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## 2018 Changes in Proved Undeveloped Reserves 

Conversions to developed . In our year-end 2017 plan to develop our PUDs within five years, we estimated that $41.5 million of capital would be expended in 2018 for the conversion of 14 gross / 6.2 net PUDs to add 4.3 MMBOE, which was consistent with the $55.4 million actually spent to convert 11 gross / 6.8 net PUDs adding 4.4 MMBOE to developed. 

Extensions and discoveries . Additionally, 13.7 MMBOE were added as extensions and discoveries due to successful drilling results on our acreage positions because of the wells we drilled. The increase was also supported by successful drilling results by other operators directly offsetting and in close proximity to our acreage. All of these drilling results increased the confidence of the reservoir continuity and performance of the associated reservoirs which increased the number of PUDs primarily in the Midland Basin. 

Sales of minerals in place. Sales of minerals in place totaled 4.7 MMBOE during 2018, which consisted of 3.7 MMBOE resulting from the disposition of non-operated properties in the Midland Basin as part of an acreage trade and 1.0 MMBOE related to the disposition of non-operated Eagle Ford properties, both further described in Note 3. Acquisitions and Divestitures  in the Notes to Consolidated Financial Statements. 

Purchases of minerals in place . In 2018, purchases of minerals in place of, 4.7 MMBOE were attributable to developed non-producing wells and undeveloped acreage acquired in the Midland Basin as part of an acreage trade, as further described in Note 3. Acquisitions and Divestitures  in the Notes to Consolidated Financial Statements. 

Revision to previous estimates. Revisions of 5.8 MMBOE were primarily due to our successful drilling efforts in the Midland Basin as well as improved commodity prices. 

## Estimated Costs Related to Conversion of Proved Undeveloped Reserves to Proved Developed Reserves 

The following table sets forth the estimated timing and cash flows of developing our proved undeveloped reserves at December 31, 2019 ( $ in thousands ): 

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(1) Beginning in 2020 and thereafter, the production and cash flows represent the drilling results from the respective year plus the incremental effects from the results of proved undeveloped drilling from previous years. These production volumes, inflows, expenses, development costs and cash flows are limited to the PUD reserves and do not include any production or cash flows from the Proved Developed category which will also help to fund our capital program. 

(2) Barrels of oil equivalent have been calculated on the basis of six thousand cubic feet (Mcf) of natural gas equal to one barrel of oil equivalent (BOE). 

(3) Computation is based on SEC pricing of (i) $52.60 per Bbl (WTI-Cushing oil spot prices, adjusted for differentials), (ii) $0.91 per Mcf (Henry Hub spot natural gas price), as adjusted for location and quality by property and (iii) $16.17 per Bbl for natural gas liquids. 

PUDs are expected to be recovered from new wells on undrilled acreage or from existing wells where additional capital expenditures are required, such as from drilled but uncompleted (DUC) wells. Our development plan contemplates production to commence from all these wells in the first and second quarter 2020. 

Historically, our drilling programs have been substantially funded from our cash flow and borrowings under our credit facility. Based on current commodity prices and our current expectations over the next five years of our cash flows and drilling programs, which includes drilling of proved undeveloped and unproven locations, we believe that we can continue to substantially fund our drilling activities from our cash flow and with borrowings under the Credit Agreement. 

