AIM-listed Mosman Oil and Gas has, via a newly formed USA subsidiary company, entered into an agreement with a subsidiary of Cue Energy Resources to acquire an 80 per cent. interest in the Pine Mills producing oil field located in Wood County, Texas, USA together with the acquisition of Buccaneer Operating LLC, the operating company for the Pine Mills oil field, 12 acres of freehold land and a workover rig.
The Asset will be acquired for a consideration of USD975,000 (approx. £0.786 million) which will be financed from Mosman's existing cash resources without the need to raise additional funds. Following completion, Mosman will have cash at bank and investments totalling AUD2.0 million (approx. £1.230 million).
Since it was discovered in 1950s, the Pine Mills field has produced over 12 million barrels of oil. The Vendor has invested in refurbishment and upgrading facilities and current daily gross production is averaging over 100 bopd. Following due diligence, Mosman has identified the potential to increase production in the near term through the reactivation of existing inactive wells and the installation of submersible pumps, which can be funded from the Company's existing cash reserves and investments, from expected positive operational cash flows or from other funding alternatives.
Further upside potential can be achieved through application of seismic acquisition and infill drilling.
The Acquisition has an effective date of 1 November 2016 and includes the following:
*80% Working Interest in leases over 2,400 acres, which have;
- Gross oil production which has averaged over 100 bbl/day for last four months ;
- Proven Reserves of 373,000 barrels (net attributable to Mosman before royalties);
- Proven Plus Probable Reserves of 477,000 barrels (net attributable to Mosman before royalties);
15 producing oil wells;
- All production equipment and infrastructure (including access roads and power connectivity) for the production of oil from the existing producing wells including tanks, separators, water injection wells and pumps.
- Ten inactive wells including four that are candidates for recompletion
*100% ownership of the existing Operating company, Buccaneer;
*100% ownership of approximately 12.1 Acres of Fee Simple (Freehold) land partially improved; and
*100% ownership of Workover Rig and associated equipment.
Represents numbers supplied by the Vendor that have been subject to due diligence by Mosman, prepared to be consistent with the Society of Petroleum Engineers definitions as set out in Appendix 2.
The Asset is being purchased for the following reasons:
- Company stated objective of being an oil and gas exploration and production company. The asset has steady production as well as development upside potential.
- Assets will provide steady cash flow. Pine Mills is a low cost, producing asset with oil being sold to a nearby refinery at close to West Texas Intermediate ("WTI") prices
- The current oil price has caused many oil companies to consolidate their operations making some good quality assets available at an attractive price. The acquisition metrics for Pine Mills per barrel for Proven Reserves and per barrel for Proven plus Probable Reserves are attractive;
- Oil production has a long track record in Texas along with well established "light hand" regulation, and landowners are supportive of O&G activity as they receive royalties. This reduces political risk and reduces the likelihood of increased costs of doing business;
- There are ample services and equipment available in the area;
- The Asset has potential to increase production rates from the Sub-Clarksville and Woodbine sands and thus cash flow in the short term. The upside potential includes multiple stacked geological formations with demonstrated production in Texas including the Eagleford shale and Paluxy sandstone horizons with significant potential; and
In addition, there are opportunities to acquire similar assets that would offer operating synergies.
John W Barr, Chairman, said: 'The Pine Mills producing oil field enables us to deliver on our stated objective of generating sustainable cash flows as well as offering near-term development upside potential. Since early 2016, the Board's focus has been to identify opportunities that would provide cash flow and have development upside; whilst exploration work continues on existing permits within restricted expenditure constraints.
'The Acquisition is the result of months of work where a number of production projects were examined. This search has been undertaken to balance the existing exploration portfolio which has significant prospective resources by acquiring a production asset with reserves, existing cash flow and near-term development upside potential. Our strategy in the near term is to focus on increasing production and capturing the upside we see in the Pine Mills oil field.'
