BNE data on Oil Economics

Belize Natural Energy

Economic and Business Perspectives

June 28, 2006

Four Key Points Spanish Lookout field is relatively small (a “Drop in the Bucket”) Potential exists to find more oil, but the high risk dollars are needed We are depending on borrowing, from the bank and shareholders, BZD$ 100 million to explore and find more oil

Changing the tax scares the money away Honoring the original deal will encourage the discovery of more oil for everyone

FYI FACTS Current production of 2,800 Bbl/Day Current reserves of 10 million Bbls Significant new Belize employer:

145 Belizean employees 400+ Belizean support jobs in other companies

FYI FACTS BNE has invested BZD$ 40 million over the past three years BNE Personnel, over the past 20 years, BZD$ 74 million invested We are spending BZD$ 6 million per month BNE is spending more money than we are making (no cash profits realized to date) We have just drilled two dry holes for a total cost to date of BZD$ 3.6 million

Mike Usher #6 Roaring Creek #2

FYI FACTS Now to get further oil out of the ground we need to borrow BZD$ 100 million

Standard Bank (BZD$ 60 million) Investors (BZD$ 40 million)

Standard Bank is sending three of their people on the 10th of July to reassess the risk Proposed tax changes are scaring the money away

FYI FACTS If we increase the taxes, we may not get the loan or investor money Certainly it will keep the oil at best at a trickle to what it could have been We cannot explore further if we cannot raise the capital needed Critical that the goal posts not be moved It is the equivalent of killing the goose that lays the golden eggs

Assumptions The following economics are for the oil industry in Belize as a whole, not just BNE Economics completed on a per barrel basis One barrel equals 42 gallons Oil Price – 12-month average of $60/bbl (past five years price: $35/bbl) Quality Differential (crude is new and has sulfur, which lessens the value) Transportation Cost – Trucking of $3/bbl and Barge Costs of $7/bbl (e.g. Barge Rental plus Cargo charges costs approximately $588,000 per month) Overhead and Operating Cost – ($5/bbl) Production Costs for the wells and Office General And Administrative Expenses; this is a conservative estimate Development Capital - $4/bbl spent on the remaining development wells to be drilled in Spanish Lookout (conservative assumption) Exploration Cost - $10/bbl is a low and conservative estimate

To date in Belize, $250,000,000 USD have been spent searching for oil and only 10,000,000 barrels have been found, implying an exploration cost of $25/barrel

Assumptions Royalty is calculated as ((Income After Transport) X 8.5% (7.5% GOB Royalty + 1.0% Environmental Royalty)

For 25% Tax Case: $46 (Income after Transport) X 8.5% = $3.91 Working Interest of 10% is calculated as: (Net Profit – Royalties + Exploration Cost the GOB will not pay for, we add this back into the GOB share) X 10%

Under the working interest, the GOB only pays for successful exploration. As a rule of thumb, country-wide, only 20% of the dollars spent on exploration will result in successful wells, which means the government will only allow us to expense 20% of the exploration cost before their share is calculated, so we’ll add back in 80% of the exploration cost For 25% Tax Case: ($27 (Net profit after exploration costs) – 3.91 (Royalty) + (10 X 80% = 8) (Exploration cost on unsuccessful wells added back in to GOB share) X 10% = 3.11

Assumptions Production Sharing is calculated as (Net Profit – Royalty – Working Interest + Exploration Cost the GOB will not pay for) X 1.5%

Under Production Sharing, the GOB only pays for exploration on the current license block, which industry wide will account for only 30% of exploration dollars spent This is because oil companies will participate in drilling on other license blocks as much as possible, a common industry practice (joint ventures) For 25% Tax Case: ($27 - 3.91 (Royalty) – 3.11 (Working Interest) + ($10 X 70% = $7) (off-block exploration cost added back in to GOB share) X 1.5% = $0.40

Assumptions Income Tax of 25% is calculated as (Net Profit – Royalty – Working Interest – Production Sharing + Exploration Cost the GOB will not pay for) X 25%

Under Income Tax, the GOB only pays for exploration that produces oil revenues. Ventures which do not meet with success do not get to charge to the GOB any of their exploration expenses. Since this is an industry-wide analysis, we should assume that half of the exploration conducted cannot charge their exploration costs to the GOB For 25% Tax Case: ($27 – 3.91 (Royalty) – 3.11 (Working Interest) – 0.40 (Production Sharing) + ($10 X 50% = 5) (Unexpensable exploration cost)) X 25% = $6.14

Assumptions The following economics were computed based on industry-wide figures for the entire Belizean oil industry, not just BNE This is because the income tax law will apply to all oil companies in Belize, not just BNE

GOB Share – 25% Tax$ USD/Bbl

Oil Price (NYMEX) 60.00$ 12-month avg.

Less: Quality Differential (4.00) Less: Transportation Cost (10.00) Trucking and barge.

Income after Transport 46.00 Less: Overhead and Operating (5.00) Production and Office.

Operating Margin (Income) 41.00 Less: Development Capital (4.00) Development Wells.

Less: Exploration Cost (10.00) Likely to be Higher.

Net Profit (per bbl) 27.00$

$USD/Bbl % Net ProfitRoyalties (8.5%) - Gross Interest 3.91$ 14%(net of transport and quality differential)

Working Interest (10%) 3.11 12%(GOB pays successful exploration only - 20% of exploration)

Production Sharing Interest (1.5%) 0.40 1%(GOB pays exploration on current block only - 30% of expl. cost)

Income Tax (25%) 6.14 23%(GOB pays revenue producing exploration only - 50% of expl. cost)

Total Government Cash Inflows 13.57$ 50%

GOB Share – 40% Tax$ USD/Bbl












Exploration Costs

Higher Exploration Costs, more money spent on exploration in Belize, means a

higher share for the Government of Belize.

The next few slides illustrate this conclusion.

GOB Share - $10 Expl.$ USD/Bbl




































Future At 25% income tax and $10 in exploratory spending, the GOB receives half of net profits (a 50/50 deal) The more dollars spent in exploration means a higher share for the GOB To ensure we receive the bank loan and investor capital, we must keep the income tax rate at an economically manageable 25% This is critical to keeping the fledgling oil industry alive in Belize

Four Key Points Spanish Lookout field is relatively small (a “Drop in the Bucket”) Potential exists to find more oil, but the high risk dollars are needed We are depending on borrowing, from the bank and shareholders, $100 BZ million to explore and find more oil

Changing the deal scares the money away Honoring the original deal will encourage the discovery of more oil for everyone

Belize Natural Energy

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