Bald Eagle Energy Inc

Analyst: Victor Sula, Ph.D. Initial Report

January 26th, 2009

Bald Eagle Energy Inc. (OTCOB: BEEI) 1

Analyst: Victor Sula, Ph.D.Initial Report

January 26th, 2009

Company Introduction

Bald Eagle Energy Inc21 Waterway AvenueSuite 300The Woodlands, TX 77380

Phone: (214) 599-8380Fax: (214) 599-8381E-mail: [email protected]: www.baldeagleoil.com

MARKET DATA

SymbolExchangesCurrent PricePrice TargetRatingOutstanding SharesMarket Cap.Average 3-m Volume

Source: Yahoo Finance, Analyst Estimates

BEEIOTC OB

$0.19$0.55

Speculative Buy72.96 Million

$13.86 Million50,813

Bald Eagle Energy Inc. (BEEI) is exploring for and developing pe-troleum resources in one of the most promising, oil-rich regions of Alaska - the North Slope basin. The Company has a 100% work-ing interest in six large leases covering over 18,000 acres in Alaska’s North Slope. This region accounts for about 15% of total annual U.S. oil production and, since the 1968 discovery of huge oil re-serves, has produced more than 14 billion barrels of crude oil. The Company’s land borders the Prudhoe Bay Unit to the south, which is operated by industry giants such as BP, ExxonMobil, ConocoPhil-lips, Chevron and Anadarko.

In April 2008, BEEI contracted with LAPP Resources, Inc. to provide an independent geological review of the Company’s Alaska North Slope hydrocarbon leases. According to the geological report, the close proximity of BEEI’s leases to Prudhoe Bay suggests that, if new oil fields are discovered, the Company could produce as much as 90 million barrels of recoverable oil from its leases. Based on EIA (Energy Information Administration) estimates of oil prices aver-aging $55 per barrel in 2010, the potential economic value of the Company’s six lease sites could range from $300 million to up to $5 billion.

In November 2008, the Company appointed a new CEO – An-drew Harper, who brings nearly 30 years of international oil and gas exploration and development experience, including 21 years with Arco and 17 years in managerial positions. His professional background includes technical geological and geophysical stud-ies; preparations for exploration well drilling; seismic surveys and seismic interpretations; management of exploration programs in-cluding budgets and operations, and other activities. Mr. Harper

1/23/09

volume

0.45

0.40

0.35

0.30

0.25

0.20

0.15

0.10

800

600

400

200

0

© BigCharts.com

BEEI daily

Nov Dec 09

Thou

sand


January 26th, 2009



January 26th, 2009


replaced acting CEO, Alvaro Vollmers, who remains as BEEI’s CFO.

The Company was incorporated in October, 2005 and is headquartered in Dallas, Texas.

Oil and gas exploration in one of the most prolific U.S. basins

The Company is exploring for and developing high-quality oil and natural gas projects in proven mineral dis-tricts of North Slope, Alaska. BEEI purchased a 100% working interest (representing a net revenue interest of 78.33%) in six leases in Alaska’s North Slope Basin covering 18,418 acres and located east of the Arctic Fortitude Unit and south of the Prudhoe Bay Unit. The acquired leases give the Company the exclusive right to drill for, extract, remove, process and dispose of oil and natural gas and associated substances in the geographic areas covered by the leases. As part of the transfer, the sellers reserved an overriding royalty interest equal to 5% of 8/8ths, in addition to the 16.67% royalty interest reserved for the State of Alaska, which will be applied for re-newals and extensions of the North Slope leases.

Alaska’s North Slope basin resource potential

Since the 1968 discovery of huge oil reserves in Prudhoe Bay, Alaska’s North Slope has been the site of oil explo-ration and production that has produced about 15 billion barrels (558 billion gallons) of crude oil and 27 trillion cubic feet of natural gas. The region accounts for approximately 15% - 20% of all domestic oil production; the Prudhoe Bay field alone has consistently yielded around 400,000 barrels per day and over 10 billion since its discovery in 1977. According to Roger Herrera of the non-profit group Arctic Power, Alaskan oil wells are so productive that it takes 150-200 wells in the lower 48 states to match the output of one single North Slope well1.

