TIDMMSMN
RNS Number : 9320F
Mosman Oil and Gas Limited
23 May 2017
23 May 2017
Mosman Oil and Gas Limited
("Mosman" or the "Company")
Arkoma Stacked Pay Acquisition
Mosman Oil and Gas Limited (AIM:MSMN) the oil exploration,
development and production company, announces its wholly owned US
subsidiary Mosman Texas LLC has executed a contract to acquire a
10% interest in the Arkoma Stacked Pay Project ("The Project"),
located in Okfuskee County, Oklahoma, from Inland Oil & Gas
Corporation and Inland Operating Company (collectively "Inland" or
"the Vendor") for a consideration of USD$500,000, ("Initial
Transaction").
Inland estimates the gross reserves and resources of the area to
be 8.48 Mmboe, based on 3D seismic which was used to identify a
significant geological structure and the wells drilled to date have
demonstrated multiple reservoir horizons ("Stacked Pay Project").
Mosman has conducted initial technical due diligence and has
commissioned an independent reserves and resource report to verify
the vendor estimates.
In addition to the Initial Transaction of 10%, Mosman has also
agreed the terms of two options with Inland: to acquire a further
20%, should it elect to do so, and if exercised then a further 25%
of their interest in Project.
If both options are exercised Mosman will hold a total of 55% of
Inland's interest and at this stage would become Operator of the
Project. Mosman's Strategic Alliance Partner, Blackstone Oil &
Gas, Inc. ("Blackstone") has agreed an option with Inland to then
acquire Inland's remaining 45% of the Project. Blackstone has also
agreed to pay Mosman a USD$100,000 Facilitation Fee upon completion
of the Initial Transaction.
Importantly Mosman also has a First Right of Refusal on any
projects in the 36 square mile 3D seismic data owned by Inland,
where five other targets have been identified.
This transaction is the next phase of Mosman's broader strategy
to build production and cash flow and other potential acquisitions
continue to be examined and evaluated.
Details of the Arkoma Stacked Pay Project
The Project is located in Okfuskee County, Oklahoma and covers
an area of approximately 400 acres.
A 3D seismic survey over a larger area led Inland to focus on
the 400 acres forming the Project. The seismic enabled the mapping
of an uplifted NE-SW horst block with eight stacked reservoirs. The
primary reservoir is the Wilcox sandstone at circa 4,000 feet;
additional shallower oil and gas conventional pay zones include the
Viola, Cromwell, Union Valley, Gilchrist and Booch sands, and two
"tight gas" shales including the Woodford Shale.
The Project includes surface leases, five production wells, a
water disposal well, production infrastructure, seismic and other
data. The vendor operates the field.
The first deep well in the area, Wise 1-25, was drilled in 2015.
Initial flow rates were circa 85 boepd. Production has been
constrained as there was no water disposal well, but this well has
already produced over 350,000 Boe, and is currently producing circa
20 boepd.
Another well, Wise 3-25, has produced up to 60 boepd from the
Wilcox and is currently shut in waiting to test the Woodford shale.
Williamson 4-25 production was constrained by the lack of a water
disposal well, and is producing 20 boe from three feet of Wilcox
sands, with an additional 30 feet of Wilcox pay yet to be
perforated and produced. Two other wells have recently been drilled
and are expected to be brought into production in May/June 2017.
The production equipment and costs associated with installation are
included in the Initial Transaction.
There is existing onsite infrastructure which includes roads,
pumps, separators, tank batteries, three phase electrical power and
a connection to a gas pipeline.
A reserves evaluation conducted for the vendor indicates a gross
reserves and resources estimate over the 400 acres of 8.48 Mmboe,
based on mapping using 3D seismic and well logs. Further work is
required to update the report and to ensure compliance with SPE
definitions.
Mosman has not completed a full independent review of reserves
and resources, so Mosman is not yet in a position to make any
comment on the reserves or resources. Mosman has completed initial
technical data due diligence that confirms the 3D seismic data, the
wells drilled and logged, and two Directors have conducted a site
visit. Mosman has commissioned an independent third party Reserves
Report and will announce the results of this review when
completed.
Transaction Details
Mosman has today signed agreements to acquire 10% of the
Vendor's assets ("Inland Assets") for USD$500,000 which also
includes:
1. A first option to acquire a further 20% of the Inland Assets
in October 2017 for USD$1 million (the "First Option");
2. Subject to the First Option being exercised, a second option
to acquire a further 25% of the Inland Assets in March 2018 for
USD$425,000 (the "Second Option"); and
3. A right of first refusal for Mosman to participate in any
Inland project in the 36 square mile adjacent area which is covered
by an existing 3D seismic survey.
The total cost of the 55% acquisition of Inland's interest (if
all options are exercised by Mosman) will be USD$1,925,000.
Settlement of the Initial Transaction is expected to complete
this month.
At the same time Blackstone has agreed an option to acquire the
remaining 45% Inland's interest in the Project. That option expires
in March 2018. Blackstone has agreed to pay Mosman a USD$100,000
Facilitation Fee upon completion of the Initial Transaction.
