Xfuels Inc (XFLS)

[TheGuy87]

Want to post this email from Mike & the LMR article again as I feel the information is critical going forward as we look at the 1.1m $ grant that was awarded. Would love to hear others feed back as well

https://cassels.com/insights/albertas-new-oil-and-gas-liability-management-framework/

MAIL ABOUT LMR & EEC FROM MIKE

Good Morning J



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.