API PERMIAN #2 JV IRION COUNTY, TEXAS

API PERMIAN #2 JV
IRION 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 Operator Profile
We are not a “wildcat” driller, and specifically seek out 5 Field Map
infield acreage to assure best possible production in 6 Conversion Table
today’s economic climate.  The owners’ relationships in the 7 Production Map
industry provide the ability to capitalize on our extensive 9 Schematic Diagram
network and partnerships or “allies” hence the name of 10 Tax Benefits
the company. Alliance prides itself on securing superior 12 Example Tax Worksheet
opportunities in oil and gas prospects and properties 13 Scout Tickets
that provide significant return potential with quantified
downside risk for our participating Partners.

1 API PERMIAN #2 PROSPECT

PROSPECT SUMMARY

Prospect API Permian 2 Joint Venture
Irion County, TX

Permian Basin

1 vertical well approximately 6,000’

Prospect Data 1 vertical well in the Permian Basin
50 Potential wells and 3500 acres with right of refusal

Location Approx 5 miles south west of San Angelo, TX

Depth Approx 5,000-6,500 ft deep

Objective 2 target sands
Wolfcamp and Clearfork

2 additional potential formations
Canyon and San Angelo Sands

Completion Technology Potential multi zone completion
with multi stage frac stimulation

Units Available 20 units

1 Unit Approx 3.2% WI in 1 wellbore and 2.4% NRI
2 stage turnkey investment

Managing Venturer Alliance Petroleum Interests

Operations GT Consulting
Fossil Petroleum

API PERMIAN #2 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 GRAYSON LAMAR

KNOX BAYLOR MONTAGUE RED RIVER

CROSBY DICKENS KING ARCHER COOKE

COCHRAN HOCKLEY FANNIN

DELTA

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

GAINES SCURRY SHACKLEFORD PARKER DallROaCKsWALL RAINS UPSHUR MARION
ANDREWS FISHER
DALLAS WOOD

DAWSON BORDEN JONES STEPHENS Fort WorthPALO PINTO TARRANT
MARTIN
HOWARD 20 HOOD ZVAANNDT 20 GREGG
20 SOMERVELL RUSK
EASTLAND KAUFMAN SMITH

MITCHELL TAYLOR ERATH JOHNSON
ELLIS
NOLAN CALLAHAN 45
35W

NAVARRO HENDERSON

EL PASO ECTOR STERLING TEXASCOKE BROWN COMANCHE BOSQUE HILL
GLASSCOCK GTROEMEN COLEMAN MILLS
El Paso LOVING WINKLER MIDLAND RUNNELS ANDERSON CHEROKEE
FREESTONE
HUDSPETH 35 NACOGDOCHES SHELBY
10 MCLENNAN LEON
CULBERSON 20 CRANE UPTON REAGAN HAMILTON SABINE
JEFF DAVIS WARD CORYELL FALLS MADISON NEWTON
PRESIDIO CONCHO LIMESTONE HOUSTON
MCCULLOCH LAMPASAS
IRION

REEVES

SAN SABA ROBERTSON ANGELINA

SCHLEICHER 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
CHAMBERS
GUADALUPE GONZALES

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

KLEBERG

ZAPATA BROOKS

KENEDY

JIM HOGG

STARR

HIDALGO

WILLACY
CAMERON

NEW Permian Basin
MEXICO
Midland
Northwestern Basin
Shelf

Delaware Central Hamilton Ranch Lease
Basin Platform API Permian #2 JV

Basin (1 WELL)

IRION

Diablo 28APLIoPreermmiiapnsu#2mJV
Platform
Irion County, Texas
TEXAS
0 25 50 Miles LOLCoAcTatIOorNMMaApP