Mosman has deliberately negotiated the acquisition in stages so
that;
-- The Initial Transaction is funded from existing cash reserves;
-- The production from existing wells can be extended before
Mosman decides to exercise the options;
-- Further due diligence can be completed including the Independent Reserves Report; and
-- Various options can be considered and implemented to fund the
options, including cash flow from production, sale of investments,
reserve based bank loans, equity raising or other funding
sources.
The Inland Assets includes:
-- Leases, wells and unitisations including:
Maximum MOG Interest Net MOG Interest
in Inland Participation (Max) following
Inland following exercise exercise of the
Well Interest of the options options
----------------- ---------- ------------------------- -----------------
Wise 1-25 20% 55% 11.00%
Wise 3-25 92.5% 55% 50.875%
Williamson 4-25 92.5% 55% 50.875%
Williamson 5-25 25% 55% 13.75%
Crawley 2-36 92.5% 55% 50.875%
----------------- ---------- ------------------------- -----------------
-- 100% of a water disposal well (Mosman may acquire up to 55%);
-- 100% of the three phase power supply lines (Mosman may acquire up to 55%);
-- Infield oil and gas gathering systems owned in proportion to working interests;
-- The geological data base covering the total project 400 acres;
-- The 36 square miles of 3D seismic which Mosman has access to
through the included First Right of Refusal on any projects in the
36-square mile 3D seismic data owned by Inland, where 5 other
targets have been identified).
The leases are held by production and (unlike exploration
leases) there is no minimum work requirement. As the wells are all
recently drilled there is no imminent inherited abandonment
liability.
John W Barr, Chairman, said: "We are pleased to have concluded
this transaction with Inland on the Arkoma Stacked Pay Project in
Oklahoma. Production from existing wells is expected to increase in
the next few months as new wells and new pay zones come on stream.
The acquisition has been structured to secure an initial interest
and the options to acquire additional interests over time and
Mosman welcomes the participation from its Strategic Alliance
partner Blackstone.
"The acquisition delivers production and expected resources with
upside potential in both areas at an economically acceptable cost,
meeting our investment criteria and enabling us to take a further
step in delivering on our strategy to build production and cash
flow."
Other General Information
1. The selling parties are Inland Oil and Gas, LLC who owns the
lease assets; and Inland Operating Company who own the production
assets and are the operator of the lease assets ("Inland");
2. In all but the Wise 1-25 well, the operatorship will transfer
to Mosman at the conclusion of all the purchases and options once
Mosman's interest exceeds 50%;
3. In 2016 it is estimated that the assets (in which Inland has
some interest) made a financial profit of USD$300,000 excluding any
capital expenditures or corporate overhead;
4. Mosman will use its American subsidiary Mosman Texas LLC as
the purchaser, and should change of operatorship occur Mosman will
use its American subsidiary Mosman Operating LLC.
Agreement of Proposed Acquisition, Completion and Risk
The Acquisition is conditional on standard settlement
issues.
Settlement of the Initial Transaction is expected very shortly.
Exercise and settlement of the two options is expected to be
accordance with the schedule set out above.
Project Life and Abandonment Liabilities
The leases are "held by production". Typically, these projects
continue as long as revenue exceeds operating cost, which is mainly
a function of oil price. Based on current production, Mosman
anticipates the field will produce for the foreseeable future.
It is Mosman's estimate that the current total abandonment
liability to the project is not a material amount for the current
state of development of the projects (covering the 5 wells).
Any future abandonment liability is currently estimated to be no
more than USD$40,000 per well and Mosman's cost would be based on
project participation percentage.
Royalties and Taxes
Royalties vary for each lease and average 20%, which is in the
normal range for leases in the area.
Severance tax applies on oil and gas sales in Oklahoma. This
applies on the following basis:
-- On all new wells drilled it is 2% for the first 36 months before increasing to 7%;
-- Existing wells will have the tax rate set based on the type
of production and date of drilling:
o 1.00% - Qualified Horizontal Well;
o 2.00% - New Well (Beginning July 1, 2015);
o 4.00% - Qualified Ultra-Deep Well;
o 7.00% - Base Tax Rate.
Mosman Oil USA Inc. (that owns Mosman Texas LLC and Mosman
Operating LLC) is the regarded entity for tax purposes and will
have to file corporation income and franchise taxes in Oklahoma.
These rates are currently:
-- Corporate income tax: flat 6% rate
-- Corporate franchise tax: $1.25 tax per $1,000 of invested capital in Oklahoma, plus $100
Wells, Lands, Leases & Units
The property being acquired is identified as summarised
below:
Wells
Inland Production
Well Interest Other Interest Holder Status
------------- ---------- ---------------------------------- -----------
Wise 1-25 20% 80% Delecta Limited (ASX Listed) Producing
------------- ---------- ---------------------------------- -----------
Wise 3-25 92.5% 6% Several small working interest Temporally
owners shut in
1.5% E-Land Ventures LLC (Plano,
Texas)
------------- ---------- ---------------------------------- -----------
Williamson 92.5% 6% Several small working interest Producing
4-25 owners
1.5% E-Land Ventures LLC (Plano,
Texas)
------------- ---------- ---------------------------------- -----------
Williamson 25% 75% E-Land Ventures LLC (Plano, Not yet
5-25 Texas)
------------- ---------- ---------------------------------- -----------
Crawley 2-36 92.5% 6% Several small working interest Not Yet
owners
1.5% E-Land Ventures LLC (Plano,
Texas)
------------- ---------- ---------------------------------- -----------
Lands, Leases & Units
Similar to other States, in Oklahoma historically Petroleum
rights were attached to the freehold land. However these rights can
be separated from the freehold by the signing and registering of a
leasehold arrangement.