In 2005, the U.S. Geological Survey completed a new assessment of undiscovered oil and gas resources of the central part of Alaska’s North Slope and the adjacent offshore area. Using a geology-based assessment method-ology, the USGS estimated undiscovered, technically recoverable resources of around 4.0 billion barrels of oil, 37.5 trillion cubic feet of natural gas, and 478 million barrels of natural gas liquids2. According to the U.S. Energy Department, the North Slope could yield up to 36 billion barrels of oil and 137 trillion cubic feet of natural gas through 20503.

Significant reserves estimated by independent researcher

The Company has contracted with LAPP Resources to independently review potential reserves of its Alaska North Slope hydrocarbon leases. Using the data collected from previous and neighboring operators, LAPP Re-sources concluded a newly discovered field in this general area could yield as high as 30 million barrels per square mile in an optimistic case, 15 million barrels per square mile for a mid-range case, and five million bar-rels per square mile for a conservative case. Assuming the new field covers up to three square miles, the lease resource potential could exceed 90 million barrels of crude oil. Based on an average oil price of $55 per barrel, the potential economic value of the Company’s six lease sites could range from $300 million to $5 billion.

Investment Highlights

1. http://siliconinvestor.advfn.com/readmsg.aspx?msgid=251628362. http://pubs.usgs.gov/fs/2005/3043/3. http://uk.reuters.com/article/oilRpt/idUKN2922284120080129


January 26th, 2009



January 26th, 2009


A non-operator strategy minimizes capital expenditures

BEEI intends to act as a non-operator and will not directly engage in exploration, drilling or development op-erations. Joint ventures with oil and natural gas companies that have exploration; development and production expertise will be used to exploit the potential of its assets. The Company’s business model is designed to reduce equipment and operating expenses, capitalize on the consulting services of industry experts and utilize third party drilling companies only as needed. In addition, the Company is pursuing an aggressive acquisition strategy with the goal of building a solid portfolio of oil and natural gas interests, including prospects, wells, leases, work-ing interests, mineral rights, royalty interests, net profits interests, farm-ins, production payments, drill to earn arrangements, partnerships, easements, licenses and permits, rights of way and other arrangements.

Rising energy demand supports the Company’s business model

Total world energy consumption is projected to increase 50% between 2005 and 2030, reflecting GDP growth over the next 25 years that will be higher than the rate recorded over the prior 25 years. In addition to population growth, increasing standards of living for people in developing countries will trigger strong energy demand. Through 2030, traditional fossil fuels will remain the most important sources of energy. Oil use will grow at 1.4% per year, moderated somewhat by increasing efficiency, particularly in transportation. At the projected growth rates, oil and gas combined will supply close to 60% of overall energy needs4. Natural gas will also remain an important fuel for energy generation worldwide, because it is more efficient and less carbon-intensive than other fossil fuels. According to EIA, total natural gas consumption will increases 1.7% per year from 104 trillion cubic feet in 2008 to 158 trillion cubic feet in 20305.

Oil prices set to recover in 2010

Overall, benchmark West Texas Intermediate (WTI) crude oil prices are expected to average $43.25 per barrel in 2009 and $54.50 per barrel in 2010, according to EIA. Industry analysts predict oil prices will begin to rise again in 2010 as the global economy gradually improves. In addition, OPEC countries and Russia have announced plans to cut production to support higher prices. If the economic recovery continues into 2010 and beyond, some analysts expect oil prices to rebound to $80-$90 per barrel in 2011.

The Company identifies, acquires, explores for and develops high-quality oil and natural gas projects in proven mineral districts of North Slope, Alaska. BEEI intends to act as a non-operator and will not directly engage in exploration, drilling or development operations. Instead, joint ventures with oil and natural gas companies that have exploration, development and production expertise will be leveraged to develop its leases. BBBI’s business model reduces equipment and operating expenses, leverages the talents of expert consultants and utilizes third party drilling companies on an “as needed” basis.

