Overview

Forestar's mineral resources strategy is to realize the value of its mineral assets principally by maximizing lease revenues and royalty interests.

Forestar owns approximately 622,000 net mineral acres, about 365,000 net mineral acres of which are located in the East Texas, Brazos and Gulf Coast basins in Texas and Louisiana, some of the most productive natural gas basins in the continental United States. We typically lease our mineral interests to third parties for exploration and production of oil and gas, principally in Texas and Louisiana, generating lease bonus payments, delay rentals and royalty interests.

Strategic Initiatives

"In connection with our strategic initiatives, we are focused on improving the effectiveness of our disclosures related to our mineral assets," said Jim DeCosmo, president and chief executive officer of Forestar Group. "To facilitate these initiatives, we have assembled an experienced minerals organization, improved our information systems and reporting capabilities, and retained a third-party petroleum engineering firm to independently prepare oil and gas reserve information. As a result, we are able to provide additional information (unaudited) as of year-end 2008 regarding our mineral interests including estimates of proved developed producing (PDP) reserves and future net cash flows.

"The estimates of PDP reserves are derived from Forestar's net royalty interest in 439 producing wells, which represents only one component of value associated with leasing 25,000 net mineral acres. These 25,000 net mineral acres, which are held by production from producing wells, represent less than 5% of our total mineral ownership. In addition, this PDP reserve information does not include estimates of reserves and value associated with proved developed non-producing (PDNP) reserves or proved undeveloped (PUD) reserves, or any potential value related to our 597,000 undeveloped mineral acres."

Estimate of Year End 2008 PDP Reserves & Value (Unaudited)

We initiated an internal reserve analysis of producing wells where Forestar has a royalty interest and engaged a third-party petroleum engineering firm, Netherland, Sewell & Associates, Inc. (one of the world's largest independent providers of oil and gas reserve information for SEC reporting), to independently prepare estimates of PDP oil and gas reserves and future net cash flows as of year-end 2008. PDP reserves are those expected to be recovered through existing wells, with existing equipment and operating methods. These estimates were prepared in accordance with the definitions and guidelines of the U.S. Securities and Exchange Commission and, with the exception of exclusion of future income taxes, conform to the Statement of Financial Accounting Standard No. 69. A summary of these estimates follows:

  PDP Reserves*                                                                                                                                                                                        Net PDP Reserves            Future Net Cash Flows Before Income Taxes ($)                  Oil (Barrels)   Gas (MCF)   Undiscounted   PV-10                            PDP Reserves   457,085         7,537,844   $52,454,500    $31,989,100                       -------------------------------------------------------------------------------  

* Reserve information was prepared using constant oil and gas prices and costs throughout the lives of the properties. Oil prices are based on year-end 2008 West Texas Intermediate posted price of $41.00 per barrel and natural gas prices are based on year-end 2008 Henry Hub spot market price of $5.71 per MMBTU. All prices were adjusted for quality, transportation fees and regional price differentials.