Those leases have been subject to legal Due Diligence.
It is further possible for individual wells to have a number of
unit holders. This occurs where oil and gas potential reservoirs
extend over lease boundaries for example. In those cases other
parties may have an interest in the Unitization.
Further, in some cases other parties may fund some of the costs
of a well (for example) and by doing so acquire a working interest
in the well.
In the case of the Project being acquired there are leases, five
unitized wells and various Working Interests.
Competent Person's Statement
The information contained in this announcement has been reviewed
and approved by Andy Carroll, Technical Director for Mosman, who
has over 35 years of relevant experience in the oil industry. Mr
Carroll is a member of the Society of Petroleum Engineers.
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
Mosman Oil & Gas Limited NOMAD and Broker
John W Barr, Executive Chairman SP Angel Corporate Finance LLP
Andy Carroll, Technical Director Stuart Gledhill / Richard Hail
jwbarr@mosmanoilandgas.com +44 (0) 20 3470 0470
acarroll@mosmanoilandgas.com
Gable Communications Limited
Justine James / John Bick
+44 (0) 20 7193 7463
mosman@gablecommunications.com
Updates on the Company's activities are regularly posted on its
website
www.mosmanoilandgas.com
APPENDIX 1
Glossary of Oil and Gas Terms
% per cent
Acre a unit of land being 4,840 square yards
(0.405 hectare)
bbl Barrel
Bcf or BCF billion standard cubic feet of gas
Boepd barrels of oil equivalent per day
Bopd barrels of oil per day
km Kilometre
m Metre
MMbbl million barrels of oil
MMboe million barrels of oil equivalent
MMscf standard cubic feet of gas
Severance tax A specialized form of income tax that is
levied when owners sell minerals. Oklahoma
levies gross production, or severance taxes,
on oil, gas, and other natural products taken
from land or water. The rates can vary from
year to year and are set by the state.
SPE Society of Petroleum Engineers
USD$ United States Dollar
Appendix 2
The Project amongst other things includes all right, title and
interest of the vendor to the following:
Leases
The oil and gas leases; subleases and other leaseholds; net
profits interests; carried interests; farmout rights; options; and
other interests, located in Section 25 -Township 10 North - Range
11 East and Section 36 - Township 10 North - Range 11 East,
Okfuskee County, Oklahoma, including but not limited to those
described together with each and every kind and character of right,
title, claim, and interest in and to the lands covered by the
Leases or the lands currently pooled, unitized, communitized or
consolidated therewith ("Land" collectively the "Lands").
Wells
The oil, gas, water, disposal or injection wells located on or
associated with the Lands, whether producing, shut-in, or
abandoned, whether producing, shut-in, or temporarily abandoned
(individually a "Well" collectively, the "Wells").
Unitizations
The interests derived from the Leases in or to any currently
existing pools or units which include any Lands or all or a part of
any Leases or include any Wells, including (even to the extent not
located on the Lands) those pools or units together with the
Leases, Lands and Wells, and including all interest derived from
the Leases in production of Hydrocarbons from any such Unit,
whether such Unit production of Hydrocarbons comes from Wells
located on or off of a Lease, and all tenements, hereditaments and
appurtenances belonging to the Leases and Units.
Appendix 3
Risks
The proposed Initial Transaction remains subject to completion
which is anticipated to be in May or June 2017.
The exercise and completion of the two options is not
certain.
The Acquisition is conditional on standard settlement issues
including verification of certain Vendor due diligence information
identified by Mosman's due diligence undertaken to date.
Mosman has in the ordinary course of business accepted certain
historic information from the vendor as being fact, and has not
attempted to independently verify each statement, rather it has
focussed on key facts which have been subject to due diligence both
internally and using external consultants.
As is usual in the oil industry, the Asset has subsurface,
reserve and production risk.
A number of assumptions have been made in determining the
operational targets, production rates and expected cost reductions
possible that may not be achieved or may be influenced negatively
by factors outside Mosman's control.
This RNS may contain forward-looking statements which have not
been based solely on historical facts but rather on Mosman's and
its technical advisers' current expectations about future events
and a number of assumptions which are subject to significant
uncertainties and contingencies.
In particular Mosman has not yet completed a full independent
review of potential reserves and resources. That process is
underway, so Mosman makes no comments about the vendor's
numbers.
Hydrocarbon prices in the world environment remain volatile.
Exchange rates are volatile.
Any individual who is in any doubt about the investment should
consult an authorised person specialising in advising on
investments of the kind referred to.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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