The Company plans to acquire additional oil and natural gas interests, including prospects, wells, leases, work-ing interests, mineral rights, royalty interests, net profits interests, farm-ins, production payments, drill to earn arrangements, partnerships, easements, licenses and permits, rights of way and other interests.

4. www.redorbit.com/news/science/384897/exxonmobil_energy_demand_to_increase_50_by_2030/5. www.eia.doe.gov/oiaf/ieo/world.html

Business Model


January 26th, 2009


In April 2008, BEEI agreed to purchase a 100% working interest (representing a net revenue interest of 78.33%) in six leases in Alaska’s North Slope Basin. BEEI leases cover 18,418 acres located east of the Arctic Fortitude Unit and south of the Prudhoe Bay Unit ad represent a potential resource of up to 90 million barrels of oil (MMBO). The acquired leases give the Company the exclusive right to drill for, extract, remove, process and dispose of oil and natural gas and associated substances in the geographic areas covered by these leases, subject to terms. The initial primary term of each North Slope lease begins on February 1, 2007 and expires on January 31, 2012, un-less it is extended for production. As part of the transfer, the sellers reserved an overriding royalty interest equal to 5% of 8/8ths, in addition to the 16.67% royalty interest that is reserved for the State of Alaska and applied to renewals and extensions of the North Slope leases.

The oil potential of the Company’s properties is evidenced by major discoveries made on neighboring leases owned by world-class energy companies such as BP, ExxonMobil, ConocoPhillips, Chevron and Anadarko. These companies have long operating histories and proven track records for oil and gas exploration.

Corporate strategy

The Company’s vision is to successfully explore and develop petroleum resources of its North Slope leases. BEEI plans to improve oil and gas output from existing wells on its leased properties by contracting with third-party companies that can provide state-of-the-art exploration and production enhancement technologies. BEEI plans to continue to expand its portfolio through both exploration and drilling programs on existing properties and acquisitions, and advance its projects from exploration and development to production, generating cash flow that can be used to fund further exploration and acquisition activity.

BEEI’s overall corporate strategy is to:

Fully exploit existing production and infrastructure assets by maintaining a balance between lower risk/• moderate return and higher risk/high return opportunities;Identify and acquire superior assets that will generate revenue streams to invest in future growth opportuni-• ties;Focus on historical areas to increase the likelihood of discovery and enhance the speed of development; • Partner with proven oil and gas operators who employ cutting edge technologies and demonstrate competi-• tive advantages; Manage risk in high equity exploration and production permits and increase economic viability.•


January 26th, 2009


The Company has 100% working interest in six separate Alaska North Slope leases. Its leases are located near the Trans-Alaska Pipeline and the Dalton Highway in the North Slope - America’s largest and most important oil re-source. These leases are in a treeless, tundra-covered area of low topographic relief or traversed by river channels of the Sagavanirktok River, and are underlain by continuous permafrost to a depth of at least 1,000 feet. The eleva-tion of these leases ranges from 50 to 250 feet above sea level. The largest of BEEI leases lies just south of Anadarko Petroleum’s Jacob’s Ladder Unit.

Properties

390947390956390987390988390989390990Total

5,7602,4502,5602,5602,5552,53318,418

16.6666716.6666716.6666716.6666716.6666716.66667

5.05.05.05.05.05.0

Area(acres)

State ADL Number

StateRoyalty (%)

PrivateRoyalty (%)

Summary of BEEI leases

Source: Company presentation / LAPP Resources, Inc. geological report, April 2008.

Bald Eagles North Slope Leases Project

Source: Company presentation.


January 26th, 2009


LAPP Resources provided an independent review of the hydrocarbon prospectively of the Company’s Alaska North Slope hydrocarbon leases. A number of operators have drilled wells within the Bald Eagle leases and in nearby areas, based on proprietary seismic and other geophysical data, interpretations, and correlations with other wells in the area. Using the data collected from these drills, LAPP Resources concluded that a newly discovered field in this area could produce as much as 30 million barrels per square mile (optimistic scenario); 15 million barrels per square mile (likely scenario), and five million barrels per square mile (conservative sce-nario).