3 API PERMIAN #2 PROSPECT

OPERATOR PROFILE

Fossil Petroleum, Is an independent He attended Texas Tech University on a Baseball
Athletic Scholarship and received his Degree in
oil and gas operator based out of San Angelo, Business Management from the Rawls School
TX. Fossil Petroleum’s team consists of 200+ of Business in Lubbock, TX. He then pursued
years of oil and gas experience.  Led by CEO his MBA from San Angelo State University while
Travis Young. Mr. Young grew up in the heart of working full-time in The Permian Oil Field. As
the Permian Basin in Odessa, TX and got his start the son of a chemical engineer and successful
in the Oil Patch at a very early age.  In addition, business owner, Travis was taught the virtues
to his leadership role with Fossil Petroleum, Mr. of ambition, strong work ethic, and dedication
Young, is President of Operations for a Multi- to family from his West Texas up-bringing. He is
Billion Dollar Family Office’s E&P company. He married to San Angelo native Courtney Young
also serves as Managing Partner in “Cheveyo who is an Elementary Teacher, and they enjoy
Minerals LLC” a Royalty Company where he looks time with their 6-year-old son and 3-year-old
to acquire producing  and overriding royalties daughter.  He enjoys giving back to The Texas
in the Permian Basin, and consults for various Tech Alumni Association, The Double T Varsity
Permian Operators providing drilling, completion, Athletic Club, and watching any Texas Tech
plugging, and work-over expertise. sporting events.

In just the past few years Mr. Young has drilled
and completed over 150+ wells both vertically
and horizontally. He went to work for Silver Oil &
Gas Inc. as Vice President of Operations in 2007
and is currently operating for Fratelli Exploration,
L.P.

API PERMIAN #2 PROSPECT 4

Hamilton Ranch Lease

50 POTENTIAL FUTURE LOCATIONS

Fossil #2 API Permian #2 JV
IP 142 BOPD
One Formation Only (PROPOSED LOCATION)

API Permian #1 JV 28

(CURRENTLY DRILLING) API Permian #2 JV
Irion County, Texas
Fossil #1
IP 280 BOPD LEASE MAP

5 API PERMIAN #2 PROSPECT

API Permian #2 Prospect Conversion Table
Table Assumes 5% severance Tax
25% Royalty and 3% Monthly Operating Expense

PHASE 1 Drilling and Testing 1/2 Unit (1.6%WI) 1 Unit (3.2%WI) 2 Units (6.4%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 $16,500 $33,000 $66,000

TOTAL $59,000 $118,000 $236,000
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 $11,772.16 $14,126.60 $16,481.03 $18,835.46 $21,189.89
Equivalent $10,090.43 $12,108.51 $14,126.60 $16,144.68 $18,162.77
$8,408.69 $10,090.43 $11,772.16 $13,453.90 $15,135.64
350 $6,726.95 $8,072.34 $9,417.73 $10,763.12 $12,108.51
300 $5,045.21 $6,054.26 $7,063.30 $8,072.34 $9,081.38
250 $3,363.48 $4,036.17 $4,708.87 $5,381.56 $6,054.26
200 $1,681.74 $2,018.09 $2,354.43 $2,690.78 $3,027.13
150
100 0 0 0 0 0
50
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 $774,060 $928,872 $1,083,684 $1,238,496 $1,393,308
700,000 $663,480 $796,176 $928,872 $1,061,568 $1,194,264
600,000 $552,900 $663,480 $774,060 $884,640 $995,220
$442,320 $530,784 $619,248 $707,712 $796,176
500,000 $331,740 $398,088 $464,436 $530,784 $597,132
400,000 $221,160 $265,392 $309,624 $353,856 $398,088
300,000 $110,580 $132,696 $154,812 $176,928 $199,044
200,000
100,000 0 0 0 0 0

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 3.2% Working interest and 2.4% Net Revenue Interest. Over the last 10 years oil prices have averaged $75.94 per barrel.

API PERMIAN #2 PROSPECT 6

IP 417 BOPD
229,930 BOE

N IP 343 BOPD IP 286 BOPD
677,443 BOE 113,002 BOE

KEY WELL A
IP 416 BOPD
369,092 BOE

IP 299 BOPD
82,987 BOE

Wolfcamp Trend IP 378 BOPD

Wolfcamp Trend KEY WELL C
IP 399 BOPD
345,807 BOE

Ketchum Lease KEY WELL E
IP 623 BOPD IP 291 BOPD
5.3 Mil BOE 301,183 BOE
(Clearfork)

IP 395 BOPD IP 339 BOPD
IP 371 BOPD IP 432 BOPD
455,364 BOE
IP 334 BOPD IP 397 BOPD KEY WELL B IP 349
163,799 BOE IP 549 BOPD 1,259,0
1.9 Mil BOE
IP 528 BOPD
343,827 BOE

