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escopeta oil Oil & Gas Development Evaluation of Kitchen Lights Unit Financial Operations July- December 2020 Hex LLC, Furie Operating Alaska By Danny S Davis, Working Interest Owner, Kitchen Lights Unit, Independent Oil Operator As a working interest holder in the Kitchen Lights Unit, and an independent oil operator, I wanted to share my observations and comments for the first six months of financial operation by Hex, LLC and Furie Alaska with the State of Alaska, Enstar Gas, and AIDEA, as well as the rest of Alaska. The information below is solely from me and only reflects my thoughts and opinions as to the present operation of the KLU. Evaluation of Kitchen Lights Unit Financial Operations Jy - December 2020 Hes LLC, Furie Operating Alaska By Danny S Davis, Woning interest Ownes, Kachen Lights Unt, ndependert O Operator The following are my observations and comments asa co-owner ot the Kchen Lights Uvt U in the Cook inet, Alaska. Ihave reviewed accounting data related to the fest six months of He Furie's operation et he KLUand am deeply concemed for my own ownerstip interest as wellas other parties who are drectly or indirecty related to the KUand Hen Furie, incuding but not limted to the people of Alaska, the State of Alaska. Enstar Gas, and the Aska indatral Devetpment and Expart Authoty have chooen to publiah my opinian on the mater in tbe public secord so other interested partes can be made are of uhat is going on, and because Hexfute has made t clear hat they wil not operate in good tath nor communicate with me regarting these maters. My professional experience of over 44 years as an operator in the ol and gas industry, with a significant portion of that dedicated to deveioping hydrocarton resources in Aiaska, has given me a depth at knowledge which I hepe wil be unetul in ilustating the bizare undertakings of Hexfure during ther frst sik montha of operationof he KU. For those who are not tamnilar with he history of this project, I wil provide a briet baciground. My company. Escopeta 0l and Gas, formed The Kchen Lights Unit and brought a jack-up rig to the Cook iniet to begin its development in 2012. Operation of the unit was transtered to Furie Petrsleum, a production platorm, pipeline, and onshore producton tacity mere instaled, and several wets were sucoesstly eriled However because of teir efusal t heed my wamings and advice, Furie ran costy ovemuns and commited numerous operational enors, evertally going bankuet in 2020. Hen LLCacquired Furie's interest and right to aperate as part ef the bankruptey proceedings. An amended Jont Operating Agreement ON was oreated and agreed to by all eterested partes during those barkruptoy proceedings. This JOA was designed to protect all project stakahoiders and is the document which controls the terma, policies. and procedures under wtich the property is to be operated As soon as the barkruptey proceedings were fralized and Hex took control of fure and therby the KLU. Mex began eguesting amendments trom ts working interest partners, including myset, which would alow it to charge much higher overhead costs than those it had just promised to abide by. These amendments requested by Hex were never agreed ta. Then, as of last month, Hex retsoactively began accounting for their enpenditures in such a way tat the woking intorest owners ceamed eaming any protits tron the operation of the unt HeFurie had apparently decided tut geting the agreement of its partners to pay iteit much higher fees than those to which it was contractualy bound wan not needed aher al Readers may wonder how hese accounting imegutartes may impact them, and that is what i wil outine nest. in an atenpt to koep things simple, I wil povide a key toure tom the francial accourting recap of Lease Operating Eperses OE) that Furietex provided me General & Adnistative A charge for sia monthe SA1,27 (This incdudes their orignal charge and a retroactive tue charpe Kenp in mind this is for the operation of tour wells and does not indude labor charges tor the hands-on operaton ot he production platorm and associated facilties This fgure eguates to an amual cost et s8.383.854 r Gereri & Adminitrative costs alone. It equates just under S200,000 per morth per wel, which is an ourageous fgare to charge tr Ceneral & Administrative charges and is ver 400% what fure het budgeted for ne ten As a resuit of HeFurie's acounting adustments, the KLU BCcounting now shows that Ris losing money. Naturaly, tis reduces the value of my share of the property, however l am by no means the only party being harmed by He furie. The francal heath ef he KU il deternine the amount of investment it wil atract and the ters of that investment. This investment wil in burn determine the degee to uhich the KLUis developed and how much of as al potential is reached. The heatier the KLU as a project, he mare energy will be produced for the Cook iniet and the more jobs the area wil benelt hom. This feid has severai adotonal TOFs af gas to be produced as well as he potental for up toa bilon barrets of ol Arco Suntish Discovery. 