According to LAPP Resources geology report, since there is only one exploration well in the BEEI lease acre-age, the potential exists for the discovery of three square mile oilfields in each of Bald Eagle’s six leases. LAPP Resources assumed sizes for newly discovered fields of one, two and three square miles. Three square miles of productive land in the 29 square mile lease block would mean that about 10% of the land is productive. This is a reasonable assumption given the strong prospects for the area.

The oil from any of these leases could be transported by truck to the head of the 48-inch Trans Alaska Oil Pipe-line, which is now flowing at about half-capacity. Production could be transported (trucked) via gravel roads and bridges or even over temporary ice roads during winter months. The pipeline corridor is also the preferred route for a proposed natural gas pipeline that will bring North Slope gas reserves to market. The state of Alaska is currently negotiating terms of a gas-pipeline construction deal with Conoco-Phillips, BP and Trans Canada.

Geological proprieties and reserves of Alaska North Slope

The North Slope of Alaska is a major hydrocarbon-producing region, but its geologic setting is still incompletely understood. This is in part due to the tectonic history of northern Alaska, where there is a complex interplay between the formation of the Brooks Range collisional orogen and the development of the nearby north Alaska rifted continental margin. Alaska is at the meeting point of the North American and Eurasian continents and the Pacific and Arctic Ocean basins. Because of this unique geographic position, Alaska has been geologically dynamic for many millions of years, and remains so today6.

3

2

1

$4.95 billion(90 MMBO)$3.3 billion

(60 MMBO)$1.65 billion(30 MMBO)

$2.48 billion(45 MMBO)$1.65 billion(30 MMBO)$0.83 billion(15 MMBO)

$0.83 billion(15 MMBO)$0.55 billion(10 MMBO)$0.28 billion

(5 MMBO)

New-FieldDiscovery

Size (sq mi)

Gross Oil ValueHigh Case

(30 MMBO/sq mi)

Gross Oil ValueMid Range

(15 MMBO/sq mi)

Gross Oil ValueLow Case

(5 MMBO/sq mi)

LAPP Resources, Inc. scenarios concerning BEEI`s leases output(based on $55/barrel)

Source: Company presentation / LAPP Resources, Inc. geological report, April 2008.

6. www.uaf.edu/geology/Research/research/structure.html


January 26th, 2009


Since the 1968 discovery of huge oil reserves in Prudhoe Bay, Alaska’s North Slope has been the site of oil explora-tion and production that, by the end of 2002, had produced about 14 billion barrels (558 billion gallons) of crude oil7. In fact, the region accounts for approximately 15%-20% of all domestic oil production; the Prudhoe Bay field alone has consistently yielded around 400,000 barrels per day, and over 10 billion barrels since its discovery in 1977.

In 2005, the U.S. Geological Survey completed a new assessment of undiscovered oil and gas resources of the central part of the Alaska North Slope and the adjacent offshore area. Using a geology-based assessment method-ology, the USGS estimated undiscovered, technically recoverable resources of 4.0 billion barrels of oil, 37.5 trillion cubic feet of natural gas, and 478 million barrels of natural gas liquids8. The U.S. Energy Department estimates the North Slope could yield up to 36 billion barrels of oil and 137 trillion cubic feet of natural gas over the next 40 years.

The graph below shows recoverable reserves per square mile for previously discovered fields on the onshore por-tions of the central North Slope basin.

7. http://dels.nas.edu/dels/rpt_briefs/north_slope_final.pdf8. http://pubs.usgs.gov/fs/2005/3043/

Alaska North Slope Basin

Source: http://dels.nas.edu/dels/rpt_briefs/north_slope_final.pdf


January 26th, 2009


The above data implies productivity of a newly discovered field in this general area could range from 30 million barrels per square mile (optimistic case) to five million barrels per square mile (conservative case).

