PRIMEENERGY CORPORATION AND SUBSIDIARIES

SUPPLEMENTARY INFORMATION

CAPITALIZED COSTS RELATING TO

OIL AND GAS PRODUCING ACTIVITIES

Years Ended December 31, 2016 and 2015

(Unaudited)


	As of December 31,
(Thousands of dollars)	2016		2015
Proved Developed oil and gas properties	$	417,824	$	395,129
Proved Undeveloped oil and gas properties		—		—

Total Capitalized Costs		417,824		395,129
Accumulated depreciation, depletion and valuation allowance		230,333		204,213

Net Capitalized Costs	$	187,491	$	190,916

COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION,

EXPLORATION AND DEVELOPMENT ACTIVITIES

Years Ended December 31, 2016 and 2015

(Unaudited)


	Year Ended December 31,
(Thousands of dollars)	2016		2015
Development Costs	$	19,042	$	14,550

STANDARDIZED MEASURE OF DISCOUNTED FUTURE

NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES

Years Ended December 31, 2016 and 2015

(Unaudited)


	As of December 31,
(Thousands of dollars)	2016			2015
Future cash inflows	$	221,542		$	293,745
Future production costs		(115,091	)		(191,227	)
Future development costs		(31,870	)		(30,586	)
Future income tax expenses		(7,883	)		(4,815	)

Future Net Cash Flows		66,698			67,117
10% annual discount for estimated timing of cash flows		(14,461	)		(8,315	)

Standardized Measure of Discounted Future Net Cash Flows	$	52,237		$	58,802

See accompanying Notes to Supplementary Information

STANDARDIZED MEASURE OF DISCOUNTED FUTURE

NET CASH FLOWS AND CHANGES THEREIN

RELATING TO PROVED OIL AND GAS RESERVES

Years Ended December 31, 2016 and 2015

(Unaudited)

The following are the principal sources of change in the standardized measure of discounted future net cash flows during 2016 and 2015:


	Year Ended December 31,
(Thousands of dollars)	2016			2015
Sales of oil and gas produced, net of production costs	$	(10,762	)	$	(10,426	)
Net changes in prices and production costs		(6,895	)		(511,116	)
Extensions, discoveries and improved recovery		27,706			24,967
Revisions of previous quantity estimates		(5,214	)		(180,048	)
Net change in development costs		(26,953	)		235,285
Reserves sold		—			(1,160	)
Reserves purchased		—			737
Accretion of discount		5,880			34,329
Net change in income taxes		(2,600	)		146,339
Changes in production rates (timing) and other		12,273			(23,393	)

Net change		(6,565	)		(284,486	)
Standardized measure of discounted future net cash flow:
Beginning of year		58,802			343,288

End of year	$	52,237		$	58,802

See accompanying Notes to Supplementary Information

PRIMEENERGY CORPORATION AND SUBSIDIARIES

SUPPLEMENTARY INFORMATION

RESERVE QUANTITY INFORMATION

Years Ended December 31, 2016 and 2015

(Unaudited)


	As of December 31,
	2016									2015
	Oil (MBbls)			NGLs (MBbls)			Gas (MMcf)			Oil (MBbls)			NGLs (MBbls)			Gas (MMcf)
Proved Developed Reserves:
Beginning of year		4,579			1,673			23,275			6,239			2,160			32,267
Extensions, discoveries and improved recovery		577			176			1,136			47			85			2,067
Revisions of previous estimates		(1,425	)		(527	)		(7,342	)		(1,650	)		(560	)		(8,368	)
Converted from undeveloped reserves		46			14			65			677			163			944
Reserves sold		—			(1	)		(7	)		(53	)		—			(26	)
Reserve purchased		—			—			—			39			12			372
Production		(670	)		(70	)		(4,126	)		(720	)		(187	)		(3,981	)

End of year		3,107			1,265			13,001			4,579			1,673			23,275

Proved Undeveloped Reserves:
Beginning of year		52			12			55			14,709			4,322			26,331
Extensions, discoveries and improved recovery		635			157			1,994			420			101			701
Revisions of previous estimates		2			4			19			(14,400	)		(4,248	)		(26,033	)
Converted to developed reserves		(46	)		(14	)		(65	)		(677	)		(163	)		(944	)

