Peak Oil and the Small Independent  By John R. Barnes, Chairman & CEO B.W.O.C., Inc. and B&R Energy, LLC. Small Texas Based Independent Oil Companies  ASPO – USA World Oil Conference Denver, CO November 2005

WHO ARE INDEPENDENT PRODUCERS?  There are about 5,000 independent oil and natural gas producers in the U.S. They operate in 33 states and the offshore. Independents drill 90 percent of the wells in the U.S. and produce 68 percent of America's oil and 82 percent of domestic natural gas. Independents can be small family companies or publicly traded companies.

CONSEQUENCES OF NO NEW DOMESTIC SUPPLIES.  Unstable consumer prices.  Factories/manufacturers moving overseas for cheaper energy.  Lost jobs.  Lost tax and royalty revenue.  Reliance on foreign oil (national and economic security risk): 63% of our oil is imported today.  Supply disruptions from overseas.  Extremely high trade deficit (the U.S. trade deficit soared to a record $617.7 billion last year. One-third of that comes from oil imports, billion).

Oil Prices Last 23 Years

Challenges to Find New Oil  Drilling Deeper  Using more technology  Drilling more complex plays  Dramatic cost increases

B&R Woodville Area Sample Cost Increases January – October 2005  Drilling Day Rates +48%  Steel Casing +243%  Rig Fuel +64%  Drilling Mud +25%

Other Issues  Labor Shortage – 1 Million jobs lost Expertise and Experience  Impending Retirement 50% of Industry Workers to reach Retirement Age in 10 Years.  Access, Regulations, New Taxes, Political Scapegoating

Needs and Solutions  Maximize Available Production  Need to drill to maximize production  Can only drill with funds available  Need profits plus attractive to investor funds  Blaming the oil industry for not being able to do enough does not fix the problems  All solutions are going to be needed. Quit being picky.  Economic laws are not subject to repeal  Use technology e.g. virtual workplace