American Patriot Oil & Gas (ASX: AOW) has inked a purchase and sale agreement pertaining to its acquisition of conventional oil and gas assets in East Texas, with the transaction expected to close within 40 days.
This agreement follows on from a letter of intent signed back in November and comprises of more than 38 wells producing 37 barrels oil per day and 440,000 cubic feet per day of gas in the Harrison, Gregg, Rusk and Upshur counties.
The company said the majority of due diligence had been completed, including an independent reserve report, full engineering study and environmental assessment, with just land title work to be finalised.
The assets contain proven oil and gas reserves of 1 million barrels of oil equivalent, which have been acquired for US$2.5 million and are estimated to have the potential to generate more than US$22 million in revenue over a period of time.
American Patriot noted the reserve study valued the reserves based on conservative oil prices of US$50 per barrel – lower than the current market prices of around US$65 per barrel. In addition, operation costs in the region are around $23 per barrel, meaning the project would be economic at lower oil prices.
The assets are being acquired from a number of private oil and gas companies, with the deal being financed using American Patriot’s recently announced US$40 million debt facility.
According to the company, minimal workover costs are required to boost production in the field and all of the existing infrastructure is in place, plus the market is readily accessible via gas pipeline delivery to nearby refineries.
American Patriot chief executive Alexis Clark said the acquisition is the company’s largest transaction to date and has doubled its reserves base and production potential, underpinning the cash flow of the business.
“The assets have significant upside potential through low cost capex initiatives such as workovers and behind pipe recompletions which can grow the production,” he said.
“On this deal and other transactions we have completed, we see a number of opportunities to lower the lease operating expenses and achieve further cost efficiencies,” Clark added.
American Patriot has signed a string of deals recently to acquire acreage in the Texas and Gulf Coast regions of the US with plans to prove up the fields then on sell the assets.
In the second half of 2017, the company expanded its asset portfolio under five transactions, more than doubling its total reserves to 2.3 million barrels of oil equivalent and boosting its output by 500 boe per day.
Clark told Small Caps the company was planning further acquisitions in 2018 with a production target of more than 2000 boepd by the end of the year.
“With the pipeline of deals in front of us, 2018 is shaping up to be a significant year for the company”, he said.
In its second quarter results announced last week, the company said due diligence was currently being completed on assets that are more than five times the size of recent acquisitions.
Shares in American Patriot were up 13.8% on today’s announcement by afternoon trade.