TEXAS PRODUCTION GAINS MOMENTUM
- Goose Creek/CWS production restarted – 22 bopd online from seven wells
- Revenue in excess of US$30k recorded so far this month
- 15 wells restarted by 30 September – targeting 50bopd and US$60k revenue per month
- White Oak Global Advisers site visit successfully completed at Foothills with additional upside potential identified and loan documentation being prepared
- Closing of acquisitions on track to deliver value of US$48m/AU$66m PV10 vs current market cap of AU$11m
- Purchase and Sale Agreement signed/deposit paid for Magnolia/Burnett assets
- Rights Issue closes Monday 27 August at 5.00pm AEST
American Patriot Oil and Gas Limited (ASX:AOW; “American Patriot” or “the company”) has further advanced the re-work process at its Goose Creek oil field in Baytown, Texas and the CWS Aceite assets in South Texas to restart shut-in production at both locations.
The assets are now generating 22 barrels of oil per day (bopd) of production from seven wells, which has so far generated revenue of US$32,592 from production sold. The company expects to generate at least US$40,000 by the end of the month from production sold with a daily average of 30 to 40 bopd.
American Patriot Chief Executive Officer Alexis Clark believes these are important milestones as the Company prepares to commence sustained production.
“In the near future we expect to significantly grow production and net cash flows just from these assets, not including the significant uplift from the new acquisitions” Mr Clark said.
“The past six months has seen our team, led by Chief Operating Officer Nicholas Melosi, successfully persisted to obtain regulatory approvals and progress this field to production.
“The location of these assets is also important, situated directly adjacent to The Foothills project allowing us to use the same infrastructure and work crews to achieve significant economies of scale.
“Today we have access to an additional 50 wells, some of which we are currently permitting for recompletions, and expect to generate over 100bopd by the end of the year with current assets.”
This week, American Patriot hosted a successful site visit at the Foothills asset with the lender, White Oak Global Advisers, and loan documentation has commenced. The company is also well advanced in discussions with several hedging counterparties to lock in the best commodity price hedging.
“The site visit further affirmed the significant upside potential to the asset coming from the workover and recompletion program which will commence immediately after the close of the transaction.
“Importantly, the visit identified further additional upside from multiple waterflood testing programs and pumping unit/downhole pump sizing exercises on the asset.
The company plans to run a fluid level testing program to get a handle on water movement in the different reservoirs. In addition to this, we have also signed the Purchase and Sale Agreement on the Magnolia and Burnett assets and paid a 10 per cent deposit.
At the completion of these deals, estimated EBITDA will increase to approximately US$11.5m per annum in CY2019 (for all assets), following the completion of the capex program based on an oil price of US$65bbl.
“The assets deliver significant value to the company of US$48m PV10/AU$68m with our current market cap of AU$11m.
“The production potential and the reserves base of the acquired assets is shifting the Company to becoming a significant explorer and producer.
“We have already commenced the early stage process of identifying the next asset acquisition, which will be more than double the current deal size.
“With the support of funding from our partner, we will continue to build a significant reserve base with upside potential to grow production and cash flow in line with increasing oil prices.
“We are now positioned for a period of significant growth and on a path to becoming cash flow positive.”
The company remains on track to close the Foothills, Peak Energy and Magnolia/Burnett deals in the coming weeks.
Acquisitions set to transform company
Quarterly Report for the period ending 30 June 2018
- Acquisition of Foothills Resources Inc and Magnolia/Burnett Assets
- Deals deliver 550 net boepd/ 6.5 million barrels additional 2P oil and gas reserves
- Attractive acquisition price less than half PV 10 value
- CY19 EBITDA estimated to increase to US$12m with low capex spend
- Major US-based private credit fund provided a non-binding term sheet for a US$17m debt facility closing August 2018
- Total AU$7m equity secured via $4m oversubscribed placement completed and underwritten $3m rights issue
- Lost Lake/Goose Creek production restarted - 10bopd online from 2 wells and restarting 15 wells in the next quarter
American Patriot Oil and Gas (ASX: AOW) (“American Patriot”, “the Company”) is pleased to present its quarterly activities report for the period ending 30 June 2018.
During the quarter, American Patriot made significant progress on its asset acquisition program.
The Company signed two separate acquisition deals for oil and gas assets in Texas that will significantly increase EBITDA for the 2019 calendar year based on company financial modelling.
The acquisitions of the Foothills Resources Inc and Magnolia/Burnett assets will provide a net total of 450 barrels of oil equivalent per day, delivering an additional 5.6 million barrels of oil equivalent 2P reserves (90% oil), plus 4 million 1P proven reserves certified by independent reserve reports.
The acquisitions, combined with the previously announced Peak Energy deal, will deliver a total 550 net boepd of production and 6.5 million boe. Total AOW company reserves will increase to 7 million boe 2P reserves.
Attractive cost to production ratio
The combined cost of all acquisitions was US$20.5 million, with $15m for the Foothills asset, $3.2m for Magnolia and Burnett, and $2.3m for the Peak Energy Asset.
