Item 5: Fees and Compensation
DESCRIPTION OF COMPENSATION AND FEE SCHEDULE
In consideration of our services, we and/or our affiliates generally are entitled to receive (i) reimbursement of G&A
Expenses (as defined below), (ii) a portion of the net cash flow from producing oil and natural gas properties and
(iii) carried interest distributions with respect to the Funds. While such fees and carried interest distributions are set
forth in each Fund’s governing documents, a summary of the general fee schedule applicable to the Funds is set
forth below.
Reimbursement of G&A Expenses
Neither we nor any of our affiliates are entitled to receive a set “management fee” with respect to the Funds.
Nevertheless, we and/or our affiliates receive, with respect to each calendar month during the term of a Fund, an
amount equal to that portion of our general and administrative expenses for the immediately preceding month
(including employee compensation and related burdens, office expenses (rent, supplies, equipment, etc.), travel and
entertainment expenses, professional services (computer support, technical services, recruiting, risk management,
etc.), insurance and bank fees) that we determine to be attributable to the management of the Fund and its
investments (“G&A Expenses”).
Compensation from Producing Properties
With respect to the Funds, all production cash flow from producing oil and natural gas properties for the first full
calendar month after the effective date of the Fund’s purchase thereof will be distributed as compensation to one of
our affiliates and Jerry V. Smith, a principal of Espuela (as defined in Item 10 below).
Carried Interest Distributions
With respect to the Funds, the general partner of the Fund generally is entitled to receive carried interest
distributions equal to:
(i) 8% of the net cash flow of the Fund, until (a) the first instance in which 90/92nds of the aggregate
distributions to the limited partners equals 125% of the aggregate capital contributions of the limited
partners and (b) limited partners no longer have any unpaid capital commitments (“Payout”); and
(ii) after Payout is reached, 20% of the net cash flow of the Fund.
The compensation applicable with respect to the Funds and each investor generally is not negotiable.
PAYMENT OF FEES AND REIMBURSEMENT OF G&A EXPENSES
G&A Expenses applicable with respect to any calendar month are payable on or before the tenth (10th) day of the
subsequent calendar month (for the prior month). We may pay G&A Expenses from capital contributions called for
such purpose, proceeds received in respect of any investments or any other assets or funds determined by the general
partner to be available.
Carried interest distributions and compensation from producing properties are calculated, distributed and/or paid
from time to time when distributions are made to investors. Carried interest distributions and compensation for
producing properties are distributed from time to time as determined by the general partner of the Fund out of the
net cash flow.
OTHER FEES AND EXPENSES
In addition to the G&A Expenses, each Fund reimburses us and/or our affiliates for direct expenses incurred by us
and/or our affiliates on its behalf , including but not limited to, expenses incurred in the formation and capitalization
of the Fund, the preparation of tax returns for the Fund, audits or reviews, if any, of the Fund, engineering reports, if
any, of the Fund and any similar expenditures of or for the benefit of the Fund. Any person appointed operator of
any of the properties owned by the Fund is reimbursed for services provided and expenses incurred in accordance to
the rates and provisions under the existing joint operating agreements for the relevant property. The Funds generally
are responsible for and pay any applicable custodial fees and expenses. See Item 12 below.
The Fund also reimburses Espuela and its affiliates for all of their expenses other than rent, utilities and the services
of Jerry V. Smith.
COMPENSATION FOR THE SALE OF SECURITIES OR OTHER INVESTMENT PRODUCTS
Neither we nor any of our supervised persons accept compensation for the sale of securities or other investment
products.