ASX ANNOUNCEMENT LINC ENERGY ACQUIRES SIGNIFICANT OIL PRODUCING ASSETS IN TEXAS & LOUISIANA, USA

Transcription

1 ABN: ACN: Smellie & Co Building, 32 Edward Street (GPO Box 1315) BRISBANE QLD 4001 Telephone: (07) Facsimile: (07) June 2011 LINC ENERGY ACQUIRES SIGNIFICANT OIL PRODUCING ASSETS IN TEXAS & LOUISIANA, USA Linc Energy has acquired 14 oil fields consisting of 156 leases covering approximately 13,400 acres in the Gulf Coast Region of Texas and Louisiana, from ERG Resources LLC, at a purchase price of US$236m. Current oil production is approximately 3,300 barrels per day (over 1.1 million barrels per annum). The immediate plan over the next 12 months is to increase oil production on the acquired fields with additional drilling and well optimisation so as to exceed 6,300 barrels per day (over 2.2 million barrel per annum) by the 4th Quarter of The potential also exists for a significant increase in production from Enhanced Oil Recovery (CO 2 flooding) which Linc Energy will be investigating over the coming 12 months. Acquired fields contain Net Proven Reserves (1P) of 20.5 Million Barrels of Oil (MMBO), and Net Proven and Probable Reserves (2P) of 22.3 MMBO. These assets are cash flow positive on day one of the acquisition. The Royal Bank of Scotland (RBS) has commenced arranging minimal recourse debt financing to support the acquisition and the first year of capital expenditure for both the ERG assets and the previously acquired Rancher Energy Corp. oil field assets in Wyoming. Linc Energy Ltd (ASX:LNC) (OTCQX:LNCGY) is pleased to announce that its wholly-owned subsidiary, Linc Gulf Coast Petroleum Inc., has acquired 14 producing oil fields (consisting of 156 leases covering approximately 13,400 acres) from ERG Resources LLC., for a price of US$236 million. The acquisition secures immediate oil production of approximately 3,300 barrels per day (BOPD), and a significant CO 2 enhanced oil recovery (EOR) opportunity. The 14 oil fields purchased from ERG Resources are located in Texas and Louisiana and are within the Gulf Coast Onshore and Inland Waters Regions and include all related Page 1 of 7

2 infrastructure such as pipelines, tank batteries and processing facilities. All of the fields are either salt domes or faulted four-way closures related to deep-seated salt movement. Independent reports commissioned by Linc Energy indicate that the fields have the potential to increase recoverable oil by up to 24 million barrels by optimisation of current production and additional drilling operations. Cumulative production for the 14 fields is estimated to be over 700 million barrels of oil to date with a regional recovery factor of approximately 40%, indicating a significant potential to achieve substantial increases in production from Enhanced Oil Recovery (CO 2 flooding). All of the acquired fields in the asset package are 100% operated by ERG Resources, with ERG Resources also holding 100% of the working interest in the majority of the fields. A significant factor regarding this acquisition is that ERG Resources has to date only advanced significant development into one area, the Barbers Hill salt dome, achieving some excellent results. There are 6 more salt domes in the asset package that Linc Energy can assess to drill and expand with similar techniques to those that ERG Resources has utilised on the Barbers Hill field. Texas oil fields 12 of the fields are located along the Texas Gulf Coast and Texas inland waters areas. The majority of the value at this stage is attributed to 5 of the 12 fields, being Barbers Hill, High Island, Port Neches, Atkinson Island and Cedar Point. Linc Energy anticipates additional value being attributed to the remaining assets once further evaluation has been completed. Louisiana oil fields Portions of the Leeville Field and the Black Bayou fields are part of the ERG Resources assets in Louisiana. The majority of the immediate opportunity in Louisiana is in the 100% owned and operated Black Bayou field. This field is one area that Linc Energy plans to aggressively drill in the coming 12 to 24 months to build production. Key terms of the Agreement The key terms of the Asset Purchase Agreement between Linc Energy and ERG Resources are as follows: 1. The purchase price of the assets is US$236 million (subject to completion adjustments and necessary consents from parties holding a first right of refusal over approximately 4,300 acres of the acquired oil fields). 2. The assets purchased consist primarily of oil & gas leases, property interests (including all related infrastructure such as pipelines, tank batteries and processing facilities) and 410 wells upon the Texas and Louisiana oil fields which are held directly by ERG Resources or by three wholly-owned subsidiaries of ERG Resources. Linc Energy will acquire the assets held by ERG Resources and will acquire 100% of the equity interests in the ERG Resources subsidiaries. 3. The total area of these leases is approximately 13,400 acres held across 156 oil & gas leases with 410 wells of which 177 wells are currently producing. 4. Completion of the transaction and operational handover is scheduled for 1 August To support this acquisition and future expansion plans in the USA Gulf Coast region, Linc Energy will be opening a new office in Houston, Texas prior to the transaction completion Page 2 of 7