The assets are estimated to be worth US$48m PV 10 based on current NYMEX strip pricing, according to independent engineering reports.
On transaction close, American Patriot will have a total company production of 570 boepd net in 2018 with more than 7mmboe 2P reserves (5.3mmboe of 1P proven oil and gas reserves) certified by independent reserve reports with a PV 10 value of USD$55m.
The net production from the assets generates net cash flow of US$6m per annum at current oil prices.
With a low capex investment of US$1.8m, the Company aims to add an additional 180boepd of production to grow net production from 570boepd in 2018 to an expected 750boepd in 2019.
The program includes work-overs and recompletions which will commence immediately after the close of the transaction.
Estimated EBITDA is expected to increase to approximately US$12m per annum in 2019 (for all assets) following completion of the capex program based on an oil price of US$70bbl. Importantly, 75 per cent of production will be hedged at current oil prices, which average US$70bbl.
The American Patriot Board will consider capital management initiatives in 2019 and beyond, such as dividends and share buybacks after consideration of future acquisitions and additional debt repayments.
The Company has received a non-binding term sheet from White Oak Global Advisers LLC, a major USbased investment manager to private credit funds, for a US$17m debt facility. The lenders have completed initial due diligence with only confirmatory validation remaining.
The total transaction size of US$20.5m will be funded via the debt facility and an AU$7m (approximate conversion US$5m) equity raise which includes a $4m placement and a $3m rights issue.
The rights issue is fully underwritten by Capital Investment Partners (CIP), an existing major shareholder of AOW.
The transaction is expected to close in August 2018 and projected cash flows from the new assets, based on current oil prices, will result in the debt facility being fully paid back in less than four years.
The market response has been overwhelming. Our capital raising was heavily oversubscribed, creating an opportunity to take more but we strategically chose not to, instead focusing on creating shareholder value.
American Patriot has a 21.5% working interest in the Northern Star Project which covers 61,489 acres in the north-east of Montana, up dip and surrounding the Lustre Oil Field.
- Partnered with Great Western (Operator) and Anadarko Minerals.
- 61,489 acres gross, 12,600 net acres to American Patriot (25% average working interest)
- The surrounding Lustre Oil Field was discovered by Exxon Corporation in 1982, and produced over 7.5 million barrels of oil from the Ratcliffe and Mission Canyon zones.
- Free carried on 2 horizontal exploration wells (no cost caps), plus back-in right on another 2 well option.
- A 3D seismic survey has been conducted on the neighbouring Lustre and Midfork oil fields.
- Excellent oil shows were encountered in a previous well.
- Planning is currently underway for a second horizontal well, which we are free carried on.
- Lower permeability rocks around and up-dip of the old field sweet spot suggests that horizontal drilling can be utilized to target significant resource and value potential.
- Expected IP is 250 to 500 barrels of oil per day (BOPD).
American Patriot has a 30% working interest in the Rough House Project which covers 24,221 gross acres in the DJ Basin across the Washington, Lincoln Arapahoe and Elbert Counties in Colorado.
- Rough House is a conventional oil play focussed on stacked pays with multiple carbonate reservoir targets.
- A farm out was struck in February 2016 with Running Foxes Petroleum, a leading Colorado oil company who discovered the Arikaree Creek oil field – a 1,400 BOPD field.
- The Running Foxes farm out deal was a 5 well deal, which will involve economic low cost conventional drilling.
- There are two commitment wells of which American Patriot is free carried, plus a 3 well option.
- The first two wells will be development wells will be next to the Arikaree Creek Field.
- Running Foxes has significant on ground operational and development expertise in Colorado, owning its own drill rig fleet and workover units.
- The acreage is in close proximity to recent oil producing discoveries which have quick paybacks and nearby active leasing:
- Nighthawk Energy: 300-400 BOPD from 4 wells, currently approximately 1,500 BOPD total production from the Arikaree Creek Oil field.
- Wiepking Fullerton: 184,00 net acres, 3 wells were drilled recording between 694 and 1,600 BOPD
- Includes a vertical drilling opportunity to around 11,000 feet, with large upside potential.
- There is potential for future JV opportunities with Running Foxes in an Area of Mutual Interest which has been established.
- Large position on a well control defined structural nose
- Located on the flanks of an oil rich basin close to producers/infrastructure
- Vertical drilling opportunity with upside and potential to turn to horizontal oil play
- Low cost of entry and could represent significant upside in the event of success (as a result of being a first mover in the basin).
- Exploration plan is acquire seismic, farm down for free carry on well. American Patriot is presently seeking to identify appropriate partners, who are willing to enter into a farm down arrangement for the project. American Patriot is targeting technically sound operators with experience in the basin.
- The basin is well served by infrastructure with ready access to drill rigs and service companies. Vertical well costs in this project are estimated to be approximately $1,200,000 (fractured and stimulated).These projects are in the early exploration phase and no commercial discoveries have been drilled on or adjacent to the proposed project areas.