World energy demand

Total world consumption of marketed energy is projected to increase 50% from 2005 to 2030. Demand will be fueled by higher GDP growth over the next 25 years. Analysts expect the global economy to produce sustained growth of about 2.7% per year, more than doubling the size of the world economy to $71 trillion (in 2000 dollars) by 2030. Over 70% of increased energy demand will occur in developing nations, led by China and India. These countries will account for 25% of world energy consumption by 2030 versus 18% today.

Over the next 20 years, the world’s population is projected to grow 1.0% per year to about 8.1 billion people. More than 90% of this growth will be outside the developed- member nations of the OECD. In addition to population growth, rising standards of living in developing countries will accelerate energy demand. The average person in less-developed countries currently consumes only 1/6 of the energy consumed by the same person in Japan or Western Europe. Doubling of per capita energy consumption in less developed countries over the next 50 years, combined with population growth, will result in a two- to three-fold increase in world energy consumption9.

9-www.fusion.org.uk/susdev/energy.htm

Productivity of newly discovered fields on the onshore portions of the central North Slope basin, MMBO/sq mi

Source: Company’s presentations

Industry Outlook


January 26th, 2009


Oil demand

Through 2030, traditional fossil fuels will remain the most important sources of energy. Oil use will grow 1.4% per year, moderated somewhat by increasing efficiency, particularly in transportation. Oil and gas combined will supply about 60% of the world’s overall energy needs10. Natural gas will remain an important fuel. According to EIA, total natural gas consumption will increases 1.7% per year from 104 trillion cubic feet in 2008 to 158 trillion cubic feet in 203011.

In 2009, world oil consumption has been revised downward in response to the global economic slowdown. Ac-cording to EIA, global consumption remained basically unchanged in 2008 but will decline by around 800,000 barrels per day in 2009. Total world oil consumption is expected to rise by 880,000 barrels per day in 2010 from year-earlier levels, as the economic recovery takes hold. Oil consumption growth will be concentrated in countries outside of the OECD, particularly China, the Middle East, and Latin America.

In the U.S., high prices and a slowing economy led to a decline in petroleum consumption of around 1.2 million barrels per day or 5.7% in 2008. Domestic GDP is forecast to fall 2% in 2009, leading to a nearly 400,000 barrels per day or 2% decline in consumption.

Oil supply

Following skyrocketing oil prices in the first half of 2008, OPEC pushed its oil production to the highest level in its 48-year history, even as demand was falling in the U.S. and Europe. Reduced oil demand resulting from the eco-nomic slowdown caused oil prices to fall in late 2008. OPEC, whose members produce about 40% of the world’s oil, agreed in November 2008 to cut oil production by 1.5 million barrels per day. Following a production cut in December 2008, OPEC announced its intention to cut oil production again by 2.2 million barrels a day beginning in January 2009. EIA projects that total OPEC crude oil production (including Iraq) will fall more than 2 million barrels per day, from 31.4 million barrels per day in September 2008 to 29.3 million barrels per day in early 2009. OPEC crude oil production is expected to average 30.0 million barrels per day in 2009 and 30.7 million barrels per day in 2010.

Total OECDNorth America Europe OtherTotal non-OECDFormer Soviet UnionChina Other AsiaOther non-OECDOverall total

49.623.315.710.635.44.27.28.8

15.285.0

49.123.415.310.436.84.27.69.1

15.985.9

47.722.115.210.438.24.38.09.2

16.785.9

46.421.714.710.038.74.38.39.1

17.085.1

46.422.014.79.7

39.64.38.59.1

17.786.0

2006 2007 2008 2009e 2010e

Oil demand, million barrels per day

Source: www.eia.doe.gov/emeu/steo/pub/3tab.html

10. www.redorbit.com/news/science/384897/exxonmobil_energy_demand_to_increase_50_by_2030/11. www.eia.doe.gov/oiaf/ieo/world.html


January 26th, 2009


Supply growth in countries such as the United States, Brazil, and Azerbaijan is expected to more than compen-sate for continued declines in many non-OPEC nations, particularly Mexico, the North Sea, and Russia12.

In 2008, U.S. crude oil production averaged 4.9 million barrels per day, down by 140,000 barrels per day from 2007. In 2009, domestic output is projected to increase to 5.25 million barrels per day, the first increase in produc-tion since 1991.

