American Patriot becomes major player with $US20m deal
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Special report: American Patriot Oil and Gas has made a company-transforming deal, buying two companies that will vastly lift its reserves.
The company (ASX:AOW) has bought Foothills Resources Inc and assets from Magnolia Petroleum Company and Burnett Petroleum LLC for a collective $US20.5 million.
The two acquisitions, along with an earlier $2.3 million purchase of Peak Energy Asset, mean American Patriot is almost a mid-tier operator and is on track to becoming cash flow positive.
“These transactions represent a transformational change from our current position,” American Patriot boss Alexis Clark told Stockhead.
“It launches us as a significant operator in Texas, means we can double our cashflow into $US12 million EBITDA in 2019, and it builds on an aggressive acquisition plan.
“We plan to continue doing these transactions to become a 3000 barrel per day producer, and it’s all backed by a new US funder.”
The three acquisitions will add 6.5 million barrels of oil equivalent (boe) to American Patriot’s 2P reserves, and are worth $US48 million PV 10 — that is, the present value with a 10 per cent discount.
It brings the company’s total 2P reserves to 7 million barrels of oil equivalent — with a value of with a PV10 value of $US55 million.
Typically “reserves” refer to oil or gas discoveries that are commercially recoverable using existing technology, while “resources” are either not yet commercially viable or are mere speculation.
A 2P means it’s proven and probable, while a 3P includes “possible”.
Building a takeover target
American Patriot is building takeover target: a significant oil and gas production business in the US in the right part of town — Texas.
They started as a real estate play where they just collected leases and sold them on, but have become a more hands on player, buying leases, doing a modicum of developments to firm up the reserves and production, and then flipping them when scale is acheived.
The plan is to take advantage of rising oil prices (and, before now, distressed asset sales) to build a portfolio of cash flow positive assets.
The new assets will throw off $US6 million a year, at current oil prices.
With an extra investment of $1.8 million, American Patriot says it can lift current production of 570 boe a day to 750 boe a day or US$12m EBITDA, which is more than the current market cap of AUD$8m.
“The next deal we’re looking at will be $US30 million to $US40 million, double the size of this latest transaction. We’re actively looking for these assets at the moment,” Mr Clark said.
With the new Foothills asset being next to their existing Lost Lake/Goose Creek assets, the company plans to use their existing infrastructure and staff to gain greater efficiencies.
Big deal backers
The deal is being funded by an oversubscribed $7 million share placement and rights issue, underwritten by existing major shareholder Capital Investment Partners (CIP), and a $US17 million debt facility extended by major US-based hedge fund, White Oak Global Advisers.
The transactions are expected to close in August 2018.
The projected cash flows from the new assets, based on current oil prices, will result in the debt facility being fully paid back in less than four years.
“The market response has been overwhelming,” Mr Clark said.
“Our capital raising was heavily oversubscribed, creating an opportunity to take more but we strategically chose not to, instead focusing on creating shareholder value.”
“Our new US lender has indicated this partnership is just the beginning and wants to partner with American Patriot on its future acquisition program, growing the debt facility to well over $100 million of new transactions.”
This special report is brought to you by American Patriot Oil and Gas.
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