Incremental Oil and Gas buys US oil field; steps up hunt for under-valued assets
Incremental Oil and Gas has acquired a producing oil field in the US, taking advantage of a recovering market and low-priced assets.
Incremental (ASX:IOG) bought a 94 per cent interest in the Borie oil field in Wyoming’s prolific DJ Basin for $US900,000 ($1.125 million).
It’s a field that’s already in production, delivering 62 barrels of oil a day from 11 wells.
There’s potential for the lease’s 2850 acres to yield more, as proven reserves total 285,000 barrels of oil.
“The biggest attraction for us with Borie is where it’s located in the DJ Basin, which is one of the top four producing basins on the continental onshore,” managing director John Whisler told Stockhead.
“This is a small but significant step towards increasing the company’s reserve base and production and it has been made at a very favourable price when compared to recent transactions in the US.”
Incremental paid less than half the going market rate compared to similar oil assets, Mr Whisler said.
“This field adds to Incremental’s production portfolio as well as short and long-term development potential that is economic at current oil prices.”
The field is entirely conventional oil with no gas, rebalancing the company’s portfolio back to oil.
Capitalising on good deals
Incremental Oil and Gas is capitalising on the thesis that good deals are coming up this quarter, Mr Whisler says.
US banks were generous with credit last year and Incremental anticipated a credit crunch at the end of 2017 and beginning of 2018, he says.
“It’s our belief that the banks will be pushing some of those companies to pay down some of their loans,” he said.
“Incremental intends to capture assets at low prices in the market while available, before they start to increase.”
So far, the theory is playing out. Mr Whisler says they’ve seen more assets on the market in the last four weeks than in the last nine months.
“We will continue to look for that next acquisition or asset and continue to build reserves and the production cashflow model.
“Borie, as we look at it, is just a small step in the building of our asset portfolio and reserves.”
Incremental has four other projects on the go: oil and gas play Silvertip, which is also in Wyoming; the Sheep Springs and Round Mountain oil fields in the San Joaquin Basin in California; and the Newporte Field in the Williston Basin, North Dakota — an area that’s part of the famous Bakken formation.
Innovative oil producers well-positioned for sector recovery
The past few years have been a challenge for the oil and gas sector as over-supply placed pressure on prices.
But innovative producers such as Incremental have emerged all the stronger, having learned how to operate in a low-cost environment.
“Oil and gas companies are undergoing a transformation,” International Energy Agency senior program officer Alessandro Blasi reported recently.
“Financial discipline, cost-control measures and employee reductions have all played an important role in helping the industry navigate through these turbulent times.”
“Though challenges remain, one thing is certain: the oil and gas industry has proved it was capable of constant innovation and proven it could adapt rapidly to a changing world.”
There are strong signs the energy sector’s bear market may be coming to an end.
Global oil demand grew “very strongly year-on-year” by 2.3 million barrels per day in the second quarter of 2017, according to the International Energy Agency’s most recent World Oil Report
“OECD demand growth continues to be stronger than expected, particularly in Europe and the US,” the agency said.
“The world oil market appears to have returned to balance this year, thanks to a substantial stock draw in the second quarter, the agency’s oil market analyst Kristine Petrosyan said.
“As global demand exceeded supply, our balances in the second quarter implied a 0.9 million barrels a day decline in inventories — the first draw since the fourth quarter of 2013.”
Mr Whisler says the other big drawcard at Borie is the opportunities for “behind pipe” development.
Put simply, these are proven reserves attached to existing well bores — but which aren’t producing.
Incremental plans to get those wells producing, as well as analyse existing seismic data that came with the field and start a drilling program. This will take about six months.
Incremental plans to fund the new acquisition by raising capital from shareholders.
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