RE: Key Production Drivers in 2012 Do not forget the very positive impact of a declining royalty rate on new production.
Net production in 2011 was 1635 bpd.
Of this amount, over 50 % was paid as a royalty.
Actual production net to SKO after royalties was about 800 bpd.
In other words, the royalty rate was in excess of 50 % on net production.
Royalty rates decline to less than 10 % on new production in which SKO is the operator.
With SKO taking over nearly all of the 4 fields and with new wells coming onstream, the overall royalty rate should drop below 30 % in 2012 and to less than 15 % in 2013.
This will have a dramatic effect on net production and cash flows and will considerably increase the financial impact of increased production.