End of year		643			159			2,003			52			12			55

Total Proved Reserves at the End of the Year		3,750			1,424			15,004			4,631			1,685			23,330

RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES

Years Ended December 31, 2016 and 2015

(Unaudited)


	Year Ended December 31,
(Thousands of dollars)	2016			2015
Revenue:
Oil and gas sales	$	38,306		$	45,632
Costs and Expenses:
Lease operating expenses		27,544			35,206
Depreciation, depletion and accretion		27,534			28,531
Income tax (benefit) expense		(5,870	)		(6,156	)

Total Costs and Expenses		49,208			57,581

Results of Operations From Producing Activities (excluding corporate overhead and interest costs)	$	(10,902	)	$	(11,949	)

See accompanying Notes to Supplementary Information

PRIMEENERGY CORPORATION AND SUBSIDIARIES

NOTES TO SUPPLEMENTARY INFORMATION

(Unaudited)

1. Presentation of Reserve Disclosure Information

Reserve disclosure information is presented in accordance with U.S. generally accepted accounting principles. The Company’s reserves include amounts attributable to non-controlling interests in the Partnerships. These interests represent less than 10% of the Company’s reserves.

2. Determination of Proved Reserves

The estimates of the Company’s proved reserves were determined by an independent petroleum engineer in accordance with U.S. generally accepted accounting principles. The estimates of proved reserves are inherently imprecise and are continually subject to revision based on production history, results of additional exploration and development and other factors. Estimated future net revenues were computed by reserves, less estimated future development and production costs based on current costs.

Proved reserve quantity estimates are subject to numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. The accuracy of such estimates is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of subsequent drilling, testing and production may cause either upward or downward revision of previous estimates. Further, the volumes considered to be commercially recoverable fluctuate with changes in prices and operating costs. The Company emphasizes that proved reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of currently producing oil and gas properties. Accordingly, these estimates are expected to change as additional information becomes available in the future.

3. Results of Operations from Oil and Gas Producing Activities

The results of operations from oil and gas producing activities were prepared in accordance with U.S. generally accepted accounting principles. General and administrative expenses, interest costs and other unrelated costs are not deducted in computing results of operations from oil and gas activities.

4. Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil and Gas Reserves

The standardized measure of discounted future net cash flows relating to proved oil and gas reserves and the changes of standardized measure of discounted future net cash flows relating to proved oil and gas reserves were prepared in accordance with U.S. generally accepted accounting principles.

Future cash inflows are computed as described in Note 2 by applying current prices to year-end quantities of proved reserves.

Future production and development costs are computed estimating the expenditures to be incurred in developing and producing the oil and gas reserves at year-end, based on year-end costs and assuming continuation of existing economic conditions.

Future income tax expenses are calculated by applying the year-end U.S. tax rate to future pre-tax cash inflows relating to proved oil and gas reserves, less the tax basis of properties involved. Future income tax expenses give effect to permanent differences and tax credits and allowances relating to the proved oil and gas reserves.

Future net cash flows are discounted at a rate of 10% annually (pursuant to applicable guidance) to derive the standardized measure of discounted future net cash flows. This calculation does not necessarily represent an estimate of fair market value or the present value of such cash flows since future prices and costs can vary substantially from year-end and the use of a 10% discount figure is arbitrary.

5. Changes in Reserves

The 2016 and 2015 extensions and discoveries reflect the successful drilling activity in the Company’s West Texas and Mid-Continent areas. The Company is employing technologies to establish proved reserves that have been demonstrated to provide consistent results capable of repetition. The technologies and economic data being used in the estimation of its proved reserves include, but are not limited to, electrical logs, radioactivity logs, geologic maps, production data and well test data. The estimated reserves of wells with sufficient production history are estimated using appropriate decline curves. Estimated reserves of producing wells with limited production history and for undeveloped locations are estimated using performance data from analogous wells in the area. These wells are considered analogous based on production performance from the same formation and with similar completion techniques. Future development plans are reflective of the significant decrease in commodity prices and have been established based on an expectation of available cash flows from operations and availability under our revolving credit facility