Modiin Energy, which specializes in the development and production of oil and natural gas assets in onshore U.S. projects, this morning released a Proved Reserves report and capitalized cash flow data relative to its share in the project (50%) a producer it will purchase in Colorado.
Last month, Modiin announced its intention to enter into a deal in which it will acquire an equal partnership with Fulcrum Energy Capital, an American private equity fund that specializes in investments in energy, a 42,000-dunam oil field that includes 55 production wells, for a net consideration of $ 40 million. Modiin’s share is estimated at $ 20 million).
The reserve report for the project published today was prepared by Ryder Scott Company, which is a certified and independent reserve appraiser. According to calculations made by the partnership based on the reserves report, the expected net cash flow to holders of Modiin’s participation units, after payment of royalties, operator fees and tax in the US, is estimated at $ 28.9 million (10% discount rate). Modiin’s share in the project is estimated About $ 41.4 million.
The report refers only to proven reserves (P1) in the project, and did not include reference to additional potential reserves that exist in it and to further improvement and development of the field. According to the seller’s publications, SandRidge (NYSE: SD), the contingent reserves in the project are estimated at an additional 19 m barrels.
Also, the report does not take into account the existing accumulated losses in the Modiin subsidiary through which the project will be acquired, which may reduce the actual tax liability and increase the projected cash flow from the project.
The report was prepared on October 1, 2020, which is the determining date for the transaction, and the value of the cash flow attributed to Modiin was determined in accordance with the WTI crude oil price curve that existed at the time. An increase in the price of oil by 10% is expected to increase the expected flow to Modiin by an additional $ 5.8 million.
It should be noted that on October 1, the price of WTI oil was estimated at about $ 39 per barrel, compared to a price of about $ 52 per barrel, close to the date of publication of this report.
Modiin acquires the field in an equal partnership with Fulcrum Energy Capital, a private equity fund that specializes in lower-middle market investments in the North American gas and oil sector, whose offices are located in the city of Denver, adjacent to the property area. Fulcrum specializes in investments in which it acquires significant percentages of producing assets and can influence their management and operation, utilizing the professional knowledge and experience of its employees and managers.
Completion of the transaction is subject to due diligence by Modiin and Fulcrum, with the intention of completing it by mid-February 2021. The partnership has reported an intention to raise convertible bonds, which is expected to take place in the coming days.
For the full report