Spraberry Trend

28APLIoPreermmiiapnsu#2mJV 67

Irion County, Texas Map not to scale, artists’ interpretation, wells shown are believed to be
similar vertical wells based off of depth and formations produced and producing.
PRODUCTION MAP

7 API PERMIAN #2 PROSPECT

D
E

IP 310 BOPD KEY WELL F API Permian #2 JV
131,251 BOE IP 323 BOPD Proposed Location
IP 374 BOPD 896,829 BOE
132,808 BOE API Permian #1 JV 67
Currently Drilling

Fossil Petroleum
#2 IP 142 BOPD
1 formation

Fossil Petroleum
#1 IP 280 BOPD

Clearfork #14 P 230 BOPD
IP 372 BOPD
101,234 BOE

BOPD IP 299 BOPD IP 345 BOPD
022 BOE 268,367 BOE 34,140 BOE
IP 312 BOPD
IP 340 BOPD 934,867 BOE Inital Production
483,604 BOE KEY
IP 320 BOPD IP 100-299
Wolfcamp Trend 28,666 BOE
IP 289 BOPD IP 300-399
IP 309 BOPD 1,316,604 BOE
665,834 BOE IP 400-499

KEY WELL D IP 311 BOPD IP 360 BOPD IP 500+
IP 506 BOPD 367,723 BOE 331,010 BOE
231,216 BOE

API PERMIAN #2 PROSPECT 8

API Permian #2 JV

(PROPOSED LOCATION)

San Angelo
40,000-75,000 BOE

Clearfork
250,000-750,000 BOE

Wolfcamp
75,000-200,000 BOE

Canyon Sands
250,000-500,000 BOE

*Production potentials are based on what we believe 28
to be similar wells with similar perforation depths in
Irion County, TX. There is no guarantee of production API Permian #2 JV
values and there have been wells that produce less Irion County, Texas
than and greater than the potential productions numbers
listed in the above formations in Irion County, TX. SCHEMATIC DIAGRAM

9 API PERMIAN #2 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.

API PERMIAN #2 PROSPECT 10

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.

2018 Tax Rates

Income Marginal Federal Medicare Taxes State Taxes Marginal Tax Rate
$600,000+ Income Taxes 1.5% (Where Applicable)
$400,001 37% 1.5%
1.5% 0% to 14% 38.5% to 52.5%
$315,001 35% 1.5%
$165,001 0% to 14% 36.5% to 50.5%
32%
0% to 14% 33.5% to 47.5%
24%
0% to 14% 25.5% to 39.5%

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.

11 A P I P E R M I A N # 2 P R O S P E C T

EXAMPLE TAX WORKSHEET

Amount of Alliance Investment $118,000 Line 1
Multiply Line 1 by 75%
$88,500 Line 2
Approximate amount of intangible drilling cost
Multiply Line 1 by 5% $5,900 Line 3

Approximate amount of leasehold $23,600 Line 4
Multiply Line 1 by 20%
$118,000 Line 5
Tangible Equipment Deduction Pursuant to IRS Sec. 179
Add Lines 2, 3 & 4 43% Line 6

Total Tax Deductions $50,740 Line 7
Enter your overall Tax Bracket
$67,260 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

API PERMIAN #2 PROSPECT 12

API Permian #2 JA-V162
Irion County, Texas

SCOUT TICKET
KEY WELL “A”

13 A P I P E R M I A N # 2 P R O S P E C T

API Permian #2 JA-V162
Irion County, Texas

SCOUT TICKET
KEY WELL “B”

API PERMIAN #2 PROSPECT 14

API Permian #2 JA-V162
Irion County, Texas

SCOUT TICKET
KEY WELL “C”

15 A P I P E R M I A N # 2 P R O S P E C T

API Permian #2 JA-V162
Irion County, Texas

SCOUT TICKET
KEY WELL “D”

API PERMIAN #2 PROSPECT 16

API Permian #2 JA-V162
Irion County, Texas

SCOUT TICKET
KEY WELL “E”

17 A P I P E R M I A N # 2 P R O S P E C T

API Permian #2 JA-V162
Irion County, Texas

SCOUT TICKET
KEY WELL “F”

API PERMIAN #2 PROSPECT 18

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

www.alliancepetro.com