From SORC’s formation in 2011 through June 30, 2020, Alleghany’s net investment into SORC has been $275.9 million. This investment has been channeled primarily into three major projects discussed in the following paragraphs.
The first project was located in Kansas. SORC funds have been used to acquire oil and gas leases and to purchase mineral rights totaling approximately 2,500 acres and used to construct and develop an Underground Gravity Drainage (“UGD”) facility. SORC completed construction of its underground facility in 2014 and commenced its drilling program in 2015. After a thorough evaluation of the project, SORC sold substantially all its assets to third parties as of December 29, 2017 and no longer has oil and gas properties in Kansas.
The second project was located in Louisiana where SORC had acquired oil and gas leases on approximately 9,244 acres in a targeted oil reservoir. The oil field assets there were operational, producing crude oil using both conventional and UGD production methods, and were sold to a third party in July 2020.
The third project is located in Wyoming. On January 30, 2015, SORC, through one of its subsidiaries, purchased the Department of Energy’s Naval Petroleum Reserve Number 3 (NPR-3), the Teapot Dome Oilfield, for $45.2 million. The purchase culminated a competitive bidding process that closed on October 16, 2014. Under the terms of the sale, operation and ownership of all of NPR-3’s mineral rights and approximately 9,000 acres of land immediately transferred to SORC. The remaining surface acreage transferred in June 2015, bringing the total acres purchased to 9,318. The oil field there is operational, currently producing crude oil using both conventional and UGD production methods, and classified by SORC as held for sale.
In its Form 10-Q report for the second quarter ended June 30, 2020, Alleghany reported that (a) for the second quarter and first six months of 2020, Alleghany recorded $44.5 million and $74.4 million, respectively, of impairment charges at SORC from write-downs of SORC’s oil field assets; (b). SORC’s oil field assets are held for sale and consequently, were written down to estimated fair value, which reflects a significant decline in oil prices, less costs to sell; and (c) as of June 30, 2020, SORC’s stockholder’s equity was $26 million, which consisted primarily of deferred tax assets and current taxes receivable.
Results of Operations
Pursuant to the Management Services Agreement with SORC, the Company received and recorded management fee revenue and direct costs totaling $8,145,167 and $7,968,985, respectively, for the fiscal year ending May 31, 2020
KEEP IN MIND WE JUST ACQUIRED SORC SO THE OUTCOME NOW IS DIFFERENT.