1996). Howevec if He Furie continues to take a short-sighted view and to persorally enrich its naragers at the expene of the project stakehdiders, his potertial wil neer be realiend, and the project wil lkely once agan be driven into barkruptey hie other owners, det teiders, and counter parties to contracti with Hea Furie wil be deecty impacted by this, he Cook hiet region wil be indrecty imgacted by higher utity costs and joo losses ahile the State Permanent tund will be impacted by the loss of tuture production revenue. Heu Fure's manager, John Hendrix, has a history of mismanaging projecta in the Cook et While he was the Alaska Manager for Apache. Apache's Cook iet plane were atandoned Peroleum News, August 21, 201) and as a resut many hardworking Alaskans lost their ivelhoods. Athat point Apache had 200 employees in Aaska Anchorage Daly News. September 28. 2016L and never made a discovery or produced paying quantties of any oll or gas Haing eperienced the doengard with which te beats his partners, tis eany to see wty his eftorts have historicaty met win talure. For the sake ot darty. Idecided to only include the most important facts in tis sumnary Any interested person should teel welcome to reach out to me tar more intormation Inow make the folowing reguests ot interested portes with ne aim of protecting the KLU and preventing its furmer trancial impairment by HewFure Alaska Industrial Development and Export Authority As a debt fre working ouner in my opinion ADEA has a touciary responsbility to prutect my interest, as wel as hat of al stakeholders in the KU. ADEA has provided signiticant funding to He Furie tor the purchase of the KLU and s herefore partaly emponmbie for Hefurie being made operator As a fiest len holder ADEA is ao bound t he tems, policies and procedures under the operator approved and accepted JOA tom the nted Sutes larkrpt- cy Court, governing the KL. AIDEA should pertorm an operator audt of Heu Furie innedately, addressing the S8.360.000 per year of GA charges they are paying themoeives Alaska Department of Natural Resources At this time lam asking as a working interest owner of the Kitchen Lights Unit to make sure that Hex. LLC and Furie as operator have filed the amended JOA hat was approved and accepted by all partes in the US Bankruptoy Court with the DNA of the Sate of Auska he JOA has net been fied then i hereby ask te DNR to contact the aperator and have them fie the JOA as eequired lato hereby ask the DNA to arbitrate and enue the adherence to al terma. poicies, and procedures ot the amended JOA Enstar Gas Enstar is the first purchaser ef my share of natural gas coming trom the Kchen Lighs Unt. At present my working interest is in serious peri and is not being accounted for or paid as per the tems, polcies, and procedures for Hes LC and Furie as unit operators. As a fiduciary party for my share of natural gas production trm the KLUIask for Enstar to upend payments for revenue associuted with my 3.4% of te working internst as wel as fute et als 0% share of the working interest only de net suspend royalty paymentaj unti ta very serious fnancial deanter ia resoived. begining February 1s 2001. DannyS Davis escopeta oil Oil & Gas Development Evaluation of Kitchen Lights Unit Financial Operations July- December 2020 Hex LLC, Furie Operating Alaska By Danny S Davis, Working Interest Owner, Kitchen Lights Unit, Independent Oil Operator As a working interest holder in the Kitchen Lights Unit, and an independent oil operator, I wanted to share my observations and comments for the first six months of financial operation by Hex, LLC and Furie Alaska with the State of Alaska, Enstar Gas, and AIDEA, as well as the rest of Alaska. The information below is solely from me and only reflects my thoughts and opinions as to the present operation of the KLU. Evaluation of Kitchen Lights Unit Financial Operations Jy - December 2020 Hes LLC, Furie Operating Alaska By Danny S Davis, Woning interest Ownes, Kachen Lights Unt, ndependert O Operator The following are my observations and comments asa co-owner ot the Kchen Lights Uvt U in the Cook inet, Alaska. Ihave reviewed accounting data related to the fest six months of He Furie's operation et he KLUand am deeply concemed for my own ownerstip interest as wellas other parties who are drectly or indirecty related to the KUand Hen Furie, incuding but not limted to the people of Alaska, the State of Alaska. Enstar Gas, and the Aska indatral Devetpment and Expart Authoty have chooen to publiah my opinian on the mater in tbe public secord so other interested partes can be made are of uhat is going on, and because Hexfute has made t clear hat they wil not operate in good tath nor communicate with me regarting these maters. My professional experience of over 44 years as an operator in the ol and gas industry, with a significant portion of that dedicated to deveioping hydrocarton resources in Aiaska, has given me a depth at knowledge which I hepe wil be unetul in ilustating the bizare undertakings of Hexfure during ther frst sik montha of operationof he KU. For those who are not tamnilar with he history of this project, I wil provide a briet baciground. My company. Escopeta 0l and Gas, formed The Kchen Lights Unit and brought a jack-up rig to the Cook iniet to begin its development in 2012. Operation of the unit was transtered to Furie Petrsleum, a production platorm, pipeline, and onshore producton tacity mere instaled, and several wets were sucoesstly eriled However because of teir efusal t heed my wamings and advice, Furie ran costy ovemuns and commited numerous operational enors, evertally going bankuet in 2020. Hen LLCacquired Furie's interest and right to aperate as part ef the bankruptey proceedings. An amended Jont Operating Agreement ON was oreated and agreed to by all eterested partes during those barkruptoy proceedings. This JOA was designed to protect all project