Oil inventories

As demand has fallen during the eco-nomic downturn, oil inventories in OECD countries have risen sharply. Inventories at the end of November 2008 equaled 56.4 days of cover, compared with 56.8 days at the end of October. On the basis of days of forward cover, OECD commercial inven-tories are well above average historic lev-els, and EIA projects that they will remain high through the end of 2010.

According to the International Energy Agency, production cuts by OPEC, which have totaled 4.2 million barrels per day since September, could reduce stockpiles, as output lags projected demand for crude oil13.

12. www.eia.doe.gov/emeu/steo/pub/13. www.newsdaily.com/stories/tre50f28g-us-iea/

Total Non-OPECNorth AmericaOther OECDFormer Soviet UnionChina OthersOPECOverall total

49.815.36.3

12.13.8

12.334.784.5

50.015.46.1

12.63.9

12.034.484.4

49.715.05.8

12.53.0

13.435.885.5

49.915.25.5

12.64.0

12.635.084.9

50.015.25.2

12.84.0

12.836.686.6

2006 2007 2008 2009e 2010e

Oil: supply, million barrels per day

Source: http://www.eia.doe.gov/emeu/steo/pub/3tab.html

Inventories in three major OECD markets

Source: www.neb.gc.ca/clf-nsi/rnrgynfmtn/nrgyrprt/nrgytlk/tlkwntr/tlkwntrprsnttn-eng.html


January 26th, 2009


Oil prices

Continued low surplus production capacity, weak petroleum inventories, and strong demand worldwide all con-tributed to the increase in crude oil prices in recent years. WTI crude oil prices began 2008 at around $100 a barrel and jumped to a record price of $147 a barrel in July, before dropping to $31.41 per barrel in late 2008 - its lowest level in more than five years. Crude oil prices have risen to nearly $50 per barrel in early January, supported by cold weather, fighting in Gaza and the Russian/Ukrainian gas crisis.

Many analysts think inventories will likely increase in the coming months. Falling demand, in combination with rising inventories, could put further downward pressure on crude prices. On the other hand, OPEC supply cuts aimed at bolstering crude prices have begun to take effect. Analysts expect that, eventually, OPEC production cuts will rebalance the market.

Inventories in three major OECD markets

Source: www.neb.gc.ca/clf-nsi/rnrgynfmtn/nrgyrprt/nrgytlk/tlkwntr/tlkwntrprsnttn-eng.html

Source: http://www.wtrg.com/daily/crudeoilprice.html


January 26th, 2009


Oil prices have become increasingly volatile and more difficult to predict. Crude oil prices are expected to aver-age $50 - $75 per barrel over the next few months. Overall, WTI prices are expected to average $43.25 per barrel in 2009 and $54.50 per barrel in 2010, according to EIA.

BEEI is still in the exploration stage, has limited operations, and has yet to generate revenues from operations.

The Company’s FY 2008 operating expenses consisted mainly of management’s salaries as well as accounting and legal fees related to reporting obligations under the Securities Exchange Act of 1934. We expect the Com-pany’s operating expenses to increase in FY 2009 as it undertakes a seismic exploration program for its North Slope leases.

As at September 30, 2008, BEEI had cash on hand in the amount of $47,170. The Company will require additional financing to implement its exploration program.

Since its inception, BEII has used equity sales to raise funds for lease acquisitions, corporate expenses and repay-ing debt. Cumulative net losses have totaled $712,698.

Financial Analysis

ExpensesGeneral & AdministrativeMineral property acquisition and exploration costsNet IncomeEPS

61,027-

-61,0270.000

591,4917,500

-598,991-0.006

FY 2007 FY 2008

Income Statement, $

Source: SEC Filings, FY ending September 30.

CashOil and gas rightsTotal assets

Total current liabilitiesTotal stockholders’ equity (deficit)

14,504-

14,504

28,040-13,536

47,170621,608668,778

249,805418,973

30-Sep-07 30-Sep-08

Balance Sheet, $

Source: SEC Filings, FY ending September 30.


