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Investment Returns

The following series of charts represent Stalnaker Energy Corporation's Return on Investment of drilling funds in the 1997, 1998, 1999, and 2000 Drilling Programs. To fully understand these charts it is important to note that the funds allocated for expenditure in a given year do not get spent and begin to return until the following year. As a case in point, the wells allocated to the 1997 Drilling Program were drilled beginning in late 1997 through March 31, 1998 thus allowing for the Intangible Drilling Costs (IDC) deduction in the 1997 tax year, but not showing income until the 1998 tax year. Therefore, the return on investment for the 1997 Drilling Program actually represents production for just over 3 years, 1998, 1999, 2000 and 2 months of 2001.

The After Tax Return on Investment is calculated assuming the following:

1.) 79% Intangible Drilling Costs - This percentage can vary, but historically in Stalnaker Energy Corporation's Drilling Programs is between 75% and 81%. This means that on a well with an Authorization for Expenditure of $200,000.00, the IDC deduction would range between $158,000.00 and $162,000.00.

2.) 28% Tax Bracket - Obviously for an investor in a higher tax bracket the After Tax costs are lower after the Intangible Drilling Cost Deduction. As in the above example an investor in the 28% tax bracket could realize a tax savings between $44,240.00 and $45,360.00 while an investor in the 38% tax bracket could realize a tax savings of between $60,040.00 and $61,560.

The Gross Return on Investment represents actual dollars spent as compared to dollars returned by the well in the Program before any operating expenses, including royalty, severance taxes, and well operating expenses.

The Net Return on Investment represents actual dollars spent as compared to the net dollars paid to investors after all applicable taxes and expenses are paid.

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