Colorado Acquisition - Target Summary
Target Acquisition is small non-operated working interest in approximately 1,000 net acres spread across 80 leases in the Wattenberg Field of Northern Colorado;
Industry is investing between $4 and $6 Billion per year developing oil reserves in three separate reservoirs in the Niobrara Formation as well as one in the Codell Formation.
New horizontal wells are drilled in a field which was developed initially with over 10,000 vertical wells;
Small percentage of the ultimate recoverable reserves captured;
New HZ wells come on stream at virtually virgin pressure, and flow to surface without need for any artificial lift for the first 18 months;
Extremely low operating costs ($2 per BOE) and very high netbacks allow for attractive ROI;
Credit Suisse has ranked the Niobrara/Codell as the third best domestic US oil and gas development project in a 2013 research paper;
The targeted assets are currently producing 80 BOED with associated cash flow of approximately $100,000 to 125,000 per month;
The targeted acreage is being acquired for $5.25 Million, or approximately 4 to 5 times current cash flow;
Proved Developed Producing reserve value as of Dec 31, 2013 was $3.5 Million (CDN.);
Total Proved and Proved plus Probable value of $10 and $23.4 Million respectively;
Reserve bookings were based on robust new well permitting activity in 2014 forward;
New wells are now being drilled and which will result in significantly increased PDP reserves for 2014 forward;
Presently approximately one net well forecast to be brought on-stream in the latter half of 2014, additional one net well planned for the first half of 2015;
With the addition of these two net wells ($8.5 to $9 Million in CAPEX) an additional 800 to 1000 BOED of initial net production will be brought on stream;
Robust drilling program planned for 2nd half of 2015.
Colorado Acquisition - Current Field Development & Well Economics
Over the last 3 years, the industry has been developing the Niobrara and Codell formations with horizontal wells using multiple stage fracking completions, with excellent results.
New HZ wells with one mile long lateral legs typically come on-stream with initial daily production of 300-350 barrels of light (42 degree API) sweet crude oil and 500-1000 mcf per day of associated solution gas;
Estimated “all-in on stream” capital is $4.3 to $4.5 Million (US) per well;
Wells pay out in 12-15 months.
Discounted net present value for each well is $4.5 to $5 Million, creating internal rates of return of approximately 100%.
Using a standard industry reserve estimate of 300,000 to 350,000 BOE per one mile lateral:
Finding and development of between $12 and $15 per BOE;
Assuming a WTI price of $95/bbl and $4/mcf, field netbacks (post royalties) range between $40 and $60 per BOE depending on relative proportion of produced oil to gas;
Recycle ratio between 3 and 5;
Using current drilling spacing, the targeted working interest assets have ultimate potential for 22 net wells to be drilled over the next 5 to 7 years, creating an additional $100 Million in upside NPV.
Two joint operators have already begun their drilling program with the 1st Operator recently completing the first 8 wells on joint lands, and 2nd operator currently drilling their 6th of 8 wells on the first joint operation.
With these 16 wells (approx. 0.4 net wells) an additional 150 to 175 BOED will be brought on stream, increase to current production and cash flow by 200 %.
Capital market support of the transaction is also based on a serious indication by the Board that we are taking TREATY in a new and positive direction and those efforts to restructure, reorganize and revitalize the company are sincere and unwavering.
To this end, ALL of TREATY’s shareholders will be given equal opportunity to participate in a special one time equity financing package. Based on the results of this offering, we intend to offset such raise with a mix of MANAGEABLE debt and an institutional equity package.
Additionally, as this acquisition is in a relatively close proximity to the commercial operations water management operations described above, the Board intends to use its industry contacts with these operators to introduce a water management program to the extensive drilling operations in the area in 2015, potentially reducing costs significantly. Initial discussions to this effect have taken place.