3 date. At completion, Linc Energy will become the employer of most of the experienced team of professionals (approximately 25 staff), covering both field and office operations, who are currently employed by ERG Resources. These arrangements will ensure continuity of operations on the oil fields immediately on handover. Funding Whilst Linc Energy can fund this acquisition from cash, the Company has mandated RBS (The Royal Bank of Scotland) to complete the financing to support both the ERG Resources asset acquisition and the first year of capital expenditure upon the ERG Resources (Gulf Coast) and the Rancher (Wyoming) assets to support Linc Energy s development plans. This debt financing will have minimal recourse to Linc Energy and the financing process is well underway. Under the current financing proposal, Linc Energy will provide approximately 25% of the capital. Peter Bond, Chief Executive Officer of Linc Energy, said, This acquisition is the next big necessary step that Linc Energy has taken to meet its two key business targets over the coming 12 to 18 months. The first of these targets is to achieve in excess of 20,000 barrels per day of oil production by the end of 2012, with at least 10,000 barrels of production by the end of The second key target for the Company, supported directly by achieving this first target, is to develop very profitable, solid cash flows from operations. Linc Energy has a number of excellent assets and will continue to acquire more. These assets will be systematically developed over the coming years, but to support the Company s long-term strategic plans, Linc Energy needs to focus on developing strong operational revenues that can support our growth. The reality is, Linc Energy can gain a permit to drill an oil well in days or at most a few weeks; we can then drill those oil wells similarly within weeks, meaning the time difference from project commitment to cash flow can literally be a few months. If I dare compare that timetable with the years of effort it takes to gain a permit on a coal mine or a GTL facility, you get the picture pretty quickly why it s necessary for the Company to be dynamic in its approach and to focus upon our immediate entrepreneurial targets and produce strong cash flows. Linc Energy s strategic plans have resulted in the Company gradually re-focusing its energies over the past several months, shifting its long term focus into three distinct areas covering our short, medium and long term goals. We are building the Company on 3 distinct fronts in Oil & Gas, Coal & Clean Coal and Clean Fuel & Clean Energy. On the Oil & Gas front, we are pursuing oil production assets that yield immediate revenue and profits. We are targeting assets that have the potential to increase production initially with aggressive drilling and workover campaigns, whilst also providing excellent long term opportunity to multiply our returns with Enhanced Oil Recovery from CO 2 flooding that in some cases can last 10 to 20 years. This philosophy positions Linc Energy to obtain solid cash returns in the short term and yet keep those assets profitable and growing for many years to come. This ERG Resources asset package is a great example of what I m saying. First, we already have good daily oil production of approximately 3,300 barrels per day, which is currently cash flow positive. Secondly there is a clear drilling and workover plan in place which is anticipated to effectively double this production to over 6,300 barrels per day in the next 12 to 18 months, improving cash flows and increasing the value of the assets. Finally, Linc Energy expects to use about 75% debt funding to purchase the ERG Resources assets. I ve always run Linc Energy as a low to no debt company. However, my philosophy with ERG Resources and assets like them is that you borrow on cash flow positive assets that have the capability to comfortably pay their own debt down, minimising the risk, whilst leveraging the upside opportunity. Simply put, because Linc Energy is buying cash flow positive oil production assets which we believe can easily cover their respective Page 3 of 7

4 debt arrangements; and because we expect to increase oil production in the short-term from these oil assets, we can lower real cost and risk of funding. Combine all of this with the strong Australian dollar and suddenly it makes perfect sense to debt fund these assets. Personally, I strongly believe that Linc Energy can grow to greater than 100,000 barrels of oil per day production within the next 5 years, and I m pleased to say this ERG Resources acquisition is the first BIG step towards that very goal, whilst also ticking another Linc Energy milestone. As always I look forward to updating you on the journey ahead. There will be a lot to keep up with, because there is now a lot of traction in the business, Mr Bond said. For more information on this transaction visit or contact our office on Peter Bond Chief Executive Officer Information for Media: Greg Meyer General Manager Corporate Communications Phone: greg.meyer@lincenergy.com.au ASX Contact: Brook Burke Company Secretary Phone: brook.burke@lincenergy.com.au Information for Investors: Justyn Peters General Manager Investor Relations Phone: justyn.peters@lincenergy.com.au The resource estimates in this announcement were compiled by Christopher E. Mullen, a full-time employee of Linc Energy, who is qualified in accordance with ASX listing rule 5.11 and who has consented to the form and context in which this statement appears. Page 4 of 7

5 Location of Assets Barber s Hill and High Island Assets Figure 1 - High Island Page 5 of 7

6 Figure 2 - Barber's Hill Figure 3 - Barber's Hill Page 6 of 7

7 About Linc Energy Linc Energy is an innovative, forward-thinking company LEA#1 developing a significant energy business based on the production of cleaner energy solutions. Linc Energy has successfully combined two known technologies, Underground Coal Gasification (UCG) and Gas to Liquids (GTL) and has demonstrated its vision of being a leading supplier of a new source of cleaner liquid transport fuels for the future. UCG technology provides access to coal, deep underground and by in-situ gasification produces a high quality synthesis gas (syngas) containing carbon monoxide and hydrogen. Aboveground, in the GTL process, syngas is processed via Fischer-Tropsch technology to produce high quality, sulphur free synthetic hydrocarbons. Linc Energy plans to combine its UCG and GTL technologies commercially at sites in Australia and around the globe as it realises its vision of becoming the world s leader in providing cleaner synthetic diesel and jet fuels from stranded coal resources. UCG produced syngas can also be used as a feedstock to generate gas turbine combined cycle power, resulting in reduced greenhouse gas emissions. With significant coal deposits suitable for UCG technology, Linc Energy can provide alternative sources of liquid fuels and power generation well into the foreseeable future. Linc Energy represents a new future for liquid fuels production and high efficiency energy generation. Page 7 of 7