owning more than 1,000 barrels
entire industry. of oil (or 6,000,000 cubic feet of gas) average daily production.
The “Small Producers Exemption” allows 15% of the Gross
*TAX ADVANTAGES: Investing in oil and gas can be one of the Income (not Net Income) from an oil and gas producing
most tax-advantageous investments available. Congressional property to be tax-free.
incentives encourage domestic petroleum development.
Oil and Natural Gas from domestic reserves helps to make INTANGIBLE DRILLING COSTS (IDCS): IDCs include labor
our country more energy self-sufficient by reducing our intensive costs such as the drilling contractor and professional
dependence on foreign sources. In light of this, Congress has services, and are reported to the investor at the end of the
provided tax incentives to stimulate domestic Oil and Natural year. For a producing well, up to 85% of the investment
Gas production financed by private sources. Drilling projects constitutes what are known as IDCs and are written off an
offer many tax advantages and these benefits greatly enhance investor’s ordinary income in the first year.
the economics. These incentives are not “Loop Holes” - they
were placed in the Tax Code by Congress to make participation Typically most of the investment is deductible in the same
in oil and gas ventures one of the best tax advantaged tax year and can be offset against active or ordinary income
investments. At the end of the year Alliance Petroleum (salaries, business income, stock trades, etc.). For every dollar
Interests sends out a K1 to each partner that can be given to his of IDC invested, the investor receives one dollar of deduction.
accountant to receive full benefits of this active tax deduction. These IDC deductions reduce an investor’s dollars at risk.

IDCs can make up roughly 85% of the total investment.

17 A P I J A C K S O N # 1 P R O S P E C T

By way of illustration, an investment of $100,000 made DRY HOLE: In the event that you invest in a nonproducing
in an oil and gas partnership could yield up to $85,000 in well, 100% of all dollars invested are written off as a loss
tax deductions for the year the investment is made. For an against your ordinary income in the first year.
investor in a 35% tax bracket, that could mean actual tax
savings of up to $29,750 in the first year. LEASE COSTS: Leasehold costs (purchase of leases, minerals,
etc.), legal expenses for title opinions, etc., administrative,
The IDC deduction, a non-preference item, reduces the accounting and Lease/Well Operating Costs (LOC) are also
investors Adjusted Gross Income and lowers the Alternative 100% tax deductible through cost depletion.
Minimum Tax. ***See worksheet for specific examples***
ALTERNATIVE MINIMUM TAX: Prior to the 1992 Tax Act,
TANGIBLE DRILLING COSTS (TDCS): TDCs include pipe, working interest participants in oil and gas ventures were
storage tanks, and wellhead equipment which are capitalized subject to the normal Alternative Minimum Tax to the
and depreciated. For a producing well, approximately extent that this tax exceeded their regular tax. This Tax
15% - 30% of your investment constitutes TDCs, which are Act specifically exempted Intangible Drilling Cost as a Tax
depreciated over a seven-year period using the Accelerated Preference Item. “Alternative Minimum Taxable Income”
Cost Recovery System (ACRS). generally consists of adjusted gross income, minus allowable
Alternative Minimum Tax itemized deduction, 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.

2017 Tax Rates

Income Marginal Federal Medicare Taxes State Taxes Marginal Tax Rate
$388,351 Income Taxes 1.5% (Where Applicable)
$217,451 35% 1.5%
$142,701 1.5% 0% to 12% 36.5% to 48.5%
$70,701 33% 1.5%
0% to 12% 34.5% to 46.5%
28%
0% to 12% 29.5% to 41.5%
25%
0% to 12% 26.5% to 38.5%

The above chart is based on the investor filing jointly with his or her spouse, and is to be used for general tax information only.
This should not be considered as individual tax advice. Please consult your personal tax advisor.

API JACKSON #1 PROSPECT 18

EXAMPLE TAX WORKSHEET

Amount of Alliance Investment $117,000 Line 1
Multiply Line 1 by 75%
$87,750 Line 2
Approximate amount of intangible drilling cost
Multiply Line 1 by 5% $5,850 Line 3

Approximate amount of leasehold $23,400 Line 4
Multiply Line 1 by 20%
$117,000 Line 5
Tangible Equipment Deduction Pursuant to IRS Sec. 179
Add Lines 2, 3 & 4 43% Line 6

Total Tax Deductions $50,301 Line 7
Enter your overall Tax Bracket
$66,690 Line 8
Include Federal, Medicare, & State (if applicable)
Multiply Lines 5 & 6

**First Year Tax Savings
Subtract Line 7 from Line 1

Net Out of Pocket Investment

(The example above assumes an investor is in a 35% Tax Bracket + 1.5% Medicare Tax + a State Income Tax of 6%.)

INVESTOR TAX WORKSHEET

Amount of Alliance Investment Line 1
Line 2
Multiply Line 1 by 75% Line 3
Approximate amount of intangible drilling cost Line 4
Line 5
Multiply Line 1 by 5% Line 6
Approximate amount of leasehold Line 7
Line 8
Multiply Line 1 by 20%
Tangible Equipment Deduction Pursuant to IRS Sec. 179

Add Lines 2, 3 & 4
Total Tax Deductions

Enter your overall Tax Bracket
Include Federal, Medicare, & State (if applicable)

Multiply Lines 5 & 6
**First Year Tax Savings

Subtract Line 7 from Line 1
Net Out of Pocket Investment

19 A P I J A C K S O N # 1 P R O S P E C T

Jackson #1 ProspAe-1c6t2
Jackson County, Texas

SCOUT TICKET
KEY WELL “A”

API JACKSON #1 PROSPECT 20

Jackson #1 ProspAe-1c6t2
Jackson County, Texas

SCOUT TICKET
KEY WELL “a”

21 A P I J A C K S O N # 1 P R O S P E C T

Jackson #1 ProspAe-1c6t2
Jackson County, Texas

SCOUT TICKET
KEY WELL “B”

API JACKSON #1 PROSPECT 22

Jackson #1 ProspAe-1c6t2
Jackson County, Texas

SCOUT TICKET
KEY WELL “b”

23 A P I J A C K S O N # 1 P R O S P E C T

Jackson #1 ProspAe-1c6t2
Jackson County, Texas

SCOUT TICKET
KEY WELL “C”

API JACKSON #1 PROSPECT 24

Jackson #1 ProspAe-1c6t2
Jackson County, Texas

SCOUT TICKET
KEY WELL “c”

25 A P I J A C K S O N # 1 P R O S P E C T

Jackson #1 ProspAe-1c6t2
Jackson County, Texas

SCOUT TICKET
KEY WELL “D”

API JACKSON #1 PROSPECT 26

Jackson #1 ProspAe-1c6t2
Jackson County, Texas

SCOUT TICKET
KEY WELL “E”

27 A P I J A C K S O N # 1 P R O S P E C T

Jackson #1 ProspAe-1c6t2
Jackson County, Texas

SCOUT TICKET
KEY WELL “F”

API JACKSON #1 PROSPECT 28

29 A P I J A C K S O N # 1 P R O S P E C T

API JACKSON #1 PROSPECT 30

8330 LBJ Fwy Suite #950
Dallas, TX 75243
469-249-8985

www.alliancepetro.com