January 26th, 2009


Over the next 12 months, the Company plans to fully evaluate the exploration potential of its six leases in the Alaska North Slope, which will require new seismic data acquisition during the winter season of 2010. In addi-tion, BEEI plans to further evaluate other new exploration opportunities in Alaska, focusing on the North Slope area. The Company plans to spend approximately $3 million for exploration activities in 2009.

We expect the Company to commence oil production in 2011 at the earliest. BEEI leases are located in a highly prolific basin, close to the Prudhoe Bay field, and are adjacent to a major transportation (all-weather road and oil pipeline) corridor.

According to LAPP Resources, the hydrocarbon reserves potential of BEEI’s six leases could be as high as 30 million barrels per square mile. If a new oil field is discovered within BEEI’s lease block, potential reserves could approach 90 MMBO for a three square mile oil field.

We develop our valuation for BEEI assuming a 30 million barrel discovery and the following:

Recoverable Reserves per well: 1 million barrels

Drilling Cost: $2 million per well

Production Facilities: $5 million per well

Production Rate: 450 barrels of oil per day per well

Well Decline Rate: 10.00% per year

Well Downtime: 5.00% per year

Oil Price Inflation: 2.50% per year

Cost Inflation Rate: 2.00% per year

2011 Oil Price: $65.00 per barrel

Lease Operating Cost: $10,000 per well/month

Lifting Costs: $2.00 per barrel

Transportation Cost: $7.00 per barrel

Net Revenue Interest: 78.33333%

In addition, we factor in the private 5% royalty on the lease and the Petroleum Property Tax (2% of undepreciat-ed tangible capital cost). We also assume oil prices averaging $43.25 per barrel in 2009, $54.50 per barrel in 2010 and $65 per barrel in 2011.

Valuation


January 26th, 2009


We discount derived cash flows and calculate project net present value and internal rate of return as follows:

Net Present Value at 15% : $59.4 MillionNet Present Value at 17.5% : $40.9 MillionNet Present Value at 25% : $26.2 MillionInternal Rate of Return: 26.6%

We think our estimates are conservative, given our use of the mid-range scenario for oil reserves and conser-vative oil prices. Our valuation intentionally ignores potential reserves of natural gas, which would require greater investment to develop and extract.

Assuming a $40 million market capitalization target for BEEI (project NPV at 17.5%) and approximately 73 mil-lion shares outstanding, we derive a $0.55 price target for BEEI shares. As a result, we are initiating coverage of BEEI with a Speculative Buy rating and a $0.55 target price. However, we strongly advise investors to consider the risk factors mentioned below since the Company faces many challenges in achieving its production goals.

2009

2009201020112012201320142015201620172018201920202021202220232024

- 15.0 30.0 26.3 22.1 18.5 15.4 12.8 10.5

8.6 6.9 5.5 4.3 3.3 2.4 1.7

- 15.0 15.0

- - - - - - - - - - - - -

- -

3.7 4.2 3.6 3.1 2.6 2.3 1.9 1.6 1.4 1.2 1.0 0.9 0.8 0.6

45.0 55.0 65.0 66.3 67.6 69.0 70.4 71.8 73.2 74.7 76.2 77.7 79.2 80.8 82.4 84.1

- -

188.4 218.1 190.7 167.5 143.3 129.3 108.9

93.6 83.5 73.0 62.1 57.0 51.7 39.5

- 1.8 9.2 8.4 7.2 6.2 5.3 4.5 3.9 3.3 2.8 2.4 2.1 1.8 1.5 1.3

- -

39.3 45.5 39.8 34.9 29.9 27.0 22.7 19.5 17.4 15.2 12.9 11.9 10.8

8.2

- 0.7 1.1 0.8 0.6 0.4 0.3 0.2 0.1 0.1 0.1 0.1 0.1

- - -

- -

20.7 24.1 21.0 18.3 16.0 13.9 12.1 10.6

9.2 8.1 7.0 6.1 5.3 4.7

- -

57.8 67.0 58.5 51.4 44.0 39.7 33.4 28.7 25.6 22.4 19.1 17.5 15.9 12.1

5.0 105.0 105.0

- - - - - - - - - - - - -

(5.0)

