American Patriot Oil & Gas (ASX: AOW) has unveiled some “transformative transactions” expected to set the company up as a leading US-based producer of conventional oil and gas.
The company emerged from a trading suspension today to reveal the news, which it said has “materially improved” its long-term prospects.
The deals include a new funding arrangement, which has worked to fast-track the closing of recent acquisitions, bolstering production and reserves.
According to American Patriot chief executive Alexis Clark, the transactions have placed the company “well on the path to becoming a significant conventional production company in Texas… [with] the potential to introduce a number of new acquisition targets to rapidly build scale and increase production”.
Back in February, American Patriot had inked a purchase and sale deal for the Peak Energy oil and gas assets in East Texas.
Then in July, it announced a pair of acquisitions worth a total of US$18 million – Foothill Resources on the US Gulf Coast and the Magnolia & Burnett assets in South Texas.
Today, American Patriot confirmed the completion of the Peak Energy and Magnolia & Burnett acquisitions, which have resulted in a tenfold production increase from the current 30 barrels of oil equivalent per day to 300boepd.
The assets also collectively add 1.9 million barrels of 1P oil and gas reserves to the company’s asset portfolio.
In addition, American Patriot is anticipating these closed deals to deliver an operating revenue of US$5 million and a projected EBITDA of US$3 million in 2019 (based on current oil prices).
The Peak Energy assets comprise 38 producing wells over 43 leases in the Harrison, Gregg, Rusk and Upshur counties of East Texas.
The Magnolia & Burnett acreage was acquired from two separate private oil and gas companies, Magnolia Petroleum and Burnett Petroleum. These assets include 51 producing wells located in the state’s south.
“Both Peak Energy and the Magnolia & Burnett petroleum assets are conventional, long-life oil and gas projects with infrastructure in place and significant proven behind pipe and infill drilling opportunities to grow the production significantly,” Clark said.
Now that the transactions have closed, a low capex program consisting of workovers and well recompletions is scheduled to start immediately.
American Patriot also announced it has secured a funding deal with a wholly-owned subsidiary of its major shareholder Vertua Limited (NSX: VERA) to accelerate the settlement of these recently closed acquisitions.
According to the oiler, the facility provided the ability to settle the deals without waiting on the Foothills settlement, as was originally planned.
The facility has a four-year term and will also be used for general working capital to fund deposits, workovers and recompletions, security bonds and other corporate costs.
American Patriot has also recently raised a total of AUD$7 million in equity, through a share placement in July and rights issue last month.
Last asset to finalise
The company is now focused on finalising the settlement of its last remaining asset, Foothill Resources.
Foothills is American Patriot’s biggest acquisition, valued at US$15 million, and is being funded via a combination of debt and equity.
The company has paid a deposit of US$900,000 to date and recently executed a US$17 million debt term sheet.
It is anticipating the completion of due diligence “in the coming weeks”, which is expected to trigger settlement of the asset.
The Foothills acreage comprises 62 producing wells over a 17.77sq km area in the Harris, Liberty and Hardin counties of Texas. It has been independently assessed to contain 1P oil and gas reserves of more than 2.8 million boe.
Following a planned workover and recompletion program, the project is expected to boost American Patriot’s production to 750boepd, which in turn should result in a 2019 operating revenue of US$18 million and EBITDA of US$13 million (at current oil prices).
“The Foothills assets will set the scene for the transformation of American Patriot into a significant oil and gas production company with a growing reserve base,” Clark said.
American Patriot’s business strategy involves buying low-cost, distressed assets and completing workovers to restart and/or grow production and reserves.
The company is aiming for a production target of 3000 barrels per day by the end of 2019.