LONDON: Canadian Overseas Petroleum Limited (COPL) has agreed to acquire Atomic Oil & Gas LLC for a consideration of US$54 million consisting of assumed debt, cash and shares.
This strategic acquisition would represent a step change in the capacity and revenue generating opportunities open to the Company. COPL expects to complete the acquisition by January 31, 2021, with a long stop date in the agreement of 90 days from execution. The effective date of the transaction is December 1, 2020.
Atomic Details
Atomic is a closely-held private oil and gas company incorporated under the laws of the State of Colorado. Atomic’s assets are located in Powder River Basin in the State of Wyoming, USA where it holds operated interests in 52,258 acres (gross) of contiguous leasehold.
There are two oil production Units within the lease block: the Barron Flats Shannon Miscible Flood Unit (57.7% WI) and the Cole Creek Unit (66.7%), as well as one unitized exploration area -the Barron Flats Federal Unit (deep). Atomic has two affiliates: The Southwestern Production Corp, the operating entity; and PipeCo, a midstream company holding the pipeline and facility assets.
Simplistic breakdown of the staged US$54m acquisition cost:
• Deposit (non-refundable): $1 million
• Initial Debt-Financed Payment: $8 million for 15% of Atomic’s Working Interest in all of its leasehold on or before December 31, 2020.
· (Note: If the acquisition does not complete, the Company will retain this interest)
• Assumed Debt: $26 million at closing
• Total Additional Debt and Cash: $15 million at closing
• COPL Common Shares to Atomic Shareholder(s): $4 million priced at closing
The benefits of this acquisition include:
• Acquiring 31.1 mm Barrels of Oil Equivalent (“BOE”) (24.7 mm BOE net after royalties) of Proved and Probable Reserves (“2P”) (Ryder Scott Reserve Report dated 1st October 2020 of Atomic’s Oil and Gas Reserves (the “Ryder Scott Report”), a summary commencing on page 2 below).
• Two operated oil fields: the Barron Flats Shannon Unit (57.7% WI) and Cole Creek Unit (66.7% WI) located in the Powder River Basin in the State of Wyoming, USA:
· Oil producing assets are at the beginning of their 40+ year life with increasing production to a future production plateau.
· Current production rate of 1,400 bbls/d (gross) rising to 5,000 bbls/d (gross) in 2022 and c.7,000 bbls/d (gross) in 2026 (2P reserve case, Ryder Scott Report).
· Produced crude oil is light (40°API) and sweet.
· Barron Flats Shannon Unit (57.7% WI): Natural Gas and Propane Miscible Flood commenced December 2019. Production increased from c. 200 bbls/d (gross) to 1400 bbls/d (gross) from 2017 to Sept 2020 with a forecast 2P production rate plateau of 5000 bbls/d (gross) in 2022 (Ryder Scott Report).
· Cole Creek Unit (66.7% WI): Current field limits defined by drilling, Miscible Flood to be commenced upon plateau of Barron Flats Shannon Unit production. Forecast production rate plateau of c. 3,500 bbls/d (gross) under the 2P reserves case (Ryder Scott Report) in 2026.
• Assets have new infrastructure and direct access to pipeline with no legacy abandonment or reclamation liabilities.
• State-of-the-art, environmentally responsible facilities with zero gas flaring, minimal methane emissions, with required electricity sourced from an adjacent wind farm:
· Produced associated gas is reinjected into the reservoir along with the purchased natural gas and propane miscible flood injection stream.
• The opportunity to undertake this acquisition became available only as a result of the Covid-19 environment and the drop in oil prices during 2020.
• Acquisition has a high NPV asset at a price well below traditional metrics: Proved(P1) value of $101.7mm (net of royalties); Proved + Probable(P2) value of $185.8mm (net of royalties).
· Note: a summary of the Ryder Scott Report in accordance with Canadian Oil and Gas Evaluation Handbook Guidelines (COGEH) is located within the press release.
• Acquisition represents a high ROI > 50%; $2.18/bbl acquisition cost on P2 reserves vs a value of $7.52/bbl at NPV10%. (net of royalties)
• COPL receives material leverage via the transaction.
• On completion the operative staff of Southwestern Production Corp will join the COPL team.
Arthur Millholland, President and CEO, commented: “This is a game-changing acquisition which will materially reposition COPL as a production company with assets that have a long-term lifecycle and rapid production opportunity. Oil production assets of this quality, having an incline curve rather than a decline curve, are rarely available for purchase. Circumstances surrounding the Covid-19 situation created this favourable opportunity for COPL. With this acquisition, in addition to the substantial upside potential already present in our Nigerian offshore project, the Company is now strategically well placed to deliver enhanced value and returns to shareholders.”
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