Year Remaining recoverable

reserves,

New oil wells

Gross production

MMBO

Gross revenue,

$ Mn

Lease operating expenses,

State and private royalty,

Borough property

tax,

Transporta-tion

costs,

State tax access,

$Mn

Capital investment,

$ Mn

Cash flow, $ Mn

Aver-age oil price, $

Bbl

Cash Flow Estimate

Source: Management’s guidance, analyst estimates


January 26th, 2009


Unproven status of oil and gas reserves

BEEI’s success depends upon its ability to find and develop oil and gas reserves that are economically recoverable. Without successful exploration and exploitation activities, the Company will not be able to generate revenues. However, no assurance can be given that BEII will be able to find or develop reserves on acceptable economic terms.

Geological conditions are variable and unpredictable and heighten exploration risk.

Oil and gas exploration and development involves a high degree of risk and few properties that are explored are ultimately developed into producing properties. The production of producing wells inevitably declines over time and may be disrupted by changes in geological conditions that cannot be foreseen or remedied. A change in geo-logical conditions may render a discovery uneconomic.

Ability to continue as a going concern

The Company has accrued net losses of $712,698 since its inception and has not generated any revenues to date. BEEI’s future depends on its ability to obtain financing and generate revenues and cash flow from developed oil and natural gas leases, including the North Slope leases.

Need for additional capital

The Company is incurring losses from operations. Management estimates BEEI will need to raise an additional $3 million in capital to fund its 2009 business plan. Additional equity sales dilute the interests of existing sharehold-ers while issuing debt instruments increases financial risk and debt servicing requirements.

Volatility of oil prices

Market prices for oil and natural gas may fluctuate widely from time to time depending on international demand, production and other factors that cannot be foreseen. A decline in oil prices may render a discovery uneconomic, resulting in unforeseen losses. If a discovery becomes uneconomic due to declining prices, funds spent to develop the discovery might not be recoverable, leading to financial losses.

Risk Factors


January 26th, 2009


Management

Mr. Harper was appointed BEEI’s President and Chief Executive Officer in September 2008. Prior to join-ing the Company, Mr. Harper was President, International Division and Chief Geologist of China-based MI Energy Corporation (“MIE”). From 1979 until his employment with MIE in 2001, Mr. Harper held various positions with ARCO (1979-2000), and acted as an independent consultant (2000-2001), advising clients on geological aspects of petroleum exploration and development projects. Mr. Harper obtained his Bachelor of Arts (Cum Laude, with highest honors) from Williams College, Williamstown, Massachusetts, and his Master of Science in Geological Sciences from the University of Southern California, Los Angeles, California. Additionally, he is certified by the Texas Board of Professional Geoscientists and the American Association of Petroleum Geologists.

Andrew S. Harper Chief executive officer

Mr. Vollmers is an investor in the Company and a part-time consultant who has agreed to serve as its Chief Financial Officer, Secretary and Treasurer. From March 12, 2008 to September 15, 2008, Mr. Vollmers served as BEEI’s Chief Executive Officer and President. He has been a director of the Company since April 1, 2008. He holds a Master of Business Administration degree from the London Business School. From July 2003 to July 2004, Mr. Vollmers was an independent consultant for a small beverages producer. Between August 2004 and July 2006, Mr. Vollmers worked as a project management consultant, project manager and project management supervisor at the Ministry of Economy and Finance in Peru. His tasks included supervis-ing two project managers who oversaw various multi-sector technical assistance projects. These projects were partially financed by the World Bank, the Inter-American Development Bank and the Japan Social Development Fund. From July 2006 to July 2007, Mr. Vollmers served as manager in charge of marine and aviation insurance at Pacifico Seguros.

Alvaro Vollmers Chief Financial officer


January 26th, 2009


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Victor Sula, Ph.D. - Senior Analyst

Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Produc-tivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

Documents

Bald Eagle Energy Inc