stakahoiders and is the document which controls the terma, policies. and procedures under wtich the property is to be operated As soon as the barkruptey proceedings were fralized and Hex took control of fure and therby the KLU. Mex began eguesting amendments trom ts working interest partners, including myset, which would alow it to charge much higher overhead costs than those it had just promised to abide by. These amendments requested by Hex were never agreed ta. Then, as of last month, Hex retsoactively began accounting for their enpenditures in such a way tat the woking intorest owners ceamed eaming any protits tron the operation of the unt HeFurie had apparently decided tut geting the agreement of its partners to pay iteit much higher fees than those to which it was contractualy bound wan not needed aher al Readers may wonder how hese accounting imegutartes may impact them, and that is what i wil outine nest. in an atenpt to koep things simple, I wil povide a key toure tom the francial accourting recap of Lease Operating Eperses OE) that Furietex provided me General & Adnistative A charge for sia monthe SA1,27 (This incdudes their orignal charge and a retroactive tue charpe Kenp in mind this is for the operation of tour wells and does not indude labor charges tor the hands-on operaton ot he production platorm and associated facilties This fgure eguates to an amual cost et s8.383.854 r Gereri & Adminitrative costs alone. It equates just under S200,000 per morth per wel, which is an ourageous fgare to charge tr Ceneral & Administrative charges and is ver 400% what fure het budgeted for ne ten As a resuit of HeFurie's acounting adustments, the KLU BCcounting now shows that Ris losing money. Naturaly, tis reduces the value of my share of the property, however l am by no means the only party being harmed by He furie. The francal heath ef he KU il deternine the amount of investment it wil atract and the ters of that investment. This investment wil in burn determine the degee to uhich the KLUis developed and how much of as al potential is reached. The heatier the KLU as a project, he mare energy will be produced for the Cook iniet and the more jobs the area wil benelt hom. This feid has severai adotonal TOFs af gas to be produced as well as he potental for up toa bilon barrets of ol Arco Suntish Discovery. 1996). Howevec if He Furie continues to take a short-sighted view and to persorally enrich its naragers at the expene of the project stakehdiders, his potertial wil neer be realiend, and the project wil lkely once agan be driven into barkruptey hie other owners, det teiders, and counter parties to contracti with Hea Furie wil be deecty impacted by this, he Cook hiet region wil be indrecty imgacted by higher utity costs and joo losses ahile the State Permanent tund will be impacted by the loss of tuture production revenue. Heu Fure's manager, John Hendrix, has a history of mismanaging projecta in the Cook et While he was the Alaska Manager for Apache. Apache's Cook iet plane were atandoned Peroleum News, August 21, 201) and as a resut many hardworking Alaskans lost their ivelhoods. Athat point Apache had 200 employees in Aaska Anchorage Daly News. September 28. 2016L and never made a discovery or produced paying quantties of any oll or gas Haing eperienced the doengard with which te beats his partners, tis eany to see wty his eftorts have historicaty met win talure. For the sake ot darty. Idecided to only include the most important facts in tis sumnary Any interested person should teel welcome to reach out to me tar more intormation Inow make the folowing reguests ot interested portes with ne aim of protecting the KLU and preventing its furmer trancial impairment by HewFure Alaska Industrial Development and Export Authority As a debt fre working ouner in my opinion ADEA has a touciary responsbility to prutect my interest, as wel as hat of al stakeholders in the KU. ADEA has provided signiticant funding to He Furie tor the purchase of the KLU and s herefore partaly emponmbie for Hefurie being made operator As a fiest len holder ADEA is ao bound t he tems, policies and procedures under the operator approved and accepted JOA tom the nted Sutes larkrpt- cy Court, governing the KL. AIDEA should pertorm an operator audt of Heu Furie innedately, addressing the S8.360.000 per year of GA charges they are paying themoeives Alaska Department of Natural Resources At this time lam asking as a working interest owner of the Kitchen Lights Unit to make sure that Hex. LLC and Furie as operator have filed the amended JOA hat was approved and accepted by all partes in the US Bankruptoy Court with the DNA of the Sate of Auska he JOA has net been fied then i hereby ask te DNR to contact the aperator and have them fie the JOA as eequired lato hereby ask the DNA to arbitrate and enue the adherence to al terma. poicies, and procedures ot the amended JOA Enstar Gas Enstar is the first purchaser ef my share of natural gas coming trom the Kchen Lighs Unt. At present my working interest is in serious peri and is not being accounted for or paid as per the tems, polcies, and procedures for Hes LC and Furie as unit operators. As a fiduciary party for my share of natural gas production trm the KLUIask for Enstar to upend payments for revenue associuted with my 3.4% of te working internst as wel as fute et als 0% share of the working interest only de net suspend royalty paymentaj unti ta very serious fnancial deanter ia resoived. begining February 1s 2001. DannyS Davis