Xfuels Inc (XFLS)

[TheGuy87]

EMAIL ABOUT EEC ACQUISITION

From me:

Mike,

Congrats on the new deal purchasing EEC! Looks like a great opportunity and that their wells are well congested to make operating relatively easy and low cost. When you purchase their outstanding shares how does that work? Do they obtain shares of xfls for a set price? Or do you just buy their shares outright at a set price? This kind of acquisition has always confused me so was just hoping for some insight. Stock looked great yesterday with near record setting volume.

Cant wait to see what else you have in store this week and next.

Best regards



From Mike:

Good Morning Josh



We assumed their liabilities to purchase EEC about 200K in payables. With the depressed pricing and the ever growing environmental liability regulations there are lots of these small opportunities that cannot keep up with there Asset Retirement Obligations (ARO). That is the mandated ability to abandon your unproductive wells put forth by the regulator. Cycle has the ability through Cycle Energy Services to abandon wells at a fraction of the cost so we can use this ability as currency to purchase assets or companies that cannot raise enough funds to deal with it.



Basically we bought the shares at a dollar. We assume 200K in payable and about 1.5M in ARO. However on the flip side the asset value of those wells are 3M and growing as well bring wells on as well as 1-2M per year in gross sales.



So the way things work here is you have an asset value based on production and a liability value based on industry standard costs to abandon and reclaim sites. Then we have a ratio by dividing the asset by the liability that is called your Liability Management Ration (LMR). A company needs to maintain an LMR above 1.0 if it does not will be asked by the regulator to put up a bond to make up the difference. So long story short when that number drops below a 1.0 small companies panic and look for ways to deal with their liabilities and that’s were we step in ……



EEC’s lmr was 1.4 and dropping we now have it back over a 2.0 already by bringing on wells and doing some workover jobs.



There are several of these opportunities we are pursuing.







Great info from $XFLS