Tax Advantages

Federal Income Tax Deductions Available:

Intangible Drilling Costs (IDC) – Immediate tax deduction in the year costs are incurred (100% for new drilling ventures). See IRS publication 535, page

Tangible Drilling Costs (TDC) – 100% Tax deductible in year costs are incurred and assets placed in service due to Bonus Depreciation.

Percentage Depletion – Tax deductible for percentage depletion (15% of gross income is tax deductible, even when in excess of cost depletion, subject to certain limitations).

Lease Operating Costs – 100% Tax

Exemption from passive loss rules – The working interest owned by the Joint Venture qualifies for the exemption from the Passive activity rules if the partner’s ownership in the Joint Venture meets the exception guidelines.

*TAX ADVANTAGES VARY DEPENDING ON YOUR PERSONAL TAX SITUATION. PLEASE CONSULT YOUR TAX ADVISOR. NOTE THAT CURRENT LAW IS SUBJECT TO CHANGE. CERTAIN CURRENT RULES MAY LIMIT AN INVESTOR’S ABILITY TO TAKE TAX DEDUCTIONS FROM THE VENTURE.

 THIS LETTER IS NOT INTENDED NOR WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY PERSON FOR THE PURPOSE OF AVOIDING TAX PENALTIES THAT MAY BE IMPOSED ON SUCH PERSON. THIS LETTER WAS

PREPARED TO provide information to allow participants to make informed investment decisions. THE TAXPAYER

SHOULD SEEK ADVICE BASED ON THE TAXPAYER’S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

 POTENTIAL INVESTORS MUST READ THE CONFIDENTIAL MEMORANDUM RELATING TO THIS INVESTMENT IN ORDER TO UNDERSTAND THE RISKS INVOLVED. TAX RISKS ASSOCIATED WITH AN INVESTMENT IN THE

VENTURE Are substantial and are more fully DESCRIBED IN THE CONFIDENTIAL INFORMATION MEMORANDUM UNDER “RISK FACTORS – RISKS RELATED TO TAX MATTERS” AND “TAX ASPECTS.